Our favorite way to describe the vast ocean of marketing metrics available to us these days is that we are “drowning in data, but parched for insight.” We have a seemingly unlimited supply of metrics at our fingertips, but you’ll find yourself at a loss to really gauge the success of your marketing efforts unless you know which numbers provide the most insightful benchmarks for your business.As you dive into the choppy waters of marketing analytics, it’s up to you to pick and choose which metrics to pay attention to. But how do you know if you’re picking the right ones? Here’s the secret: the metrics that matter are the ones that have meaningful implications for your business.
Contrary to assumption, these metrics usually aren’t singular pieces of data pulled straight from your analytics dashboard; you may have to combine a few data points together into larger “umbrella metrics” in order to get an accurate impression of how your marketing efforts are impacting your business in the grand scheme of things. Think of your analytics like a pointillism painting. The many thousands of painted dots mean nothing when looked at up close, but when you step back a few feet and let your eyes combine them into patterns and shapes, a meaningful image emerges.
So what are these “umbrella metrics,” how do you calculate them, and what do they mean?
Umbrella metrics are essentially a way of organizing data so that it draws a direct correlation between your marketing efforts and the company’s bottom line. They provide—ideally—definitive proof that what you’re doing is working.
Customer Acquisition Cost (CAC)
Your CAC is how much your company spends to acquire each customer. It’s a simple calculation that divides your total spending on sales and marketing efforts by the number of customers you acquired in that time period.
For example, say you want to assess your quarter four performance. You spent $15,000 on sales and marketing efforts and acquired 3 new customers. That means each customer cost you $5,000 to acquire.
The goal, of course, is to have a low CAC number—especially compared to how much revenue each customer pulls in. Maximum profitability is a small CAC plus a high average revenue per customer.
Marketing Percentage of CAC
Typically, new business acquisition is a joint effort between a company’s sales and marketing teams. If you’re on the marketing side, you’re probably interested in how much business development success can be attributed to your marketing efforts, rather than sales. It’s another simple calculation.
Determine your overall marketing spend during a specific time period and divide it by your total spend on sales and marketing combined. The resulting number indicates the percentage of your CAC attributable to marketing.
The marketing percentage of CAC can provide a great deal of insight into your business success, but it can can have particularly important implications as you budget for 2017. By looking at your marketing percentage of CAC, you can evaluate whether sales or marketing underperformed throughout the 2016 fiscal year, or whether you invested too heavily in one or the other. Maybe you were spot on, in which case, pat yourself on the back! If not, adjust accordingly for 2017.
Marketing Influenced Customer Percentage
If you’re interested in isolating the impact of your marketing efforts, you can also look at the marketing influenced customer percentage–that is, the percentage of your new customers that interacted with your marketing materials.
To calculate marketing influenced customer percentage, divide your total number of new customers by the number of customers that were exposed to your marketing materials (this will require you to be using some kind of marketing automation or tracking software).
The resulting figure is your marketing influenced customer percentage. If that percentage is high, congratulations, your marketing efforts are rocking the lead generation game!
Time to Payback CAC
Your CAC is an important metric when evaluating your marketing budget, but the more important implication for your bottom line is how quickly you will earn back the investment it took to acquire each customer. That is your “time to payback CAC.”
To calculate, simply divide the CAC by the amount of revenue earned from a particular customer each month (or another time period of interest). For example, if you invested $8,000 in acquiring a customer and receive $500 in revenue from that customer each month, your time to payback CAC is 16 months.
The shorter the better where time to payback CAC is concerned.
Marketing Qualified Leads (MQL)
You’re no doubt tracking how many leads you generate per month, but a more meaningful metric to investigate is the number of MQLs you’re generating. An MQL is a hot lead that’s ready to be routed straight to your sales team for conversion. MQLs are the leads that really matter for your bottom line.
What qualifies as an MQL is up to your company to define. It will depend on your industry, your business model and your sales funnel. Maybe it’s a lead that has performed a designated sequence of actions, such as visiting your website a certain number of times and then signing up for your newsletter. Maybe the MQL qualification is making a phone call or requesting a consultation.
You may choose to track MQLs by time frame (MQLs/month) or by channel (is email or Facebook more effective at generating MQLs?). You can also gain a good perspective on the effectiveness of your lead generation strategy by calculating the percentage of your overall leads that qualify as an MQL. If your ratio is low, you may need to reevaluate your lead nurturing process.
Average Lead Close Rate
Of course, it’s not enough just to generate oodles and oodles of leads, or even MQLs. It’s what you do with those leads that matters to your bottom line. That’s where the average lead close rate comes in.
The lead close rate indicates how many of your leads are converted into customers. To calculate, divide the number of new leads generated within a window of time by the number of new customers acquired.
Obviously, you want a high lead close rate. That means your marketing efforts are attracting high quality leads for your sales team to convert. If your number is low, you’re either seeing poor lead generation success, poor conversion success or your lead generation tactics are resulting in a low percentage of MQLs. Either way, you have some adjustments to make. But your average lead close rate will at least let you know where you stand.
The better picture you’re able to paint of the effectiveness of your marketing efforts using umbrella metrics, the better you will be able to fine-tune your strategies for the future.