“All that glitters is not gold”. You have heard that saying many times before in many situations. However, I’m sure you don’t hear it often in digital marketing. Companies, big and small, often allocate a big budget to their marketing campaigns, thinking they have to spend money to make money. The problem is, most are throwing money out the window without getting much in return. For a long time, it was not easy to track the results of your marketing campaigns. However, as technology evolved, now it would be a sin if you start a marketing campaign without properly setting up tracking first.
If you have worked with a digital marketing agency, you would probably have been dazzled by all the metrics and KPIs that appear in their reports. They may look so promising on the screen and make you believe they did a good job, but do they actually reflect the real progress of your marketing campaign? It’s easy to get dazzled by vanity metrics that actually prevent you from attributing marketing to revenue.
Vanity Metrics vs. Growth Metrics
It’s easy to get excited when seeing the page view and unique visitor numbers go up, however, how much do these contribute to your bottom line? Can you arrive at the Return on Investment (ROI) for the campaign from reading those numbers? It’s very easy to obtain vanity metrics in large numbers, partly because they are readily available on all platforms. We are talking about impressions, views, bounce rate, time spent on site, comments, likes, shares, followers, and the like. They may look great on paper and make you think you are killing it with the campaign, however, their effects fade when you have to use them to arrive at important business metrics like customer lifetime value (CLTV) or ROI. If you want to make every penny spent in marketing well worth it, you have to start discerning what metrics are important to your company’s growth in the long run and what’s not.
Hold Your Marketing Team Accountable for Revenue
First thing first, instead of considering your marketing department as a cost center, start giving them more responsibility than just brand awareness and leads. This way, they’ll start thinking in terms of revenue whenever setting a campaign. With marketing automation tools such as HubSpot’s attribution reporting, now it is easier than ever to classify your effort and see how much of it turn into revenue for the company.
To hold marketing accountable for your revenue and profitability goals, there are a few important points to keep in mind:
- Make sure you keep track of your marketing budget by following the right budget KPIs such as Customer Acquisition Cost (CAC) or Ratio of Customer Lifetime Value to CAC (LTV:CAC). These KPIs allow us to see a pattern in our marketing spending/overhead. From the pattern that repeats over time, we can form pretty accurate predictions about future expenditures. Your long-term goal would be to maximize ROI by bringing down the CAC, for example.
- Proper lead attribution will help you know which marketing efforts work and what don’t. This way, you know exactly where to optimize. It also helps you understand every phase of the buyer’s journey better and adjust the content/approach accordingly. Without proper attribution, you may end up scratching your head looking for bottlenecks in the buyer’s journey that prevent you from converting a prospect.
- Historical data is where you should look if you want to optimize your ROI and increase revenue over time. Once the campaign has been running for a while, the data you collect will be enough for you to make sensible conclusions about what’s going on and which direction to take.
Understand What Key Metrics to Keep an Eye On
Customer Acquisition Cost (CAC)
If you add up all the costs spent to acquire customers and divide that by the number of customers acquired during that period, you’ll come up with the CAC. For example, if you spent $10,000 in August on marketing campaigns and got 100 new customers during this month, your CAC is $100.
Time to Payback CAC
As the name suggests, this metric tells you how much time it takes for you to make back the money you spent on acquiring a new customer. This metric is less relevant when you have a one-time upfront payment business model. However, if you have a recurring monthly subscription model, this metric is important since it tells you how much time it takes you to become profitable for each signed-up customers.
Marketing-Originated Customer Percentage
Customers may come across your business from a variety of sources. This metric keeps track of how much percentage of your new customers comes to know you as a result of your marketing efforts.
Marketing-Influenced Customer Percentage
This metric is similar to the above metric. However, it adds in the percentage of customers choosing to close the deal/make a purchase under the influence of your marketing campaign at any point during the buyer’s journey, not just the origin of the lead like previous one.
Customer Lifetime Value (CLTV)
This is basically how much revenue an average customer will bring you during the entire duration of the relationship. You surely don’t want this number to be higher than the CAC.
Ratio of Customer Lifetime Value to CAC (LTV:CAC)
If it costs you on average $100 to acquire a new customer and that customer can bring you on average $400 during the lifetime of their relationship with you (until they terminate their subscription, for example), you have a LTV:CAC of 4:1. Your objective is to bring this ratio up since it means your marketing efforts are bringing in better ROI. If you have no idea how to calculate the above KPIs or they don’t even appear in your marketing report, it’s time to start taking action and making changes. In this digital age when everything can be measured with increased accuracy, throwing your money away on marketing campaigns without properly tracking how it affects your bottom line will do your business no good in the long run. Contact us today if you need help growing your business following the right marketing approach!
