Launching a new business means that you’ll have to set a sustainable budget and try to manage your business within its limits. At this point, it’s imperative to get to know your customers, so as to adapt your business to them. As time goes by, tracking a few major customer-related features will be even more valuable, since it will help you control your expenditure and run your enterprise in a successful way. So, here are four simple, yet invaluable customer metrics you need to follow in order to attract and keep new customers.
The cost of every customer
You can promote your business via different marketing channels, but you need to know how much you can invest in that promotion. The metric that will tell you whether or not that investment has paid off is the cost of every customer you’ve attracted.
Simply put, wasting too much of an already tight budget on marketing and lead generation could suffocate some other vital business projects.
Because of that, it’s extremely important to calculate the cost of every customer you gain via a single marketing campaign or investment. You can do this by applying this straightforward formula:
Marketing investment / Acquired customers = Cost per new customer
That way, if you invest $5,000 in a marketing campaign that wins over 100 new customers, the cost per new customer is $50.
Also, it’s important to know what features you need to include in the “marketing investment” part. For instance, if an employee or an outsourcer is engaged in that process, their payment should also be a part of the formula.
Similarly, an e-Commerce business would have to include the money they spend on the website maintenance, as well.
All these elements are important factors in generating new customers. Leaving out only one would give you an incomplete picture of your budget, your investments and, eventually, the cost of a single customer.
Finally, you’ll get the whole picture when you’ve calculated how much these acquired customers spend on average. If the marketing investment from the example above results in the average expenditure per customer that exceeds $50, your campaign has been successful.
The lifetime customer value (LCV)
The lifetime customer value is another important customer-related criterion when determining your budget and customer policy. The most reliable way to get into the expenditure potential of your customers as a group and their individual features is to include several elements in this formula:
The average annual number of purchases per customer x Average order sum / Attrition (Churn) rate = Lifetime value
For instance, if you run an eCommerce business, you’ll get the average annual number of purchases per customer if you divide the total number of orders by the number of buyers. Hence, 500 customers that made 2,000 orders within the same year resulted in 4 orders per customer on average.
Also, you can calculate the average order total if you divide the total amount of purchases by the orders made during that year. For example, if your customers spent $100,000 on 5,000 orders within a year, the size of the average order was $20 for that year.
Let’s say that the attrition rate (the number of customers that left you) was 5%. All these figures give the following lifetime value:
4 X $20 / 5% (0.05) = $2,000
If we know from the first paragraph that the average cost of a customer for the business example in question is $50, the lifetime customer value of $2,000 per year is a great ratio. It will give your new business a great boost and your budget an injection for new investments.
Fighting the attrition rate
The attrition rate – also known as the churn rate – shows the number of customers who have left your business or stopped using your services/products. Again, we’ll present this situation with a plain formula:
Number of former customers / Total number of customers = Attrition rate
That way, if you had 500 customers at the beginning of the year and 25 buyers stopped buying from you during that year, the attrition rate is 5%.
The greatest problem with the high attrition rate is that you’ll have double expenditure in such a situation. On the one hand, you’ll need to conceive some innovative, yet frugal marketing strategies, to make up for the customers who have left you.
On the other, you had already spent some assets on the customers who stopped buying from you, which is now a leak in your budget.
The key thing here is to react immediately when you notice that some of your customers have become inactive or unsubscribed from your website.
First and foremost, ask them at “the point of abandonment” why they’re leaving. While brick-and-mortar businesses can do is in a simpler way, online businesses should prepare a special questionnaire form for users who unsubscribe.
Moreover, avoid making any sudden increases pertaining to the prices of your services and products. As opposed to that, consider offering various deals and discounts.
Apart from that, always send secret offers to your most valuable clients and give some coupons or freebies to your newly registered customers. All these steps will help you keep the customers you’ve gained loyal to your business.
Customer satisfaction with your business
This metric doesn’t contain any strict formulas and is more like a number of customers’ impressions about your business.
What you can do first to maintain a high level of customer satisfaction with your business is ensure 24/7 customer support. No matter if it’s a website chat window, customer support via social media or customer service available via the telephone, your customers will appreciate such a treat.
Apart from that, online businesses should bring a customer-friendly refund policy. This is extremely important if you’re at the beginning of your entrepreneurial career because you’ll leave an impression of a generous business owner. In a nutshell – the friendlier you are with your customers when it comes to refunds, the more they’ll praise you in their online discussions.
Again, working on your business as you go is a great preventative measure for retaining your old customers. Therefore, you can ask your customers every few months (or weeks) to fill in a short questionnaire after they’ve completed a purchase on your website. Of course, you should create the questionnaire on your own and populate it only with questions relevant to your business.
As a result, your customers won’t waste too much time doing it. What’s more, you’ll be able to analyze the data obtained that way and bring some measures in the shortest time possible. The sooner your measures take effect, the higher customer satisfaction you can expect.
Conclusion
Recognizing the positive aspects of your business and separating from the negative ones is the key leverage for your business future. If you know what makes your customers happy, you’ll be able to invest more energy into those elements of work. Contrary to that, realizing that you’re losing customers or investing assets into pointless campaigns will indicate that you’re doing something wrong. By following the key customer metrics, you’ll spot your weak spots on time and understand how to improve your business performance.
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