Digital funnel metrics (visitors, leads, and customers)
Business leaders, we know you don’t have time to waste paying attention to the wrong things. But with so much data at your fingertips, how can you be sure the numbers you’re following really convey the health of your business?
At IMPACT, our clients come from a wide range of industries. Despite this diversity, we find that many of them make the effort to measure and track their financial metrics, such as the numbers of new sales they make each month, the dollar value of their sales, the gross profit on sales, and so on.
Instead, many get sidetracked by flashy “vanity metrics,” such as Facebook likes or Twitter followers. These types of metrics may sound critical, but they aren't actual key performance indicators. They aren’t numbers that translate into revenue.
In this article we will explain:
Five revenue metrics you should be tracking
What each one means and why it matters
So, if you’re looking to grow your business and drive revenue, these are five key metrics you should be measuring on your company’s management scorecard.
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1. Customer acquisition cost
What it is: First and foremost, you need to know how much you spend acquiring new customers. To do so, add up everything you spend annually on marketing, including staff salaries, as well as the cost of pay-per-click advertising, marketing agency fees, contractors, the cost of software, etc. Everything.
Next, look at how many customers your marketing efforts bring in each year and divide your cost by that number. That will give you the average amount you spend to bring in each client, also known as the customer acquisition cost, or CAC.
Why it matters: CAC gives you a good overview of your marketing efficacy. For starters, you’ll want to ensure you’re not spending more to acquire your customers than you are profiting from them (see “customer lifetime value,” or CLV, next on our list, for more on this). The larger the gap between CAC and CLV, the greater the company's overall profit.
Knowing your CAC is also important to understand if you are thinking of working with a marketing agency. You need to ask how many customers they expect to bring in for you and how much the service will cost. Look for agencies that can lower your CAC and bring in customers for less than you currently spend acquiring them.
2. Customer lifetime value
What it is: In addition to calculating the cost of customer acquisition, you should also work out how much each customer is worth to your business. This is known as the customer lifetime value, or CLV. Put simply, this is the value that a customer will contribute to your business throughout the entire time they work with you as an active client. This metric can be measured regardless of your sales process or product; it’s just as valuable for customers who make a single purchase that generates a set amount of sales revenue for one (or multiple) purchases or if they’re a subscriber who is a source of monthly recurring revenue.
You can calculate CLV using historical data from past and existing customers. Or, you can use a predictive analysis that considers previous transaction history as well as behavioral indicators.
As a simple example, let’s imagine you sign a customer up for a 12-month contract at $5,000 per month. If the client stays only for one year, the customer lifetime value is 12 times $5,000, or $60,000 in total.
On the other hand, if the average client stays for three years, the customer lifetime value will be three times that much, or $180,000.
In reality, these numbers are more complex, especially for service businesses. Different pricing tiers, upselling opportunities, service fees, and more make this a complex number to track, but it is a critical business metric for understanding your profitability.
You can calculate your CLV manually by selecting a representative sample of customers and doing the math — or you can use your customer relationship management software (CRM) to track this. To do so, however, you need to be sure you’re collecting clean data in your CRM.
Why it matters: CLV goes hand in hand with CAC. If you know how much it costs to acquire a new customer and how much that customer will spend with your business, you can use these numbers as key performance indicators that help you determine profitability.
The goal is to use the data to maximize customer lifetime value in relation to customer acquisition cost.
3. Net customer worth
What it is: Net customer worth puts together the two numbers we’ve gotten above. Once you’ve calculated CAC and CLV, you can subtract the customer acquisition cost from the lifetime customer value to calculate the net customer worth. This is the amount of revenue your business earns from each client, after taking the marketing costs into account.
(This can also be expressed as an LTV:CAC — the ratio of customer lifetime value to the cost of customer acquisition.)
Why it matters: Net customer worth is important because it allows you to define your return on investment (ROI) and develop a more effective growth strategy for your business. If your net customer worth is high, this means that your sales and marketing teams are delivering greater ROI to the company.
The goal isn’t necessarily to get this number as high as possible. In fact, unusually high net customer worth numbers can be a red flag that indicates your customer retention is good but new customer acquisition is suffering. And when that happens, your business won’t grow as quickly.
But you want to see a healthy net customer worth number that shows that your process of acquiring customers is efficient and not too costly.
4. Digital funnel metrics (visitors, leads, and customers)
What it is: It’s important to obtain metrics relating to each stage of your sales funnel. First, how many visitors come to your website each day, week, or month? For most companies, these website visitors make up the majority of people coming into the top of their sales funnel. The larger this number, the more opportunities you have to make a sale.
In addition to tracking how many website visitors you get, you should track how many leads your website generates in that same period, and how many of those leads turn into customers.
Why it matters: If you find yourself on any digital marketing agency website, you’ll probably see the same three words: traffic, leads, and sales.
Inbound marketing is often seen as a numbers game: Visitors come to your website. Some of them become leads. Some of those leads become sales. Logically, if you bring more traffic, you’ll get more customers coming out of the other end of the funnel.
Unfortunately, it’s not always that simple. The wrong traffic will do very little for your overall revenue. A billion visitors without buying intent will swell your metrics and make you feel good, but nothing will come of it.
The truth is somewhere in the middle. Traffic shouldn’t be your utmost goal, but healthy traffic numbers prove that your content is bringing people to your site. Therefore, traffic is certainly a number you should watch.
At IMPACT, we report on traffic every week as one of our KPIs, which we break down further into direct traffic, organic traffic, and referral traffic.
The same thing is true with leads. Not every new contact is a lead, so we differentiate between contacts, marketing-qualified leads (MQLs), and sales-qualified leads (SQLs).
5. Conversion rates
What it is: Conversion rates allow us to measure the percentage of visitors who become leads and leads who become customers. A central principle of inbound marketing is that if you attract enough people to your website, a certain percentage will become leads and a certain percentage of those leads will become customers.
In practice, though, it’s often more complicated. If you’re not getting the right visitors to your site, all the traffic in the world won’t equate to revenue.
Similarly, you’ll have to pay close attention to every variable affecting conversions to maximize your results.
Why it matters: These numbers are critical because they can help you determine where to focus your efforts and get the greatest bang for your marketing and sales buck.
If you believe your content is getting in front of the right audience, conversion rates become your battleground. Making tiny changes — tweaking where you place calls to action, how you phrase them, and how you structure each page of your site — can make a big difference to your conversion rates.
At IMPACT, we guide clients to success with our marketing and sales framework called They Ask, You Answer. To do so, we teach businesses how to take control of their sales and marketing, which requires that they learn exactly which metrics matter and what they should be looking for.
In our experience, the metrics above are the ones that will give you a complete picture of your marketing and sales funnel, as well as what needs improvement and why — all of which show how your marketing and sales efforts are contributing to your bottom line and fueling your growth.
If you have money to invest, a marketing automation software platform like HubSpot can make it much easier to measure and track these key metrics, especially over time. (HubSpot has a free version to get you started — as well as free trials of its higher-tiered software.)
On a small scale, it’s often possible to measure these metrics using a simple spreadsheet and data from Google Analytics.
Ultimately, it doesn't matter how you choose to measure your critical metrics, just so long as you are taking the time to measure them. Yes, it might take a bit more effort, but the insight you’ll get into your business performance will be invaluable.
Because, as the old saying goes, “If you can’t measure it, you can’t manage it.”