Quantifying Marketing Value: The TVM Formula

Marketing struggles with its reputation, despite being rooted in persuasion. It's losing ground as consumers disengage, CFOs shift resources, and CMOs face high turnover. Common explanations like shrinking attention spans, diverse channels, and outdated tech don't fully explain it. While generative AI was seen as a solution, it hasn't yet significantly boosted profits. According to MIT research, a large percentage of enterprise GenAI tests don't improve profit and loss. This erodes boardroom confidence. It's about outcomes, not just innovation. The measures are off – focusing on reach over results, segments over strategy, and volume over value. There's a disconnect: many CEOs assess marketing based on revenue and margin, while fewer CMOs prioritize these metrics.

However, there's a way forward. The Net Promoter Score (NPS) previously resolved a similar issue in customer experience. It offered a straightforward score and a practical strategy that created standards, aligned teams, and fostered ongoing progress. Marketing requires a similar metric, which we're calling the True Value of Marketing (TVM). TVM serves as both a benchmark and a strategy, an actionable metric and a system for demonstrating and growing marketing's impact. Essentially, TVM views each marketing initiative as an investment, classifying them as either value-adding, value-neutral, or value-contracting. This allows organizations to allocate resources more effectively.

Understanding the TVM Components

Like NPS, TVM appears simple but has profound implications. Here's the TVM formula (ranging from –100 to +100):

Profitable Customer Value (PCV)

PCV indicates the profit customers generate through marketing efforts. It's the quantifiable business value gained from acquiring, keeping, or growing the customer base. It includes both immediate sales and the lifetime value (LTV) of these customers before any direct marketing investment.

Opportunity Value (OV)

OV represents the growth achieved by capitalizing on clear opportunities. Examples include lowering churn, boosting upsells and cross-sells, or identifying profitable customer acquisition areas, instead of relying on opportunities with unknown potential.

Complexity Cost (CC)

CC refers to the obstacles that slow things down, such as excessive platforms, redundant vendors, lengthy approvals, and isolated data. It's like an unseen cost that hinders growth.

Applying the TVM Formula

If value increases, the score goes up; if complexity increases, the score goes down. Invest in what improves the score, fix what stalls it, and eliminate what lowers it. It’s a uniform index across brands, regions, and reporting periods, highlighting TVM’s core benefit: one clear metric is more effective than countless dashboards.

Here's how to implement TVM:

1. Establish the baseline:
   • Use contribution margin as the standard currency.
   • Define the LTV timeline.
   • Establish OV with confidence intervals.
2. Pinpoint the key factors:
   • PCV: demonstrate true improvement through causal attribution.
   • OV: employ predictive models to estimate future impact.
   • CC: use AI to quantify complexity, enabling tool removal, vendor consolidation, and process automation to improve the score.
3. Set the pace:
   • Conduct monthly reviews between the CMO and CFO, focusing on the overall TVM, along with bar charts for PCV, OV, and CC, accompanied by brief notes explaining any changes.
   • Use TVM for all campaigns to assess whether they add value (expand them), are value-neutral (improve them), or reduce value (discontinue them).

These findings aren't just theoretical. A financial services company experienced the common problem of rising customer acquisition costs, stagnant revenue, and scattered marketing spending without a clear link to profitable growth. The CMO believed marketing was valuable, but the CFO wasn't convinced. They argued over every budget without a common measure. TVM resolved this. The marketing team used contribution margin as the starting point, agreed on the LTV timeline, showed incrementality using geo-holdouts, and incorporated churn and upsell into confidence-weighted figures. Weekly reviews categorized programs as Scale, Tighten, or Stop. After six months, PCV increased by 56%, OV by 20%, and CC decreased by 43%, resulting in a net TVM increase of 32%. TVM transformed uncertainty into alignment, credibility for marketing, and growth. Just as NPS quantified customer loyalty, TVM makes customer profitability manageable. This allows marketing to convert uncertainties into revenue, enabling the company to focus on growth by simplifying technology, speeding up insights into action, personalizing at scale, and precisely measuring impact. TVM changes how marketing makes decisions, just as NPS changed how companies listen. It offers a single metric to establish standards, a common language for the C-suite, and a strategy for turning AI from testing to profits. TVM prioritizes profitable customers and positions the CMO as a driver of growth. The plan is straightforward: adopt TVM, align the C-suite, prioritize outcomes, and assess every program as value-adding, value-neutral, or value-contracting. Although it will be challenging, and changes to habits, incentives, and systems face resistance, the rewards are significant. These include a shared language for growth, a system driven by value creation, and a culture of continuous improvement. By doing so, marketing not only reports the score but also improves it through ongoing effort, leading to success in the AI era. Learn how TVM can help your organization get more value from your marketing. Steven Gerber is President, Zeta Global. Ed See is Chief Growth Officer, Zeta Global.