Hey all! Welcome to my mini-blog series called “Marketing Cheat Sheets.” I wanted to take a bunch of cheat sheets I made for myself and toss them up on the blog incase others might find them useful as well.
In this cheat sheet, you’ll learn about Conversion Rates, Customer Acquisition Cost, Lifetime Value, and Return On Investment.
If you’re a beginning marketer, these will help for sure. If you’re a little more advanced, it’s at least night to have as a quick guide when you need to jog the ‘ol memory.
Conversion Rates (CR)
If you’re in marketing, you know how important conversion rates are. For a recap on conversion rates, it’s tracking how many people took your desired action (like signing up for your newsletter or buying a t-shirt on your website).
To calculate conversion rates, take the number of conversions and divide it by the total number of opportunities.
For example, 100 people visited my newsletter sign up page but only 10 people actually submitted the form. So we’ll take 10/100 = 0.1 (aka 10%). So we had a 10% conversion rate on our sign up form. Knowing and optimizing for conversion rates is always a contributing factor to success in marketing. So remember how to do this! Either get those conversion rates up or get a cheaper acquisition. Either way, this is a key metric to know.
Customer Acquisition Cost (CAC)
How much does it cost you to get a new customer? Yeah, you should know that. Here’s how you figure out exactly what that dollar figure it:
Sales & Marketing Costs / New Customers = CAC
Yes, here’s a real example for you. I spent $10,000 on marketing. In that campaign, I had 5,000 conversions. So I take $10,000 divided by 5,000 to get $2. So my CAC is $2 per customer. Now, that’s a killer benchmark.
For future campaigns, I know that I can get as low as $2 a conversion (if the stars align, that is). So if I want to get 20,000 new customers, I can estimate that I need to spend $40,000.
Got it? Good. Onto the next one…
Lifetime Value (LTV)
So you know how much it costs to acquire a new customer, but does that acquisition cost make sense for your business? That’s where knowing your LTV comes into play.
What do I mean when I say, “does that acquisition cost make sense for your business?” Hey -that’s a great question. Good job asking!
Well, using the numbers above, if you spend $2 to acquire a new customer but you only make $1 off of that customer, that’s no bueno. But if you spend $2 to acquire a new customer but that customer spends $100 over their lifetime with you, that’s super rad news!
Let’s break down how to calculate that.
Average Order Value X Number of Repeat Sales X Retention Time = LTV
Wait, what? Fear not, I’m here to give you a real example. If your average order is $20 and a customer generally places 5 orders with you in a year, that’s $100 total. Let’s say the average customer also orders your products for at least 2 years before no-longer returning.
You would say $20 X 5 X 2 = $200 LTV
Return On Investment (ROI)
What did you get out of the money you put into your marketing? Let’s find out with a super simple ROI calculation.
(Profit - Cost of Investment)/Cost of Investment X 100 = ROI
We can use the numbers above to use for a practical example. Just as a recap, we spent $10,000 on marketing to get 5,000 customers who spent a total of $100,000.
With that in mind…
($100,000 – $10,000) / $10,000 X 100 = X
($90,000) / $10,000 X 100 = X
9 X 100 = 900% ROI.
DAMMMNNN. We did good on that marketing campaign.
If you made it here, CONGRATULATIONS! You’re well on your way to being a marketing metric nerd. Welcome to the club.
Hope this cheat sheet helps you in some small way!
If you want me to post more content like this, email me and let me know!