What makes an outstanding marketer?
Outstanding marketers know how to identify the best channels for growth and which channels to avoid. They also understand data-driven insights and know how to leverage them to influence marketing decisions.
Key performance indicators (KPIs) guide these marketers to success, giving them the necessary information to plan their marketing effort. While KPIs are helpful for many aspects of marketing, they’re most useful when planning your marketing budget.
They guide your marketing effort in the ideal direction to meet specific, achievable goals, allowing you to allocate your money toward the most lucrative channels.
This article will explore the seven best marketing budget KPIs you should track in 2023.
What are KPIs?
KPIs, or key performance indicators, are ancient. They’re so ancient that we’re not sure who used them first or for what reason. But no matter how old they are, KPIs are used to measure the successes or failures of any given enterprise.
There is a KPI out there to measure any aspect of your business. Whether marketing, finance, sales, operations, or HR, KPIs help you make better decisions and gauge your company’s progress.
The seven following KPIs are especially helpful for planning your marketing budget.
The Top 7 KPIs For Planning Your Marketing Budget
Measuring sales growth is critical for getting a general understanding of your company’s marketing performance. Because if you’re not seeing any growth, you’re doing something wrong.
Tracking sales growth also sheds light on your marketing’s success. You’re diving into how your marketing has performed over time by tracking this KPI. It allows you to identify growth trends, making it easier when you plan your marketing budget for the year, quarter, or month.
Sales Growth = (Current Period Sales - Prior Period Sales) / Prior Sales x 100
2. Customer Acquisition Cost (CAC)
You measure customer acquisition cost (CAC) to establish how much your company spends on acquiring a customer. To calculate this KPI, you divide your marketing and sales expenses by how many customers made a purchase. This metric is essential to determine the success or failure of your marketing campaigns.
What’s more, having a firm understanding of your CAC allows you to set milestones for the number of customers you want to get for a given period. For that reason, it’s a powerful indicator that will help you plan your marketing budget.
CAC = Total marketing & sales investment / Number of Acquired Customers
3. Customer Lifetime Value (CLV)
Often used in tandem with CAC, customer lifetime value (CLV, LTV, CLTV) measures how much money your customers spend on average throughout their relationship with your company. This metric allows you to discover what each of your customers is worth.
CLV is indispensable for calculating your ROI. And it’s also an excellent way to plan your marketing effort.
CLV = Revenue x Gross Margins x Average Number of Repeat Purchases
4. Return on Ad Spend (ROAS)
Unlike return on investment (ROI), which offers a much broader view of your marketing and sales effort, return on ad spend (ROAS) gives you information on how your marketing campaigns perform. ROAS measures how much you generate on every dollar you spend on ad campaigns.
It offers a ratio that you can use to see how effective your marketing campaigns were for a given period. Even more, it’s a metric that shows how you measure up against the competition.
ROAS = Revenue From Marketing Campaigns / Cost of Your Campaigns
5. Return on Marketing Investment (ROMI)
Return on marketing investment (ROMI) measures how your marketing expenses affect your revenue. It’s a good KPI to track for planning your marketing budget because it allows you to see if your marketing investment leads you to profit.
Also, calculating ROMI shows which channels are most effective, allowing you to spend more or less money on a particular channel.
ROMI = (Marketing Income - Costs of Goods - Marketing Expenditure) x 100
6. Lead Conversion Rate
Lead conversion rate shows you your sales funnel’s performance. It measures the conversion rate of your leads turning into paying customers. Obtaining this data will help you decide if you’re spending too much or too little on optimizing your sales funnel.
Knowing your lead conversion rate gives you an idea of how much you should invest in converting a lead.
Lead Conversion Rate = Number of Leads Converted / Total Number of leads
7. Conversion Rate by Marketing Channels
Calculating your conversion rate by marketing channels helps you determine how your marketing campaigns are performing.
This metric is essential to know which channel is performing best and which you should abandon. It will allow you to free up funds and redirect them toward the most profitable marketing avenues.
Conversion Rate by Marketing Channel = Number of Leads From a Given Channel / Total Number of Visitors Sent Through a Given Channel
Finding the right KPIs for your company is a lot like building your marketing stack. You must find a combination that suits your marketing, assembling it piece by piece based on your needs.
The seven KPIs listed above are a great starting point. They’ll show you which KPIs you should or shouldn’t track and make your life easier when it’s time to plan your marketing budget. Remember, outstanding marketers are great at choosing what works best and even better at staying away from what doesn’t.
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