The CRM Contribution Metric: Discovering (and Understanding) the Magical Numbers
In part 1 of our series, we showed how top brands are able to drive 33% of the revenue via CRM marketing. In part 2, our new research looks into the three KPIs to follow, and the numbers that should always be in front of youPosted in Customer Retention, E-Commerce, Gaming, Data Analysis, Personalization on 11 July 2019 by:
In the first blog post in our “CRM Contribution Metric” series, we discussed the need to understand and measure the value your CRM brings your organization and shared research that makes sense of these numbers and the variables they are based on. Let me refresh your memory with this formula:
CRM Contribution = (Revenue uplift / %Campaigns with control) / (Total revenue)
I strongly suggest going over the first piece in this series, it'll help you get started.
When looking for the most correlated features to point on future uplift, we examined the 3 KPIs that have the most significant impact on the CRM Contribution:
- Customer Base Coverage
- Number of Channels
- Number of Target Groups
In this piece, we'll dive deeper into the research examining our clients’ first-year performance to understand the impact of these KPIs and provide the magic numbers and guidelines on how to improve your CRM Contribution.
A few words to lead you through our research and process. First, the main goal of this research was to find the key factors to success, to learn what our top performing clients do better than the rest.
Why did we go with first-year performance? As mentioned earlier, the CRM Contribution Metric neutralizes factors such as control ratio and organic income, but we also wanted to neutralize uncontrollable factors, such as client maturity. Therefore, we used first-year performance as our playground.
After excluding clients that didn’t fit the research for various reasons, we came up with a sample of over 100 clients who started their CRM activity with Optimove in 2016. Our next aim was to find the actual numbers that would supposedly take us to the promised land.
Next, we separated over-performing clients from the others and trailed their journey, finding out what led them there and was derived from their marketing activity. Then, we split the clients based on their CRM performance at the end of their first year from when they went live – Top 20% vs bottom 80%. Below you can see some of the results.
Customer Base Coverage
Communicate frequently with as many clients as you can, but do so wisely.
We checked the association of customer base coverage to uplift and concluded that it is highly correlated. But we must pick our battles, and communicating frequently with all our customer base might be overkill. Therefore, when discussing customer base coverage, the first thing to define is which customer base we're examining.
With time, customer base volumes increases and we see many users defer to “Churned” or ”Dormant.” These users are less likely to react to our communication, compared to the ‘Live’ customers – who were recently active.
You shouldn’t neglect churned customers, but maybe reaching out to them on a weekly basis doesn’t have the same impact as attending to your live customers. Applying a high coverage ratio can work pretty well and it is highly correlated to CRM Contribution, but there’s a metric that we found even more correlative – Live Customers Coverage.
The definition of “live” customer differs from one business to another and depends on the frequency of your customer’s activity. A simple rule of thumb can be to consider any customer who hasn't missed three expected visits as live. Those who skipped a visit or two (or three) can be flagged as "churned." More on this subject can be found here.
Therefore, while our top performing clients covered nearly 40% of their customers base by the end of their first year (compared to 30% for the rest), 80% of their “live” customer base was covered, compared to 60% of the rest of the clients.
This brings us to the next action item: don’t reactivate – retain. Make sure to communicate with your active customers on a weekly basis; if you’ll get to 80% coverage after one year, you're in a good place.
Number of Channels
Using the same method we discovered that when putting a number of channels per client on the onboarding timeline, there’s a scale up that our top performing clients take earlier than the rest. Read more about the importance of multi-channeling.
As you can see in the chart below, we define the end of Q1 as the point in which you are about to use the 2nd channel. This is when our top performing clients averaged over two channels, while the rest average two only towards the end of Q3.
It’s obvious that it shouldn’t be the final stop in the integration process, but it’s an important one, and we can see that our better performing clients’ number of channels keeps increasing as time goes by, while it gradually flattens for the rest.
Number of Target Groups
The more granular we go, the more likely a client will respond. This is something that never surprises us at Optimove. For further reading on this topic, read our Chief Data Scientist’s blog: The Power of Segmentation for Marketing Campaigns.
But in this case, trying to find the right number might be tricky. The number of target groups is infinitive and outliers can easily push us to make the wrong conclusions.
When examining the number of different target groups that received communication on a weekly basis, we can see that the median of our top performing clients reaches 50 at the end of Q2 and 100 at the end of Q4, while the rest of our clients struggle to reach 50 at the end of the first year.
Reaching these numbers is great, but this is where the work begins, and from our experience the more the merrier. The number of target groups is a metric that should keep growing with time, and it will if you put your efforts into it.
We mentioned in the first part of this series that top brands are able to drive 33% of the revenue via CRM marketing. To reach this goal and even pass it, these are the three mini goals you’ll need to take under consideration during your first year as an Optimove client:
- Don’t reactivate – retain. Make sure to communicate with your active customers on a weekly basis and try to put this coverage on 80% after the first year. A good goal for the end of Q1 is to get to 60% live coverage.
- Look for that second channel. To be on our top performing clients group, you’ll need to have this 2nd channel running at the end of Q1.
- Constantly increase your target groups. Our top performing clients reach 50 TG at the end of Q2 and 100 at the end of Q4.
Stay tuned for part 3 in this series, where we’ll go even deeper with these three metrics, starting with Customer Base Coverage and the ways you can achieve the right numbers.