Customer is STILL king
Customers are the life blood of any business, there has never been a company in the history of the world that has survived without have any customers. Customers are the 1s who pays your bills and keep the lights on, yet over the year’s businesses have seemed to have forgotten that…we have forgotten that we are dealing with people and not just statistics. Customer Acquisition Cost, Customer Lifetime Value, Customer Churn Rate and Customer Retention Rate are just some of the metrics we tend to overlook. Lots of business fail for many reasons but what’s 1 of the silent killers is that most businesses can’t lower their customer acquisition cost in relation to their lifetime value. Let’s take a closer look at these metrics.
Customer Acquisition or Customer Acquisition Cost (CAC) as it’s known is a key metric on judging the return on investment you make in terms of your marketing. Customer acquisition in its core is simply how much you are paying to acquire a new customer. So for instance if your total marketing spend for the year is R1000 and you acquired 5 new customers, it means on average you paid R200. Is that a good number? Well that will depend on your Life Time Value which we will cover next but the sweet spot for CAC is a ratio of 3:1 , were you are getting at least 3x on your investment.
Customer Lifetime Value
Customer Lifetime Value (CLV) is a gauge that tells you how much or little you are growing because it simply tells you how much that client is spending in relation to how much you are paying to acquire them. So if our CAC is R200 and our CLV is R600 it shows that the customer is enjoying a phenomenal return on investment and scaling the businesses will happened much faster, however if the CLV was R150 that means we are paying too much to acquire and this can compound itself to an extent where the company could face some serious problems in terms of their revenues.
Customer Churn Rate
Customer Churn Rate (CCR) gives you an indication of how much or how many customers have stopped using your product or service. This metric is even more important to subscription based businesses like your Netflix and your cell phone provider like MTN who can how many users they have lost per quarter. In the perfect world we would like our churn rate to be 0% but that’s difficult to do and even harder to maintain so as close as you can get to 0% the better. Considering thus far you have spent a lot to acquire that customer, it’s a real gut punch to lose them but in business it’s a given which leads us to our next metric.
Customer Retention Rate
Customer Retention Rate (CRR) as the name suggests reflects the number or % of clients who are still using your product or service. An article by Harvard Business Review found that on average it costs from 5 up to 25 times more to acquire a new client versus maintaining a pre existing client A study conducted by Bain & Company have found that even a 5 % increase in customer retention can translate into a profit increase between 25% up to a staggering 95% when you also account the savings in your marketing budget.
Do I put my Customers 1st
From what we can see, customers play a massive part in business in fact if you have no customers, you have no business. Most businesses fail because they can’t acquire customers at a price that’s competitive to the CLV or they simply lose their customers to their competitors. Customers are mostly looked at in data these day but we tend to overlook 1 fundamental truth and it’s that they are people, like you and I. If you look after people, people will look after you, companies like Chick-fil-A, Amazon and local companies like Hirsch’s have seen success beyond measure purely because they put their customers first.
Customers are always in the market and it’s up to you to capitalize so here are some tips to improve your metrics:
- Have a CRM (Customer Relationship Management) procedures in place.
- Have a quarterly overview of all metrics.
- Gear your SEO and Digital Marketing towards CAC.
- Create sales funnels geared towards lowering CAC.
- Have an effective follow up and referral program.