When you visit a doctor for an annual checkup, three things always happen:

• Height check

• Weight check

• Blood pressure check

Those simple metrics help assess your overall health.

In marketing, there are also essential measurements. And in the previous post, we highlighted THE MOST IMPORTANT MARKETING METRIC:

Your marketing must make you more money than it costs you.

Yes, it’s simple but often overlooked.

But let’s build on that foundation with two other key metrics. When considering marketing measurement, these should be carved into advertising's Mount Rushmore:

• Customer Acquisition Cost

• Customer Lifetime Value

These numbers never lie.

Okay kids, we’re gonna do a little number-crunching. But never fear, Uncle Brian will keep it simple (because I can’t do complex math).

Customer Acquisition Cost (CAC) is how much it costs to turn a lead into a customer.

Let’s say the Acme Shave Club spent $50,000 in Facebook ads to promote their monthly razor program.

The campaign nets 8,500 new sign-ups.

For each sign-up, they mail a free package containing a handle and two razor blades. The postage and materials costs them $3.00.

A super-basic formula looks like this:

CAC = Total Marketing + Sales Expenses / # of New Customers Acquired

In our example:

CAC = $50,000 (marketing) + $25,500 (expenses: 8,500x$3) / 8,500 (sign-ups) = $8.88

Acme spends $8.88 to acquire a new customer.

Customer Lifetime Value (CLV) is how much a customer spends with you over the long haul.

Acme Shave Club hopes to keep the customers it just acquired.

Their monthly subscription program is $6, and the monthly margin per customer is $4.50.

According to research, the average customer sticks around for three years (36 months).

The basic formula looks like this:

CLV = Average Order Value x Purchase Frequency

In our example:

CLV = $6.00 (monthly order) x 36 months (average purchase frequency) = $216

Acme’s customer lifetime value is $216.

If you take into account all 8,500 new customers, it plays out like this over three years:

• Initial Marketing expenses: $75,500

• Customer Acquisition Cost: $8.88

• Customer Lifetime Value: $216

• ROI: $1,836,000

Would you say Acme’s marketing works?

Without the full picture, an inexperienced marketer might think, “What? You’re spending $75,500 on one campaign?!”

But the wise marketer thinks, “With this investment, Acme can reap a 2,432% increase!”

Get disciplined with your key measurements.

• Your marketing must make you more money than it costs you

• Know your Customer Acquisition Cost

• Know your Customer Lifetime Value

Go sell some razors.

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