Is your sales and marketing spending paying off?

Most companies can tell you what they spend on sales and marketing. Far fewer can tell you what they get back for it. Revenue going up doesn't settle the question. If it costs more to win each new dollar than that dollar is worth, growth makes the business bigger and poorer at the same time.

The good news is that a handful of numbers answers the question well enough to act on. None of them needs special software. A spreadsheet and a few hours with your sales, marketing and finance data is usually enough to get a first view.

The numbers that matter

Customer acquisition cost

What it costs, on average, to win one new customer. Add up everything you spent on sales and marketing in a period (salaries, commissions, advertising, agencies, tools, events) and divide by the number of new customers won in that period.

Work it out by channel as well as in total. The overall average often hides one channel that is very cheap and another that is very expensive.

Lifetime value

How much a typical customer is worth over the whole time they stay with you. The simple version: average annual revenue per customer, times your gross margin percentage, times the average number of years a customer stays. Use margin, not revenue. A customer who brings in a lot of revenue at a thin margin is worth less than the top line suggests.

Payback period

How many months it takes for a new customer's margin to repay what it cost to win them. Divide acquisition cost by the monthly gross margin a typical new customer produces. This matters because you pay to acquire a customer up front and earn it back over time, and that gap is cash you have to fund.

Pipeline conversion

Of the leads and opportunities that enter your pipeline, what share become paying customers, and how long it takes. Look at each stage: lead to qualified opportunity, opportunity to proposal, proposal to signed deal. The stage where most prospects drop out is usually where the money is being lost.

Revenue per salesperson

New revenue won in a year divided by the number of salespeople, counting only those who have been in the seat long enough to be fully productive. Compare it with what each salesperson costs, fully loaded. If adding people doesn't add revenue in proportion, the constraint is somewhere else: leads, pricing, the product or how the team is managed.

Customer churn

The share of customers, or of revenue, that leaves in a period. Measure both. Losing many small customers and losing one large one are very different problems.

Why keeping customers usually beats winning new ones

Keeping an existing customer is almost always cheaper than winning a new one. You've already paid to acquire them, they know how you work, and selling them more costs a fraction of what a new sale does. Every customer who stays longer also raises lifetime value, which makes every channel look better.

Churn quietly undoes growth. A business that loses a fifth of its customers each year has to replace all of them before it grows at all, so a large share of the sales and marketing budget goes into standing still. In my experience, a modest improvement in retention is often worth more than a big increase in new sales, and it's usually cheaper to get.

What "good" looks like

Every industry is different, so treat these as rough rules of thumb rather than targets:

Lifetime value compared with acquisition cost: many businesses aim for lifetime value of at least three times acquisition cost. Much less than that and growth is expensive. Much more can mean you're underinvesting and leaving growth on the table.
Payback: shorter is better, because it frees cash to fund the next customer. Many subscription and repeat-purchase businesses aim to earn back acquisition cost within a year or so.
Trend: more important than any single figure. Acquisition cost creeping up quarter after quarter, or churn edging higher, tells you more than a one-time comparison with an industry benchmark.

Common traps

Counting leads instead of profitable customers. A channel that produces lots of leads that never buy, or buy once and leave, is expensive however good the lead numbers look.
Judging channels by revenue instead of margin. Some channels bring in customers who buy lower-margin products or demand heavy discounts. Measure what each channel earns, not just what it sells.
Leaving costs out. Acquisition cost that counts advertising but not salaries, commissions and tools will always look better than the truth.
Mixing new and existing customers. Revenue from renewals and existing accounts flatters acquisition numbers if it's counted as new business.
Looking only at averages. The overall figures can look fine while one product, region or segment is losing money on every customer it wins.

When outside help is worth it

If you can pull the data together yourself and the numbers look healthy, you may not need anyone. Outside help earns its keep when sales and marketing spending is growing faster than revenue, when different teams can't agree on the numbers, or when the data sits in systems that don't connect. Someone who has done this before can usually get you a reliable first view in a few weeks, and help you decide where to spend more and where to stop.