KPI and its five fingers.


How does a company calculate its performance? Is there a measurement between performance and strategic goal? KPI, said the CMO. These are a set of quantifiable and qualitative measures also known as Key Performance Indicators. Every organization has its own criteria to set its KPI. Customer loyalty, net revenue, new customers, reach, impressions or anything else. Top 7 metrics every organization’s CMO has on his table;

  • Customer Acquisition Cost

Except the price of the coffee that you needed to brainstorm for a advertising campaign, every thing else adds up to CAC. This is the sales and marketing cost spent on the campaign divided by the count of new customers acquired in a given time period.

  • Marketing % of Customer Acquisition Cost

The marketing portion of the CAC is calculated over time. Why is this important? The number reflects the balance. How much is being spent on marketing over sales. Is it worth doing so? There is no fixed value which says x% means ‘good’. Again, every organization has its own percent share in marketing as required. A company performing inside sales will have a larger percentage than a company performing outside sales.

  • Customer Lifetime Value

If your revenue inflow from your customers is habitual, the costs spent on the customer is another key performance metrics. In a specific duration, LTV is (Revenue the customer pays – gross margin) / estimated churn percentage. Estimated churn is the cancellation rate.

  • Ratio of LTV and CAC

The CEO’s are excited when the LTV:CAC ratio is greater than 3x. It signifies greater return on investment. That all? No. Reasonably, this is the time you should spend more on marketing and sales campaigns to beat your competition.

  • Time to Payback CAC

Yes, the company has spent huge on customer acquisition and it might take months for the costs to add to the revenue. In a month CAC/margin adjusted revenue gives you the time period to payback CAC.

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umanidhi

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