How well do you understand your marketing & sales performance? Are you acquiring new customers in a profitable way? How much can you attribute to your marketing efforts? In a December 2015 survey of small business owners, only 37% of respondents believed their marketing was effective, and nearly 15% had no idea one way or another! Large corporate businesses have had ways of measuring and refining their customer acquisition efforts for decades. This survey reveals that those capabilities have not often trickled down to smaller businesses.

Regular measurement & analysis should be the backbone of your marketing and sales process, leading to continual improvement and sustainable growth year over year.  However, picking the right measures and staying focused on them for the long term is vital to your success, especially amid the dozens or even hundreds of available measures in the age of Big Data.

Having worked in and led marketing organizations ranging from a local health care provider here in Palm Beach County up to billion-dollar brands like Crest and Oral-B on a national scale, the following three metrics have consistently appeared on my marketing scorecard. Are they on yours?

CPA: Cost Per Acquisition

What is it?

Your Cost Per Acquisition, or CPA, is a measure of how much it costs you to land each new customer. This includes the cost of any advertising and marketing materials, the salaries of marketing and sales teams, and commissions paid out.

How do you measure it?

The simplest formula is the total amount spent on marketing & sales in a given time period divided by the number of new customers acquired.

For example, if I spend $10,000 on marketing and $5,000 in sales in a given month and land 20 new customers, my CPA is $750. 

($10,000+$5,000) / 20 = $750

Why is it important?

Your CPA is a great way to quickly see the relationship between your acquisition spend and its effectiveness in bringing you revenue from new customers. A sudden increase in CPA could be an indication of a decline in marketing or sales effectiveness.  It could also be an intentional increase in marketing spending that will land new customers in future time periods.

When do you measure it?

CPA should be measured monthly or quarterly at most. Unless you have a large volume of day-to-day marketing spending, measuring CPA on a daily or weekly basis can be difficult to track and obscure the real trend with a lot of normal variation from day to day.

How do I do more with it?

If you want to “drill down” into this measure, you can break down your CPA into individual marketing (MCPA) and sales (SCPA) components. This will let you isolate individual marketing and sales trends and make comparisons. For example, your sales spending could stay flat and your marketing CPA could drop to reflect improvements in your marketing operations.

Tip: Another useful advanced calculation is the marginal Cost Per Acquisition, which reflects the cost of acquiring the next customer.

LTV: Lifetime Value

What is it?

This is the average revenue each customer brings to your business over the course of their relationship with you.

How do you measure it?

The simplest way to measure LTV is to multiple the average number of transactions per customer by the average value of each transaction. For example, if a customer purchases from you 5 times on average and the average value of a transaction is $4000, then your LTV is $20,000.

number of purchases per customer × average value of a purchase=lifetime value

Why is it important?

You can use LTV in conjunction with CPA and gross margin to evaluate if you are profitably acquiring customers. For example, if your CPA is $750 and your gross margin on the customer is 25%, an LTV of $20,000 is still very profitable.

$750 / ($20,000 × 25%) = 15% of LTV Margin

As a business owner, you can then decide if it’s worth increasing your marketing and sales budget to try to acquire more customers.

When do you measure it?

LTV is a more durable measure, meaning that it is based on long-term customer behavior. Usually, this measure is updated no more often than once per year since it changes slowly.

How do I do more with it?

LTV is one of the most useful measures at your disposal and can be calculated in a more precise way based on your business model, customer purchase behaviors, and other factors. A comparison of these different formulas can help you gain new perspective on your customer acquisition strategy.

In addition, segmenting your customers into more lucrative groups with higher LTVs can help you prioritize and focus your acquisition efforts on the customers that will have the most ROI. For example, if you can identify a group of customers that are more loyal or purchase a more expensive product or service, you can develop tailored marketing campaigns and sales tactics that address their unique needs and challenges.

MIC%: Marketing-Influenced Customer %

What is it?

This is the % of your new customers that have had some sort of interaction with your marketing efforts through their path to purchase, including advertising impressions, website visits, email lead nurturing, and social media.

How do you measure it?

This is the number of customers that have interacted with your marketing efforts divided by the total number of new customers. An interaction could be that they visited your website, opened an email, saw an ad, or followed you on social media. While this measure may seem simple on the surface, it can be difficult to distinguish which customers have interacted with your marketing efforts. Marketing automation platforms like Hubspot and Marketo can dramatically improve your ability to track customer interactions.

number of marketing influenced customers / total number of new customers 

Why is it important?

Tracking your MIC% can help you determine the impact of your marketing on your customers throughout their purchase process. A low MIC% can indicate that your business is driven more by word of mouth or by offline activity like print and tv advertising.  

When do you measure it?

This is best measured on a weekly or monthly basis, depending on the number of customers acquired in a given time period. You should see this number rise over time as you implement new marketing campaigns and new tracking capabilities.

How do I do more with it?

Once you have a basic understanding of your MIC%, you can improve your ability to track and measure customer interactions with your marketing efforts. For example, implementing a call tracking system like CallRail can help you attribute new inbound sales calls back to offline activities like print and tv ads. This will help you discover opportunities to better direct your marketing spend and increase the reach of your marketing efforts across more potential customers.

Conclusion

As you can see, these metrics can be a powerful way to gain insights into your marketing and sales acquisition approach. When you track these over the course of months and years, you can identify and respond to acquisition trends and see the effect of new marketing campaigns and sales programs. There are countless other metrics that can be used to garner new marketing and sales insights, like Cost per Lead, Marketing-Generated Customer, lead to customer conversion rates, and more.

Want to learn more about customer acquisition metrics? Here are some great free resources you can use to build your knowledge and understanding in a short amount of time:

How to Calculate Lifetime Value by Kissmetrics

The 6 Marketing Metrics You Should Actually Care About by Red Reef Digital

How to Calculate Your Cost Per Acquisition by Red Reef Digital

Looking for a downloadable marketing metrics guide? Here are 6 you should actually care about.