With the world becoming more data-driven, particularly the marketing world, businesses are choosing to make a conscious effort of using their data that their customers are providing them.
Often coined the age of analytics, those who have the best data are in the best position to make the fastest decisions.
Trends change in marketing all the time and with Facebook + Instagram introducing new ways to market to the people who use those platforms, you can bet your top dollar that the future-leading businesses will be using the data they’ve collected themselves to maximise sales from pre-existing and future customers.
In this article, we’re going to suggest a few metrics that we feel are a must-know for businesses who are looking to maximise the sales from their customers.
The CLV of your customer is so important to know that we had to put it first.
What is it?
The total revenue a business can expect from a single customer.
Businesses are moving away from one-time purchase models and towards a subscription based model type.
It increases loyalty to the brand, it can often be easier for the customer and it is easier for businesses to carry out future projections.
But it also helps with working out your customer lifetime value because you can look at the average monthly membership of a customer for example.
If you don’t have a subscription based model then that’s fine, you can still work out how many times a customer has purchased from you and what you revenues you can expect from each customer.
Purchase Value - companies total revenue in a time period (1-year, 6-months or month etc.) / Number of purchases in that period
Purchase Frequency Rate - number of purchases over the time period / number of unique customers who purchased in that time period
Customer Value - Average purchase value x average frequency rate
Average Customer Lifespan - Number of years/months a customer continues purchasing from you
Lifetime Value - Customer value x Average customer lifespan
*The above formula will give you a good estimate of what you CLV is.
You can then compare it to your Cost Per Acquisition and figure out how much you can pay for a customer.
When you combine CPA and CLV, you are doing more than 90% of businesses and are putting yourself up there with the big brands.
How much does it cost you to acquire a customer?
You need to know this because once you find out how much it costs, you can work out how much you are prepared to spend in marketing.
Total Cost of a Campaign / Number of Conversions Generated
Facebook and Google run pretty tight ships with their platforms and they will generate your Cost Per Acquisition for you so you can quickly get this off them in the backend of their platform.
So, you have your CLV worked out and you have your CPA worked out…
You’ve put yourself in a position where you can work out how much you can afford to pay for a customer.
Let’s use an example:
A customer pays £10 a month for a monthly membership with you
Average Lifespan = 6-months
Customer is worth £60 to you
You could argue that you potentially have the option to bid up to £59.99 and you will be making a profit.
Of course, most businesses will take a more conservative approach to bidding and manually bid at a lower bid.
There’s nothing worse than spending a lot of money and time on acquiring customers to find out that they’re churning at a rate that is faster than that what you’re acquiring them for.
What is customer churn rate?
The number of customers that have been lost over a period of time.
Typically, the best way to measure your CCR is to measure it other a month.
(Number of customers at the start of the month) - (Number of customers at the end of the month) / Number of Customers at the start of the month
You can work on improving your customer churn rate by improving the customer experience, product or even your customer service.
There are many options to improve your CCR and it is specific to each business so try and dig out the information that will guide you to improving your CCR.
Those 3 metrics should give you a good understanding of what it takes for your business to be profitable and how much you can afford to pay for your customers.
Quantitative metrics like the above are great to use but you do need combine the data above with a qualitative approach also.
Find out why your churn rate is so high by asking customers what they didn’t like about your product or service for example.
We work this sort of data out for our clients all the time and it helps them + us tremendously when we start to draw out their advertising campaigns because we can optimise their campaigns for their CAC and CLV.
Contact one of our team today for a FREE no-obligation chat today!