Effective Customer Acquisition Begins with these 3 Metrics
Bringing new customers to your business is the cornerstone of success. However, do you really know what the actual cost of bringing those new customers to your business is?
Don’t panic! Just check out our three key customer acquisition metrics, designed to make your life that much easier.
Simply use these convenient customer acquisition metrics to help you to figure out customer acquisition cost, quickly and effectively.
Our 3 key customer acquisition metrics are:
- ACAC = Actual Customer Acquisition Cost
- CLTV = Customer Lifetime Value
- Churn Rate
Actual Customer Acquisition Cost
Calculating your ACAC is actually very simple when applying this basic formula:
Sales + Marketing Costs / Number of New Customers (applies to a specific period of time)
In other words, let’s say, for example, that you spend 200,000 units of currency on sales and another 100,000 units of currency on marketing. You gain 50 new customers as a result. You can therefore determine that your ACAC works out to 6,000 currency units cost per customer acquisition. (6,000 x 50 = 300,000).
You can take this process a step further by then comparing the CAC to recurring revenue value of these newly acquired customers to determine the overall impact CAC has to your business.
CLTV or Customer Lifetime Value
Just as vital to your ACAC metric, is your calculation determining recurring value of each new customer. This is your second key customer acquisition metric.
CLTV is used to figure out what you can expect in terms of recurring value from each newly acquired customer, over the entire lifetime that they are with your business.
Ideally, your CLTV numbers should always be greater than your CAC numbers, and most successful enterprises will operate at around a 3 to 1 ratio. However, should your current ratio not reflect this figure, you’ll need to go back and take deeper look at your current sales and/or pricing models, your current customer retention strategies, or your marketing strategy.
To calculate your CLTV:
Average sales x Number of recurring sales x Duration of client (lifespan)
Combine your CLTV with your CAC for a more effective overall strategy. Once you are able to figure out the value of a customer over the entire duration that they are with your brand, you can weigh your CLTV value against the amount that it actually cost you to acquire them in the first place. This is a great way to determine if the cost of acquiring new customers based on your current model is actually worth it, or if you should change your strategies.
The final part of our customer acquisition metrics trio is your churn rate. While your CAC is about how much it costs to acquire a new customer, your churn rate helps you to figure out how many of those customers you are actually retaining.
Customer churn rate: This calculation will reveal how well you are managing to retain your newly acquired customers.
To calculate your customer churn rate over a given period, usually per month, just use a simple division formula:
Number of customers not retained (lost) / Number of customers initially acquired (start of that month or period)
For example: If you acquired 50 new customers over a given period but lost 5 of them, your customer churn rate would be 10%.
To find out more about these metrics and to discuss ways to reduce churn and increase your bottom line, get in touch with Andrew Foster at Enteractive – firstname.lastname@example.org
And learn more about customer acquisition in our blog articles here