While modern marketing methods have evolved over the last 20 years, there are still some tried and true business metrics that still work just as well as ever. If you’re not using them, you’re missing the boat.
Customer Acquisition Cost
Customer acquisition cost is the metric that matters the most if you’re a young startup. It refers to how much money you’re spending to acquire a customer. To calculate your cost, divide your sales and marketing costs (including overhead expenses) for a given period by the number of new customers you brought on board during that same time.
A high customer acquisition cost means you’re spending too much money to get those customers. You need to lower those costs to improve profits and, ultimately, create a sustainable business.
If you’re using something like this lead management software, measuring and monitoring acquisition costs should be pretty straightforward and simple.
Retention is something that usually gets thrown to the wayside because most businesses are obsessed with controlling customer acquisition that they start looking for any way to cut costs associated with customers – including retention.
But, this metric is important in and of itself. It tells you a lot about how much it costs to keep customers as opposed to getting new ones.
Some businesses spend 7 to 10 times more to acquire a new customer vs keeping existing customers.
These costs are calculated similarly to the way you calculate new business except that you use existing customers when you do the math.
Focus on current customers and what you can do to make them more satisfied. Next, work on customers who have stopped using your product or slowed their use of it. Ask them why they no longer do business with you. You may be surprised by the answer they give.
Attrition is a metric that tells you how many people stop using your product. You want this number as low as possible. Most startups measure churn at 30 days. Some measure it every 90 days.
You will lose customers, and for a variety of reasons that have nothing to do with the quality of your product. It just happens. What you should focus on is what a profitable level of loss is for your company.
Lifetime Customer Value
The lifetime value of a customer is another important metric as it clues you in to the long-term profit potential of your business. How long do you expect customers to do business with you? Take that number and multiply it by the monthly revenue you expect to receive from that customer. That’s your customer’s Lifetime Value.
If your customer acquisition cost is higher than the customer’s lifetime value, well then you have an unsustainable business model and you will fail.
This metric measures how many referrals your company is getting. It also tells you whether your business survives on pushing its message out to the marketplace or whether it pulls business in of its own “gravity.”
Most companies will tell you that marketing is expensive, and if you stop, the traffic stops. Having referral-driven business makes it so much easier because the leads just keep coming in regardless of what you do.
So, don’t forget to measure this metric and try to improve it over time. When this metric improves, you’ll notice your costs going down and customer satisfaction scores improving.