The 6 Marketing Metrics Your Boss Actually Cares About
If you're anything like me, you're guilty of downloading many PDFs over the years, saving them to your hard drive, and never actually reading them! True?
So, we've broken down our "pdf" into six emails, a chapter per email. Each chapter should take a few minutes to read and can be your daily self-development guide for CRM. Or maybe not. Here is the first chapter....enjoy.
As marketers, we work tirelessly to move the needle on what often seems like a laundry list of metrics. We look at website visits, conversion rates, generated leads per channel, engagement on social media platforms, blog post shares, email click-through rates… and the list goes on and on. When the time comes to present the impact of your marketing efforts to your boss, you can’t show them with everything you measure.
While many bosses theoretically understand that a solid marketing team can directly impact their company’s bottom line, 73% of executives don’t believe marketers are focused enough on results to drive incremental customer demand truly. If most executives think marketing programmes lack credibility, it simply doesn’t make sense to bombard them with metrics that don’t indicate bottom-line impact.
Regarding marketing metrics that matter to your execs, expect to report on data that deals with the total cost of marketing, salaries, overhead, revenue, and customer acquisitions. This guide will walk you through the six critical marketing metrics your boss wants to know.
Customer Acquisition Cost (CAC)
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What It Is: The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer.
- How to Calculate It: Take your total sales and marketing spend for a specific period and divide by the number of new customers.
- Sales and Marketing Cost = Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter or year.
- New Customers = Number of new customers in a month, quarter, or year.
- Formula: sales and marketing cost new customers = CAC
- Let’s Look at an Example:
- Sales and Marketing Cost = £300,000
New customers in a month = 30
CAC = £300,000 ÷ 30 = £10,000
What This Means and Why It Matters:
CAC illustrates how much your company is spending per new customer acquired. You want a low average CAC. An increase in CAC means you are spending comparatively more for each new customer, implying a problem with your sales or marketing efficiency.
- Turning visitors into leads.
Marketing % of Customer Acquisitions Cost
- What It Is: The Marketing % of Customer Acquisition Cost is the marketing portion of your total CAC, calculated as a percentage of the overall CAC.
- How to Calculate It: Take all your marketing costs and divide by the total sales and marketing costs you used to compute CAC.
- Marketing Costs = Expenses + salaries + commissions and bonuses + overhead for the marketing department only
- Sales and Marketing Cost = Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter or year
- Formula: Marketing Cost Sales and Marketing Costs = M%-CAC
Let’s look at an example:
Marketing Cost = £150,000
Sales and Marketing Cost = £300,000
M%-CAC = £150,000 300,000 = 50%
What This Means and Why It Matters: The M%-CAC can show how your marketing team's performance and spending impact your Customer Acquisition cost. An increase in M%-CAC can mean several things:
- Your sales team could have underperformed (and consequently received) lower commissions and/or bonuses.
- Your marketing team is spending too much or has too much
- You are in an investment phase, spending more on marketing to provide more high-quality leads and improve your sales
Ratio of Customer Lifetime Value to CAC (LTV:CAC)
What It Is:
The Ratio of Customer Lifetime Value to CAC is a way for companies to estimate the total value that they derive from each customer compared with what they spend to acquire that new customer.
How to Calculate It:
To calculate the LTV: CAC, you’ll need to compute the Lifetime Value, the CAC and find the ratio of the two.
Lifetime Value (LTV) = (Revenue the customer pays in a period- gross margin) ÷ Estimated churn percentage for that customer.
Formula: LTV: CAC
Let’s Look at an Example:
LTV = £437,500
CAC = £100,000
LTV: CAC = £437,500: £100,000= 4.4 to 1
What This Means and Why It Matters:
The higher the LTV: CAC, the more ROI your sales and marketing team delivers to your bottom line.
However, you don’t want this ratio to be too high, as you should constantly invest 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
What It Is: 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.
How to Calculate It: You calculate the Time to Payback CAC by taking your CAC and dividing it by your margin-adjusted revenue per month for your average new customer.
Margin-Adjusted Revenue = How much your customers pay on average per month
Formula: CAC÷ Margin-Adjusted Revenue = Time to Payback CAC
Let’s Look at an Example:
Margin-Adjusted Revenue = £1,000
CAC= £10,000
Time to Payback = £10,000÷£1,000 Months
What This Means and Why It Matters:
In industries where customers pay a monthly or annual fee, you usually want your Payback Time to be under 12 months. The less time it takes to pay back your CAC, the sooner you can start making money from your new customers. Generally, most businesses aim to make each new customer profitable in less than a year.
Calculating The Marketing Originated Customer %
What It Is:
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.
How to Calculate It:
To calculate the Marketing-Originating Customer percentage, take all of the new customers from a period and determine what percentage started with a lead generated by your marketing team.
Formula:
New customers started as a marketing lead ÷ New customers in a month = Marketing Originated Customer %.
Let’s Look at an Example:
- Total new customers in a month = 10,000
- Total new customers started as a marketing lead = 5,000
- Marketing Originated Customer % = 10,000 ÷5,000 = 50%
What This Means and Why It Matters:
This metric illustrates the impact that your marketing team’s lead-generation efforts have on acquiring new customers. This percentage is based on your sales and marketing relationship and structure, so your ideal ratio will vary depending
on your business model.
A company with an outside sales team and inside sales support may look at 20-40% Margin Originated Customer %, whereas a company with an inside sales team and lead-focused marketing team might be at 40-80%.
Calculating The Marketing Influenced By Customer %
What It Is:
The Marketing Influenced Customer % considers all the new customers that marketing interacted with while they were leads, anytime during the sales process.
How to Calculate It:
To determine overall influence, take all of the new customers your company accrued in a given period and find out what percentage of them interacted with marketing while they were leads.
Formula:
Total new customers that interacted with marketing ÷ new customers = Marketing Influenced Customer %
Let’s Look at an Example:
- Total New Customers = 10,000
- Total New Customers that interacted with marketing = 7,000
- Marketing Influenced Customer % = 10,000 ÷ 7,000 = 70%
What This Means and Why It Matters:
This metric considers the impact marketing has on a lead during their entire buying lifecycle. It can indicate how effective marketing is at generating new leads, nurturing existing ones, and helping sales close the deal. It gives your Managing Director or Marketing Director a big-picture look into the overall impact that marketing has on the entire sales
process.
Review Of The Marketing Metrics - Conclusion to our series on the 6 Marketing Metrics:
As marketers, we track so many different data points to understand better
what’s working and what’s not that it can become easy to lose sight of what’s
most important.
Reporting on your business impact doesn’t mean you should no longer pay attention to site traffic, social shares, and conversion rates. It simply means that when reporting your results to your management team, you must convey your performance so they can get excited about it.
Rather than talking about per-post Facebook engagement and other “softer.”
Metrics: use the six metrics we detailed to report how your marketing programme led to new customers, lower customer acquisition costs, or higher customer lifetime values.
When you can present marketing metrics that resonate with your decision-makers, you’ll be in a much better position to argue for budgets and strategies that will benefit your marketing team now and in the future.
Talk to us today to discover what CRM and Marketing Automation tools can enhance and optimise your business - then we can put the practical into the practice of what was hopefully an informative series of emails!