Everyday we look at leads generated, channel performance, conversion rates, website traffic, social media engagement and many such marketing metrics. While these are great metrics to assess your immediate campaign performance by, I bet you that they may not be the metrics of interest for your executive leadership.
Senior leadership in any organisation expects data on the costs and revenue generated from each team. Keeping overheads low and ROI high is their priority. Marketing teams influence these parameters and knowing how to calculate & present them to your leadership can make you the next star employee of the month.
Let’s take a look at the marketing metrics that you should be talking through in your next executive meeting.
Customer Acquisition Cost (CAC)
The Customer Acquisition Cost (CAC) is a specific version of what is generalised as ROI. With your marketing investment along with ancillary costs, you would want to know exactly how you spend to acquire a customer. Understanding this cost can help you assess your marketing performance. Are you spending a lot more than you would like to acquire customers? A low average of the CAC is always ideal.
Formula: Total Sales and Marketing Spend ÷ Total New Customers = CAC
The total sales and marketing cost should include all campaign and advertising spends, salaries, commissions and overheads over a set period of time
Total Sales and Marketing Cost for Q1 2020 = 500,000
Net new customers in Q1 2020 = 50
CAC = $500,000 ÷ 50 = $10,000 per customer
With the CAC available, how do you know what value of CAC is right for your organisation? Here’s where the Customer Lifetime Value comes into play. Customer Lifetime Value (CLTV) is the total projected revenue that your company derives from each customer.
Ratio of Customer Lifetime Value to CAC (CLTV:CAC)
Calculating the ratio of Customer Lifetime Value to CAC can help you understand the value you derive from a customer against the total you have spent to acquire the new customer. The higher the ratio, the more ROI you are deriving from the customer. You could use this ratio to understand if you should be spending more on sales & marketing efforts to accelerate your organisation’s growth. Conversely, you would also need to look at this ratio to put checks on your marketing spend if the ratio is low, where you are spending more than anticipated to acquire a low CLTV.
LTV = $500,000
CAC = $100,000
LTV:CAC = $500,000 : $100,000 = 5 : 1
Marketing % of Customer Acquisition Cost
As a marketer you should know your team’s performance and the impact you have on the overall revenue of the organisation. One of the ways to calculate this is by understanding the percentage of marketing spend and its influence on Customer Acquisition Cost.
You would want to monitor this percentage over a period of time. An increase in the Marketing % can mean that either your marketing overheads is high or that the sales team has underperformed. The Marketing % could also be high if you are in an early investment phase and are spending heavily on marketing programs.
Formula : Total Marketing Costs ÷ Total Sales and Marketing Costs
Total Marketing Costs should include all expenses, salaries, and any overhead for the marketing team over a set period of time.
The total sales and marketing cost should include all campaign and advertising spends, salaries, commissions and overheads over the same period of time.
Total Marketing Cost = $250,000
Sales and Marketing Cost = $500,000
M% / CAC = $250,000 ÷ $500,000 = 50%
Marketing Origin Customer %
Marketing Origin Customer % is a ratio that shows how many of the net new customers that your business has acquired came directly from marketing efforts. This ratio demonstrates the impact the marketing team has had in the overall success of the business.
In order to get the correct ratio, you will need accurate data. All incoming leads need to be tagged with the campaigns that generated them as a first touch conversion. Marketing Automation tools can help you do this.
Formula: Net new customers from marketing campaigns ÷ Total net new customers = Marketing Origin Customer %
Total net new customers in Q1 2020 = 10,000
Total new customers from marketing campaigns = 5,000
Marketing Origin Customer % = 5,000 ÷ 10,000 = 50%
Marketing Influenced Customer %
Not all leads are created equal. You may have leads that came in through a referral but did interact with a marketing campaign at some point. Attribution to such leads is essential, since you have spent your marketing dollars on them too. Marketing Influenced Customer % looks at all new customers that have interacted with any marketing campaign at any time during the sales cycle. This metric is a good indicator of how good the lead nurture setup is.
Formula: New customers with marketing campaign attribution ÷ New customers = Marketing Influenced Customer %
Total new customers in Q1 2020 = 10,000
Total new customers with marketing campaign attribution = 3,000
Marketing Influenced Customer % = 3,000 / 10,000 = 30%
With these marketing metrics in hand, the next conversation with your executive leadership will result in better marketing strategies and even an increased marketing budget approval!
If you want to add anything to this guide or discuss your growth strategy with us, feel free to book a discovery call with us.