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Marketing Effectiveness

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Table of Contents

Marketing Effectiveness is used to analyze how much profit in revenue a Business is making while lowering its cost of customer acquisition. It is a win for any Business if its marketing strategy can lower the spend on winning business while increasing the ROI. 

Until the introduction of digital marketing platforms, Companies used an outbound approach to reach potential customers. Companies had to spend a huge amount on marketing and advertising. They had no strategy that worked best to reduce the cost of customer acquisition while also, bringing customers and revenue.

The marketing strategy was mostly based on assumptions. But, in today’s digital world, companies have access to real-time data. The data helps the Company to create a data-driven marketing strategy and define how effective and accurate the strategies are. As a result, analyzing Marketing Effectiveness has become less stressful. 

With the data on hand, Companies can not only generate leads but also define how long the marketing strategy can reach after generating the lead. This means that Closed-loop marketing can define the role it plays in influencing a potential customer to purchase.

01

How to Measure Marketing Effectiveness?

To achieve marketing success and make better use of the money you spend towards an effective campaign you should establish what metrics work for you and what doesn’t. How you measure your Marketing Effectiveness will depend on the metrics you chose to track. 

Here are some metrics you should track to measure the marketing effectiveness of your business. 

CLV or Customer Lifetime Value: 

  • The formula to calculate CLV is to: Multiple ‘Average Sale per Customer’ with ‘Average Number of times a Customer Purchase per year’ and ‘Average Retention Time in years for a Customer’. 
  • With CLV you can identify which marketing campaigns generate the most and profitable customers for your business. 

CAC or Customer Acquisition Cost: 

  • Marketing Effectiveness aims to keep the CAC as low as possible for the success of the business. If the CAS is high it will be impossible for the company to succeed and make a profit regardless of the marketing effort. 
  • CAC is determined by adding advertisement, sales, and marketing cost and dividing it by the Number of Sales in a set time period.

ROI or Return on Investment:

ROI = (Profit from the investment – Cost of investment) / Cost of Investment

  • This metric determines the revenue a company earns back on every dollar spent. As a metric to measure Marketing Effectiveness, ROI also measures the quality of leads generated by the marketing campaign of the business. 
  • The higher the revenue a company brings backs the more effective your campaign and strategies are. While in the case of brand awareness or website activity ROI may not be seen, the Marketing Effectiveness may be generated in non-monetary ways. 

Cost per Sale and Cost per Lead: 

  • Cost per win refers to the money spent on each sale. It allows you to compare between campaigns. This can give you more information on the quality of your lead generated from a campaign. High-quality leads result in an increase in sales while bringing down the Cost per Sale.
  • Cost per lead, on the other hand, focuses on the leads generated by the marketing campaigns or strategy. It does not measure the quality of the leads generated from a campaign.
  • For instance, if your budget is $2000 and you generate 5 sales, your Cost per Sale is $400. If these 5 sales are the result of 10 leads, the Cost per Lead is $200. 

Conversion Rate:

  • Conversion Rate tells you how many visitors or prospects have successfully converted into leads or customers. This metric is not only used for websites based businesses but can also be used to measure the conversion for campaigns. 
  • You can use the Conversion Rate to determine the effectiveness of an individual campaign. By tracking the stage a customer is in their journey you can determine how effective the campaign is in moving the customer or lead further down the funnel. 
  • For your Website Conversion Rate, you can use bounce rate and other behavior data along with it to determine the quality of the traffic produced on your Website. 

Incremental Sale: 

  • The metric is used to examine the marketing effectiveness by measuring the contribution of campaigns towards sales. It is the difference in amount between the actual sales you have generated during the promotion period and the sales you calculated you would have generated in the absence of promotion in the same time period.
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02

Why should you track your Marketing Effectiveness?

Digital Marketing is an ever-changing and always developing competitive world. You need to make sure that your business is competing for the top position and spending revenue in the right place. And, for that, you should measure the Marketing Effectiveness across all your channels regularly. 

By tracking the campaigns and all the channels you can identify its success and make decisions for the business. By tracking Marketing Effectiveness, you can identify the channels that are generating high-quality leads at the most efficient cost. This way you can decide how to continue using the channel; increasing the budget for those channels and targeting aggressively. 

By measuring Marketing Effectiveness for your business you can

  • Determine if you should increase investment or cut them down – ROI analysis
  • Identify if your marketing effort is successful enough to expand it or not – Business decision

Establish the Strength, Weaknesses, Opportunities, and Threats in your marketing campaign – SWOT analysis

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03

Closed-Loop Marketing to understand Marketing Effectiveness

Closed-Loop marketing helps in keeping track of the entire process and examines the influence of a campaign on the revenue. It can help determine the ROI of a campaign by tracking the campaign that led to a successful deal. 

It is important to be able to track the entire process of a marketing campaign to understand the effectiveness. Especially, it is important to monitor the events, after the lead is generated, that influence the prospect to purchase the product of your company. 

By monitoring the journey from the completion of a campaign and prospect of becoming a customer/lead, with Closed-loop, you can report the ROI of the campaign and demonstrate the impact of the campaign on the revenue.

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04

Advice for the best way to measure Marketing Effectiveness

  • According to Joseph Hirschhorn Howard of Masslight, the important key metric to track the Marketing Effectiveness of your campaign is the CAC, i.e., cost to acquire a customer.

The metric can help you in evaluating the rate of growth of your business. If the cost to win over a customer is too high your business won’t be operational in the long term. 

  • Paul S-Jacques of Maverick ROI says CLV is the best way to measure Marketing Effectiveness. 

The metric can help you figure out the projected profile your company makes from a customer. This can help you establish how much your business can spend to acquire a new customer. 

  • Michael Riley co-founder of Boxter says, ROI is their way to measure Marketing Effectiveness. 

To calculate the ROI for your business you should use

  • Lifetime Value of Customer
  • Call to Action that converted them into a customer
  • Customer Acquisition Cost 

Use these three factors to make a data-driven and smarter marketing strategy.

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05

FAQs

The short-term and long-term revenue a campaign generates is used to measure Marketing Effectiveness. Also, low Customer Acquisition Cost during a campaign determines Marketing Effectiveness.

Marketing Efficiency includes CPA, click-through rates, and conversion rates, and visitor engagement in your website. 

Marketing Effectiveness measures the effort of a campaign and marketing strategies towards a business.

The 5 Marketing Strategies are the 5 P’s – product, price, promotion, place, and people. These elements are used to develop a strategy for a business.