With the constant stream and flow of data that is analyzed and reported on, there are plenty of metrics that illuminate marketing performance. Marketing data and metrics are most often analyzed by specialists and analysts who then generate intricate reports and ultimately create higher-level summaries for executive teams. Because these executives have many responsibilities that extend beyond marketing, they need the information that will give them the most insight into how marketing and sales are functioning without necessitating a deep dive into data minutia.
Here, we look at three important metrics that leaders should explore to gauge their organization’s marketing performance.
Metric 1: Customer Acquisition Cost
Customer Acquisition Cost (CAC) indicates the amount of marketing dollars spent to acquire each new customer. It is calculated by dividing the total dollars spent on marketing by the number of new customers acquired in a given time period. Many include sales in this calculation as well because marketing and sales are often grouped together. Whatever the case for your organization, just be clear that everyone understands the variables you are using for the calculation. This saves confusion and potential issues that may arise.
- Why it Matters: CAC can help inform how well sales and marketing teams are aligned and how efficiently marketing dollars are being spent. Focus on acquisition cost trending over long periods and investigate significant one-off fluctuations. Naturally, the goal is to keep your CAC as low as possible.
- How to Improve: Investigate the respective performance of individual marketing tactics to determine whether there are opportunities to allocate spending more effectively. Additionally, trace the entirety of your buyer’s journeys from awareness to win/loss to identify any points where friction is present or where efficiencies can be gained. This also gives you the opportunity to evaluate how marketing, sales or other business functions can play a part in improving efficiency or reducing friction.
Metric 2: Customer Lifetime Value
Customer lifetime value (CLV) is a widely known measurement that individuals and organizations may calculate in several ways. Traditionally, it is calculated by multiplying the customer revenue per year by the expected duration of the relationship in years and then subtracting acquisition and ongoing support costs.
- Why it Matters: CLV is a tricky metric because it doesn’t necessarily incorporate the intangible values of customers. It does though provide excellent insight into things such as whether your CAC is palatable given anticipated future revenue and, of course, the total revenue you can currently expect to generate from a customer.
- How to Improve: Facilitate conversations around opportunities to grow CLV via brand or product extensions. One way to do this is to capture customer feedback to identify new or evolving needs, wants or pain points. From this, your organization can strategize how to potentially address this feedback via new products or services. Improving the overall customer experience (CX) is important too as efforts in this area are generally rewarded by longer and stronger customer relationships. As CX becomes a core focus for organizations, efforts to enhance and advance this area can yield benefits.
Metric 3: Marketing Generated Revenue
Marketing generated revenue is exactly that – revenue that is generated by marketing. In organizations where the buyer’s journey and sales cycle are long, it’s important to be clear in how this metric is calculated. Those who calculate, analyze and report on this metric need to clearly understand this. There is no one authoritative way to do so, but many calculate this as revenue generated from customers where the initial lead came from a marketing channel such as paid search ads or email marketing efforts.
- Why it Matters: Marketing Generated Revenue is an indicator of marketing’s direct impact on the company’s bottom line. It does not, however, provide insight into the important ways that marketing supports sales and overall brand positioning. Because there is an immense focus on the bottom line for organizations and executives, the interaction between marketing and sales can be overlooked. Nonetheless, it is still crucial.
- How to Improve: Analyze the variety of leads that marketing generates and look for the segments of leads that have the best balance of volume and individual value. It is also important to concentrate on the improvement of marketing efficiency. It might sound simple, but if things like paid ads are not performing as expected, pause and reevaluate. If you are not seeing traction on a promotional email, analyze what, and why, they are not working.
Marketing metrics matter for everyone, but executives are typically not afforded the time needed to really dig into the details. Customer acquisition Cost (CAC), Customer Lifetime Value (CLV) and Marketing Generated Revenue can provide an informative big-picture outlook on how activities are performing. Improving your understanding of these metrics and how to act on them will improve the results of your marketing efforts and lift your overall business.