In 2017, I stepped into my first management role, as an E-commerce Manager for a beauty brand. At the beginning of this new role, I found it difficult to choose which marketing metrics to keep to show my boss the impact of my marketing actions.

I was going into too many details, showing him marketing metrics which in reality were only of interest to me and my team. I'm thinking about traditional marketing KPIs such as traffic, conversion rate, social media followers, email subscribers, etc.

This is a challenge widely shared by marketing leaders, since 68% of CMOs say their biggest challenge is to prove the impact of marketing actions on financial outcomes.

Here is a shortlist of 8 marketing metrics that should really interest your management. You will find their definition and their use cases. All with simple explanations and without too much jargon!

Cost per Lead (CPL)

It is useful if...

You'd like to demonstrate how cost-effective your marketing campaign is when it comes to generating new leads.

Why is it important?

The CPL alone won't tell you much. You need to compare it to the revenue generated by these leads. Performing a channel-by-channel CPL analysis and comparing it to the revenue generated by each channel will allow you to better allocate your marketing budget.

CPL Calculation

cpl formula

Customer Acquisition Cost (CAC )

It is useful if...

This marketing metric is useful if you want to show the cost of convincing a customer to purchase a product or service.

The difference between the CPL and the CAC is that the CPL calculates the cost of generating a new LEAD while the CAC calculates the cost of acquiring a new CUSTOMER. The CPL is part of the CAC.

Why is it important?

It is used to measure the scalability of the business, by comparing how much money can be generated VS the cost of acquiring the customers.

This metric has no meaning by itself. It has to be compared to the Customer Lifetime Value.

CAC Calculation

cac formula

Customer Lifetime Value (LTV or CLV)

It is useful if...

You need to prove how much money a customer is expected to spend in your business during his lifetime.

Why is it important?

In order to have a successful business model, a customer needs to spend more than the cost it took to acquire them. It means that your LTV must be higher than your CAC.

Knowing your LTV allows you to know how much you can comfortably spend on customer acquisition.

Customer Lifetime Value Calculation

There are many different ways to calculate Customer Lifetime Value. Here are two ways of calculating it:

Basic LTV Calculation

It is very easy to calculate, but it is not the most accurate. It is enough for most e-commerce businesses and is easy to calculate even if you're just getting started with measuring customer insights. 

ltv formula

Traditional LTV Calculation

It is much more complex to calculate. I advise you to use it only if you need a precise valuation and that you have all the necessary elements for its calculation.

If you don't know what is your business' Discount Rate, I advise you to skip this paragraph :)

LTV = Average Gross Margin Per Customer Life Span x (Customer Retention Rate / (1 + Discount Rate - Customer Retention Rate))

With each element being calculated as follows:

  • Average Gross Margin Per Customer Life Span = Average Annual Customer Spend X Average Customer Life Span (in Years) X Profit Margin

--> It equals how much profit each customer provides during their lifespan.

  • Discount Rate = (Future Cash Flow / Present Value) 1/n - 1

--> It is the interest rate used to determine the present value of future cash flows.

  • Customer Retention Rate = # Active Users Across Period / # Active Users in the Previous Period

--> It is the % of customers who repurchase within a given time period when compared to the preceding time period.

Marketing Originated Customer %

It is useful if...

You'd like to showcase the % of leads generated by marketing, as this metrics' name suggests :)

Why is it important?

It allows you to show the value of marketing, that is to say, how much of the business grew thanks to marketing.

Marketing Originated Customer % Calculation

marketing originated customers

Ratio of Customer Lifetime Value to CAC (LTV:CAC) 

It is useful if...

You wish to highlight the value of a customer over their lifetime compared to the cost of acquiring them.

Why is it important?

This ratio allows you to know if your marketing efforts are worth it. If this ratio is lower than 3, you might want to rethink your marketing investments.

Ratio of Customer Lifetime Value to CAC Calculation

As you may guess, this formula is pretty obvious 🙂

ltv cac ratio formula

CAC Payback Period

It is useful if...

You'd like to demonstrate the number of months it takes for your business to earn back what was spent on acquisition.

Why is it important?

If users are churning before you’ve earned the initial investment back, it is a signal that something is not working in your marketing funnel.

CAC Payback Period Calculation

cac payback period

Return on Marketing Investment (ROMI)

It is useful if...

You need to show how much revenue a marketing campaign is generating compared to its cost.

Why is it important?

It is particularly useful if you want to showcase the effectiveness of a given advertising campaign.

ROMI Calculation

romi formula

Note that this metric can be difficult to measure. While it is generally easy to measure the investment, it is much more complicated to correctly measure the campaign revenue. Marketers usually run multiple campaigns at once and attribution models can be tricky to master.

Net Promoter Score

It is useful if...

You would like to highlight the percentage of customers likely to recommend your business, service or product to someone.

Why is it important?

It is a way to measure your customers’ loyalty.

NPS Calculation

To calculate your NPS, you first need to ask your customers the following question:

On a scale of 0-10, how likely it is that you would recommend [Insert Product/Service/Business Name] to your [friends/family/colleagues] ?

Once you have collected hundreds of responses, you'll be able to rate your customers based on their answers:

  • Customers rating you 6 or below are considered Detractors.
  • Those rating you 7 or 8 are Passives.
  • Those rating you 9 or 10 are called Promoters.

You can now calculate your NPS Score:

net promoter score formula

The score obtained is between -100 and +100, 100 being the best NPS score possible.

What about you?

This was the list of the 8 metrics marketings which are (according to me) the most interesting for your boss. What do you think? What are the metrics that you show in priority to your management when you want to demonstrate the impact of your marketing actions?