Marketing has a reputation as the soft function. It is not. Every decision in it reduces to a small number of arithmetic relationships, and people who can hold those relationships in their head make better calls than people who cannot, regardless of how creative either is.
There are six. None of them need more than a calculator.
1. Conversion rate
Conversions divided by visitors. One hundred visitors, three sign-ups, three percent.
The trap is comparing conversion rates across different traffic sources as if they were the same metric. Traffic from a branded search converts at many times the rate of traffic from a cold display ad, and that difference says almost nothing about the quality of your page. Always segment before you compare.
2. Customer acquisition cost (CAC)
Total spend divided by customers acquired. Spend one thousand, acquire twenty customers, CAC is fifty.
Include the salaries and the tools, not just the ad spend. A CAC that only counts media cost is a number designed to make a report look good, and it will lead you to scale a channel that loses money.
3. Lifetime value (LTV)
Average revenue per customer per period, times gross margin, times the number of periods they stay.
A subscription at ten a month with seventy percent margin and an average life of eighteen months gives an LTV of one hundred and twenty-six. Use gross margin, not revenue. Revenue-based LTV is the most common way businesses convince themselves an unprofitable channel is fine.
4. The LTV to CAC ratio
Divide one by the other. The rule of thumb that circulates is three to one, and like all rules of thumb it hides the important part: the ratio tells you nothing about when the money arrives.
5. Payback period
CAC divided by monthly gross profit per customer. A CAC of fifty against seven a month of gross profit pays back in just over seven months.
This is the number that decides whether you can grow. A healthy ratio with a twenty-four-month payback will still run you out of cash, because you are funding two years of customer acquisition out of a balance you do not have. Short payback beats high ratio when money is tight.
6. ROAS and its limits
Revenue divided by ad spend. Easy to calculate, easy to misuse.
ROAS ignores margin entirely. A four-to-one ROAS on a product with twenty percent margins is a loss. It also ignores incrementality: a campaign targeting people who search your brand name will report a spectacular ROAS while capturing sales that would have happened anyway. If you take one thing from this list, let it be scepticism about a rising ROAS in a channel you did not change.
Putting them together
Here is the full chain for a small business.
- Ten thousand visitors this month.
- Two percent convert to trial: two hundred trials.
- Twenty-five percent of trials convert to paid: fifty customers.
- Spend was three thousand, so CAC is sixty.
- Customers pay twenty a month at seventy percent margin: fourteen gross profit a month.
- Payback is just over four months. Average life is sixteen months, so LTV is two hundred and twenty-four. Ratio is 3.7 to one.
Now you can answer the only question that matters: which single number, if it moved ten percent, changes the business most? Here it is trial-to-paid conversion, because it multiplies through the whole chain without costing anything extra. That is a product and onboarding problem, not an advertising one — and you would never have found it by looking at the ad dashboard.
Practising
Take any company you use and estimate the chain from the outside. You will be wrong on the absolute numbers and right on the structure, and the structure is what you are training. Do it five times and marketing stops feeling like opinion.