Measuring Marketing Metrics

Chapter 33: The 6 Marketing Metrics You Need to Measure

The second worst mistake you can make with marketing metrics is to not measure the performance of your marketing. That’s like trying to drive from Houston to Santiago without a map.

The first mistake you can make with marketing metrics is measuring the wrong things. That’s like trying to drive from Houston to Santiago with handwritten directions for a trip from Houston to Toronto.

If you ask 1,000 different marketing “experts” which metrics are most important, you’ll get about 900 different answers. The 899 unique answers come from people who don’t know what they’re talking about. The good advice comes from the 101 people who agree you need to keep your eye on six very specific balls:

1.Customer Acquisition Cost: How much does each new customer cost you?

Calculate this by totalling up all of your sales and marketing expenses, then dividing it by the number of new customers you got during the same period. If you spent $100,000 last year to get 100 new customers, your annual CAC is $1,000.

It’s helpful to calculate CAC by year, quarter and month. If that CAC of $1,000 is an average of 6 months of $500 CAC and six months of $2,000 CAC it’s worth digging deeper to see if that can impact your marketing strategy.

2. Marketing Percentage of CAC: How much of your CAC is represented by marketing?

Calculate this by totalling the costs of your marketing department — both your marketing spend and the expenses for maintaining the department. Divide it by the total sales and marketing costs that go into the expenses you used to calculate CAC. If that $100,000 you spent last year to get 100 new customers consisted of $40,000 in marketing costs and $60,000 in sales, then your M%-CAC is 40%.

You use M%-CAC to analyze which parts of your costs to acquire customers are performing well, and which are performing poorly. Though a specific number doesn’t mean any particular thing in all businesses, out-of-balance M%-CAC can tell you when you need to look deeper. It’s like a fever that way: almost never the actual problem, but a good indicator that there is one.

3. Ratio of CLV to CAC: Comparison of Cost of Customer to Income From Customer

Calculate this by first calculating the Lifetime Value (LTV) of your customers. That’s the revenue a customer pays in a certain period, divided by the estimated churn percentage for that customer. You then divide that number by your average CAC. You can express the result as a ratio for easier comparison. If your LTV for those $100 customers is $1,500, then your LTV:CAC ratio is 15:1.

This metric is core to your business model. If CAC comes close to exceeding your LTV, you have a bad business model. Higher ratios are better, and exactly where you sit tells you whether or not you’re spending too much on marketing for each client brought in.

4. Time to Pay Back CAC: How long until a new customer produces a profit?

Calculate this by dividing the average margin-adjusted revenue for your customers each month by the CAC from above. If your average margin-adjusted revenue per month is $200, and your CAC is $1,000, then your Time to Pay Back CAC is 5 months.

A good rule of thumb for B2B metrics is you want to make your money back on a customer within a year of the first sale. Knowing your Time to Pay Back CAC lets you know if that’s happening, so you can either change to make it true or identify why it’s okay to have a longer timeline.

5. Marketing Originated Customer %: How much of your new business is driven by marketing.

Calculate this by finding the number of new customers were generated as a marketing lead in a given period, then dividing that number by the total new customers for the same period. If last month brought you five new customers, of whom three were brought in from marketing, then your Marketing Originated Customer % is 60%.

There’s no set optimal number for this, but it is a good measure of how effective your marketing team is as compared to other sources of customers. Its most important value is helping you make smart prioritization about marketing spends moving forward.

6. Marketing Influenced Customer %: How much of your new business is influenced by marketing.

Calculate this by finding the number of new customers who interacted with your marketing materials at all, then divide that number by the total new customers for that period. If last month brought you ten new customers, of whom eight interacted with marketing materials (the other two were personal contacts of your sales team and went directly into a purchase), then your Marketing Influenced Customer % is 80%.

This number tells you more detail about how effective your marketing materials are beyond first getting the eye of a customer. Strong digital inbound strategies often find this percentage is high as compared to marketing originated customers.

There’s a lot more to each of these six than I’m going into here. For more information, Nuanced Media has compiled a detailed report available here. It will fill in the blanks, and help you get your business on the road toward the right destination. For the meantime, just keep the importance and definitions of these numbers in the back of your head as we go into the next section of the book.  Nuanced Media is a premier Phoenix marketing agency, and our experts are always willing to answer your questions about effectively measuring and acting on your marketing metrics.