Six customer metrics you can’t afford to ignore

Does it ever feel like you need to don your cape and leap small buildings in a single bound just to keep your business afloat?

I’m sure sometimes it must feel as though becoming Superman might actually be easier than starting a business and operating it profitably. (No offense to Superman, of course.)

Although starting a company presents its unique challenges, it’s easy to see that success is a whole lot easier (and inevitable) when you are able to ask the right questions, make good decisions and communicate the right targets to your team.

Business intelligence is fundamentally fueled by information, and luckily for you, we live in an era where data and insights are readily accessible. The key to your survival lies in filtering through all the data, processing what’s relevant and avoiding the landmines of kryptonite.

To that end, let’s take a quick look at the top six customer metrics no startup should ignore:

1. Customer Acquisition Costs (CAC)

Your CAC calculation is a crucial metric to track as your company begins to take its first steps.

While common sense tells you that customers equal money, you’re going to have to spend some cash to make some cash. The key to boosting your bottom line and cash flow is to strategically invest in marketing efforts that drive profitable results.

Your CAC is the total amount of money you need to spend to acquire a new customer — including sales and marketing efforts. The number is fairly easy to compute, as you simply divide the amount invested in a specific period of time by the number of customers you actively acquired in that same period.

This number will tell you exactly how much it costs you to attract and convert a single consumer. If your CAC is too high, it’s time to revamp your customer acquisition strategy to ensure you are targeting the right prospects, with the right message and the right offer.

2. Customer Retention

Many startups ‘hit rock bottom’ because they focus too much energy on customer acquisition and not enough on retention.

While every business wants to grow their customer base, it’s imperative to maintain and build upon the customers who are already contributing to your bottom line. It’s much more cost-effective to speak to, develop a relationship with and upsell a loyal customer, than to find, convince and convert a prospect.

Today is a great day to dedicate some time and resources toward minimising your churn rate (the number of customers who have left and gone elsewhere). Open up the lines of communication with your customers and encourage feedback — this is just one of the many low-cost ways to address problems quickly, while also increasing customer loyalty.

3. Attrition

Although every startup will inevitably lose some customers along the way, it pays to know and understand why those customers chose not to continue dealing with you.

Consider using a phone call or survey to follow up with all the customers who have dropped off in the last six months. This will bring to light any issues that you need to deal with and will boost your ability to respond to shifts in the market (or your customer’s needs), and make your product or service more desirable and recession-proof.

4. Life Time Value (LTV)

LTV is a basic projection of how much one customer will spend on your product or service over their lifetime of dealing with you. In order to calculate LTV, you will first need to estimate the average length of time you retain a customer and then calculate their average spend over that timeframe.

A good rule of thumb is that if your CAC is equivalent to (or greater than) your LTV, then you’re heading in the wrong direction. Remember, you want to make money, not give it away.

5. Conversion Rate

Your conversion rate, or the number of consumers you translate into customers, is an essential metric to monitor if you want to jumpstart your startup and maximise the value you get from every dollar invested in marketing.

To accurately measure your conversion rate, select a specific flag (first time sales, subscriptions, etc.) to monitor, and record your results across a specified time period.

If your conversion rate is skyrocketing, then your marketing efforts are showing a great rate of return.

If your conversion rate is on the lower end of the spectrum, you may need to reexamine what glitch, flaw, or uncertainty in your sales or marketing process is causing concern with potential customers.

The key is to maximise the number of prospects who understand, can remember and will take action by saying “yes” to buy your product or service.

6. Referral Rate

When current customers willingly refer others to your product, it can significantly cut down on the amount you need to spend on marketing.

Word of mouth is truly the best advertising any startup can leverage and capitalise on. In most instances a referral program to incentivise referrals will produce a 10- to 18-percent lift in sales.

The referral rate can easily be calculated and tracked through asking how each new customer heard about your business. Though not always 100 percent accurate, your referral rate will also give you an approximate estimation of your customer satisfaction rate.

The more information you gather, measure and use to make sound business decisions, the greater the chance your startup will continue to grow safely, reliably and profitably. It’s all about lowering your CAC and attrition while boosting your LTV, retention, referral and conversion rates.

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