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Posted on November 6, 2017 | Philosophy Communication
Though our client list boasts diversity, we often find that our clients are tied together by one common thread: they want to boost their revenue by bringing in new customers/leads. To our clients, this can take on many different forms like a subscription to a newsletter, people walking through their physical doors or an email click-through. Even with so many variables at play, it’s still our job to be able to tell our clients if our work is, well, working!
As marketers, we know that there isn’t one magic metric that tells us we’re doing our jobs right. In fact, the list of metrics we use to measure success seems to be never-ending and ever-changing depending on the strategy. However, when we’re looking at the bottom line (whether it be our internal bottom line or our client’s bottom line) there are specific “go-to” metrics we refer to that help explain the impact of our marketing efforts. One metric we always refer back to is the Customer Acquisition Cost (CAC), a metric we use internally (like our clients, we also love new customers/leads) and with our clients every day.
Customer Acquisition Cost (CAC)
What It Is: The Marketing % of Customer Acquisition Cost is the marketing portion of your total CAC, calculated as a percentage of the overall CAC.
How to Calculate It: Take your total sales and marketing spend for a specific time period and divide by the number of new customers for that time period.
Sales and Marketing Cost = Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter or year
New Customers = Number of new customers in a month, quarter, or year
Formula: sales and marketing cost ÷ new customers = CAC
Let’s look at an example:
What This Means and Why It Matters: CAC illustrates how much your company is spending per new customer acquired. You want a low average CAC. An increase in CAC means that you are spending comparatively more for each new customer, which can imply there’s a problem with your sales or marketing efficiency.
How It Makes Us Work Smarter: This metric isn’t something we use after the fact, but rather when we’re in the thick of the planning phases for our clients. For example, Philosophy has hosted a series of brand activation events for national clients. By hashing out a thorough cost-per-lead analysis, this metric helps our agency build out a multi-pronged marketing strategy, which will in turn lead to a successful and thought-out marketing program.
As mentioned, we as marketers have a plethora of metrics we measure ourselves against. For more like this one, click here.
- Philosophy Communication