Resources > Articles

6 Marketing Metrics Your CEO Wants to See

Post Author
marketing

Gone are the days of the CMO who is not fluent in metrics, analytics and spreadsheets. The Internet has made marketing far more measurable (and therefore more accountable to the CEO and CFO) than ever before. Yet I frequently hear from my CMO peers that they are struggling to find the right metrics that will gain credibility and show the real contribution of marketing to the bottom line.

The best marketing metrics look at the total cost of marketing, including program spend, team salaries and overhead, and relate that cost to the results you care about: revenue and customer acquisition. Other metrics like cost-per-lead, cost-per-follower or cost-per-page-view can be useful to look at within a marketing team, because they can help you make decisions about where to focus and what parts of your marketing process are broken. But most CEOs really just care about the cost and net results, not the interim steps. This list of metrics focuses on the most critical measures of marketing that you should discuss with your CEO.

1.  Customer Acquisition Cost (CAC)

This is your total sales and marketing cost—all the program or advertising spend, plus salaries, plus commissions and bonuses, plus overhead—for a given time period, divided by the number of new customers during that time. That time period could be a month, a quarter or a year. For instance, if you spent $300,000 on sales and marketing in a month and added 30 customers that month, then your CAC is $10,000.

 2.  Marketing Percentage of Customer Acquisition Cost (M%-CAC)

I like to compute the marketing portion of CAC and call it M-CAC, and then compute that as a percentage of overall CAC. The M%-CAC is interesting to watch over time, as any change signals that something has changed in either your strategy or your effectiveness.

For instance, an increase in M%-CAC may mean:

  • You are spending too much on marketing
  • Sales costs are low because they missed quota
  • There is an attempt to raise sales productivity by providing higher-quality leads and spending more
    on marketing

For a company that does mostly outside sales with a long and complicated sales cycle, M%-CAC might be 10 to 20 percent. For companies that have an inside sales team and a less complicated sales process, M%-CAC might be 20 to 50 percent. And for companies that have a low cost and simpler sales cycle where sales are somewhat humanless, the M%-CAC might be 60 to 90 percent.

3.  Ratio of Customer Lifetime Value to CAC (LTV:CAC)

For companies that have a recurring revenue stream from their customers—or any way for customers to make a repeat purchase—you need to estimate the total value of a customer and compare that to what you spent to acquire a new customer.

To compute the LTV, take the revenue the customer pays you in a period, subtract out the gross margin, and divide by the estimated churn percentage (cancellation rate). So, if your customers pay $100,000 per year and your gross margin is 70 percent, and that customer type is predicted to cancel at 16 percent per year, the LTV
is $437,500.

Once you have the LTV and the CAC, you compute the ratio of the two. If it cost you $100,000 to acquire this customer with an LTV of $437,500, then your LTV:CAC is 4.4 to 1. For growing SaaS companies, most investors and board members want this ratio to be greater than 3X; a higher ratio means sales and marketing have a higher ROI. Higher is not always better though; when the ratio is too high, you may be restraining your growth by underspending and making life easy for your competition. You might want to spend more on sales and marketing to grow faster.

4.  Time to Payback CAC

This is the number of months it takes you to earn back the CAC. Take the CAC and divide it by the margin-adjusted revenue per month for the average new customer you just signed up. The result is the time to payback. In industries where customers pay one time up front, this metric is less relevant because the up-front payment should be greater than the CAC (otherwise, you lose money on every customer). On the other hand, in industries where customers pay a monthly or annual fee, you usually want the payback time to be less than 12 months so that a new customer becomes profitable within the year.

5.  Marketing Originated Customer Percentage

This ratio shows what percentage of your new business is driven by marketing. To compute, take the new customers you signed up in a period and determine what percentage started with a lead that marketing generated. This is much easier to do when you have a closed-loop marketing analytics system, but you can do it manually—just know it will be time- consuming.

