How and What To Measure To Learn Demand Generation Success

Demand generation is a long-term strategy that requires focus, resilience, and creativity. These skills all align to answer the question: How do you know your strategies are working?

A Chicago demand generation agency analyzes five key performance indicators (KPIs) that measure your success:

• Cost per lead (CPL)
• Marketing qualified leads (MQLs)
• Sales qualified leads (SQLs)
• Cost per acquisition (CPA)
• Lifetime customer value (LCV)

This guide shares the basics of each KPI, including their formulas and reasons for tracking. It also provides an overview of the differences among demand generation, sales, and lead generation funnels.

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What Is Demand Generation?

Before you proceed with the metrics, let us define demand generation. Why does this matter in digital marketing? What is its role in your business?

Demand generation is a:

• Long-term strategy to raise and maintain awareness, engagement, and interest in your products and services throughout the customer-buying journey
• Comprehensive marketing program that relies mostly on inbound tactics
• Soft advertising approach, which means it does not explicitly sell your business to your target audience
• A marketing method that engages its audience, both existing and out-of-market, through education.

Although demand generation, lead generation, and sales funnels share some similarities, they have key differences:

• Demand generation is about keeping your business top of mind online. The goal is not to bring them into the sales funnel. Instead, it is to ensure that your brand becomes the primary consideration or choice when the market is ready to buy.
• Lead generation is a subset of sales marketing that concentrates on attracting and capturing potential customers' contact information. Unlike demand generation, it expects to sell in the end. This funnel typically includes tactics such as landing pages, forms, and gated content to collect lead information.
• Sales occur by converting leads into customers. The strategies, such as qualifying leads, conducting sales calls, negotiating deals, and closing, all move qualified or targeted prospects deeper into the funnel.

Measure Demand Generation Success With These KPIs

Demand generation is data-driven. When you have statistical or measurable information, you can:

• Better understand the target audience, including their preferences and behaviors
• Create highly targeted, personalized marketing campaigns that resonate with your market
• Make sound decisions to optimize future marketing efforts

For demand generation, these are the leading KPIs:

     1. Cost Per Lead (CPL)

Cost per lead (CPL) measures the average cost of acquiring a new lead. The formula is derived by dividing the total marketing spend by the total leads generated.

If a company spends $1,000 on a marketing campaign and generates 50 leads, the CPL would be:

CPL = $1,000 / 50 = $20

The average cost to acquire a single lead is $20.

Calculating CPL is essential for:

• Allocating budget for acquiring leads
• Identifying marketing campaigns that generate potential customers at a lower cost
• Determining returns when measured along with other KPIs such as CLV
• Comparing the performances of various marketing channels, tactics, and competitors

     2. Marketing Qualified Leads (MQLs)

Marketing-qualified leads (MQLs) are those leads with higher interest or engagement in your products or services. These are the ones likely to become customers.

The criteria for identifying MQLs vary. It depends on your niche, target audience, and sales process. Common factors used to define these leads are:

• Demographics. MQLs often match the company’s ideal customer profile in terms of job title, industry, company size, and revenue.
• Behavioral data. They are more engaged with your content and marketing channels. For example, they download whitepapers, attend webinars, or visit key website pages.
• Lead scoring. Many companies use a lead scoring system. They might assign points based on various factors, such as interactions with marketing campaigns.

Regardless of the criteria, the benefits of knowing your MQLs are huge. Some of these benefits are:

• Allows marketing teams to focus their efforts on nurturing high-potential leads
• Aligns marketing objectives
• Ensures only high-quality leads move on to further engagement

     3. Sales Qualified Leads (SQLs)

MQLs who continue to show interest and engagement with the company and meet the criteria become sales-qualified leads (SQLs).

Like in MQLs, the sales or marketing department matches potential buyers with their set criteria. Besides lead scores, they might use the following techniques:

• BANT (Budget, Authority, Need, Timing). It indicates that the SQLs have the budget and decision-making authority to buy. They also possess a clear need for the product or service and know a suitable timeline for purchase.
• Engagement and intent. Like MQLs, these leads display a high level of engagement with your marketing materials. They are attending webinars, downloading resources, or requesting product demos. However, they also show a clear intent to buy. They often inquire about pricing, features, or implementation.

Focusing on SQLs allows sales teams to prioritize their efforts on leads with the highest likelihood of conversion. Furthermore, tracking SQLs enables your organization to more effectively manage the sales pipeline.

For instance, you can get insights into the number of potential customers at each stage of the sales process. To do this, calculate the MQL to SQL conversion rate: (the number of sales leads x the number of marketing leads) x 100.

Let us say the MQL to SQL conversion rate is 15%. For every 100 MQLs, you can expect only 15 to become SQLs. With this data, you can determine whether you are hitting your goals or you should fine-tune your workflow to increase the conversion rate.

     4. Cost Per Acquisition (CPA)

Cost per acquisition (CPA) evaluates the average cost of acquiring a new customer or completing a specific action. These include a sale, sign-up, or subscription.

You determine CPA by dividing the total marketing spend by the number of acquisitions or completed actions.

Cost per acquisition (CPA) = Total marketing spend / total number of acquisitions

If a company spends $5,000 on a demand generation campaign and acquires 25 new customers, the CPA would be:

CPA = $5,000 / 25 = $200

In this case, the average cost to acquire a single customer is $200.

Knowing your CPA matters because it:

• Provides a clear metric for evaluating the returns of demand-generation campaigns
• Identifies which initiatives produce the most cost-effective results
• Gives valuable insights into the characteristics and behaviors of the acquired customers
• Helps identify trends, patterns, and changes in customer acquisition costs over time

     5. Customer Lifetime Value (CLV)

Customer lifetime value (CLV) is a key metric that estimates the long-term value of retaining clients based on how much revenue they bring over the course of the entire relationship.

Several methods help calculate CLV. One common approach is this:

Customer lifetime value (CLV) = Average purchase value (APV) x purchase frequency (PF) x average customer lifespan (ACL)

• The APV is the average amount a customer spends per transaction.
• The PF is the number of transactions they make within a given period, such as a year.
• The ACL is the average time a customer continues to buy from you. It is usually measured in years.

Let us say a customer has an APV of $100. They also have a PF of 4 and an ACL of 5. The CLV would be:

CLV = $100 x 4 x 5 = $2,000

The estimated lifetime value of the customer is $2,000.

Understanding CLV helps you more effectively allocate marketing budgets. That way, you can focus on acquiring high-value customers and optimizing the cost per acquisition (CPA) based on the expected long-term value.

Furthermore:

• It emphasizes the importance of retaining existing customers. It points out the benefits of customer retention strategies and highlights the potential revenue loss from customer churn.
• Identifying high-value customers helps you cater to their specific needs and preferences. In the process, it enhances customer satisfaction and loyalty.
• By tracking CLV you can make data-driven decisions that maximize profitability. It guides tactics for upselling, cross-selling, and customer segmentation.

Summing Up

The success of demand generation depends on multiple KPIs. This article lists five.

These metrics help you manage limited resources, improve the customer experience, and drive sustainable growth and profitability.

However, partnering with a trusted Chicago SEO agency makes sure your efforts yield the best results. Digital Authority Partners (DAP) specializes in helping you scale demand-generation strategies through data and tailored solutions. 

Contact us today, and let us maximize your marketing return.