It's about getting things down to one number. Using the stats the way we read them, we'll find value in players that no one else can see.
In the movie MoneyBall, Peter Brand introduces baseball to data science. He used a lot of complex statistics, but ultimately the product of his analysis was one simple metric, Wins Above Replacement or WAR. The metric represents the additional wins a player can add to a team above a player that could be easily brought up from the minor league. Using WAR, a baseball general manager can quickly look through a list of players and determine the additional projected wins that would be added. It allowed for quick, scalable decision making.
In baseball, analysts are looking for wins. In marketing, you're are looking for revenue, or value. You need a single metric that projects revenue for all of the contacts in a marketing CRM or database. This is contact value. It dictates who to call next, who to email, and who to target with ads. The higher the contact value, the more valuable the contact.
How To Calculate Contact Value
The first step for calculating contact value is understanding the lifetime value of your customers. Once you know the lifetime value of your customers you can generate other values. For example, if you have an average customer lifetime value of $7,500, and you convert 10% of your sales qualified leads to customers, we can calculate the projected profit from sales qualified lead:
LTV * SQL Conversion Rate = SQL Value
$7,500 * 10% = $750
If 10% of our leads convert to sales qualified leads, we can calculate the value of a lead:
SQL Value * Lead to SQL Conversion Rate = Lead Value
$750 * 10% = $75
Using these metrics, you have already calculated the value of any contact in your database that is an SQL or a lead. We can drill down further to calculate metrics for contacts that haven't completed lead forms and are not in the sales funnel.
Here are the other signals that we can use to calculate contact value:
- Website behavior (pageviews)
- Email clicks and opens
- Company demographics (company size, location, years in business)
Calculating the Value of Website Behavior
If you're using Google Analytics, and you have set your goals and goal values correctly, you'll have a metric in your account called page value. This is the average value for a page that a user visited before landing on your goal page. This value is intended to give you an idea of which page in your site contributed more to your site's revenue. Once you know the value of pageviews, you can determine the value of a contact's website behavior.
We'll use the contact's website behavior below as an example. This contact visited five pages on the website, and here are the values of those 5 pages. We just take the sum of the page values to calculate a contact value of $2.18.
You now need to take this concept and apply it to the contacts in your CRM. Just group the page values by contacts and sum. You'll end up with something like this:
Calculating the Value of Email Behavior
If leads are worth $75, to determine the value of email behavior we just need to know some conversion rates.
Email click value = $75 * email click-to-lead conversion rate
Email open value = $75 * email open-to-lead conversion rate
To further optimize this process you can refine parts of this model. For example, you can include time on page or scroll depth as part of your pageview value calculation. You could include company size or revenue as a part of your contact value calculation. Over time, you should be looking for additional variables and refining existing variables to improve the model.