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Growing a business

Customer metrics every business should be focusing on, according to the data

What keeps you up at night?

For small business owners just starting out, competition, growth, and the economy all rank as top concerns. Likewise, accounting tasks—like maintaining profitability and healthy cash flow—are also common struggles.

Growing businesses regularly cite those same usual suspects as well.

In fact, aggregated customer service data presents a bleak picture: an estimated $41 billion is lost by US companies each year following a bad customer experience.

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Unfortunately, what both overlook is the central role existing customers play in overcoming all those challenges.

“Depending on which study you believe,” notes Harvard Business Review, “and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.”

With those two numbers in mind—and plenty more below—let’s examine the customer metrics every business should be focusing on …

Understanding customer lifetime value (CLV)

According to Qualtrics: “CLV is a measurement of how valuable a customer is to your company with an unlimited time span as opposed to just the first purchase. This metric helps you understand a reasonable cost per acquisition.”

Consider Bob, the owner of Reliable Plumbing. Bob’s marketing firm maintains his website and plans spending for radio ads as well as online advertising.

Most new customers find Bob using a Google search for a plumber in their area. Once a new customer finds Bob, most will ask friends and family if they’ve used Bob’s services.

Reliable Plumbing responds quickly and does quality work. 70% of Bob’s new customers become repeat customers, and many refer Bob to other people.

Over 20 years, a homeowner may need a plumber once a year or so. That translates into 20 jobs, and possibly referrals to other homeowners who also need work for years.

All due to one person finding Bob, based on his marketing efforts years in the past. It’s a huge return on Bob’s marketing spending.

So, just how much money are you spending to find a customer?

Working with customer acquisition costs (CAC)

Customer Acquisition Cost (CAC) is the expense incurred to convince a customer to buy a product or service. Neil Patel defines CAC as dividing “all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.”

Patel explains that investors use CAC to analyze the scalability of new businesses. “They can determine a company’s profitability by looking at the difference between how much money can be extracted from customers and the costs of extracting it.”

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There are several factors, however, that complicate the CAC formula …

Differences in sales cycles make it difficult to determine which marketing efforts generated a particular sale. A parent buying a baseball glove for a child may make the decision in an afternoon, while a weekend athlete may plan a bike purchase for weeks.

How did they find you? Which marketing messages convinced the customer to buy from you?

The best way to acquire customers at a reasonable cost is to coordinate all of your marketing channels.

Marketing channels

You may market your business using your website, social media, and using traditional radio and TV ads. Make sure that all of your marketing channels deliver a consistent message, based on the problem your product or service solves.

Think about that Sally, a triathlete shopping for a bike.

Sally does research online and notices your bike model listed in product reviews. Your firm places online ads that also pop up as she read the reviews. She visits your website and reads testimonials from satisfied customers. Sally decides to visit a store location to check out a bike.

All of your marketing promotes each bike’s durability and your years of experience serving triathletes. If you do a great job at marketing, you can generate recurring revenue from customers.

Why monthly recurring revenue (MRR) is so valuable

Monthly recurring revenue (MRR) is the amount of income that a company can reliably anticipate every 30 days.

PracticeIgnition says the following regarding MRR: “This means that you don’t have to worry about counting the number of hours you spend working for a client or making more sales every month.”

Say that your MRR is $5,000. You’ll spend less time and far fewer marketing dollars to generate that $5,000 in income, and you can invest time and money in other areas.

MRR gives your business revenue a level of predictability, and increasing MRR makes it easier to scale your business. If 30% of your business is generated from repeat customers, growing from $1 million to $3 million in sales takes less effort.

The more MRR you can generate, the lower your sales and marketing costs are for every dollar of revenue. If your company has five salespeople, for example, your sales team doesn’t have to spend as much time with repeat customers. They can focus their efforts on new business.

Minimizing churn rate

Churn rate is the percentage of customers who stop making repeat purchases of either products or services.

The concept can be expanded to refer to the number of customers that leave your business during a month or year.

As Harvard Business Review points out: “Marketing managers will typically look at churn rate at a segment level—how many of our 18-25-year-old customers left this month, for example. But sophisticated, data-rich firms are also starting to look at the number on an individual customer level.”

The best firms use churn rate data to anticipate problems and take action to reduce the number of customers who leave.

Once you understand these customer metrics, how can you improve outcomes?

Getting better (customer-centered) results

Not all new customers are profitable over the long term.

Businesses that attract customers based heavily on price may experience a high churn rate. Many customers look for deals and make a purchase, but they don’t see enough value to make repeat purchases.

HBR explains that the firm Groupon struggled, based on a high churn rate with deal-seeking customers. Unless you keep offering the same type of deals, customers won’t stay.

Give your customers a strong reason to stay with you.

  • Promotions: Use data analytics to promote products and services that your customers want. If a sporting goods company knows that many customers buy baseball gloves and bats during the same store visit, they can promote the products together.
  • Rewards: Thank your customers by rewarding them. When a customer makes a certain number of purchases or reaches a specific dollar amount of activity, offer a discount on future business.
  • Testimonials: If you’re marketing to influence buyer behavior, don’t forget about gathering testimonials. When a customer explains why they purchased your product, they have impact other people’s buying decisions.
  • Surveys: If you want to know what your customers want, ask them! Include surveys in each of your marketing channels, and emphasize that the survey won’t take much time to complete.

Use your data analytics and survey results to make product improvements, and to add new product offerings. This strategy gives you the opportunity to upsell more expensive items to existing customers, and increase profits.

If you sell road bikes, for example, riders may tell you that they need a more durable type of bike glove. If you can provide that product, you can increase sales and build customer loyalty.

Focusing on customer service, by the numbers

In the words of Derek Sivers, “Customer service is the new marketing.”

  • “When it comes to making a purchase, 64% of people find customer experience more important than price” (Gartner).
  • “Today’s consumers do not buy just products or services — more and more, their purchase decisions revolve around buying into an idea and an experience” (McKinsey).

On the opposite side, if you frustrate your customers and prospects, they’ll leave and won’t return.

  • “More than half of Americans have scrapped a planned purchase or transaction because of bad service [and] 33% of Americans say they’ll consider switching companies after just a single instance of poor service” (American Express).
  • “74% of people are likely to switch brands if they find the purchasing process too difficult” (Salesforce).

Technology allows us to do everything faster. As a result, we have high expectations of service:

  • “The majority (66%) of adults feel that valuing their time is the most important thing a company can do to provide them with good online customer experience” (Forrester).
  • “Three-quarters of online customers expect help within five minutes” (McKinsey).

Always give your customers the option of escalating a solution to their problem:

  • “As the complexity of the issue increases, such as with payment disputes or complaints, customers are more likely to seek out a face-to-face interaction (23%) or a real person on the phone (40%)” (Comm100).
  • “Customer satisfaction ratings for live chat are often higher than all other support channels, likely because of the speed and conversational nature” (Customerthink).

Beat your competitors and increase market share

You’re already busy and have more work than you can handle.

To take action and improve your marketing results, you’ll have to invest time and possibly money.

Over time, the financial payoff can be huge. You can outperform those competitors who aren’t willing to analyze the customer experience and make improvements.

Make the extra effort, and you can reap the financial rewards for years to come.

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