So…how do you know?
If you don’t keep track of certain key facts and figures, the answer is…you don’t.
With today’s technology you are able to track marketing expenses and returns down to the penny. However, a vast majority of companies using modern marketing tools and even some companies being hired for their expertise in online marketing, don’t take advantage of the detailed information available from all of these services.
Here are some key pieces of information you need to be tracking in order to get an idea of how effective your marketing is:
CAC – Customer Acquisition Cost. This term refers to the amount of money you spend on acquiring a new customer. This doesn’t even factor in expenses involved with keeping that customer. Simply, how much money you have to spend to generate a new customer.
In order to get this figure you would need to add up all of the costs for your sales and marketing areas, including your website, online advertising, any direct mail, trade shows, etc. Once you have all of the costs involved in attracting a new person and turning them into a customer, you have your CAC. This should also include any overhead for your sales and marketing teams, rent for an office (or a portion of it at least) company cars, gas cards, etc.
This should be expressed in terms of expenses for a week or a month. For instance, $10,000 a month spent on sales and marketing, or $20,000 a week or $500 a week.
Once you have that figure and time period, the rest is simple. Divide it by the number of customers you newly acquire in that same time period. (If you don’t track the number of customers you are acquiring and how often it happens, you need to get this being recorded immediately, otherwise all of your marketing efforts could be being potentially wasted!)
Your result will give you how much you are spending to acquire each customer.
You will want to watch this figure closely in your marketing efforts and relate it to another figure I will go over next.
LTV – Lifetime Value. This figure expresses the value of a customer over the course of their “lifetime” with you. If someone buys an initial product or service from you for $25, then on average buys 3 more $25 items over the course of their relationship with your company, their “Lifetime Value” is going to be $100.
Again, if you don’t record this data, start recording it. You can use your accounting software, different CRM solutions or whatever you can find to record the data on the total lifetime value of all your customers.
Once you have the Customer Acquisition Cost and the Lifetime Value figured out. Then simply look at the ratio between them. Is your Cost to acquire customers higher than your lifetime value? Or lower?
This equation is going to tell you how effective your marketing is. The idea then would be finding out ways to either increase the lifetime value of your customers, decrease your cost to acquire them, or both.
If you’re not tracking these key pieces of information, start. If you are tracking them, look at the above data and see how effective you are and adjust your plans accordingly.
Once you have this data, you can then lay out strategic plans to improve both of these figures and start booming your business. This will really help in knowing if your Marketing is effective.
Do you have any stories of how you used these figures in your business? I’d love to hear about them. Let me know in the comments below.