I recently came across a Forbes article that discussed the misperception of marketing in Silicon Valley. The article explains that in many tech companies, any part of the company that isn’t tech-driven (marketing, HR, even operations and business development) is considered secondary. The author suggests that marketing isn’t taken seriously at these companies because the main hiring focus is on securing the best and brightest coders and designers, not marketers. It makes no sense to me why companies wouldn’t want the most talented marketers growing the company’s potential new business and generating the best possible leads.
Now, this is just the perspective of a few people in Silicon Valley, but that doesn’t mean this isn’t occurring elsewhere. And a lot of it might have to do with marketing not taking itself seriously enough. Marketing is just starting to understand the power of quantifying its efforts and contribution to the bottom line, but if you want to be taken seriously by the “numbers departments” (sales, C-suite, development), it’s time to start speaking their language. Technology is no longer just for the developers and the designers. Marketers have a ton of powerful tools at their fingertips to prove their contribution to the company’s success in a way that makes sense to leadership.
But where should you start? Here are five proven metrics that CMOs and other marketing leaders should be measuring and reporting to quantify marketing success:
- Cost of customer acquisition (CAC): This is the total cost associated with getting a customer to purchase your product or service. CAC is your total marketing and sales costs (research, marketing and sales salaries, advertising spend, even bonuses and commission), in a given time period. The ideal CAC differs depending on the size and growth strategy of your company, but in general a lower CAC means that you are able to invest immediately into acquiring more customers (and grow faster).
- Customer lifetime value (LTV): LTV is the projected dollar value that a company will derive from a customer during their entire relationship. Marketers that can focus on this value prove that they are invested in the long-term growth and happiness of customers. LTV is calculated by taking the revenue a customer brings in for a certain time period, subtracting out the gross margin, and dividing it by the estimated churn % (customer’s rate of cancellation).
- Ratio of LTV to CAC: Once you have CAC and LTV, you can determine the value of a customer compared to what you spent to acquire that customer. This is important for companies with a recurring revenue stream. Typically a higher ratio is better, meaning your sales/marketing efforts have a high ROI. But a ratio that is too large can mean you should be spending more on sales and marketing so you can grow faster.
- % of MQLs that yield qualified demos: Marketing automation systems can help identify how many leads that are generated are coming from the marketing effort—contact form submissions, social media conversions, newsletter sign-ups, and content downloads. Tracking the percentage of these MQLs that turn into sales-led demos help you to gauge marketing’s contribution to the sales effort.
- % of MQL demos that become customers: The same way you can track the percentage of MQLs that turn into demos, you can identify the percentage of these demos that turn into customers. While there are many factors that play into a deal than just leadà demoà win, this is a clean-cut way to prove marketing’s contribution to a company’s bottom line: increased revenue.
It’s time for marketing teams to take themselves seriously and start reporting their contribution and success in a way that the rest of the company can understand and appreciate. When you can objectively measure marketing campaigns and strategies and how they affect the company’s bottom line, there really is no way for marketing to be treated as a secondary business function.