Marketing Is an Investment
As a CFO, you want to ensure that marketing investments lead to incremental revenue. That’s when your role to measure marketing comes in. However, the challenge is to build a strong connection between marketing initiatives and the revenue these initiatives promise to generate.
In this scenario, you’d ask yourself, “Am I allocating the right amount of budget to marketing efforts?” “Will I see the expected increment in the ROI?”
To answer these questions realistically, you need to implement marketing metrics.
Using the right marketing metrics can help you decide how much budget you should allocate to marketing for the next fiscal year.
The following are some critical marketing metrics you should know.
If you are interested in sales metrics, check out: 12 Critical Sales Metrics for CFOs
Customer Acquisition Cost (CAC)
How to compute the metric: The computation involves your total marketing and sales cost. Add up all the advertising and program cost, salaries, bonuses, commissions, and all overhead expenses. Then divide this sum by the number of new customers you have earned in a given period.
The calculations can be based on a month, a quarter, or a year. If your total sales and marketing cost totals to $100,000 and you earned 10 customers that month, your CAC will be $10000.
What this means if this number increases: The CAC should already be set to ensure you’re making a beneficial deal. If the cost crosses the set CAC, it means you’re spending more than you should for each customer.
Organic Ranking and Leads
How to compute the metric: The computation involves tracking organic traffic on the website turning into leads. The aim is to find out if those leads turned into customers, and eventually, increased revenue.
The best way for you to identify potential opportunities is to calculate organic website traffic. It shows how the content, linking, blogging, and social outreach has an impact on potential customers.
What this means if this number increases: It’s a great indication if the number increases. Working on metrics such as inbound leads, organic rankings, and conversions on landing pages can help you track the success of the business.
Ratio of Customer Lifetime Value to CAC (LTV: CAC)
How to compute the metric: The computation allows you to estimate the current value of your customer (in events where revenue is recurring from the customers as they make a repeat purchase) and compare it to the cost of acquiring a new customer.
You can get to this ratio by subtracting the annual payments made by a customer from the gross margin and divide by the estimated churn percentage (for that customer). Then divide by the CAC for the ratio.
What this means if this number increases: If the LTV: CAC ratio is higher, it means you’ve earned a higher ROI based on your marketing efforts.
If the ratio is 1:1, you lose money as you sell. A 3:1 target is ideal. Anything higher than that is great but quite impossible to achieve in a competitive market.
Time to Payback CAC
How to compute the metric: Use the calculation for CAC and then divide it by the average amount your customers pay you each month.
What this means if this number increases: If the payback is higher, it shows the actual time it takes your company to earn back CAC. It’s a bad indication.
0-6 months mean you’re under-investing in marketing and sales. It’s reasonable between 9 and 18 months. If it’s beyond 18 months, it could be a problem.
Marketing Originated Customer %
How to compute the metric: Take the number of new customers in a period and look at the percentage that began with the lead generated by marketing.
What this means if this number increases: The marketing and sales tactics are effective for driving more business.
Marketing Influenced Customer %
How to compute the metric: Take the number of new customers in a period and consider the percentage associated directly with the marketing activity.
What this means if this number increases: It shows the role of marketing in influencing the acquisition of new customers. Ideally, it should be over 70%.
Conclusion
The key is to incorporate an automated way of incorporating essential sales metrics to mitigate the risk of its forecast. Doing so can help you conduct practical calculations and measure business growth over months, quarters, and even years.
At ORM we specialize in sales and marketing analytics. Specifically, we help our customers align their sales and marketing teams to revenue goals. If you have any questions or would like to know how we can help you automate these metrics, please let us know at info@orm-tech.com.
