Knowing your Customer Acquisition Costs (CAC) - what you pay on average to acquire new customers - is obviously pretty darn important. But knowing what portion of your total CAC relates to marketing is also really important.
This metric is called your Marketing Percentage of Customer Acquisition Cost (M%-CAC).
In this second installment of our “Metrics How-To” blog series, we’ll take a look at what this is, why it’s important and how to determine your own M%-CAC.
What is Marketing Percentage of CAC?
Marketing Percentage of Customer Acquisition Cost (M%-CAC) is most simply defined as:
The metric that shows the marketing portion or your customer acquisition cost (CAC), calculated as a percentage of your overall CAC to reveal how much your company is spending on marketing as it relates to what you spend to acquire new customers.
Given this definition, we can see that a lower M%-CAC is better than a high one.
Like some of the other cost-based metrics we've discussed, it’s a relatively simple formula that involves few variables.
Why is M%-CAC important?
M%-CAC is important to companies executing marketing programs because it reveals the impact the marketing team’s performance and spending has on overall customer acquisition costs.
The results can help spur more strategic marketing and sales decisions.
For example, a higher M%-CAC could mean:
- Your marketing team is spending frivolously or has high overhead.
- Your sales team is not performing very well, thus receiving lower or fewer commissions.
- You are in a start-up/investment cycle - intentionally spending more to impact your lead volume, quality and team productivity.
How to determine M%- CAC
Now, on to the math.
Again, this is a pretty simple formula, requiring you to know the following numbers by month, quarter and year.
- MARKETING COST
All expenses + salaries + other compensation + overhead for ONLY the marketing department.
- SALES & MARKETING COST
All program & ad expenses + salaries + other compensation + overhead for BOTH marketing and sales departments.
Now, to determine your M%-CAC, take your Marketing Cost and divide by your total Sales & Marketing Cost (that you used to find your CAC).
Here is the formula:
Marketing Cost ÷ Sales & Marketing Costs = M%-CAC
Saweet! Now you have a much better idea of how well your marketing and sales teams are performing as it relates to your Customer Acquisition Cost.
Beyond Your M%-CAC
This is one of several metrics you need to know in order to steer your company’s ship into more profitable waters. But hey, that’s why you’re here, becoming a marketing and sales performance metrics bad-ass!
Also, reporting and performance is just one part of the inbound marketing services we provide our clients.
Related metrics articles:
- Time to Payback of Customer Acquisition Cost
- Ratio of Customer Lifetime Value to Customer Acquisition Cost (LTV:CAC)