I've got a fun little thought experiment for you…
A series of weekly videos shared on Facebook generated 15 new customers for you over the course of a month. Pop quiz: is that result worth the effort you put into it?
There's no way of knowing: You need to identify acquisition costs, marketing spend, lifetime value, and more; you need to compare stat A with stat B. In short, you need to put the data into context.
A very common mistake entrepreneurs make is not having a full grasp of their numbers.
Here are your 3 most important marketing statistics:
- Customer Acquisition Cost (CAC)
- Customer Lifetime Value (CLV)
- Return on Investment (ROI)
If you aren't tracking these three numbers, you could be in big trouble…
You might be spending thousands on blog posts or infographics and assuming it's worth those seven new clients you picked up, but is it really worth it?
Your CAC is the total cost of convincing a prospect to purchase your product or service. It includes all relevant expenditures, such as research, marketing, and support services and tools.
The simplest way to calculate CAC for a set period of time (weekly, monthly, annually) is this:
CAC = Total Marketing Costs (TMC) / Total New Customers (TNC)
When considering CLV, you can work in either historic (after the fact) or predictive figures.
To calculate the historic CLV, you add up every transaction from the first (T1) to the most recent (Tn), and then multiply by the average gross margin (AGM is sales revenue minus the cost of goods sold, divided by total sales revenue; it's expressed as a percentage).
CLV [Historic] = (T1 + T2 + T3…+ Tn) * AGM
To find your (simple) predictive CLV—arguably the more valuable figure—try this formula:
CLV [Predictive] = ((T x AOV) * AGM) * ALM
…where T is the average number of monthly transactions, AOV is the average order value, ALM is the average customer lifespan in months, and AGM is the average gross margin.
The resulting dollar figure gives you a best-guess estimate on how much you can expect from each acquired customer over the length of that customer's relationship with you.
Once you know your CAC and CLV, you can examine the return on investment, and break it all down by specific marketing channels.
To find your basic ROI:
ROI = (CLV – CAC) / CAC
So, a lifetime value of $200 with an acquisition cost of $50 yields an ROI of 300% [(200-50) / 50 = 3, or 300%].
Now you can simply…
Examine the CAC and ROI for each channel you use (company blog, Facebook, Instagram, Twitter, LinkedIn, and so on) to see what drives the biggest bang for your buck so you can optimize marketing budgets, allocation, and overall goals.
Read more at www.marketingprofs.com
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