Department store magnate John Wanamaker famously said, "Half the money I spend on advertising is wasted; the trouble is I don't know which half." With inbound marketing, that's not the case. If you're using inbound marketing software like HubSpot, you can measure the effectiveness of every asset of an inbound marketing campaign from calls-to-action to blog posts.
How business owners can measure marketing ROI
If you're a business owner, your primary objective to facilitate effective marketing is to hire the right people to do the job. You don't need to keep up with the latest update to Google's search engine algorithm, you just need to hire either an employee or consultant that does (as well as many other things.)
But how can you know if the time and resources you invest in marketing are producing an acceptable return? Here are six measures you can monitor to measure your marketing ROI and allocate resources on initiatives that are producing a return.
Customer Acquisition Cost (CAC)
This statistic measures the total amount you spend on sales and marketing for each customer, on average. You will obviously manage this metric to be as low as possible. Keep an eye on changes in your CAC - if it's going down, you're sales and marketing is becoming more efficient. If it's going up, you may have a problem in your sales and marketing function.
Marketing % of CAC
This metric helps you understand the relative investment in your sales and marketing functions. Montior Marketing % of CAC to help understand how much your spending on marketing relative to sales. If you're in a high growth mode, you many intentionally increase the metric to generate more leads to fuel future growth.
Ratio of Customer Lifetime Value to CAC
Customer Lifetime Value is a crucial statistic that every business should understand. It's simply the revenue an average customer will produce for your business throughout their business relationship with you. It's particularly important for businesses with recurring revenue models. The higher this number is, the more value your sales and marketing functions are delivering to your bottom line. Don't manage this number to be too high - you could be starving your growth engine of the fuel it needs to produce more business for you.
Time to Payback CAC
This is a measure of how long it takes a customer to become profitable. Generally speaking, businesses with recurring revenue models will want to pay back their Customer Acquisiton Cost in less than twelve months.
Marketing Originated Customer %
This is the percentage of your customers that are the results of marketing originated lead generation efforts, as opposed to sales-generated leads. This helps measure the effectiveness of your marketing efforts.
Marketing Influenced Customer %
Similar to marketing originated customer %, this statistic measures the percentage of customers that marketing touched at any time during the sales process - not just during lead generation.
If you keep on top of these six metrics, you will have a good handle on the effectiveness of your marketing and its contribution to your bottom line. A best practice is to measure your statistics against industry benchmarks and keep an eye open for changes in the stats. As a business owner or manager, you should manage your marketing like you manage your business.
