3 Ways To Prove That Your Marketing Efforts Contribute To The Bottom Line
You just finished the last quarter. You pushed really hard to finish all planned campaigns, you reached your Sales & Marketing service-level-agreement numbers and you were extra careful to send out that last promotional email before the month ended. Now your boss wants to sit down to review efforts and plan out his or her total budget and budget distribution.
You know that you need to prove to your boss that your marketing efforts have greatly benefited the company so that he or she knows you deserve the same, or greater, budget as last year. But how do you show your boss that you’re adding real value to the company?
If you’re like most inbound marketers, you'll fill out a spreadsheet that highlights metrics like:
- Search engine organic traffic
- New social media followers
- Social media engagement rates
- Email subscriber signups
- Website bounce rate
- Average session duration
But, do you really believe these metrics matter? Do they really show your boss that you’re bringing in actual business to the company? We think you know the answer. Growth in these metrics look good on a spreadsheet, but they don’t necessarily drive real revenue gains.
If you really want to impress your boss, you need to shift your thinking and focus on the metrics that really matter. We will share with you some of the marketing metrics your boss actually cares about, metrics that undoubtedly show the ROI of your marketing efforts.
Marketing Metrics That Actually Highlight Business Results
1) Customer Acquisition Cost (CAC)
What is it? The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer.
How do you calculate it? Take the total sales and marketing spent in a particular time period and divide it by the number of new customers that came in during the same time period.
For example, if your company spent $30,000 on sales and marketing in Q1 and brought in 30 new customers during that same time period, your CAC in Q1 is $1,000 per-customer.
Why does it matter? CAC matters because it can help determine the efficiency of your company’s marketing and sales teams. You want your CAC to be low. If you see an increase in your CAC it means you are spending too much to acquire new customers. This can severely hurt your company’s revenues.
2) Marketing Percentage of Customer Acquisition Cost
What is it? The Marketing Percentage of Customer Acquisition Cost is the marketing portion of your total CAC, calculated as a percentage of the overall CAC.
How do you calculate it? Take the total of your marketing costs and divide it by the total sales and marketing costs you used to compute CAC.
For example, if your company spent $150,000 on marketing in Q1 and $300,000 on marketing and sales combined in that same period, your Marketing % of CAC in Q1 is 50%.
Why does it matter? The M%-CAC can show you how your marketing team’s performance and spending impact your overall CAC. An increase in M%-CAC can mean:
- Your sales team underperformed and consequently received lower commissions and/or bonuses.
- Your marketing team is spending too much or has too much overhead.
- You are in an investment phase, spending more on marketing to provide more high quality leads and improve your sales productivity.
3) Ratio of Customer Lifetime Value to CAC
What is it? The Ratio of Customer Lifetime Value to CAC is a way to estimate the total value your company derives from each customer compared with what you spend to acquire that new customer.
How do you calculate it? To calculate the LTV:CAC Compute the Lifetime Value and the CAC and find the ratio of the two. This one is a little more complicated, so let’s take a look at the formula:
Lifetime Value (LTV) = (Revenue the customer pays in a period - gross margin) ÷ Estimated churn percentage for that customer
For example, if in Q1 your company’s LTV was $437,000 and CAC was $100,000 then your Ratio of Customer Lifetime Value to CAC would equal LTV:CAC = $437,000:$100,000 or 4.4 to 1.
Why does it matter? The higher the LTV:CAC, the more ROI your sales and marketing team is delivering to your bottom line. However, you don’t want this ratio to be too high, as you should always be investing in reaching new customers. Spending more on sales and marketing will reduce your LTV:CAC ratio, but it could also help speed up your total company growth.
As marketers we work tirelessly to move the needle on a sometimes laundry-list of metrics. But with studies that show that 73% of executives don’t believe that marketing drives demand and revenue we have to do even more to make sure that we can prove the ROI of our marketing efforts.
You’ve already begun this process by learning about three marketing metrics you can begin to use immediately. If you’d like to learn even more download the full cheat sheet below.