There’s likely enough marketing metrics in your department to drown you and each of your colleagues. Here’s how to zero in on the measurements that allow you to see where the real revenue is coming from and double down on it.
All these metrics are closely tied to one another so first start with the basic data you need for these calculations: spend, visits, registrations, and customers for any given time period. From these four numbers we’re able to deduce a lot about our marketing efforts, with relatively little effort.
The cost per lead is a simple metric that gives you an idea of how efficiently you’re generating leads. Break this down by campaign or source to see where you’re getting the most cost-effective leads. However, cost effective leads do nothing for you if they do not turn into customers, which we’ll get to later.
Break your registration rate down by campaign as well to see which campaigns are driving the most valuable traffic. A registration for your company may mean becoming a subscriber, signing up for a freemium product, or requesting a demo. This is the step before becoming a customer. Plot it over time to see how tweaks in campaigns or targeting affect this rate. For example, have you been experimenting with AdWords more this quarter? This may result in a higher registration rate.
Registrations and leads are important metrics, but you really care about how many customers your marketing is responsible for. Take a look at all the customers that were created during a given quarter and monitor how many of them came from marketing-generated leads. Then compare that to the overall number of leads to determine how effective your marketing team is at converting leads to customers.
This number provides a check for the customer acquisition cost. We all have certain marketing goals for each quarter, and this will allow you to budget for those goals. Let’s say for every 1 customer you need about 20 leads. If each lead costs about $40 you’ll need about $800 for every customer. This leads us to our customer acquisition cost.
This is your total amount spent on acquiring a customer (marketing and sales dollars) divided by the number of customers generated during a given time period. This is the number that will make or break your marketing department, but of course all the preceding calculations help you understand why the CAC is where it is.
Calculate your customer lifetime value by looking at how much a given customer will contribute to your revenue over a time period, subtract the gross margin, and divide by your churn percentage.
As a general rule of thumb, your lifetime customer value should be about 3 times your customer acquisition cost. The higher your LTV:CAC ratio, the more return on investment your sales and marketing efforts are seeing.
Track these metrics over time and note when certain campaigns began or ended. You should even note events that you cannot track directly through digital marketing, like tradeshows or meetups, where leads may have been generated.
Tag everything you can to ensure that you can track leads all the way through your funnel to closed sales. If you don’t have enough information on where leads are coming from or what they’re doing once they’ve become leads, you are unable to make any educated conclusions on what is turning leads into customers.
Get the fastest, easiest way to understand your data today.Sign up for free