Marketing metrics: 6 metrics to calculate your marketing success

How much does it cost to get a new customer?

This is your Customer Acquisition Cost (CAC). It determines the total average cost you’re spending to acquire a new customer.

To calculate it, add up your sales and marketing costs (for a specific time) and divide by the number of new customers. Your sales and marketing costs should include advertising, salaries, commissions, bonuses and overhead.

Here’s the formula:

(SALES + MARKETING) / (NEW CUSTOMERS) = CAC

So for example if your sales and marketing costs were $250,000 and you gained 25 new customers, your CAC would be $10,000.

You’ll want a low CAC, obviously. But once you establish a benchmark, an increasing CAC will indicate a possible problem with your sales or marketing effectiveness.

How much of that new customer cost is for marketing?

To answer that, you’ll need your Marketing % of Customer Acquisition Cost (M%-CAC). This figure is the portion of your total CAC, calculated as a percentage of the CAC.

To calculate it, take just your marketing costs and divide by the total marketing and sales costs.

Here’s the Formula:

(MARKETING COST) / (SALES + MARKETING COSTS) = (M%-CAC)

So if you have a marketing cost of $50,000 and a sales and marketing cost of $250,000, your M%-CAC would be 20%

If this cost is going up it could mean that your sales team might be underperforming, you’re spending too much on marketing, or perhaps you’re investing more to improve lead quality and sales productivity.

Is what we’re spending on getting new customers worth it?

This is where you find out what your customers are worth and subtract what it costs getting them. It is known as Ratio of Customer Lifetime Value to CAC (LTV:CAC).

First, calculate the lifetime value of the customer, which is the revenue a customer pays during the average time you keep a customer (minus the gross margin). Then divide by your average customer churn. Then, divide that number by your CAC.

Here’s the formula:

LTV:CAC

So if you have an LTV of $500,000 and a CAC of $50,000, your LTV:CAC ratio would be 10 to 1.

The higher your LTV:CAC the greater your marketing and sales ROI. If your ROI gets too high, however, you may not be investing enough in your sales and marketing, which could slow down your total company growth.

How long does it take to recoup the cost of getting new customers?

This one rhymes: it’s called Time to Payback CAC. It shows how many months it takes to earn back the costs you spent acquiring new customers.

To calculate it, take your CAC and divide by your (margin-adjusted) revenue per month for your average new customer. Margin-adjusted means how much your customers pay on average per month.

Here’s the formula:

(CAC)/(Margin-Adjusted Revenue) = Time to Payback CAC

So if your margin-adjusted revenue is $2,000 and your CAC is $10,000, your Time to Payback CAC would be 5 months.

The sooner you can start making money off of your new customers, the better. Most companies try to make each new customer profitable in less than a year.

How many new customers does marketing bring in?

While this question can often be rife with office politics, here’s how you can start with the numbers. This is known as Marketing Originated Customer %.

This ratio shows what new business marketing drives. It is determined by which portion of your new customers originated from marketing efforts.

To calculate it, you’ll need to know which customers originated with a lead generated by your marketing team. Then take the total new customers and divide by those numbers which were marketing-generated leads.

Here’s the formula:

(TOTAL NEW CUSTOMERS)/(CUSTOMERS STARTED AS MARKETING LEAD)

= MARKETING ORIGINATED CUSTOMER %

The math is pretty straightforward on this one. Say you have 1,000 new customers in a month and marketing generated 675 of the leads for those customers. That gives you a 67.5% contribution.

This shows your marketing team’s contribution to acquiring new customers. Marketers worth their salt like this measurement because of its connection to revenues.

How much does marketing help close sales?

As any sales person will tell you, marketing doesn’t generate all the leads. But does that mean marketing is not providing value? You can answer that with the Marketing Influenced Customer %.

It takes into account all the new customers that marketing interacted with while they were leads before becoming customers. Lead nurturing with marketing automation software is an example of this.

To calculate it, just take all the customers in a given period and find out what percentage had any contact with marketing while they were a lead.

(MARKETING INFUENCED CUSTOMERS)/(TOTAL NEW CUSTOMERS)

= MARKETING INFLUENCED CUSTOMER %

Example: 1,000 new customers and 820 of them interacted with marketing gives you Marketing Influenced Customer % of 82.

With customer buying lifecycles getting longer, the impact of marketing on a lead will most increase. This ratio indicates how effective marketing is at lead nurturingand helping sales close deals.

source: [online/hubspot]

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