26 Mar The 6 Key Metrics Every Business Owner Is Interested In
So, we have come to understand as business owners and leaders of organisations that its necessary to get tangible results from our business spend.
How this applies to marketing has never been more important. Every penny needs to show results whether they be positive or negative. Every action in marketing now must be proven to be worthwhile. This said, it has never been easier to report on marketing efforts and their results.
To show the credibility of marketing efforts, it is necessary to show how marketing contributes to the bottom line.
It has been shown that 80% of CEOs don’t trust the efforts of their marketing teams. While metrics such as program spend, salaries of the team and overhead are important, the revenue generated from the marketing efforts and the customer acquisition should be the primary focus.
Metrics such as cost per lead, cost per follower or cost per page view can be useful in helping you make decisions about where your focus should be as a marketeer and which parts of your marketing process in underperforming.
CEO’s care more about the cost and the net results more so than the interim steps. If you are the head of marketing, then the list of metrics your CEO will likely be more interested in is:
- Customer Acquiring Cost (CAC)
- Marketing Percentage Of Customer Acquisition Cost (M%-CAC)
- Ratio Of Customer Lifetime Value To CAC (LTV:CAC)
- Time To Payback CAC
- Marketing-Originated Customer Percentage
- Marketing Influenced Customer Percentage
Customer Acquisition Cost(CAC)
This is the total sales and marketing cost. E.g. if you spend €100,000 on sales and marketing in a year and added 10 customers that year, then your CAC is €10,000. It cost €10K for each customer.
Marketing Percentage Of Customer Acquisition Cost(M%-CAC)
This metric is important to monitor and report over time to signal changes in either your strategy or your effectiveness.
E.g. an increase can mean that: –
- You are spending too much on marketing
- Sales Costs are lower because they missed quota
- You are trying to raise sales productivity by spending more on marketing and providing more and higher quality leads to sales.
Ratio Of Customer Lifetime Value To CAC(LTV:CAC)
This metric is relevant to businesses that have a recurring revenue stream from their customers. This metric can be used to estimate the current value of a customer and compare that to the lifetime spend to acquire that new customer.
The LTV is computed based on the revenue the customer pays during a period, subtract the grow margin and divide it by the estimated cancellation for that customer. E.g. a customer that pays you €10,000 per year with a gross margin on revenue of 70% and has a predicted calculation rate of 16% per year, then has a LTV of €437,500.
Now when you compare the LTV and the CAC you compute the ration of the two. If it costs €100K to acquire this customer with a LTV of €437,500 then the LTV:CAC is 4.4 to 1.
Higher is not always better though. With a higher ratio you might want to spend more on sales and marketing to grow faster because you are restraining your growth by under spending.
Time To Payback CAC
This is the number of months it takes to earn back the customer acquiring cost to get a new customer. You take the CAC and divide by margin-adjusted revenue per month fir the average new customer you just signed Up. The resulting number is the number of months to payback.
E.g. It costs you €1000 to acquire a new customer. Divide the revenue per month for the average new customer you just signed up (@70%). The resulting number is the number of months payback (1.4 months)
Marketing Originated Customer Percentage
This ratio shows what percentage of new business comes from your marketing efforts. This can be calculated by taking all new customers signed up for a period and looking at what percentage of them started with a lead generated from your marketing campaign.
Marketing Influenced Customer Percentage:
This number is similar to the marketing originated customer percentage, but it includes all new customers in cases where marketing touched the lead at any point during the sales process.
E.g. if sales find a lead which then the lead attends a marketing event and later closed, then that new customer was affected by marketing.