Revenue Marketing Calls for Revenue Metric Optimization

Marketing is undergoing a major transformation. Once considered to be the ultimate cost center of any business, the marketing department is now considered as a necessary and effective revenue center. This shift is fueled by a number of key factors. First, the evolution of advertising and marketing technology has made marketing’s work infinitely more accountable and transparent. The proliferation of powerful marketing technologies has illuminated the importance of business performance as a result of marketing, and simultaneously provided marketers the ability to optimize their campaigns against performance goals. Second, as businesses compete to profitably find and retain customers, marketing must now account for every dollar spent, demonstrating how it delivers value to the business.

Through this evolution we’ve seen a progression in the marketing metrics used to measure effectiveness. Cost per click (CPC) replaced cost per thousand (CPM), only to be replaced itself by cost per conversion or cost per acquisition (CPA). This is where the majority of digital marketers operate today, optimizing to generate the greatest number of conversions for their campaign budgets.

However, for revenue marketers CPA has two critical flaws. First, as its name implies, CPA is a cost-centric metric, chaining marketers to the historical paradigm of efforts, rather than outcomes. Second, CPA falsely assumes that all conversions are created equal.

For example, let’s look at a retailer that runs just two campaigns:

Using the traditional CPA model, marketers would see the 31% lower CPA of Campaign A over Campaign B and allocate more budget towards Campaign A. However, look what happens when we evaluate these campaigns through the lens of revenue metrics:

While Campaign B has a higher acquisition cost, it generates a 47% better return on investment, making it the more effective of the two campaigns. Because Campaign B generates $20 more per conversion than Campaign A, it performs much better, despite its lower conversion rate and higher CPA.

Revenue marketers need to be laser focused on revenue metrics and ROI rather than just cost optimization.   As you build out and optimize your 2015 campaigns make sure you’re able to measure their revenue impact, ROI, and optimize around them.