We know that marketing spend has great ramifications on acquisition of customers. How much I spend on advertising, price and non price promotions, sales team expenses and any other marketing overheads will ultimately determine how many and what type of customers I will acquire in the long run.
For me to appreciate the effect of marketing spend on customer acquisition, I should be able to establish my organization's marketing % of customer acquisitions cost (which is the marketing portion of my total Customer Acquisition Cost (CAC), calculated as a percentage of my total Customer Acquisition Cost.) Customer Acquisition Cost is the total average cost my company would spend to acquire a new customer. This would be calculated by taking my total sales and marketing spend for a specific period of time divided by the number of new customers for that particular time period.
The question then becomes, how do I calculate my marketing percentage of Customer Acquisition Cost (M%-CAC)? I will take all my marketing costs and divide by the total sales and marketing costs I used to compute Customer Acquisition Cost.
Marketing Costs entail expenses, salaries, commissions & bonuses and all overheads for the marketing department only. Sales and Marketing Costs entail program and advertising spend, salaries, commissions & bonuses and overheads in a month,quarter or a year.
My marketing % of customer acquisition cost will show how my marketing teams' performance and spending impact on my overall customer acquisition cost.
An increase in this percentage can mean a number of things among them:
- My sales team could have under performed and thus received lower commissions and/or bonuses
- My marketing team is spending too much or has too much overhead.
- I am in an investment phase, spending more on marketing to provide more high quality leads and improve my sales productivity.
A reduction in this percentage can also mean several things about my organization:
- My sales team is spending less, and that there's less overhead.
- My organization is beyond the investment phase and my sales productivity is where it ought to be.
How is your organization performing in terms of marketing % of customer acquisitions cost?