The fifth and final step in the ProfitXL journey is measurement. While profits are the ultimate metric, there are many components which are not in the marketer’s control. What they can do is to focus on three numbers: AdWaste, Martech Spend Ratio (MSR) and Earned Growth.
AdWaste can actually be measured. It comprises wrong acquisition and reacquisition. Marketers need to dig into their databases and see what percentage of acquired customers are still active after a specified period of time (say, three months). The rest, especially those who left without making a purchase, can be construed as wrong acquisitions. Reacquisition can be identified by checking if a newly acquired customer was a previous customer by checking the identifiers. Getting a handle on AdWaste is important because this is the budget that can be made available for the ProfitXL program.
MSR is the percentage of marketing spend on martech (existing customers) from the overall budget. In most brands, the MSR is about 10-15%, meaning that 85-90% of the budget is being spent on (B)adtech for new customer acquisition. The goal for marketers should be to shift the budget from adtech to martech, and get MSR to greater than 50. This is a huge pivot – from making new customers as the growth engine to leveraging the power and potential of existing customers. For this, marketers will need to invest more in martech platforms rather than directing budgets to the likes of Google and Meta. It is this monetary shift that MSR helps track.
The third metric is Earned Growth. Devised by Fred Reichheld, the creator of Net Promoter Score (NPS), Earned Growth measures revenue increases from existing customers (NRR, or net revenue retention) and new organic additions via referrals (as opposed to paid channels), termed as ENC, or earned new customers. Earned Growth = NRR + ENC – 100. This metric is probably zero or negative for many brands. Marketers must aim to get Earned Growth to 50 or higher.
These three measures – AdWaste, MSR and Earned Growth – will guide marketers in their ProfitXL voyage. Among these, marketers should make Earned Growth as the North Star Metric, and keep a tab not just on revenue growth but overall business profitability.
Done right, the SHUVAM framework unlocks the key to supersizing profits – and helps marketers reclaim control of their destiny which they have mortgaged to Badtech for many years. It will help them drive not just growth, but profitable growth. Happy customers will make that exponential and forever, thus laying the foundation for early adopters to build a firewall of profits in the category. By ensuring a “profits monopoly”, a profipoly can build longevity for itself. While not permanent (because innovators will always work to chip away), it can give incumbents a significant advantage against startups. In the tech world, Microsoft’s Windows and Office, Google’s Search, Apple’s high-margin iPhones all created profipolies which have helped them invest in new businesses. Modern marketers can do the same in hypercompetitive businesses. And the starting point needs to shift from LossXL to ProfitXL.