Financial Literacy (or FinLit, for short)

At Service Credit Union, part of our mission is to provide the resources needed to improve our members’ financial well-being. One of those resources is financial literacy, which allows people to make informed decisions about their finances. An element of that literacy is knowing what financial terms mean. Here we define some of the metrics of marketing, which measure the effectiveness of your marketing dollars. Knowing whether your marketing budget is being spent wisely allows you to have a clear picture of whether your strategy is succeeding or needs to be changed.

FinLit Terms You Should Know

The Return on Investment (ROI): A performance measure that is used to evaluate the profitability of an investment. It’s a simple calculation where you divide the amount you earned from an investment by the cost of the investment and then multiply by 100. Because the result is expressed as a percentage, you can easily see how it stacks up against other investment choices. For example, a local newspaper ad spot cost $500 but brought you $800 in new earnings — that’s a 160% ROI.

Cost Per Action (CPA): A marketing model where you pay a commission when a user takes a specific action. Those actions could be filling out a form, signing up for a trial, getting a quote or making a purchase. The advantage of CPA is that you only pay for the ad after a sale occurs. For example, if you spend $150 in marketing dollars and 10 actions can be attributed to it, the cost per action would be $15.

Cost Per Lead (CPL): The cost of generating a lead, or someone who might be interested in your product or service. Leads can be obtained through a variety of channels, including online marketing, email marketing and display ads. The efficiency of each channel can be determined by dividing your total expense by the number of leads you acquired. To calculate the CPL, divide your total marketing spending by the number of new leads. For example, if you spend $4 for a list of 1,000 people who had an interest in your product or service, you would pay $4,000 when you had 1,000 contacts.

Customer Acquisition Cost (CAC): The cost of turning a lead into a customer. The cost allows you to analyze the value of each customer and to improve your profit margins. It’s calculated by dividing the total amount spent on marketing by the number of customers who sign up over a given period of time. For example, if you spend $100 on marketing in a year and acquired 100 customers, the CAC is $1.

Customer Lifetime Value (CLV): The total amount of money a customer is expected to spend on your service or products in their lifetime. The higher the CLV, the higher the profits. That figure can help you decide how much money to spend to acquire new customers and retain existing ones. It’s calculated by multiplying the average purchase value by the average purchase frequency, then multiplying that number by the average customer life span. For example, if a customer visits your restaurant once a month each year and spends an average of $17 over a lifetime of 10 years, the CLV would be $2,040.

Sales Funnel: The steps that someone takes to become your customer. The steps begin when your brand is discovered and ends with the final purchase. You can track potential customers and adjust marketing strategies using the funnel’s steps. There are four steps, according to Forbes magazine: awareness, interest, desire and action.