Essential Metrics for a Smarter Marketing Spend
The best way to get smarter about how to invest your marketing dollars is to document and measure what’s happening now in your business. Once you’ve measured, you can then improve. Here are three metrics to measure in your marketing:
The first step is to look at all your marketing costs. They may be in one account or several. Some of the places to look for marketing expenses include:
- Advertising – for online or print ads, trade shows, sponsorships, and other advertising costs
- Dues and subscriptions – for membership fees to networking and professional associations
- Education – for marketing training
- Marketing – for obvious reasons
- Office supplies – for graphics subscriptions and fees
- Payroll, salaries, and wages – for allocation of employee time spent on marketing projects
- Printing and postage – for flyers and direct mail
- Professional fees – for marketing consultants, coaches, designers, and writers
- Software/Technology – for marketing software and apps
- Travel – for trade show or conference attendance
Once you have aggregated these costs, you’ll have a good idea of what you’re spending on marketing and you can calculate the first metric: Marketing Spend. The formula is:
Total marketing costs / total gross revenue = Marketing spend
This gives you a percentage.
Most companies spend five to ten percent on marketing. Higher growth companies will spend close to ten percent, and stable growth or slow growth companies will spend close to five percent. Large companies will spend more, from nine to 12 percent of gross revenues, than small companies. There may also be benchmarks for your specific industry, which you can find by reviewing trade publications and websites.
CAC – Cost to Acquire Customer
Next, you’ll look at how much it costs on average to acquire one customer. To compute this, count the number of new customers for any period of time, and use this number in the following formula:
Total marketing costs / number of new customers = CAC
Revenue per Customer
Revenue per customer is a good measure in many companies. It can tell you how much, on average, a customer will spend at your company over a period, adding up all the orders, projects, visits, or engagements for that customer. The formula is simple:
Total revenue for a period / total number of customers for the same period = Revenue per customer
A similar metric that’s valuable is how much a customer will spend at your company in their lifetime. That’s called CLV or customer lifetime value. Use the same formula above but compute it based on the longest period of time you have records for.
When you can compare revenue per customer or CLV with CAC, you can determine how much you can afford to spend to acquire new clients.
Let us know if we can help you calculate these metrics so you can become wiser about how to invest your marketing dollars.