What I like about this metric is that it directly shows what portion of the overall customer acquisition originated in marketing, and it is often higher than sales would lead you to believe. In my experience, this percentage varies widely from company to company. For companies with an outside sales team supported by an inside sales team with cold callers, this percentage might be pretty small, perhaps 20 to 40 percent. For a company with an inside sales team that is supported by a lot of lead generation from marketing, it might be 40 to 80 percent. And for a company with somewhat humanless sales, it might be 70 to 95 percent. You can also compute this percentage using revenue instead of customers, depending on how you measure your business.

6.  Marketing Influenced Customer Percentage

This is similar to the marketing originated customer percentage, but adds in all new customers where marketing touched and nurtured the lead at any point during the sales process (not just lead origination). For instance, if a salesperson found a lead, but the lead attended a marketing event before it closed, that new customer was influenced by marketing. This percentage is obviously higher than the originated percentage, and for most companies should be between 50 and 99 percent.

By focusing on the most critical measures of marketing, these six metrics provide CEOs the information they care most about: cost and net results.

Author

Author:

Other Resources in this Series

Most Recent

Article

[Comprehensive Guide] Product Owner vs Product Manager

Learn how to separate the roles of product owner and product manager on Agile teams and uncover some common challenges with confusing these roles. Including a short primer on the Agile revolution.
Article

Use Scenarios are Stories That Provide Context

The problem with today’s user stories is that they aren’t interesting. And they aren’t stories. The solution is use scenarios. It’s a narrative. It explains the problem in the form of a real-life story.
Article

Benefits of Bundle Pricing

Bundle pricing is simply a strategy where services or products are packaged together for one (often reduced) price rather than priced separately. This article covers some benefits of bundle pricing followed by a system for getting started.
Article

A Quick Guide to Value-Based Pricing

Value-based pricing begins with knowing the customer’s willingness to pay based on the perceived value of your product. You can charge less than a customer’s willingness to pay, and they feel like they’ve received an
Article

What Is Captive Product Pricing 

If you’re looking for a simple answer, it’s this: captive product pricing is when consumers make a one-time purchase (usually a lower-priced core product) but are required to purchase accessories for the main product to

OTHER ArticleS

Article

[Comprehensive Guide] Product Owner vs Product Manager

Learn how to separate the roles of product owner and product manager on Agile teams and uncover some common challenges with confusing these roles. Including a short primer on the Agile revolution.
Article

Use Scenarios are Stories That Provide Context

The problem with today’s user stories is that they aren’t interesting. And they aren’t stories. The solution is use scenarios. It’s a narrative. It explains the problem in the form of a real-life story.

Sign up to stay up to date on the latest industry best practices.

Sign up to received invites to upcoming webinars, updates on our recent podcast episodes and the latest on industry best practices.

Subscribe

Subscribe

Training on Your Schedule

Fill out the form today and our sales team will help you schedule your private Pragmatic training today.

First Name*
Last Name*
Email Address*
Phone
Company
Job Title
Location
How can we help you?
Preferred method of contact
Privacy Policy*
Map Your Message to Its Audience with the Communication Compass
Map Your Message to Its Audience with the Communication Compass
Ensure your message hits the mark. This eBook helps you visually map communication styles so you can tailor your design story to a stakeholder or business partner.

Download Ebook

Demystifying Data Projects: A Guide for Business Leaders
While data science is a competitive advantage, data isn’t magic. Learn how to make magic happen by partnering more effectively with data professionals. This eBook delves into types of data projects, sample questions, tools and methods, key points and cautions—so stakeholders like you can initiate data projects with real business impact.

Download Ebook

Define Ebook Thumbnail
What’s the difference between a successful data analysis project and one that falls flat? 

Before you begin working with the data, you need to understand what you’re solving for. Gathering context and aligning around goals with your stakeholders from the outset will help you avoid disconnects and deliver actionable insights. Discover the most vital questions to ask before embarking on a data analysis project in our in-depth guide, “Define: Laying the Foundation for Successful Data Analysis.”

Download Ebook

Download Now