Business operational metrics are a quantifiable measure to evaluate success and gather insights into a company’s sustainability. Nowadays, most businesses acquire new customers and sales thru ad views generated by high-quality organic leads.
Online advertising uses operational metrics which include CAC or customer acquisition cost. It is a company’s gauge on how much they spend in acquiring each customer. It is the cost of winning a customer to purchase a product or service. This can be measure thru this formula:
CAC = cost of sales and marketing / number of New Customers Acquired
CAC is often related to LTV – (Customer’s) Life Time Value. It is the predicted revenue that a customer can generate over the course of their relationship with the company.
To calculate LTV, the following variables is needed to plug into the formula:
Average purchase value: Calculate this number by dividing your company’s total revenue in a time period (usually one year) by the number of purchases over the course of that same time period.
Average purchase frequency: Calculate this number by dividing the number of purchases over the course of the time period by the number of unique customers who made purchases during that time period.
Customer value: Calculate this number by multiplying the average purchase value by the average purchase frequency.
Average customer lifespan: Calculate this number by averaging out the number of years a customer continues purchasing from your company.
LTV = customer value X average customer lifespan.
This will provide the estimated revenue expected from a customer over the course of the business relationship. The LTV:CAC ratio should be 3:1. This means that the customer value of customers should be three times the cost of acquiring them. If the ratio turns out to be 1:1 it means ad spending equals as much money on gaining customers as they’re spending on your products.
If it’s higher than 3:1, like 5:1 for example, this shows that you are not spending enough on sales and marketing and could be missing out on opportunities to achieve new leads.
To understand what you want to achieve with your ad campaigns, you also need to check the CPA or Cost Per Acquisition. It is the cost per sale or cost per conversion that indicates how much sales was created by your online ad campaign. It allows you to track and optimize a variety of goals.
CPA (cost per action)= Total “actions” taken / total cost
With this, you’re able to see if the amount you spent on ads is profitable or not. You can clearly see if ad campaigns are well invested which allows you to adjust the cost accordingly.
The branding efforts with today’s digital marketing campaigns can certainly be backed up by digital metrics that can effectively scale marketing tactics.
In sales conversion and brand awareness, defining digital marketing metrics is essential to track and guide campaigns. However, it is best to have a goal first of building a brand that creates a distinct feeling and experience for customers rather than just the usual leads and sales-focused.
Building a strong brand that leverage marketing tactics should be guided by the following questions to be answered first in a strategic way:
- What problem do you solve? How you do it differently? What is your purpose?
- How does your business stand out over the competitors?
- Have you laser-focused on a specific audience who has the same values?
- Is your brand voice distinct, consistent, and recognizable?
- Do you have a clear and compelling brand messaging to support your content?
These guide questions can certainly point to a wider customer reach. After all, a well-recognized and loved brand is the most valuable asset beyond any metrics.
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