When businesses put tactics first, results rarely follow. A more reliable path to success starts with the fundamentals.
Jan is a marketing director for a growing business. And one day she finds out not too many people are visiting her freshly redesigned, not-inexpensive website.
Jan talks to some experts who suggest the site needs SEO. So Jan goes hunting for an SEO case study that will tell her how to get more visitors to the site. But a few months later, she learns that the bump in traffic hasn’t led to an increase in sales. So she goes hunting for a new case study, this one about reducing bounce rates.
Or creating lead magnets.
Or maximizing conversion messaging.
And the cycle starts all over again.
Modern marketing directors are in an impossible race, chasing consumers down a complex and fragmented path to purchase, playing whack-a-mole with tactics, hoping each fix will finally unlock the business results they’re after.
So what’s the solution?
The two metrics that really matter.
If you ask a dozen CEOs what the marketing department’s job is, you might get a dozen answers. “Manage the creative agency.” “Perform consumer research.” “Enforce brand standards.” Few people are able to define marketing as a business function. Which is sad, because marketing is so key to a business’s success.
So let’s say this as clearly as we can:
Marketing’s most important mission is to optimize the ratio of Lifetime Value of a Customer (LTV) to Cost to Acquire a Customer (CAC).
LTV:CAC. That’s it.
How do you know what your LTV is? Well, the formula changes a bit from business to business, based on the revenue model. But in general:
- Start with your gross profit over a period of time
- Divide by the number of total transactions over that period
- Multiply by the average number of total transactions per customer
Boom. You’ve done it. You’ve figured out what each customer is worth. (In business terms, of course!)
Calculating CAC is just as simple, but it requires marketing directors to have a lot more insight into how their department is running.
- Start by adding up your marketing expenses, including salaries, freelancers, hardware, subscriptions, advertising and other overhead, all over a specified timeframe.
- Divide by the number of new customers acquired over that same timeframe.
The number you arrive at? That’s your LTV.
(Psst… You can see a more detailed formula in the Unified Marketing System guidebook!)
But it’s not quite as easy as raising your LTV, lowering your CAC, and then riding off into the sunset. “We find most businesses operate best when they hold that ratio between 5:1 and 7:1,” says Greg Bond, Chief Operating Officer of estound. “But there are exceptions. You need to get a read on your investors, owners and stockholders and see what their tolerances for growth and risk are.”
So let’s get back to that SEO case study…
Many marketing directors struggle because they don’t know what their target LTV:CAC ratio is, and even if they did, they have no idea where they can make the greatest impact on it.
For example, think back to Jan.
Her short-term goal was to get more people to her site, in the hope traffic would result in increased engagement, leads and sales. But her unstated, true goal might have been increasing revenue. And she decided (without realizing it) that the best way to increase revenue was to “decrease CAC by shifting budgets into a channel that mirrors the shopping behavior exhibited by consumers with a high LTV.”
That’s a fair assumption, if the average person who finds her site through SEO actually has a high LTV. But that’s not always the case.
Bond says, “People who hit your site through SEO might only be researching products like yours. But someone who hits your site through a review or an influencer might be ready to buy. And someone who finds it through advertising or email marketing might be eager to share your content. You need to start with the outcome you want and work backward.”
Jan might have achieved better results if she shifted her focus. Her objective could have been reframed as, “How can I use CAC as a lever to drive Marketing Qualified Leads (MQL), not just leads in general?”
Where do we go from here?
Developing a Unified Marketing System can take anywhere from six weeks to a year, depending on how much you can prioritize the process. In the meantime, try taking the estound Marketing Diagnostic. It’ll give you a baseline on how aligned your marketing is with your business’s overall goals.
(And it’s a lot more fun than reading an SEO case study!)