Customer Cost & Value Key Performance Indicators
Key performance indicators can tell you how much a customer is worth to your company and how much it costs to convert them.
The essential metrics to calculate in this category are:
- Customer Acquisition Cost (CAC)
- Lifetime Value of Customer (LTV)
- Cost Per Lead
- Customer Retention Rate (CRR)
- Net Promoter Score
Customer Acquisition Cost
Customer Acquisition Cost tells you how much money you spend on each customer. You can break CAC down by program or channel, if you wish. Depending on what you wish to track, you will obviously include different criteria as part of your “Total Marketing Investment”. The calculation is:
- Total Marketing Investment / # of Customers Acquired
Lifetime Value of Customer
Lifetime Value of Customer helps you know what your customer is worth to you over time. There are different ways of arriving at the LTV but, whichever approach you take, the LTV will show you the real value of each customer. Two ways of calculating LTV are :
- Average Sale per Customer x Average Purchases per Customer per Year x Average Retention Time
- Total Revenue x Gross Margin x Average Number of Purchases per Customer per Year
Cost Per Lead
Cost Per Lead shows you how much you are spending on traffic. Similar to CAC, the calculation is:
- Total Marketing Investment / # of New Leads
Customer Retention Rate
Depending on the type of business, you may also need the Customer Retention Rate. The CRR is very useful for SaaS companies who depend on long-term customer relationships. The calculation is:
- ((# of Customers at End of Period – # of Customers Acquired during Period) / (# of Customers at End of Period)) x 100
The higher the number the better, but knowing where the sweet spot is will be very industry specific.
Net Promoter Score
The Net Promoter Score is a way of gauging brand loyalty and satisfaction. First, you ask your customers, leads or followers (as you prefer) “How likely are you to recommend (your brand) to a friend or colleague?”
On a 10-point scale, have people rank their response (higher is more likely to recommend). Those giving a 9-10 are “promoters” and are very enthusiastic about your brand. Those giving a 7-8 are satisfied but not enthusiastic, and so are “passive.” Those giving a 6 or below are not satisfied and are “detractors.”
Calculate the percentage of Promoters and percentage of Detractors. Then, the NPS calculation is:
- % Promoters – % Detractors
As you are dealing with percents, the range is from -100 to 100, with 100 being the very best.
Know Your Numbers
Key performance indicators on customer cost & value let you know exactly how much every new customer is worth to your business and what the costs are of converting each lead. They let you know whether your customers are happy with your company and whether they are true fans of your brand.
It’s simple: know your numbers and grow your business.
Michelle Marketing Strategies provides expert consulting services in digital marketing, marketing automation and content development. Email or phone for more information.