As a HubSpot Certified Agency Partner we frequently write guest blog posts that are published on the HubSpot blog. This post originally appeared on The HubSpot Insiders blog, a section of the Inbound Hub.
Marketing has become a craft routed in metrics, analytics and dashboards. Every aspect of digital marketing can be measured, analyzed and optimized. As more business processes move online the reliance on measurability and analytics cascades across the enterprise.
In today’s digital, data-driven business environment, marketers need to think about more than just website visitors and social media shares – they need to understand how their efforts affect other areas of the business and ultimately the bottom line. Numbers don’t lie!
Understanding these six business analytics will help you optimize your lead generation activities, build more sales pipeline, retain more customers and drive more revenue.
1) Cost of Customer Acquisition
In revenue oriented businesses, the goal of marketing is to attract new leads and nurture them into paying customers. Cost of Customer Acquisition (CoCA) is the average amount of sales and marketing expenses you invest to acquire a single customer.
In our multi-channel world, it is important to understand the CoCA for each channel and re-allocate investment in marketing initiatives accordingly. CoCA can be calculated for each channel, revealing which channels are the most cost effective for customer acquisition.
How to calculate CoCA
CoCA is calculated by adding up your total Sales and Marketing costs, including all advertising expenditures, salaries, commissions, and overhead during a time period and dividing by the number of new customers generated in that time period.
(Total Sales & Marketing Costs) / Number of New Customers
2) Customer Lifetime Value
Have you ever wondered how much you should be investing in marketing? Understanding how much revenue each new customer will generate will help you properly set your marketing budget and control customer acquisition and retention costs.
Customer Lifetime Value (CLTV) is the projected gross margin that a customer will generate during their lifetime. This takes into account not only the initial purchase, but also factors in how much a customer is likely to spend in the future as they purchase replacement products, continuous service or complementary products and services.
How to calculate CLTV
In order to calculate customer lifetime value you need three things:
- The amount a customer pays you in a given period
- How much margin you make from that sale
- The cancellation rate, or repurchase rate of that type of customer
To calculate CLTV you take the revenue the customer pays you in a period, multiply by the gross margin, and then divide by the estimated churn % (also know as cancellation rate or repurchase rate) for that customer.
So, for a customer who pays you $100,000 per year where your gross margin on the revenue is 70%, and that customer type is predicted to cancel at 16% per year, then the LTV is $437,500.
$437,500 = ($100,000 * 0.70 ) / 0.16
CLTV = (Revenue * Gross Margin) / estimated churn
3) Customer Retention
For most businesses the cost of retaining an existing customer is far less than acquiring a new one. Customer retention (also known as net churn, customer turnover or customer attrition) measures the percentage of customers who continue to do business with your organization.
For B2B marketers customer loyalty can be hard to achieve. B2B buyers are under constant budget scrutiny. Buyers can change roles or leave the company at any time.If your product or service gets cut from a buyers budget, lengthy negotiation may be required to regain their business due to the longer sales cycles typical of many B2B organizations.
With that said, it is that much more important for B2B business to understand their customer retention rate and constantly be monitoring it for fluctuations.
How to calculate Retention Rate
Retention Rate = ((CE-CN)/CS)) X 100
CE = number of customers at end of period
CN = number of new customers acquired during period
CS = number of customers at start of period
4) Value of Pipeline Generated
Value of pipeline generated measures the contribution to pipeline growth from each lead generation channel. Understanding how each channel contributes to lead generation targets helps organizations identify which channels provide the highest quality leads and the best ROI.
Having access to this data is crucial to understanding what is working and what is not.
How to calculate Value of Pipeline Generated
Value of pipeline generation is an example of a closed loop metric- sales information needs to flow back to marketing department in-order for this to be calculated.
Typically when a lead is generated through a marketing owned channel (like social media or organic search) there isn’t an estimated pipeline value. A lead could download a white paper or request a free trial, but until a sales representative qualifies the opportunity you won’t know the estimated contribution to sales pipeline.
If you have integrated your marketing data with a popular CRM such as Salesforce, it is quite easy to measuring each channel’s contribution to pipeline. In order to do so you will need two things:
- The original source of each lead – easily synced from HubSpot
- The value of the sales opportunity – A standard CRM function
Within your CRM you can set up a dashboard that reports these numbers back to the marketing department in a timely manner.
5) Quantity of Pipeline Generated
Quantity of pipeline generated measures how many opportunities entered the pipeline. Essentially, uncovering how many eggs you have in each basket. For example, if you generated $600,000 of pipeline last month that could be made up of one $600,000 opportunity or twelve $50,000 opportunities – when you apply your close rate to the two scenarios the outcomes are very different.
One $600,000 opportunity with a close rate of 50% has two possible outcomes – $0 or $600,000
Twelve $50,000 opportunities with a close rate of 50% (in theory) should result in approximately $300,000 in top line sales.
How to calculate Quantity of Pipeline generated
Measuring the quantity of pipeline generated is just a basic count of the number of new sales opportunities in a given time period. This is a basic function of any CRM software.
6) Close rate
Close rate measures the percentage of leads that you convert into customers.
For most B2B organizations close rate measures your sales team’s success of closing leads, while eCommerce close rates typically measures the percentage of website visitors that make a purchase.
Drilling down further, close rates can be measured for each lead source to determine which sources generate the most fruitful leads. For example, leads generated from cold calling aren’t necessarily equal to those leads who have independently sought out your website and downloaded a whitepaper. Inbound leads may in-fact have a much higher close rate than outbound efforts.
How to calculate Close Rate
Close rate = number of new customers in time period / number of leads in time period
The Bottom Line
Which business analytics does your marketing team focus on? Do you have any examples of industry specific analytics that weren’t covered in this post?