As a business leader do you know what your marketing ROI is? And how you should measure and optimise it?

by | Feb 27, 2024

How do you know if your marketing team is doing a good job and are constantly optimising their efforts? 

The key is in the metrics. As a business leader it can sometimes be overwhelming to try and understand your marketing analytics; Bounce rate, Average session time, click through rate etc. These are terms that most marketers should understand, but are they relevant to the CEO or Managing Director? They are good to know, but they are not necessary. As the business leader, all you need to understand is your Marketing Return on Investment (ROI).

The key question is: How much am I spending and how many leads and customers am I getting in return?

To better understand how to answer this question we need to explore two main metrics that every business should measure: Cost Per Lead (CPL) and Customer Acquisition Cost (CAC):

1. Cost Per Lead (CPL)

Cost Per Lead (CPL) shows, in finance terms, how efficient your marketing department is at generating leads. It’s like asking, “What’s the price tag on each person who shows interest in what we’re offering?” It’s a simple equation:

CPL = Total Cost of Campaign/Number of Leads Generated

However, there are some intricacies. To understand which campaigns are working more efficiently than others the CPL needs to be calculated on a campaign by campaign basis. This is something you might do monthly if you’re running multiple campaigns at once, or you might do it at the end of a single campaign; if it is a one off. Of course, you can also do it periodically across all campaigns to get a high level view of lead generation optimisation over time.

Think of it as the financial health check for your marketing efforts. How much are you investing to get someone’s attention? It’s a simple way of figuring out which marketing tactics are scoring leads and which ones are just breaking the bank. 

So, when you’re deep-diving into your marketing stats, don’t skip CPL. 

2. Customer Acquisition Cost (CAC)

Customer Acquisition Cost tells you how much it costs you on average to obtain a new customer; as opposed to CPL which tells you how much each lead costs. CAC is a lever that you can use to measure how effective your sales team is at converting leads to customers or how good your leads are in terms of their propensity to close. 

To calculate your CAC use the following formula:

CAC =(The cost of sales) + (The cost of marketing)/New customers acquired

CAC should be calculated as part of your monthly marketing analytics as it provides a good indicator of how well your sales and marketing team is optimising its efforts; especially over time.

What’s the point of measuring CPL and CAC?

Your CPL and CAC can provide valuable insights into the effectiveness of your marketing, whether it is improving or not over time and how well your marketing team is working at optimising its efforts.

There are a lot of different areas that could drive up your CPL and CAC; however, some key things to consider are:

  1. If your close rates are low, then maybe the leads your marketing department are generating are not very well qualified (CPL might be low, but CAC might be high)
  2. You sales process needs to be reviewed (Low CPL, High CAC)
  3. Lead volume is low and work needs to be done to improve the number of leads marketing is generating (High CPL, High CAC)

The answer could lie in a combination of these areas. CPL and CAC are key marketing indicators that can highlight problems in your sales and marketing. They are also great bench marks that indicate improvement over time. If these metrics are trending down over time then you can be confident that your Sales and Marketing function is doing a good job.

In addition, CPL and CAC are quantitative indicators that can alert you to a problem. The answers to the problem normally lie in additional analytics and conversations with your team. A good marketing manager or lead should be across this.  

So, as a business leader, you don’t need to worry about…

  • Unique Visitors 
  • Bounce rate and average engagement time
  • CTR (Click Through Rate)
  • Social Media Engagement
  • Downloads
  • % of traffic / inbound leads
  • Brand mentions and PR coverage
  • Email campaign engagement rates
  • Landing Page engagement metrics
  • Top performing content pieces

Your marketing team should be all over these data points (and plenty of others). 

If you feel like you or your marketing team is in the dark about understanding Marketing ROI and how to improve it then maybe a Flipside Marketing Coach can help. Contact me to learn more