The Essential Metrics Every Marketer Should Know
If you’ve watched any Food Network at all, you’re likely familiar with celebrity chef Robert Irvine and his show “Restaurant: Impossible”. Each episode profiles a struggling restaurant where Irvine and his crew swoop in to rehab the floundering enterprise with an updated menu, fresh decor, and a crash course in operations.
It’s a great show.
Unsurprisingly, many of the turnarounds are about the owners not having a good sense of their numbers. As is true in many industries, if you’re losing money on every customer, you shouldn’t plan on being in business very long.
The reality is, if you don’t understand the key metrics for your business, and know them well, you can’t possibly make good business decisions. This is especially true of marketing, where an endless array of advertising and promotional choices vie for our limited marketing dollars.
For the purposes of this article, we’ll focus not on how to analyze campaign performance but on what happens after an advertising campaign generates a lead. That’s where the serious numbers begin. As the final months of the year traditionally herald the beginning of a new budgeting cycle for most marketers in the manufactured housing industry, there’s no better time to brush up on some essential marketing metrics and focus on the most important marketing channels in the year ahead.
Cost Per Lead (CPL)
Quite simply, Cost Per Lead, or CPL, is the cost of generating a prospect. To calculate your CPL, divide your marketing spend by the number of leads acquired during the same period. You can calculate CPL at the campaign level, which is valuable for benchmarking campaign performance, or across all of your marketing channels as an overall benchmark. Of the two, analyzing CPL at the campaign level makes the most sense as it enables comparisons between marketing campaigns or channels. This enables you to identify the most cost-effective campaigns and make more effective budgeting decisions.
Lead Conversion Rate (LCR)
Your Lead Conversion Rate, or LCR, measures how successful you are in turning a prospect into a customer, whatever a customer represents to your particular part of the industry. In the case of a retailer, it would be a sold home. For a community, it would be a new resident. It is calculated by dividing the total number of conversion activities divided by the total number of leads, multiplied by 100. At the individual campaign level, it allows you to determine the ultimate effectiveness of specific ad campaigns or channels. At the organizational level, it reflects the effectiveness of your entire customer acquisition process.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost, or CAC, measures all the expenses associated with bringing in a customer. This includes everything from advertising media costs to labor, production, sales commissions, and overhead. It is important to understand CAC to enable you to focus on the methods of customer acquisition that are most cost effective. Using this approach, it might make sense to pay a higher cost per lead from one lead source if the total acquisition cost is lower, compared to a lower-priced lead that incurs higher overall acquisition costs.
Average Customer Value (ACV)
This is an easy one. It’s how much a customer spends on average per transaction during a given point of time, such as over the course of a year or the term of a lease. If you’re a retailer, you typically have a large, one-time sale to a customer, so you need to calculate your average home selling price. If you’re a supplier, you would calculate your average customer value by adding up the average value of each transaction, multiplied by the frequency of orders over that time interval. For a community, you would calculate the value of the monthly lease multiplied by the lease term.
Average Customer Lifespan (ACL)
Average Customer Lifespan measures how long a customer stays a customer. This metric is important for two reasons. First, it is a component of calculating the lifetime value of each customer, either individually or in aggregate among all customers. Second, it provides important insights into customer turnover, or churn, which is the portion of customers that cease to be customers over a specific time period. To determine your ACL, first calculate the number of days between the first activity that created a customer and the last activity of that customer to determine an individual customer lifespan for each customer. Then total all the customer lifespans and divide by your total number of customers to arrive at the ACL.
Lifetime Value (LTV)
Not to be confused with Customer Lifetime Value (CLV), which measures the lifetime value of an individual customer, Lifetime Value, or LTV, measures the average lifetime value of all customers in aggregate. Arguably, it is the most critical metric of all because it shows how much you can afford to spend on customer acquisition and retention. LTV helps you make informed decisions about marketing initiatives as well as evaluate investments that improve customer value. That said, there are several ways to calculate LTV. In its most straightforward form, the calculation is to take your Average Customer Value (ACV) and multiply it by your Average Customer Lifespan (ACL). To get the most accurate number, however, you will also want to multiply the final number by your gross margin. To illustrate, if you determine that the lifetime value of a customer is $15,000 with a 30 percent gross margin, then your LTV is $5,000.
There are many enviable goals in marketing, visibility, and awareness among them. In the end, it comes down to one thing: what makes the cash register ring. By understanding these key metrics, you too can make better marketing decisions to make that register ring louder and more often. Oh, sweet music.
