B2B marketers are only as good as the data that they’re tracking. With longer sales cycles and a stack of marketing tech likely powering your campaigns, there are plenty of numbers to dive into to measure the effectiveness of your demand generation funnel. However, diving too deeply into the numbers can do more harm than good if you’re focused on the wrong metrics.
Metrics and data won’t be useful unless they’re presented in the right context and provide actionable insights into your demand gen operations. How do you choose the right metrics? Are you accurately tracking the effectiveness of all stages of your demand gen funnel?
It’s important to define a well-rounded approach for evaluating your demand generation efforts. If you were to make a list of all of the different metrics that you’re capable of tracking, it would quickly become unnecessarily overwhelming. There are several different types of metrics that you can track, and choosing just a few key metrics is almost always the right idea.
Some of the more popular metric categories for demand gen funnels include:
- Engagement metrics: How are your leads and prospects responding to your campaigns and content? Engagement metrics provide insight into how people interact with the content and include metrics like site traffic, click-through rates, unsubscribe rates, and read rates. Engagement metrics are relevant throughout the funnel but are only indicators of success.
- Performance metrics: Performance metrics are excellent for evaluating the effectiveness of your funnel as a whole. They include various metrics such as marketing qualified leads, sales-accepted leads, and sales cycle length.
- ROI metrics: The hard money stats and dollar values that your marketing efforts generated. Includes metrics like customer acquisition cost, conversion rate, customer lifetime value, and total revenue generated.
A well-rounded demand generation strategy will take metrics of each type into account to paint a complete picture while identifying areas for improvement. The metrics that you choose to track should depend on the strategies that you’re using as well as the other metrics that you will be taking into account. Often, two metrics can have significant overlap, and the use of both in the optimization of your campaign can be redundant.
Out of all of the metrics that you can track for your funnel, here are the key performance indicators (KPIs) that often provide the most insight and usefulness when optimizing your demand generation funnel.
1. Cost Per Acquisition (CPA)
Cost per acquisition (CPA) is the most important metric for determining your return on investment. Diving into the clicks and views for your campaign might be interesting, but if the campaign isn’t generating revenue, then it isn’t successful for your business. Many engagement metrics are great indicators of success, while CPA is a financial metric that speaks to the heart of your revenue generation efforts.
In short, the metric is used to measure the cost to acquire a single paying customer through a specific campaign or channel. It’s simply another way of saying “cost per sale.” Additionally, you can use a similar metric, Cost per lead (CPL) to track your overall spend on a lead-by-lead basis, which is important for knowing how much you have to spend to keep your funnel full.
How Do You Calculate Cost Per Acquisition?
Luckily, calculating your CPA for a specific campaign is relatively simple. It doesn’t require a detailed algorithm or a degree in statistics to calculate and understand.
Your CPA can be calculated by dividing all of the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired during the period in which the money was spent.
Here’s a basic example. If a company spent $500 to acquire 100 new customers, your CPA would be 5.00, meaning that you spent $5 to acquire every new customer.
The more effective your demand gen funnel is, the lower your CPA will be. Then, you can combine CPA with other metrics like customer lifetime value (see below) to gain insight into the overall profitability of each campaign or channel.
2. Customer Lifetime Value (CLV)
You can’t calculate the profitability of your marketing campaigns without knowing how much money you will earn for each new customer that the campaigns generate. Many metrics can help with this, but the most popular metric in digital marketing today is customer lifetime value (CLV). CLV is used to project the revenue that a single customer will generate throughout their lifetime for your business.
CLV is essentially an average profit from all of your customers. Some customers will generate much less, while others will generate much more. Your CLV can be influenced by many facets of your marketing, customer service, upselling, and customer service operations. But on the ground floor of your marketing, it’s the best metric to determine the profitability of individual campaigns and channels.
A climbing CLV shows that your demand generation funnel is not just turning leads into customers but is generating higher-value customers. Lead generation funnels play a critical role in the CLV of each customer, as the nurturing process plays a key role in identifying and elevating the highest value prospects to your sales team.
How Do You Calculate Customer Lifetime Value?
Like cost per acquisition, customer lifetime value isn’t all that difficult to calculate. It takes into account the average purchase size of each customer, the number of purchases a customer makes in a year, and the average profit margins to determine a yearly profit margin average per customer.
