While you might be measuring some of the more common metrics, like click-through rate, cost per click, or more specific to lead generation —cost per lead and lead volume—chances are there are a few terms you might have altogether forgotten about.
The truth is, one of the biggest challenges that health brands face when it comes to lead generation is accurate data. And that’s because so much of a lead generation marketing strategy is dependent on getting the right leads—that is, leads that turn into conversions. Otherwise, you’re spending a mass chunk of your budget on marketing without getting the results you need to make your company a success. This is where things like conversion rates and customer acquisition cost really count.
Customer Acquisition Cost (CAC) vs. Lifetime Value (LTV)
When it comes to lead generation, CAC is an essential marketing metric for health brands. To understand more about it, start with the formula for how to calculate it: CAC = (total cost of sales and marketing) / (# of customers acquired). Part of these costs should include things like the number of ad dollars spent, but the key here is to also consider opportunity cost.
Let’s say for example, as part of your marketing strategy, that the main offer on your lead generation page is a demo. You know upfront that you’ll have to pay your salespeople for the number of hours they spend scheduling and conducting these demos—that’s easy to include in your CAC. But what opportunities are you possibly losing out on, as a result of hiring and paying enough salespeople to cover this task? What if, instead, you were using part of that budget to pay for customer service associates? Or, you might even consider bringing on a content specialist that can help create a blog that provides your current customers with support on how best to use your product.
That might all seem overwhelming and actually, you aren’t sure what to do. This is the exact reason for using metrics.
Lifetime Value (LTV)
Now is a good time to talk about lifetime value. Assessing your CAC requires somewhat of a balancing act between acquisition and lifetime value (LTV). This is usually represented as a ratio: LTV/CAC. The key to monetization is to ensure that your CAC is well below the LTV.
How do you calculate lifetime value? Start with calculating your customer value (CV). The formula looks like this: CV = (average purchase value) X (average purchaser frequency rate). Next, determine the average lifespan of your customers. Your LTV = (customer value) X (average lifespan). Alright, that seems like a lot. Don’t worry. Let’s use the chart below for a breakdown.
|# of customers making a purchase||Dollars spent ($)||# of purchases||Avg. Lifespan|
Customer Value (CV)
Look at how many customers made a purchase last month and add up the total amount they spent.
|Total # of customers making a purchase||Total dollars spent ($)|
Divide the total number of dollars spent by the total number of customers.
|Average purchase value: $400/10 = $40|
Great, now look at how many purchases each customer made and divide by the number of customers again.
|Average purchaser frequency rate: 20/10 = 2|
These two numbers will give you your customer value.
|CV = (average purchase value) X (average purchaser frequency rate).|
|CV = $40/2 or $20|
Okay, we’re nearly there. Now you just need the average lifespan of your customers. This is probably a number that’s been provided to you through your metrics.
This is the average number of years a customer continues purchasing from your company.
With this in hand, its time to calculate lifetime value (LTV)
|Lifetime value = (customer value) X (average lifespan)|
|LTV = 20/4 or 5|
The Importance of Retention
Why bother with all of these metrics and complicated formulas? Let’s go back to our original story. Would your money be better spent on sales associates charged with scheduling and completing demos, or should you focus on adding value for the customers you already have?
Consider this: a study conducted by Bain & Company found that a 5% increase in retention rate can lead to an increase in profit between 25% to 95%. This isn’t news. There are countless figures out there that will tell you the importance of keeping the customers you have, but you know, as a business owner, that isn’t all you could or should be doing with your marketing strategy. Marketing metrics like LTV help you understand whether or not your money is being well spent.
A Final Note on Marketing Metrics for Health Brands
We started this conversation talking about the accuracy of data and while, yes—all of the formulas above will help give you a numerical, strategic edge—there’s another type of data to consider, especially as a health brand. Who are your customers? Having data on who your customers are and what they value will also help you make some tough decisions on how you spend your budget. And knowing your customers is a huge part of what makes lead generation successful. You’ll find your customers are a lot more responsive once you start addressing their exact needs, which will save you money on acquisition and retention.