As a corporate marketing director, the success of your marketing department is often demonstrated by the results you can prove. You consistently monitor a variety of marketing data like website visits, conversion rates, generated leads per channel, engagement on social media platforms, blog post shares, email click-thru rates, and more.
One of the big advantages of inbound marketing, is that the each and every action of your website visitors can be tracked and measured. So, when the time comes to show the return on your marketing investment, you can present the marketing metrics that indicate your direct impact on the company’s bottom line.
Our new cheat sheet, “The 6 Marketing Metrics Your Boss Actually Cares About,” walks you through the critical marketing metrics that are important to company CEO’s. Here’s a brief overview. (Download the complete ebook here.)
Customer Acquisition Cost (CAC)
The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer.
Formula: sales and marketing cost ÷ new customers = CAC
CAC illustrates how much your company is spending per new customer acquired. You want a low average CAC. An increase in CAC means that you are spending comparatively more for each new customer, which can imply there’s a problem with your sales or marketing efficiency.
Marketing % of Customer Acquisition Cost
The Marketing % of Customer Acquisition Cost is the marketing portion of your total CAC, calculated as a percentage of the overall CAC.
Formula: Marketing Cost ÷ Sales and Marketing Costs = M%-CAC
The M%-CAC can show you how your marketing team’s performance and spending impacts your overall Customer Acquisition cost. An increase in M%-CAC can mean a number of things:
- Your sales team has underperformed (and consequently received) lower commissions and/or bonuses.
- Your marketing team is spending too much or has too much overhead.
- You are in an investment phase, spending more on marketing to provide more high quality leads and improve your sales productivity.
Ratio of Customer Lifetime Value to CAC (LTV:CAC)
The Ratio of Customer Lifetime Value to CAC is a way for companies to estimate the total value that your company derives from each customer compared with what you spend to acquire that new customer.
To calculate LTV:CAC, you first need to calculate the Lifetime Value, or the revenue a customer pays in a given period, minus that customer’s gross value.
The higher the LTV:CAC, the more ROI your sales and marketing team is delivering to your bottom line. However, you don’t want this ratio to be too high, as you should always be investing in reaching new customers. Spending more on sales and marketing will reduce your LTV:CAC ratio, but could help speed up your total company growth.
Time to Payback CAC
The Time to Payback CAC shows you the number of months it takes for your company to earn back the CAC it spent acquiring new customers.
Formula: CAC ÷ Margin-Adjusted Revenue = Time to Payback CAC
The less time it takes to payback your CAC, the sooner you can start making money off of your new customers. Generally, most businesses aim to make each new customer profitable in less than a year.
Marketing Originated Customer %
The Marketing Originated Customer % is a ratio that shows what new business is driven by marketing, by determining which portion of your total customer acquisitions directly originated from marketing efforts.
Formula: New customers started as a marketing lead ÷ New customers in a month = Marketing Originated Customer %
This metric illustrates the impact that your marketing team’s lead generation efforts have on acquiring new customers. The ideal ratio will vary depending on your business model. A company with an outside sales team and inside sales support may be looking at 20-40% Margin Originated Customer %, whereas a company with an inside sales team and lead focused marketing team might be at 40-80%.
Marketing Influenced Customer
The Marketing Influenced Customer % takes into account all of the new customers that marketing interacted with while they were leads, anytime during the sales process.
Formula: Total new customers that interacted with marketing ÷ Total new customers = Marketing Influenced Customer %
This metric shows the impact marketing has on a lead during their entire buying lifecycle. It can be an indication of how effective marketing is at generating new leads, nurturing existing ones, and helping sales closes the deal. It gives your CEO or CFO a big-picture look into the overall impact that marketing has on the entire sales process.
So, at the next company staff meeting, rather than talking about things like Facebook engagement and other “softer” metrics, use these six metrics to report on how your marketing program led to new customers, lower customer acquisition costs, or higher customer lifetime values.
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