Alice Oh — August 3, 2017 — August 3, 2017
Photo-Mix / Pixabay
If you’ve ever stepped foot into the marketing world, you’ve surely heard of key performance indicators (KPIs) and how important they are for businesses. They’re essentially metrics that help organizations track their performance against their business objectives and goals. Many marketers get the gist of it, but some have difficulty in adequately understanding which metrics actually matter and are worth tracking.
KPIs are essential for businesses as they are key in driving desired performance and results. However, it’s important for marketers and their teams to evaluate and determine which KPIs are worth focusing on to avoid wasting resources.
Marketers have access to a mass of quantitative data that can become overwhelming and time-consuming to precisely analyze. Only a few data points are valuable in accurately signaling the contribution of marketing to the growth of the business.
Here are two important KPIs your team needs to consider to effectively assess your marketing performance and how to calculate them.
Customer Lifetime Value
Far too often, the value of a customer is only attributed by calculating the revenue driven by their initial order. However, first-time customers may become repeat buyers and deliver additional value by referring their peers to your business or writing positive reviews.
Businesses need to consider the projected net value of the relationship with the customer, and this is where the importance of calculating customer lifetime value comes in.
Customer lifetime value (CLV) is the prediction of the net profit and value a business will derive from a customer throughout the entirety of their relationship, from start to finish.
A sophisticated marketing team will recognize the importance of recognizing CLV as a KPI, set up systems to follow a customer over time, and report on their lifetime value. You can additionally drive CLV by lead nurturing, driving brand loyalty, and building long-lasting relationships with your customers.
Here is a simple formula to calculate customer lifetime value (CLV):
(annual profit contribution per customer) x (average number of years they remain a customer) – (initial cost of customer acquisition)
Cost Per Lead/Customer
How much of your marketing budget does your business allocate toward generating one new customer? Determining your cost per lead/customer (CPL/CPC) is essential in accurately calculating other KPIs and ultimately ROI.
Similar to CPL, cost per acquisition (CPA) and cost per click (CPC) are complex numbers that require the combination of technology and experience in analyzing data.
If your conversion costs as much or more than your customer lifetime value, you know there needs to be improvement.
Here is the formula to calculate cost per lead (CPL) in its most simple form:
total marketing spend / total new leads = cost per lead
Additionally, here’s how to calculate cost per acquisition (CPA):
total cost / total customers acquired = cost per acquisition
Conclusion
While the most valuable KPIs will vary between different companies and industries, there are some universal KPIs your marketing team can’t afford to neglect. If your marketing team isn’t evaluating CPL and CPA to measure your company’s performance, you are missing out on important metrics.
Want to get the full list of the top five KPIs your business should be prioritizing first? Check out and download the complete guide for free!
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