While many bosses understand that a solid marketing team can directly impact your company’s bottom line, it often feels like a large majority don’t believe that marketers are focused enough on results to truly drive incremental customer demand. 

How can you show your executives that your focus is where it should be? By reporting marketing metrics in their language. 

When it comes to marketing metrics that matter, expect to report on data that deals with the total cost of marketing, salaries, overhead, revenue, and customer acquisitions. In other words, the large numbers that inform how the business is doing. This post will walk you through three key marketing metrics your boss actually wants to know.

Let’s get started.

1. Customer Acquisition Cost (CAC)

What It Is & Why It  Matters

The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer. The lower the CAC, the more profit you can make from each client. Ideally, you want to recover the cost of acquiring a customer within the first 12 months of them becoming a client. (You can calculate this by using the formula for Time to Payback CAC).

You want to monitor CAC month over month as an increase in this cost means that you are spending more to acquire each new customer. A rising CAC may mean it’s time to dig into your sales or marketing efficiency or try a new marketing technique.

How to Calculate It

Take your total sales and marketing spend for a specific time period and divide by the number of new customers for that time period.

Sales and Marketing Cost = Program and advertising spend + salaries + commissions and bonuses + overhead in a specific duration of time (month, quarter, or year).

New Customers = Number of new customers in a specific duration of time (month, quarter, or year).

Formula

Sales and marketing cost divided by new customers = CAC

Let’s look at an example:
Let’s say our company sells a piece of computer software that charges clients $250 per month. 

Our sales and marketing expenses and customers acquired from those efforts are as follows: 

Sales and Marketing Cost in a month = $20,000
New Customers in a month = 8
CAC = $20,000 / 8 = $2,500 per customer

At a CAC of $2,500 per customer and the need to recoup that money within the first year of acquiring the customer, this CAC is in a good place at being profitable after month 10.

Not only can you calculate your total CAC across the company, but you can get granular into each channel. You should always be asking which channels have the lowest CAC.

2. Ratio of Customer Lifetime Value to CAC (CLTV:CAC)

What It Is & Why It  Matters

The Ratio of Customer Lifetime Value to CAC is a way for companies to estimate the total value that your company derives from each customer compared with what you spend to acquire that new customer.

The higher the CLTV:CAC, the more ROI your sales and marketing team is delivering to your bottom line. 

You don’t want this ratio to be too high, however, as you should always be investing in reaching new customers. Spending more on sales and marketing will reduce your CLTV:CAC ratio, but could help speed up your total company growth. The ideal is to be at a 3:1 ratio. 

If your ratio is 1:1 or under you are spending too much to get a client and are losing money on each deal. 

If your ratio is 5:1 or over you may be missing out on potential customers because you aren’t spending enough to bring new ones into the sales pipeline.

How to Calculate It

To calculate the CLTV:CAC you’ll need to compute the Lifetime Value, the CAC and then find the ratio of the two.

Lifetime Vale (LTV) = Gross Margin % X ( 1 / Monthly Churn* ) X Avg. Monthly Subscription Revenue per Customer

• Gross Margin % is the percentage of profit that remains after you have paid your costs for the product or service.
• Churn is defined as the percentage of customers that stopped using your product or service during a specific period of time.

Formula

CLTV:CAC
Let’s look at an example:
Let’s use our software company again. 

We know that it has a gross margin of 30%, and it has a monthly churn of 2% (number of clients that turnover month over month out of your client base). Charging client $250 per month we can calculate the LTV to be ((50%*(1 / 2%))*250=$6,250. We figured out our CAC in the previous metric so our LTV:CAC ratio breaks down as follows:
LTV = $6,250
CAC = $2,500
LTV:CAC = 2.5:1

At 2.5:1 this tells us we still have some marketing efficiencies or customer retention items we can work on at our software company. We want to make this number closer to 3:1 and, since 2% churn is a pretty good number, we either need to charge more per month to drive up our gross margin or find sales/marketing efficiencies to drive down our Customer Acquisition Cost.

3. Marketing Originated Customer %

What It Is & Why It  Matters

The Marketing Originated Customer % is a ratio that shows which portion of your total customer acquisitions directly originated from marketing efforts.

This metric illustrates the impact that your marketing team’s lead generation efforts have on acquiring new customers. This percentage is based on the structure of your sales and marketing teams, so your ideal ratio will vary depending on your business model. 

Tracking this metric will require a lot of communication between your sales and marketing teams to make sure everyone knows what leads come from which sources and how they are being tracked. This can be done through marketing automation software, or by manually tracking the sources your leads are coming from, but you will need to know where your leads come from in order to determine if your marketing dollars are being spent efficiently.

How to Calculate It

To calculate Marketing Originated Customer %, take all of the new customers from a period, and tease out what percentage of them started with a lead generated by your marketing team.

Formula

New customers who started as a marketing lead / New customers in a month = Marketing Originated Customer %

Let’s look at an example:
Our software company does all inbound digital marketing to create leads and does not have any concerted efforts on outside sales. We already know their customer per month number, and after looking into the leads that converted to customers, we can take away the following metric:
Total new customers in a month = 8
Total new customers started as marketing lead = 6
Marketing Originated Customer % = 6 / 8 = 75%
With 75% of new customers coming from marketing leads, it would probably be advantageous to look into referral programs or outside sales opportunities. There are likely sales that could be made from these other channels or business opportunities.

In Conclusion

With these three metrics you can now make marketing and sales decisions on how to drive more leads, create more efficiency, and improve your bottom line. This knowledge will also empower you to start speaking a language your boss understands — one of overall company health. 

By improving these numbers you will ultimately help build a case for getting the marketing budget and resources you need.

With these three metrics you can now make several marketing and sales decisions on how to drive more leads, create more efficiency, and impact your bottom line. And you can start speaking a language your boss will understand. Start focusing your reporting on these metrics and discussing marketing strategy in a way that improves these numbers will help you get the marketing budget and resources you need.