Learn how to measure any marketing effort with 3 foundational metrics: customer acquisition cost (CAC), customer lifetime value (CLV), and conversion rate.
As a marketer, it's important to constantly measure and analyze the success of your campaigns. Key performance indicators (KPIs) can help you do just that by providing crucial data points that allow you to track the effectiveness of your marketing efforts. In this article, we'll cover three essential marketing KPIs that every marketer should know: customer acquisition cost, customer lifetime value, and funnel conversion rate.
Customer Acquisition Cost (CAC)
Customer acquisition cost is a measure of how much it costs your company to acquire a new customer. This is an important KPI to track because it helps you understand the efficiency of your marketing campaigns. If your CAC is too high, it may be a sign that your campaigns are not effective or that you are spending too much on marketing. On the other hand, a low CAC indicates that your marketing efforts are effective and efficient.
To calculate CAC, simply divide the total cost of your marketing campaigns by the number of new customers acquired. For example, if you spent $10,000 on performance marketing and acquired 100 new customers, your CAC would be $100.
Customer Lifetime Value (CLV)
Customer lifetime value is a prediction of how much revenue a customer will generate for your business over the course of their relationship with your company. This KPI is important because it helps you understand the long-term value of a customer and allows you to prioritize your marketing efforts accordingly.
To calculate CLV, you'll need to consider factors such as the average purchase value, the average number of purchases per year, and the average customer lifespan. For example, if the average customer spends $50 per purchase and makes 2 purchases per year, and the average customer lifespan is 5 years, the CLV would be $500.
Funnel Conversion Rate
The funnel conversion rate is a measure of how effectively your marketing campaigns are moving potential customers through the sales funnel. This KPI is important because it helps you understand where customers are dropping out of the funnel and allows you to optimize your campaigns to improve conversion rates.
To calculate the funnel conversion rate, divide the number of customers who make a purchase by the total number of visitors to your website. For example, if you had 100 visitors to your website and 10 of them made a purchase, your funnel conversion rate would be 10%.
By tracking these three essential marketing KPIs, you'll be able to better understand the effectiveness of your marketing campaigns and make data-driven growth decisions to improve your results. By focusing on improving CAC, CLV, and funnel conversion rate, you'll be well on your way to maximizing the ROI of your marketing efforts.
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