Then, the yearly profit margin is plugged into a simple formula that also uses your customer retention rate to determine the lifetime value of each customer that your demand generation funnel brings to the table.
Here’s a quick graphic to help visualize the formula:
While CLV on its own is a significant metric for demand generation funnels, it’s the most effective when used in conjunction with other metrics, like cost per acquisition, to examine the overall profitability of your demand generation strategies.
3. Demand Gen Funnel Progression Conversion Rate
The entire purpose of your demand generation funnel is to attract high-value customers to your business. You drive traffic to your website through multiple channels, collecting information from prospects along the way and converting them into leads.
The typical demand generation funnel has four basic stages, which can then be broken down into additional stages depending on your strategy:
As prospects and leads move through your funnel, a decently high percentage of them will drop out, never moving to the point of sale. Perhaps they weren’t really interested in your product but did have some interest in the original marketing materials they engaged with. Maybe they couldn’t afford your product. Maybe it just wasn’t the right time, and they prefer to stay in the “interest” stage until a later date, receiving and occasionally interacting with the content that you send them.
That’s normal and expected. But you still have to track how effectively you’re moving prospects through your demand generation funnel and noting whether or not your figures are improving over time.
It’s important to remember that the conversion rates of your demand generation funnel progression depend heavily on the quality of the leads that are being added to the system. If you’re collecting more leads, it may lead to more sales but lower conversion rates at each stage of your demand generation funnel. In the past, we’ve argued for an approach that focuses on quality over quantity, with fewer leads entering the funnel. Using this approach, a high funnel stage progression conversion rate is imperative to your overall success.
Because every business is different, it’s difficult to provide benchmarks that you should be aiming for at each stage of your funnel. Stay focused on continually improving your conversion rates for each jump between stages, and work to improve the quality of your leads and the marketing materials that you deliver to your prospects throughout their buyer’s journey, and you will see small upticks in funnel stage progression at every level.
4. Close Rate Per Channel
How many of your prospects and leads are actually turning into customers? Every experienced digital marketing professional knows the importance of conversion rates. However, in demand generation, there’s more that needs to be taken into account. Leads from a large number of channels enter demand generation funnels, including:
- Outbound sales prospecting
- Social media
Each of these channels can have close rates, CLVs, and marketing budgets that are wildly different from each other. To optimize your demand generation funnel as a whole, you have to optimize specifically for each channel and appropriately assign your budget toward the highest performing channels.
A careful examination of your close rate per channel could make it clear that certain channels aren’t worth pursuing or that other channels need increased focus as they provide higher close rates and better results. Without tracking your conversion rates by channel, it’s easy to misplace resources and budgets, targeting channels that ultimately provide worse outcomes.
5. Marketing Cycle Length
How long does it take your average prospect to move through your demand generation funnel? Like the other metrics in this article, this will vary quite a bit based on the quality of the leads that make their way into the funnel. Leads from different channels are likely to convert in very different time frames as well.
Ultimately, your goal should be to reduce the amount of time that a prospect spends in your demand generation funnel. The quicker you can take a lead and turn them into a customer, the more revenue you can generate.
Track the amount of time until the lead is passed to sales as a Sales Qualified Lead (SQL), or track the amount of time until a sale closes, which can provide insight into the alignment between your marketing and sales teams.
Focus on Incremental Improvements over Time
For most companies, the demand generation funnel is a large, unwieldy amalgamation of their broader marketing efforts. Traffic and leads can come from a wide variety of different sources, each moving and converting at different paces through the funnel. This makes industry-standard benchmarks for different metrics throughout the funnel somewhat meaningless unless two funnels share similar traffic sources, strategies, and sales processes.
Instead, companies should spend their time tracking and measuring their success against themselves. Track channels and traffic sources on an individual basis to ensure that you’re spending your time and resources targeting the most productive leads.
Don’t expect overnight success. Demand generation funnel optimization is all about time and incremental improvement. Progress will be slow, but even incremental improvements can lead to exponential revenue increases over time. By identifying the most important metrics to track, like the ones outlined in this article, you can build a solid foundation for ongoing funnel optimization that has a real impact on your business.