6 Critical Marketing Metrics CMOs Need to Measure

As a CMO, you’re constantly challenged to demonstrate the return on investment (ROI) of your marketing efforts. It’s crucial to focus on key performance indicators (KPIs). 

This article highlights six critical marketing metrics every CMO should monitor closely. By tracking these metrics, you can gain valuable insights into your digital marketing campaigns’ effectiveness, identify improvement areas, and ultimately drive business growth.

1. Customer Acquisition Cost (CAC)

The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer.

How To Calculate CAC

Take your total sales and marketing spend for a specific time period and divide it by the number of new customers for that time period.

Sales and Marketing Cost = Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter, or year

New Customers = Number of new customers in a month, quarter, or year

CPC Formula: sales and marketing cost ÷ new customers = CAC

Let’s Look at an Example:

Sales and marketing cost = $300,000

New customers in a month = 30

CAC = $300,000 ÷ 30 = $10,000 per customer

What This Means and Why It Matters

CAC illustrates how much your company is spending per new customer acquired. You want a low average CAC. An increase in CAC means you are spending comparatively more for each new customer, implying a problem with your sales or marketing efficiency.

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2. Marketing % of Customer Acquisition Cost

The Marketing % of Customer Acquisition Cost is the marketing portion of your total CAC, calculated as a percentage of the overall CAC.

How To Calculate The Marketing % of CAC 

Divide all your marketing costs by the total sales and marketing costs you used to compute CAC.

Sales and Marketing Cost = Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter, or year

Marketing Costs = Expenses + salaries + commissions and bonuses + overhead for the marketing department only

Let’s Look at an Example:

Marketing Cost = $150,000

Sales and Marketing Cost = $300,000

M ÷ CAC = $150,000 ÷ $300,000 = 50%

What This Means and Why It Matters

The Marketing % of CAC can show how your marketing team’s performance and spending impact your overall Customer Acquisition Cost. An increase in M% of CAC can mean several things:

• Your sales team could have underperformed (and consequently received) lower commissions and/or bonuses.
• Your marketing team is spending too much or has too much overhead.
• You are in an investment phase, spending more on marketing to provide high-quality leads and improve your sales productivity.

3. Ratio of Customer Lifetime Value to CAC

The Ratio of Customer Lifetime Value to CAC is a way for companies to estimate the total value they derive from each customer compared to the cost of acquiring that new customer.

How To Calculate the LTV:CAC

To calculate the LTV:CAC, you’ll need to compute the Lifetime Value and the CAC and find the ratio of the two.

Lifetime Value (LTV) = (Revenue the customer pays in a period – gross margin) ÷ Estimated churn percentage for that customer

Formula: LTV:CAC

Let’s Look at an Example: 

LTV = $437,000

CAC = $100,000

LTV:CAC = $437,000:$100,000 = 4.4 to 1

What This Means and Why It Matters

The higher the LTV:CAC, the more ROI your sales and marketing team delivers to your bottom line. However, you don’t want this ratio to be too high, as you should always invest in reaching new customers. Spending more on sales and marketing will reduce your LTV:CAC ratio but could help speed up your total company growth.

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4. Time to Payback CAC

The Time to Payback CAC shows you how many months it takes for your company to earn back the CAC it spent acquiring new customers.

How To Calculate Payback CAC

Calculate the Time to Payback CAC by taking your CAC and dividing it by your margin-adjusted revenue per month for your average new customer.

Margin-Adjusted Revenue = How much your customers pay on average per month

Formula: CAC ÷ Margin-Adjusted Revenue = Time to Payback CAC

Let’s Look at an Example: 

Margin-Adjusted Revenue = $1,000

CAC = $10,000

Time to Payback CAC = $10,000 ÷ $1,000 = 10 Months

What This Means and Why It Matters

In industries where your customers pay a monthly or annual fee, you normally want your Payback Time to be under 12 months. The less time it takes to pay back your CAC, the sooner you can start making money from your new customers. Generally, most businesses aim to make each new customer profitable in less than a year.

5. Marketing Originated Customer %

The Marketing Originated Customer % is a ratio that shows what new business is driven by marketing by determining which portion of your total customer acquisitions directly originated from marketing efforts.

How To Calculate Marketing Originated Customer %

To calculate Marketing Originated Customer %, take all of the new customers from a period and tease out what percentage of them started with a lead generated by your marketing team.

Formula: New customers started as a marketing lead / New customers in a month = Marketing Originated Customer %

Let’s Look at an Example:

Total new customers in a month = 10,000

Total new customers started as a marketing lead = 5,000

Marketing Originated Customer % = 5,000 / 10,000 = 50%

What This Means and Why It Matters

This metric illustrates the impact that your marketing team’s lead generation efforts have on acquiring new customers. This percentage is based on your sales and marketing relationship and structure, so your ideal ratio will vary depending on your business model. A company with an outside sales team and inside sales support may be looking at a 20-40% Margin Originated Customer %, whereas a company with an inside sales team and lead-focused marketing team might be at 40-80%.

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6. Marketing Influenced Customer %

The Marketing Influenced Customer % considers all the new customers that marketing interacted with while they were leads, anytime during the sales process.

How To Calculate Marketing Influenced Customer %

To determine overall influence, take all of the new customers your company accrued in a given period and find out what % of them had any interaction with marketing while they were a lead.

Formula: Total new customers that interacted with marketing / Total new customers = Marketing Influenced Customer %

Let’s Look at an Example: 

Total new customers = 10,000

Total new customers that interacted with marketing = 7,000

Marketing Originated Customers % = 7,000 / 10,000 = 70%

What This Means and Why It Matters

This metric considers the impact marketing has on a lead during their entire buying lifecycle. It can indicate how effective marketing is at generating new leads, nurturing existing ones, and helping sales close the deal. It gives your executives a big-picture look into the overall impact that marketing has on the entire sales process.

Marketing Metrics Your CEO Will Love 

We track so many data points to understand what’s working and what’s not; it can become easy to lose sight of the most important. Reporting on your business impact doesn’t mean you should no longer pay attention to site traffic, social shares, and conversion rates. It simply means that when reporting your results to your executives, you must convey your performance in a way your C-suite can get excited about.

Rather than discussing the per-post engagement rate on Facebook and other lower-priority metrics, use the six metrics detailed in this guide to report how your marketing program led to new customers, lower customer acquisition costs, or higher customer lifetime values. When you can present marketing metrics that resonate with your decision-makers, you’ll be in a much better position to make the case for budgets and strategies that will benefit your marketing team now and in the future.

Looking for additional digital marketing support? At SMA Marketing, we partner with CMOs to develop custom digital marketing strategies. Contact us to learn more.