Identify an ROI with your digital marketing investment

Metric #5: Understanding The LTVR – Code Word For ROI Used By Companies In The Know, Like You!

Before we get to the hard math, let’s look at a hypothetical. Meet Jenny. Jenny is looking for an IT company that can help her build remote workstations for her business. Let’s follow Jenny’s journey:

1. Jenny is aware of a problem and needs to find a company to solve her remote work issue.
2. She goes to Google to search for companies and identifies two companies using paid ads and one listed on Google maps.
3. She goes to each site and looks at their offering, but is not in a rush to get information so she goes back to her work
4. A week goes by and she notices that two of the companies she looked at are showing ads to her on Facebook and LinkedIn. (Retargeting)
5. She clicks both ads and exchanges her email for downloadable white papers about building workstations for remote workers.
6. Two days later, both companies start sending her a series of emails discussing a solution to her problem. She also notices that those same companies are running new ads targeting her on Facebook and LinkedIn.
7. Three days later, a salesperson contacts her.
8. Ten days later, she has proposals from both companies and decides to do more research on both Google and social media platforms.
9. 21 days later, after two webinars and two video meetings, she elects to go with the company offering the best solution for her needs.

This is an example of one way a customer could find your company. Now, do you think the ROI came from the paid ad on Google? Or the salesperson? Or was it the webinar? Maybe it was the retargeting ad. Both companies built their campaign around funnel deficiencies and both companies developed and nurtured a qualified lead. But one ended up with the sale.

Your ROI is derived from using that basic map, not by siloing efforts. Unless you are dealing with an emergency situation like a burst pipe in your house, there is a path potential customers take and that path needs to be mapped out and properly invested in.

So, how can you identify an ROI if your company uses a path like the above? You do that by understanding the term, “Lifetime Value Ratio or LTVR.” The LTVR is the relationship between the lifetime value of a customer (LTV) and the cost of acquiring that customer, also known as the customer acquisition cost (CAC).

Here is a simple overview of what your LTVR might look like:

Let’s say your total sales and marketing investment (CAC) was $150K and you acquired 25 new customers. Those customers agree to pay you $12K a year for 2 years bringing the total value to $24K. If you operate at 80% Gross Margins your Lifetime Value per customer would be $19,200. If you divide the 25 new customers by the investment of $150K, you would arrive at a CAC of $6000 per new customer.

Now, the math to arrive at an LTVR or ROI:

• $19,200 Lifetime Value/$6000 CAC = 3.2:1 Lifetime Value Ratio.

Or in larger terms:

• $480,000 (25 customers 2 year Lifetime Value)/$150,000 (Total CAC) = 3.2:1 LTVR

The 3.2:1 LTVR is your ROI number. For every dollar you put in you are getting $3.20 back over the lifetime of the customer.

Maybe you can’t manage at that number because of operating expenses, maybe you can’t afford to invest $150K – that’s ok. You just need to reevaluate your goals and understand that to get to the revenue number you are targeting, you cannot overlook what the current marketplace investment requires to overcome your total funnel deficiencies.

Trying to figure out the right investment allocation on that path or CAC is a discussion for another time. Understanding that your CAC needs to be a proper allocation that will address funnel deficiencies is one thing. Knowing the rate of return you need to profit compared to what the current marketplace bidding environment demands is another. But it’s essential that you understand your ROI answer lies directly in the LTVR number.

The LTVR should be the metric that every single report needs to end with.

This single most important takeaway from the series is this, you cannot pick and choose the data you want to focus on to establish an ROI. You need to tie your strategy and core financial reporting metrics together to arrive at an answer.

Sound complicated? Don’t worry our Roadmap reporting Dashboard does the work for you.