Companies spend a lot of money on lead generation in pursuit of fuller funnels and better sales pipelines. These companies are excited about quantity-focused metrics such as social media impressions, hits to the website, or the number of contacts in the CRM. These “vanity metrics” often keep them spending money even when sales results continue to fall short of expectations. Does this sound familiar? What you really need to know is how to lower CAC with data.
What is Customer Acquisition Cost?
Customer acquisition cost, also known as CAC, is a measurement of how much you spend to bring in each customer. You can determine your CAC by dividing your total marketing expenses by the number of acquired customers over the same time period.
While quantity-focused metrics justify marketing budgets and feed egos, they are not necessarily indicators of sales growth. In fact, more prospects in your pipeline who are not sales-ready leads will increase your Customer Acquisition Cost (CAC) and decrease your Sales Conversion Rate (SCR). So, how can you reverse this trend and still grow sales? By using real numbers from the onset of your strategy – metrics that are true indicators of lead generation successes.
10 Metrics for How to Reduce CAC
Lead generation is a primary justification for marketing and business development budgets, but how do you measure whether or not those initiatives contribute to meaningful sales results?
At Atomic Revenue, we use several different lead generation metrics and KPIs for each stage of our clients' goals based on our revenue operations model - from the very beginning, throughout the process, and at the end. Here are a few minimum "go-to" key performance indicators, or KPIs, that we endorse for effective marketing management and lower customer acquisition costs.
We've broken down the CAC metrics into 2 purposes - to measure CAC metrics & sales conversion rates. Let's get started with CAC management metrics.
5 Customer Acquisition Cost Metrics for CAC Management
Cost of Lead Acquisition (CLA) by Source:
Total Cost of Source ÷ Total # of Leads from Source = CLA for Source (repeat for other lead sources).
Digital Traffic to Lead Ratio:
Time it Takes to Close by Source, Market Segment, and Product Type:
Marketing Qualified Leads (Lead-to-MQL Ratio)
Both the cost of lead generation and the quality of lead generation significantly impact your CAC, therefore a more pin-pointed lead is crucial to significantly lower costs. Using these metrics, you can reach your goals in a more measurable and profitable way.
Marketing KPIs for Managing Sales Conversion Rate
Lead generation fuels your sales engine – bad leads waste lead generation dollars and set your sales team up for failure. It’s important to understand that the only way to produce ROI in marketing is to help your sales organization succeed. Without sales, you cannot fund your next big marketing initiative. And simply getting leads is not enough.
Thanks to well-directed digital marketing, sixty-two percent (62%) of a B2B buying decision is made before the potential customer ever meets a sales rep (Gartner, 2015). The next step is to harness that advantage and close the deal or “convert” that quality lead.
Converting quality leads to sales takes more effort than spending your budget on random digital marketing that you think “might be working” and hoping that 62% mentioned above happens to buy on their own. The good news is, you can calculate this opportunity and make it happen!
To make good economic decisions about how to best deploy your marketing dollars specific to the Sales Conversion Rate (SCR) and the market’s ability to impact that key sales measurement, take a look at these metrics and answer the following five questions:
5 Critical Lead Generation Metrics for SCR Management
Originated Customer Percentage
Sales Qualified Leads (MQL-to-SQL Ratio):
Sales Accepted Leads Percentage:
Marketing Engaged Leads Percentage:
Growth Rate in SCR by Source and Segment:
If you can answer these questions with honesty and real numbers, a pattern will emerge and become clear. This is where you need to make changes in your lead generation and sales conversion strategies for a higher CSR.
Quality Over Quantity
Here at Atomic Revenue, we support our clients’ profitability using KPI management. We know that quantity matters, but we’ll take quality over quantity any day when it comes to profitable and scalable growth.
If you don’t know your Customer Acquisition Cost (CAC), first get a handle on that key metric. Then consider what marketing and sales KPIs you should be monitoring to control your Sales Conversion Rate (CSR) and CAC. These numbers should not be ignored – they equate to profitability and real growth.
If you’re interested in learning more about our KPI Management services, don’t hesitate to reach out to us! We offer a free Revenue Assessment to help launch your business to the next level. (314) 439-1280