You don’t need to know how an internal combustion engine works to be able to drive. But understanding the basics can help you to identify any possible issues early on. It also helps you to know when your mechanic is taking you for a ride! The same is true for your business. You don’t need to micromanage every aspect of your marketing team, but understanding the following metrics can help you and your team see eye-to-eye and, ultimately, curate a better strategy!
Here’s a list of the metrics we will be taking you through:
- Cost per Lead
- Lead Close Rate
- Conversion Rates by Channel
- Cost per Acquisition
- Landing Page Performance
- Average Order Value
- Customer Lifetime Value
1. Cost per Lead – CPL
The first step to any marketing campaign is figuring out how much each lead costs to obtain. A lead is obtaining a potential customer’s name and email. This is then passed onto your sales team, who either close the deal or put them into a funnel to close at a later date.
Calculating your CPL allows you to identify whether your current amount of ad spend is justified. Or to put it another way, whether you are generating enough leads to justify your current ad spend. While generating a lead is one of the main things you should be aiming for, it is important that each lead generates a profit.
2. Lead Close Rate
Your LCR is the rate at which your leads convert to a sale.
Having more leads is always a good thing, but unless you’re effectively converting those leads into sales then there isn’t really a point to them. Your main goal should be transforming those leads into actual sales. This metric hones in on your sales team’s ability to do just that. Through this metric, you’ll be able to see whether your sales approach needs to be updated or whether your campaign and sales team need to be better synchronised.
Need more and better leads to improve your CPL and LCR%? That’s when we jump in!
3. Conversion Rates by Channel
This formula helps you to calculate your conversion rate according to each channel. You should focus on each channel individually and optimise it to the best of your ability.
So you’ve started a campaign across Facebook and Linkedin, for instance, but you’re unsure which channel is more successful. Using this formula, you’ll be able to calculate which channel has more of an impact on converting online audiences into leads. By measuring the conversion rate per channel you can quickly perform a SWOT analysis and capitalise on your strengths and optimise your weaknesses. Don’t throw money down a broken funnel!
4. Cost per Acquisition – CPA
Your cost per acquisition refers to how much each new client costs to acquire from a specific campaign.
Let’s say you ran a €500 campaign which netted you 100 new customers. Your CPA would be €5. By itself, a CPA doesn’t tell you much. Just how much each new client costs. However, when you take your CPA and compare it to CLV (Customer Lifetime Value) you can see whether your client is likely to spend more over their lifetime with you. So if your CLV is €50, you’re still making a €45 profit from each customer – meaning your campaign was quite the success. But, if your CLV is lower than your CPA, ie: your customer is going to spend less than it costs to acquire them, that’s a sign that you need to rethink your approach.
5. Landing Page Performance
It’s important to note that a landing page is NOT your home page or contact page, rather, it’s a custom made page that shares the same message as the campaign that leads to it and has one single purpose, to get a lead!
There are a lot of things to measure when it comes to the performance of your landing pages: Bounce rates, CTR, conversion rate, conversion assists, etc. Fortunately, you’ll be able to see these directly from your Google Analytics account! Here’s a list of 8 important ones:
- Landing Page Views
- Sessions by Source
- Goal Completions/Conversions.
- Visitors-to-Contact Ratio
- Average Time on Page
- Bounce Rate
- Pages Per Session.
- Top Pages By Pageviews.
Through rigorous A/B testing you will be able to implement the most successful variants of each. Remember, each step of your funnel costs a percentage of your marketing dollar, so be sure to spend time optimising each step as best you can.
6. Average Order Value (AOV)
AOV provides information on the average amount a customer spends on their order. Enabling you to forecast your future budgets according to your amount of leads and cost per acquisition.
Knowing how much your customers spend on average helps you to identify buyer patterns. Think of it as a benchmark of customer behaviour. If you’re selling three products of €15, €20 and €30 and the AOV is €21, then your customers are buying multiple items and most of your sales are made up of cheaper items. Through AOV you’ll be able to segment your customers into different categories based on their spending. This allows you to create a more tailor-made approach for each segment. Whether that means nudging them to purchase additional products throughout your sales funnel or creating a campaign to target a specific segment of your customers.
7. Customer Lifetime Value (CLV)
CLV is the total worth of your customers over the course of their entire relationship with you. Think of it as a numerical indicator of customer loyalty.
For example, let’s say that one customer generated €1000 of profit across 3 years. That’s €3000. You’d also need to subtract what you spent to acquire them, that’s your CPA. Let’s say that’s €350. That means that that particular customer has generated €2650 over 3 years. This allows you to calculate how much you ought to invest in improving your customer experience.
Your CLV is crucial to make any financial decisions related to your customers. Whether that means how much it costs to acquire your customers in the first place (CPA) or how much you ought to invest in retaining your existing customers. The last thing you want to do is end up spending more to acquire or keep a customer than your projected returns from them.
A high CLV is a sign of a strong and healthy company, one that is looking to achieve sustainable growth. Keeping your customers happy is one of the key ways to improve your CLV.
Metrics for your Digital Campaign
So now that we have an understanding of the theory, how does this apply to your business? When you start a digital marketing campaign it’s important that you regularly check its progress. This is especially true during the first few days of your campaign. Once you start gaining leads calculate how much each lead costs and how frequently you are converting a lead into a sale. Your main goal should be to generate a profit from each one, although this is never as easy as it seems.
Every step of your business’ growth is an opportunity to learn. It’s unlikely that you’ll get it right on your first try. By calculating which channel is best at converting you’ll be able to invest more of your hard-earned cash into the channels that are more successful. Remember, A/B testing is an ideal way to tweak and fine-tune your campaign.
Once your campaign has reached its end, take a look back and see how that campaign could have been improved. By calculating the Average Order Value and the Customer Lifetime Value, as well as other data you have collected, you’ll be better equipped to budget your next campaign and improve its performance – ultimately improving your profits!
If you want to find out more about how to improve your company’s profitability through savvy digital marketing, have a look at some of the other resources available on our site.