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 still frequently hear from my CMO peers that they are struggling to find the right metrics that will get them credibility with the CEO and CFO, and show the real contribution of marketing to the bottom line.
I think the best marketing metrics look at the total cost of marketing, including program spend, salaries of the team, 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 the net results, not the interim steps. This list of metrics is meant to focus on the most critical measures of marketing that your CEO will likely want to discuss with you.
Here are some metrics I've found useful over the past 5 years at HubSpot while growing our company, working with our CEO and CFO, and talking with our board members. I don’t have all the answers -- so please add your favorite metrics and thoughts on these metrics in the comments.
The 6 Marketing Metrics Your CEO Wants to See
1) Customer Acquisition Cost (CAC)
This is your total Sales and Marketing cost -- add up all the program or advertising spend, plus salaries, plus commissions and bonuses, plus overhead -- in a time period, divided by the number of new customers in that time period. That time period, by the way, 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 % 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 % of overall CAC. The M%-CAC is interesting to watch over time, and any change signals that something has changed in either your strategy, or your effectiveness.
For instance, an increase either means that 1) you are spending too much on marketing, 2) that sales costs are lower because they missed quota, or 3) that you are trying to raise sales productivity by spending more on marketing and providing more and higher quality leads to Sales.
For a company that does mostly outside sales with a long and complicated sales cycle, M%-CAC might be only 10-20% . For companies that have an inside sales team and a less complicated sales process, M%-CAC might be more like 20-50% . And for companies that have a low cost and simpler sales cycle where sales are somewhat humanless, the M%-CAC might be more like 60-90% .
3) Ratio of Customer Lifetime Value to CAC (LTV:CAC)
For companies that have a recurring revenue stream from their customers -- or even any way for customers to make a repeat purchase -- you need to estimate the current value of a customer and compare that to what you spent to acquire that new customer.
To compute the LTV, you need to take the revenue the customer pays you in a period, subtract out the gross margin, and then divide by the estimated churn % (cancellation rate) for that customer. So, for a type of customer who pays you $100,000 per year where your gross margin on the revenue is 70%, and that customer type is predicted to cancel at 16% per year, then the LTV is $437,500.
Now, 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 your Sales and Marketing have a higher ROI. Higher is not always better though ; when the ratio is too high, you might want to spend more on Sales and Marketing to grow faster, because you are restraining your growth by under-spending, and making life easy for your competition.
4) Time to Payback CAC
This is the number of months it takes you to earn back the CAC you spent to get a new customer. You take the CAC and divide by margin-adjusted revenue per month for the average new customer you just signed up, and the resulting number is the number of months to payback. In industries where customers pay one time upfront, this metric is less relevant because the upfront payment should be greater than the CAC, otherwise you are losing 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 under 12 months, meaning that you become “profitable” on a new customer in under a year, and then after that you start making money.
5) Marketing Originated Customer %
This ratio shows what % of your new business is driven by Marketing. To compute it, take all of the new customers you signed up in a period, and look at what % of them started with a lead that Marketing generated. This is much, 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 % 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 20-40% ; for a company with an inside sales team that is supported by a lot of lead generation from Marketing, it might be 40-80% ; and for a company with somewhat humanless sales, it might be 70-95% .
Note: You can also compute this percentage using revenue, not customers, depending on how you prefer to look at your business.
6) Marketing Influenced Customer %
This is really similar to the Marketing Originated Customer %, but it adds in all the new customers where Marketing touched and nurtured the lead at any point during the sales process, not only by originating the lead. For instance, if a salesperson found a lead but then the lead attended a marketing event and then later closed, that new customer was influenced by Marketing. This % is obviously higher than the "Originated" percentage, and for most companies I think this should be between 50% and 99% .
Your Marketing Metrics Cheat Sheet
What metrics do you discuss with your executive board, CEO, and board of directors? Have I missed any key metrics? Do you have any comments on these metrics?
Image credit: Goynang
Inbound Marketing Blog Feed
David 9:21 AM on January 15, 2013
We are a manufacturing company that sells through a dealer network. We are not focused on growth of new dealers, but growth of sales to existing dealers.
What is the best way to figure out when we gain a new customer? Should we just use the number of units shipped as the number for a new customer?
Margo Winter 9:24 AM on January 15, 2013
Mike's got it right. Marketing's responsibility is to drive new business. 1. Increase new customers. 2. Increase revenue from existing customers. That's it. Simple, but very challenging. Good CMOs will think like their CEOs and look for the most cost effective methods to drive increasing customer base and average revenue from customers.
Gaining and holding the attention of our prospects is the quintessential marketing challenge. Finding creative and effective ways to stand out from our competitors will never become static because as each marketing tactic proves successful, our competitors will adopt that tactic, rendering that marketing effort no longer unique in the competitive landscape. Reading blogs by marketing leaders like HubSpot and MRWconsult.wordpress.com help marketers stay on the cutting edge of emerging marketing trends.
vin 9:48 AM on January 15, 2013
Does Net Promoter Score (NPS) factor in? If not, shouldn't it? In fact, shouldnt your NPS drive your investment in marketing or sales spend? I think the question becomes one of what your company stands for. You can be profitable with a low NPS. But, your profit comes delivered with miserable customers and miserable employees.
prashant ranjan 10:13 AM on January 15, 2013
Google adsense provides us approximately all data what a CEO wants to see however the complication involves and further analysis is missing or even if available is not easy to get through for a novice presenter.
Eddie 10:42 AM on January 15, 2013
Inbound Traffic and Leads Calculaotr link broken:
Invalid URL
The requested URL "/cs/c/?&cta_guid=ae807391-8524-4655-810a-87f45ce8bb8a&placement_guid=7de797a8-41db-413b-8ff7-cd7b684911c3&portal_id=53&redirect_url=UMQEO96Mi/2mYs59RIoH0a4hsupq/XYWLziPwii8I6D5R1k1yEckoQ%3D%3D&iv=ocK/vri6hzQ%3D", is invalid.
