7 Core Marketing Metrics to Use
Marketing Strategy: Decide Which Metrics to Use
Every dollar you spend on marketing should improve your sales revenue.But marketing campaigns can get expensive. You don’t want to spend money on your campaign with a vague idea of its impact on your bottom line. The better option is to track a few carefully selected marketing metrics so that you can evaluate your efforts and gain valuable feedback for future campaigns.
Most companies never take the time to properly measure the effects of their marketing efforts on their sales. Calculating your marketing ROI is crucial for knowing whether you are heading towards profitability. We know it is difficult to measure the performance of your content defined in your content marketing strategy.
But we came up with seven metrics you can easily measure and keep track of how well your marketing campaigns are doing, so you can make the right decisions for your business.
1. Cost to Acquire a Customer (CAC)
This metric is just what it says it is:
The total cost for getting one new customer.
It is calculated by dividing the total marketing spend by the number of new customers.
By comparing the customer acquisition cost with the average revenue per customer, you can easily find your marketing ROI.
If you spend fifty dollars to get a customer that buys a service worth $500, you made a solid profit. If your margin is too low, you can increase that by lowering your CAC by having an expert audit your marketing activities and sales funnels.
You can calculate the CAC over a certain time period, which is useful if you want to compare the cost for different strategies. You can also calculate the CAC for all time, which comes in handy when you need to compare this with the lifetime value of a customer.
2. Customer Lifetime Value (LTV)
Instead of using one purchase as a metric, you can look at how much money one customer brings in over the course of many purchases. For this, we use customer lifetime value, or LTV.
Customer LTV is the amount of net profit a customer brings in over the course of the customer’s life cycle. You calculate it, multiply your margin with the value of all purchases made. If the average customer buys ten products with a total value of $5,000 and you have a margin of 20%, the average LTV is $1,000.
If you sell a subscription-based service, you take the monthly or yearly subscription revenue and multiply it with the length of the average customer life cycle.
$120 (annual subscription revenue) x 3.5 (years) = $420 average customer LTV.
3. Customer Retention vs. Churn Rates
Your customer retention rate is the percentage of customers you retain on a yearly basis.
Churn rates are the opposite: how many customers leave you in that same year.
If your main competitor lowers his prices and steals your customers, your retention rate falls down and your churn rate shoots up.
Every customer you keep is one customer less for the competition.
By aiming for the lowest possible churn rate, you make it harder for your competition to stay in business. Not only that. The cost of bringing your churn rate down is nothing compared to the CAC. You bring up the LTV of every customer you acquire and this pays off in the long-term.
4. Your LTV-to-CAC ratio
The lifetime customer value (LTV) to customer acquisition (CAC) cost ratio gives insight into the ROI of your marketing spend.
A low LTV-to-CAC ratio means the current strategy is not profitable enough. Basically, you are spending too much money to make money.
If the LTV-to-CAC ratio is too high, it means you may not be spending enough on marketing and thus missing out on growth opportunities. In that case, it would be wise to invest more in marketing to ensure further growth.
One of the fastest ways to increase LTV is to drastically lower the churn rate. By ensuring that every subscriber keeps renewing as long as possible, you maximize the ROI of your marketing budget. Making sure customers receive good service and competitive pricing goes a long way.
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7. 5. ROI on Marketing Spend
Return on Investment (ROI) is one of the most popular ways to measure your marketing campaign, and rightfully so.
Let’s say your campaign cost $5,000 and it generated $20,000 in sales. That would come out to a 300% ROI.
That sounds amazing, but let’s dig a little deeper on this hypothetical.
If the $20,000 in sales had a 10% profit margin, then your profit would only increase by $2,000 from the campaign. It turns out that your $5,000 marketing spend caused a $3,000 loss to your bottom line.
This example shows how metrics can be deceiving if you take them at face value.
6. Web Traffic Indicators
Your sales funnel represents the prospect’s journey to becoming a customer.
Website traffic enters the top of your funnel, where new visitors get their first exposure to your business.
Some useful key performance indicators (KPI’s) are search engine rankings, as well as impressions and click-through rates on your paid media investments.
Search engine rankings are a free (and organic) way to get people to your site. The usual way to take advantage of search engine rankings is to brainstorm the early informational queries of your target market and find out what keywords they are using for their searches. If you can reach the first page for a high-volume search, you will receive a lot of free and organic traffic, which is ideal.
Your paid advertisements are another way to increase awareness of your business. Track your impressions and click-through rates, then tweak your copy and design to maximize results of your paid ads.
Of course, attracting visitors to your website is not the final goal. Now, you need to turn them into customers. Which leads us to the next section.
7. Leads and Conversions
Let’s say you are receiving a lot of visitors to your blog. How can you determine the ROI of your blog posts?
One way is to track the number of email subscriptions and questionnaire forms that readers submit after reading your blog posts. But you must take it a step further because only a percentage of the users that fill out your form will convert to customers.
For example, if 10% of your email subscribers convert into customers, and each customer has a lifetime value of $1,000, then each email subscriber is worth $100.
You also want to track the origin of each lead, because a lead from your blog may have a different value than a lead from your Facebook ad, mainly depending on the cost per acquired lead.
You should now be well-equipped to begin tracking the returns on your marketing campaigns.
Remember to track several metrics and dig into the data, because an individual metric can be deceiving on its own.
If you do it right, the data can point your business in the right direction as you move forward.
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