As a new business owner, it’s very easy for things like marketing metrics to fall low on your list of priorities.
“Easy. I’ll just come back to it later and see how many followers I’ve gotten,” you may find yourself saying, but there are two problems with that:
- Those numbers mean nothing if you don’t know how you got them, and if they’re not converting into sales.
- A habit set late struggles to become a habit at all, leaving the occasional numbers you do remember to track shrouded in smoke and mirrors.
I’ve seen it happen. As someone with over a decade of driving growth for businesses, I know just how important it is to get eyes on these figures early. In fact, it’s always our first priority when taking on new clients at my agency, Edward & James.
Marketing is one of the largest and most important investments your business will ever make… luckily, it’s also one of the functions that you can constantly continue to improve and iterate on, if you have the right foundations in place and know where exactly to look.
For this article, my goal is to help new business owners understand how to track the metrics that actually matter and just how important it is to start doing so early.
The Metrics That Matter
Customer Acquisition Cost (CAC)
While one of the easier metrics to follow, don’t let that deceive you: it is one of the most valuable.
In simple terms: how much does a new customer cost to obtain?
To calculate CAC, all you need to do is take the amount you’ve spent on marketing and sales to acquire your customers and then divide it by the number of customers you have effectively acquired.
This can get complicated in two places: first, when considering time frames–if you have a long conversion period, then you might need to measure marketing spend at day one versus new customers at day 90, for example. Secondly, marketing and sales spend can be imprecise, as some may choose to take into account things like wages, software and general overheads–normally, however, these should be left out as it’s seen as the cost of doing business. Be aware of these costs, but don’t factor them directly into your equation.
Customer Lifetime Value (LTV)
It’s important to establish a target CAC early so that you can see the impact it’s having on your profitability and business goals. But how exactly do you do that?
This is where LTV comes in. Assuming that your business model is one where your customer will be making more than one transaction with you over a period of time, they have a set value throughout their ‘lifetime’ as a customer.
For example, you’re a fund administrator and you’re providing essential services to investment funds. Your typical client is a fund manager and they pay you an annual fee for your services. Based on your internal reporting, your average client lifetime is seven years and you charge £20,000 a year, you have an LTV of £140,000.
That said, this can get more complicated for certain positions like an estate agent or a recruitment agent, where both net sales, timelines and client interactions require a bit more scrutiny.
Ultimately, LTV should offer you a realistic long-term view of how much customers are worth to your business and allow you to set a CAC that is, over time, profitable. That said, remember to check these figures regularly and consider it in context, such as remembering your operating costs and market fluctuations.
Conversion Rate
Conversion rate looks at the number of people who convert to a customer divided by the total size of your audience.
This varies a bit depending on context; for instance, when just thinking about it within the context of website visits, the number would be different and tell more of a story of how your site is optimised. It’s important to track conversion rate over multiple forums.
When considering conversion rate, it’s also important to think about qualified versus unqualified leads; you will have to figure out how you define each.
So, if your marketing efforts bring in 100 leads and you convert to 10 customers (good going!) then you have a conversion rate of 10%. Improving your conversion rate is absolutely critical to improving profitability and lowering your CAC.
What These Figures Mean Together
In summary:
- CAC tells you how much you’re spending to acquire a customer and, most importantly, whether that figure is sustainable.
- LTV provides you with a long-term view of how much value a customer brings to your business over time, and can tell you if your CAC is profitable.
- Your conversion rate will reveal how efficient your sales process is and how effective your marketing is at delivering qualified leads.
When reviewing these figures, remember that sales and marketing work together. One cannot function without the other and it’s a team effort. Your conversion rate directly affects your CAC and overall ROI.
Key Metrics in Context
These aren’t the only metrics you can track – things like follower growth and click through rate on social media tell an important story of their own – but tracking these core three will give you the data-driven foundation to improve your marketing efforts effectively.
And while it’s always better to start the practice early, remember that you can implement tracking later – setting the context will just take longer, as will detecting those patterns. The first best time to start is always day one. The next best is right now.
As you walk away from this mini-masterclass ready to tackle your new business’s marketing metrics, remember these three things:
- Metric tracking needs to be a habit
- Without metrics from early days, context is lost
- Focus on metrics that mean something, not vanity metrics
James Le Gallez is the Founder and Chief Marketing Officer at Edward & James, a qualified marketing consultancy helping professional service providers make confident decisions, execute effectively and grow with intent.
Working across finance, legal and beyond, Edward & James helps professional service businesses get to the strategic heart of their work, whether it be the first week of their company or the thousandth. Get in touch today: [email protected]