Reference #9.7d9dfea5.1358264434.53650b
Nancy S 10:55 AM on January 15, 2013
Good information
Ana Rivas 7:41 PM on January 15, 2013
Excellent list, what first struck me is item number one,"customer acquisition." Usually placed last, which may explain why a lot of small businesses think marketing is just an extra expense rather than a must for a business. These are the kind of article we need to show small businesses, easy to understand with valuable information.
Sheetal Sharma 11:54 PM on January 15, 2013
I think today's marketers have to be abreast of everything happening in the market.Especially when it comes to cost, the measure of numbers assumes all the more importance.CMO's have to play a calculated game to ensure marketing objectives fall in line with organizational goals, at the same time work in a direction which brings much needed appreciation and accolades for the team.Kulwinder Singh-CMO at Synechron definitely knows the how to use marketing matrix.
Carlos Dieter 1:27 AM on January 16, 2013
Great list Mike. You face these challenges every day. I see it even with my clients, which are mainly beverages and cpg companies. The bottom line is you have to be able to create insights from whatever metrics or research you have. The are no bad metrics. The challenge is what insight you can come up with by cross referencing metrics, and that requires a great amount of time and perspective when going through numbers and analytics.
Manish Goyal 6:01 AM on January 16, 2013
I feel metrics are just the broad guidance providers to the marketers but are not able to provide any specific decision making abilities on strategic issues like share gain or fight competitive battles or margin pressures.
This requires a whole new science which can combine all the data points and help business in making the right decision and show the real business impact. More often CMO's who deal with us have the same pain point... " So what should I do with all this" and our answer is ..unless we are able to identify all the factors that affect your growth and look them from a single lens you will not be able to identify the pain point and cure it.
The piece meal approach will never enable you to capture the holistic market understanding and you will always remain in a fire fighting mode
Dwight Galler 9:16 AM on January 16, 2013
Hmmmm...are these metrics based on actual CEO surveys/feedback? They seem a bit involved in this quarter to quarter sales world we live in. In terms of ROI, I like cost of campaign vs. business generated. My past CEO's seemed to like this as well.
Al King 1:15 AM on January 17, 2013
Obviously written my a non qualified marketeer. Try brand awareness (spontaneous recall is best) and brand association (are your messages getting through?). Even the most marketing averse CEO gets them and wants them.
Sangeeta Kumar 3:40 AM on January 17, 2013
The last two factors: Marketing Influenced Customer and Marketing Originated Customer matter a lot in online businesses. These factors really determine the value of the services an internet marketing company provides especially in near human-less sales. Its nice to have benchmarks set by an authority. Thanks
Saulk 12:28 PM on January 17, 2013
For Marketing originated customer% and marketing influenced customer%, what is the reasoning behind the "good" ranges you came up with? Are they at all related to marketing budget or the Marketing% of CAC? ie. I would think that the higher Marketing % of CAC is the higher you'd hope/expect those numbers to be. Is there a rule of thumb based on your company's current investment in marketing?
John Manlove 10:07 AM on January 18, 2013
These metrics are all excelent and drill down to the bottom line of cost. For comoditized products or highly competitive services these are the "all important numbers". However for products and services that depend on differentiation and image the goals are less tangible and longer term. In these cases the CAC is less important from a Brand Positioning perspective because the goals are different.
Jay Garstecki 3:50 PM on January 18, 2013
Anyone who is selling through a dealer network, needs to support its dealers with "local targeted marketing" and "measurable results". This is very attainable through online marketing automation tools. Not only does it give your dealers co-branded marketing abilities, it gives YOUR company marketing metrics/success. Very easy to report response rates & ROI.
Jay Garstecki 3:51 PM on January 18, 2013
Anyone who is selling through a dealer network, needs to support its dealers with local targeted marketing and measurable results. This is very attainable through online marketing automation tools. Not only does it give your dealers co-branded marketing abilities, it gives YOUR company marketing metrics/success. Very easy to report response rates & ROI.
Jay Garstecki 3:54 PM on January 18, 2013
Anyone who is selling through a dealer network, needs to support its dealers with local targeted marketing and measurable results. This is very attainable through online marketing automation tools. Not only does it give your dealers co-branded marketing abilities, it gives YOUR company marketing metrics/success. Very easy to report response rates & ROI.
Prakash Gurumoorthy 7:00 AM on January 19, 2013
Nice list- the challenge is measuring them and analyzing them on a quarter on quarter basis. The metrics can vary on some industries but that should not be the focus- Usually in an endeavour to figure the right metrics, lot of time would go in and by that time the metrics would be redudandant. For SMB's this is fairly easy to implement but for an enterprise, getting all these data which are encapsulated in multiple systems is a project by itself!
Petter 5:22 AM on January 22, 2013
Isn't the name CAC a bit misleading since revenue and cost for existing customers is also used throughout all these examples? Also it would mean that CAC upfront would seem more expensive than it actually is right?
Frank Wehrmann 11:59 AM on January 22, 2013
Wow, is this so simplistic it's scary. What about all the off-line contributions, and the residual impact of previous events and campaigns. As well as "Acts of God". I've seen sames store sales double YOY because the competition burned down - or left town. While I "get" MBO, all the top brands that I can think of would have been scrapped by those who do not have and cannot see long term - 5-10-15 years into the future. Further, my background is in media. For years numbers like this have been used to justify the medium's place in the plan by obliquely arguing ROI. In most cases the ROI math did not stand up to scrutiny because in marketing there are so many variables you do not control. Nuff said.