With the rise of more refined reporting for marketing, CEOs and Business Owners need to know precisely what to have included in Marketing ROI reports.
They need to be ahead of the terminology that marketing fling around. It’s all about acronyms, and you can quickly feel they are talking a foreign language.
The bottom line for management is knowing the ROI on any marketing spend and their effort to improve the sales business. Can they justify marketing effectiveness and what ROI formulas they use to calculate the ROI.
Let’s cut through the acronyms that are most commonly used and contribute directly to the Marketing ROI.
Why Is Marketing ROI Important?
Today, business is about measurement, and when you are investing in marketing campaigns and initiatives, you need to have hard evidence to prove its impact on the company. It also provides insights into how the money can be allocated in the future and potential return on investment.
Most marketing campaigns are now digital marketing making it much similar to measure marketing ROI.
The key is to understand all of the marketing ROI acronyms and formulas. To know what it means to your business, and marketing budget allocation to support the marketing strategy.
These are the key ROI metrics and acronyms you need to know.
Customer Acquisition Cost (CAC)
The focus of your marketing department is to contribute to generating new customers. The efficiency in how those customers are acquired will impact the profitability of the business. You also need to know which tactics were the most productive and profitable. The CAC metric looks at all marketing expenditure focused on acquiring customers to the number of customers acquired. If you can manage the costs with a high ROI on the number of customers, your business will be growing.
Customer Lifetime Value (CLV)
The Customer Lifetime Value is a metric that everyone in a business needs to know. The retention of profitable customers is the core of any business and its overall value. Those customers define the projected revenue and profit of a business.
For subscription-based services, you measure the length of the subscription and the average monthly fees.
For products and services businesses, you can measure average monthly sales revenue per customer by the average number of months the customers remain with you.
Cost Per Click (CPC)
For digital marketing, this is often a misleading measure. If measured in isolation, it can seem to be a high performing area of marketing. You also need to bear in mind that for CPC, you are also focusing on whats happens after the advertisement is clicked on. CPC is a contributor but not a full value measure.
The measure is the actual price it costs you for each click on your advertisements. You can measure this by the total expense of clicks divided by the number of clicks over any given time.
Optimally, you are looking for a low cost with a high number of clicks.
Click-Through Rate (CTR)
Like CPC, this is a contributing measure that needs to be viewed as part of a group of actions and outcomes. CPC and CTR are easily measured in Google AdWords, LinkedIn and similar platforms and can look productive.
CTR is the number of times your advertisement appeared in front of an audience and the number of times the advertisement was clicked. That provides your click-through rate.
Cost Per Action or Acquisition (CPA)
The intent of CPA is to calculate how much it costs for a person to fill out a form. This is an average cost and not a per form or action cost. You calculate the cost by using total Ad Spend divided by the number of conversions or actions.
Cost Per Lead (CPL)
This is an important Marketing ROI metric that determines the amount of money you spend to generate a lead. The calculation is total ad spend divided by the number of leads generated.
The important point of the leads is they must be qualified and not just any person that filled in a form or made a telephone call. Incomplete forms, low-value enquiries and incomplete contact information or uncountable people should be removed from the calculation.
The lead value in quality is measured by the closing ratio of lead to a sale. You need to be focused on quality vs. quantity.
Lead Velocity Rate (LVR)
This metric shows how quickly qualified leads move through the pipeline. The quicker your qualified leads turn into customers, the better for your company. This metric supports you are delivering high-quality sales leads that the sales team can convert to a deal.
To calculate this metric, you need to use the date created and the date closed in your CRM. You can also break down those timelines to lead to proposal and proposal to close, but this often measured by sales too.
Return on Investment (ROI)
As a business owner or CEO, you need to understand the contribution of your marketing department in terms of return on investment. Is the allocation of funds being spent wisely, and is there a measurable return on investment? Can marketing demonstrate their performance of campaigns to lead generation and, in turn, leads generated to sales? What value did they bring to the business?
If marketing is looking to increase their marketing spend, these marketing ROI calculations should appear in their business case when applying for increased expenditure. Spending more money does not improve marketing. If the basic results are not achieved on a low-cost budget, then increased funding will only reflect the same outcomes if similar campaigns run.
Sometimes you need to deep-dive into these measures to be confident your business operates with the required effectiveness.
All of these marketing ROI measures should be reported on each month, but ultimately the ones you want to view closely, on a one-page report, as CEO or business owner are:
- Cost Per Lead
- ROI on marketing spend
- Customer Acquisition cost
- Customer lifetime value
These are the primary measures that ultimately matter to the business. Growth marketers are comfortable with this marketing ROI measurement and understand marketing programs are ultimately about the total revenue generated for the company.
Sales Focus Advisory assists companies in building operational models for marketing and sales. You can reach out to the office to organise a time to discuss your specific needs via our contact form or telephone 1800 699 997
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