You’ve probably heard the line “what gets measured gets managed,” often attributed to management theorist Peter Drucker (though perhaps incorrectly). There is no question that measuring results and performance is incredibly helpful for driving effectiveness across your organization. At Summit, we believe in this wholeheartedly. But measurement for measurement’s sake can be both ineffective and distracting, especially when it comes to marketing. In our experience, selecting the right KPIs is critical—or you might just manage your program to suboptimal outcomes.
Beware Singular Focus
For many venture-backed businesses, the pressure to grow, grow, grow can often blur the path forward and create an unstainable situation. In marketing, we’ve seen how a narrow focus on volume metrics alone can lead to unscalable approaches or wasteful spend.
On the other hand, a singular focus on efficiency metrics can result in stagnation and lost potential. While efficiency is critical to delivering a return on your marketing dollars and driving capital efficient growth, if you spend all of your time optimizing, you just might miss a growth opportunity.
And prioritizing one, then the other and back again can give you whiplash! So… what should you do?
Measure Both Volume and Efficiency
We believe the best marketing organizations today cultivate an understanding of and ability to balance KPIs focused on both volume and efficiency. Increased volume plus improved efficiency is an effective equation to accelerate revenues while improving your LTV:CAC¹ — and ultimately, to support scalable growth.
Measuring and managing volume is the natural first step. It helps you answer, simply: are we driving activity in our target market? As a result, volume metrics frequently abound. From impressions, clicks, visits, conversions and pipeline stages to purchases, revenues, costs and LTV—you name it, you can and probably do measure it.
Efficiency metrics are frequently less prolific but they are critical to knowing if you’re truly scaling your marketing impact. “Cost per everything” and conversions rates are the default; and as a manager, you should absolutely know your ratios. Some of the top marketing organizations we’ve seen also keep their fingers on the pulse of these additional efficiency measures: velocity, retention, margin and virality. Are you closing or growing faster and in the right direction? Are you retaining clients longer? Are you capturing more profit? Is one additional user or customer helping you win more?
Unmeasured, you run the risk of increasing volume while deteriorating efficiency (a potential problem if unintentional). Or you might miss the dynamic that despite maintained volume, your efforts are having a meaningful positive impact on efficiency.
See the Full Picture
In order to get to where you want to be, it’s important to know where you are. We like to use this simple grid based on various combinations of volume and efficiency that might help describe your current state.
As usual, the question becomes: how can you move up and to the right?
True scaling requires an understanding of the full economics of the business, partnering cross-functionally to ensure alignment and having the tracking and analytics infrastructure in place to connect the dots. Ignoring this approach can raise several risks:
• If you measure only lead volume and CPL¹, you might flood the sales team with leads that aren’t worth chasing or never convert to customers
• If you measure only purchases and ROAS¹, you might favor products with worse margins or repeat rates.
• If you measure only trial starts and CPA¹, you might stuff your product with poor-fit users who never turn into revenue or churn quickly.
Factor in opportunity cost and the issue compounds.
Marketing is a constant balance of (1) working to find that next growth lever and (2) becoming more efficient. It’s a dance that, when executed properly, is a beautiful, scalable thing.
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LTV:CAC = Lifetime Value to:Customer Acquisition Cost
CPL = Cost Per Lead
ROAS = Return on Advertising Spend
CPA = Cost per Action
The content herein reflects the views of Summit Partners and is intended for executives and operators considering partnering with Summit Partners. For a complete list of Summit investments, please click here.
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