As a CMO, you have to keep up with a lot of metrics. From website visits to conversion rates and social engagement, there are lots of critical numbers to watch. These are all important metrics. But, aside from profits, there are five critical marketing-oriented metrics every CEO cares about.
Let’s break them down, shall we?
1) Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the total average cost your company spends to acquire a new customer.
To calculate the total sales and marketing cost, you will add:
- Program or advertising spend
- Salaries, commissions and bonuses
- Overhead in a month, quarter or year
Take this total cost and divide it by the number of new customers for that time period. This will give you your Customer Acquisition Cost. You’ll want to aim for a low average.
Sales and Marketing Costs ÷ New Customers = Customer Acquisitions Cost (CAC)
2) Marketing % of Customer Acquisitions Cost
To see how your marketing team is performing, can calculate Marketing % of Customer Acquisition Cost (M%-CAC).
Marketing Cost ÷ Sales and Marketing Costs = Marketing % of Customer Acquisitions Cost
If you see an increase in your Marketing % Customer Acquisition Cost, it can mean one of three things:
1) Your sales team underperformed;
2) Your marketing team might be spending too much or has too much overhead; or
3) You are in an investment phase, so you are spending more to gain higher quality leads for sales.
3) Marketing Originated Customer %
This is a ratio that shows what percentage of your new business is driven by marketing. To find this metric, divide new monthly customers by the new customers who started as marketing leads.
This will show you what portion of overall customer acquisition originated from marketing. The percentage will vary depending on whether your sales team is in-house or supported outside.
For a company with an in-house sales team, the percentage can range from 40% to 80%.
4) Marketing Influenced Customer %
How has marketing impacted a lead during the buying lifecycle? Your Marketing Influenced Customer percentage will give you an idea of how effective marketing is at generating new leads and helping sales close a deal.
To calculate this, divide the number of new customers who interacted with marketing by the number of total new customers. You should aim for a number between 50% and 99%.
5) Ratio of Customer Lifetime Value to CAC (LTV: CAC)
Customer Lifetime Value will tell you the current value of a customer (LTV). To calculate this number, take the revenue that a customer pays in a period, subtract gross margin and divide by the estimated % cancellation rate for that customer.
It’s important to note that LTV should be calculated if you are getting a recurring revenue stream from your customers.
When you have the LTV and the CAC, you can calculate the ratio by dividing LTV by CAC. This ratio will tell you if you should spend more on sales and marketing.
By theory, a higher ratio means that you have a higher ROI on sales and marketing, however, a high ratio is not always a good sign.
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