Earning Revenue Share as the key metric in marketing

It's been a while since I last wrote on the blog. I'm going to do it again to talk about what, for me, is the key metric that marketing teams across most industries should use as a compass: the Earnings Revenue Share (ERS). It's a simple metric, although not one of the most well-known.

As you know, for years in companies that make most of their sales digitally, online, the marketing department has become the engine of growth and revenue generation. Marketing has long ceased to be the team that made TV spots—the company's advertising—and has become the team that generates revenue streams.

Each industry is different, and clearly, a B2C is not the same as a B2B, but today I won't get into those issues. The point is that if you are a CMO or part of a marketing team, you have probably realized that metrics—the data dashboard—are what give meaning to all the department's activity.

The reason is obvious: the goal of the marketing department is not just to invest in advertising and sell a product on a website or app, but to invest, sell, and achieve target profitability. And for that, metrics—the dashboard—are what every CMO or marketing team needs.

At this point, as I mentioned at the beginning, today I would like to explain just one metric: the Earnings Revenue Share. And it's very simple:

ERS = Investment / Revenue

Let me give you a very simple example using any ecommerce company with an annual Gross Revenue of €10M:

Imagine you are the CMO of this company and your CEO tells you that you need to increase revenue by 50% in 2 years to reach the goals set by the new board with new investors—but profitably.

The "no marketing cost" column is an example to explain the metric, purely fictional, since most digital companies invest in marketing to generate revenue & growth.

If we take the column on the right as an example, your current growth model is quite healthy. To generate €10M annual revenue, you invest €0.5M in marketing each year, which represents a 5% ERS. This allows the company to have an EBITDA of 15%.

But what will happen in the next 2 years when you need to increase revenue by 50% and must do it profitably? How much more can you invest each month and at the end of the year?

This is what the comparative ratio between EBITDA and ERS will tell you. The higher the ERS, the lower the EBITDA, until you enter losses.

Therefore, every month, you will need to carefully monitor not to exceed the target ERS you have set in order to scale, while at the same time maintaining profitability.