Marketers deal in all kinds of metrics. But not all metrics are created equal. Some are useful, some are not. Vanity metrics give marketers a bad rap and devalue marketing efforts. You’d be fooling no one with meaningless data, because CEOs can see right through it.
Entrepreneur and author Eric Ries correctly says, “Vanity metrics wreak havoc because they prey on a weakness of the human mind…Actionable metrics are the antidote to this problem. When cause and effect is clearly understood, people are better able to learn from their actions”.
Popular vanity metrics include statistics like numbers of social media followers, page views, and subscribers. They look great on paper, but they don’t move the needle in terms of your revenue goals. They are almost always impressive and positive numbers, but they offer no direction for future marketing decisions.
Rather than get attracted to the low-hanging fruit of vanity metrics, you’d need to ask yourself, “What is the meaning behind this number? Can I dig deeper for a more actionable answer? Should I focus on a certain channel over another?”
In this article, we highlight 5 Digital Marketing Metrics we believe CEOs care about, and how to measure them.
1. Customer acquisition cost (CAC)
Customer acquisition cost, in short, is your best idea of the total cost of acquiring a new customer.
This is a crucial metric to master because it helps you to understand the level of resources that you’d need to keep your company attracting new customers to continue its growth.
How to calculate customer acquisition cost
To work out your CAC, simply apply the total cost of sales and marketing efforts, and divide it by the number of new customers:
Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of New Customers Acquired.
Remember that your cost of sales would include things like ad spend, salaries, creative costs, technical and production costs, publishing costs, and creative inventory maintenance.
One important thing to always remember about CAC is that your data comes from different sources at different times, so you might be operating at two speeds with your measurement. Short term measures like daily or weekly volumes give you one picture, but it often takes a longer view, quarterly or annually, to get a full sense of things.
2. Cost per lead (CPL) by source
A lead is a potential customer that has arrived through one of your marketing channels. You now know how to contact them by phone or email.
Qualified leads are the best leads because the individual has in some way expressed a need for your services. They have given you a buying signal which shows a desire to find a solution to their problems.
Leads come from anywhere. They could come from your digital marketing channels or by means of a business card received at a live event.
To get a better handle on your CPL, you’d need to be able to find out exactly which channel your leads came from.
Traditional channels like billboards and radio are harder to measure, but digital channels offer an excellent way to find the source of your leads. Whether its online bidding you are using, or cost per click, there is a clear trail that tells you where you got your leads from.
How to calculate cost per lead
The key is to find out how many leads (normal or qualified) you got from a campaign, then once you do that, you’d find the formula is easy:
Cost Per Lead = Total cost of the campaign divided by the number of leads generated.
3. Customer lifetime value (CLV)
As we’ve said in our previous blog post, retention is cheaper than acquisition. It’s in a company’s best interest to keep customers on board for as long as possible. CLV predicts how much revenue marketers can expect from a single customer over a specified amount of time.
This is a useful tool for marketers to be able to identify customer segments that could be the most lucrative to target. These can inform the allocation of your marketing budget.
How to calculate customer lifetime value
CLV models are a little tricky to work out. In basic terms, there are two types of models—historical, and predictive.
Historical models simply take historical purchases, divided by the number of customers who made these purchases over a period of time. The drawback of these models is that they assume that consumers make roughly the same number of purchases and they have the same consumer behaviour.
But we know that consumer behaviour is always changing, which is why predictive CLV measures are best. But they also tend be a lot harder to calculate. In general, to work out the predictive CLV, you’d want to find the following measures:
- Average number of transactions per month
- Average order value
- Average gross margin
- Average customer lifespan in months
Then, depending on the exact method you use, apply your churn rate for lost customers. Other predictive CLV methods call for the application of a discount rate to account for inflation. Sounds confusing? Check out this resource for more ways to accurately calculate CLV.
Knowing your CLV can inform your business decisions. Starbucks worked out that over a 20-year period, their average CLV was $25,272. This allowed them to plan a new store rollout.
Likewise, Netflix found out that a typical subscriber stayed with them for 25 months and had a CLV on $291. Using this information, they were able to go ahead with online streaming.
In 2013, Amazon Prime worked out that their average member spent $1350 annually, more than double other Amazon other customers. Based on this, they focused on Prime users and drove profits upwards.
4. Conversion rates
Conversion rates are the percentage of visitors to a website that are converted, meaning that they act out what you want them to do. This conversion rate could be anything, such as converting customers to buy a product, signing up for a membership, or subscribing to a mailing list.
How to calculate conversation rates
To calculate your conversion rate, divide the number of conversions you get over a time frame by the total number of people who visited your website. Then multiply this by 100%.
Conversion rate = Conversions divided by total visitors X 100%
Marketing attribution is the process of determining which marketing tactics had the greatest impact on sales or conversions. In our digital age, attribution becomes very difficult to measure because of the overabundance of information and customer contact points.
Marketers need to become familiar with advanced marketing attribution information that aggregates consumer data from different channels.
For example, if a consumer sees a display ad and an email campaign, they may only convert after seeing a promotion in the email. Marketers would need to note that the email campaign had a bigger impact in landing the sale than the display ad.
How to calculate attribution
To achieve the level of detail needed for effective attribution, you’d need access to advanced analytics platforms. There are several great marketing attribution tools on the market. Using machine learning and AI, they take away all the hard work of data collection and manipulation. If your team invests in a marketing attribution tool, you’d need to ask the following questions:
- Can the program give cross-channel insights?
- Can you get visibility into branding impact?
- Can you get person-level insights for traditional channels?
- Can you get real-time insights to help you steer a campaign?
- Can you get information on external factors that affect campaigns?
- Do you receive quality analytics for presentation purposes?
Simply knowing your page views and click-throughs will not impress your CEO. Marketers might get away with presenting isolated data points in catch-up meetings, but they do nothing to tell you or your company if you are getting ROI from your marketing campaigns.
To make yourself a more effective marketer who adds demonstrable value to your organisation, you need metrics that tell a story and show you a quantified picture of your marketing efforts.