What Metrics Are Used to Measure Customer Acquisition and Retention?
Looking at deals won VS closed might give you an idea if your sales strategy is successful or not, but it won’t help you understand if you have a profitable business. After all, a couple of closes won’t guarantee the future and growth of your company.
Measuring this metric alone won’t reveal how successful your lead strategies are. It’s difficult to infer consumer loyalty and return of investment through this one metric alone.
To really realize the true potential of your business, you also have to track customer acquisition and customer retention metrics.
So, what are the top customer acquisition and customer retention metrics? This group of metrics includes Customer Churn, Lead Generation Rate by Channel, and Customer Lifetime Value, to name a few. Together they will guide your business into generating more profit by spending less. Read on to learn how.
Customer Acquisition and Retention: Why It Matters
Acquiring new customers is a top priority for businesses, especially B2Cs like eCommerce websites and trade companies. A fresh flow of leads every month signals that your brand is continuously growing its reach and attracting new customers.
Unfortunately, acquiring a new customer base can be costly. Setting up a landing page, creating new content, launching an email campaign, and developing targeted ads can cost a couple thousand dollars. And even then, not every lead you acquire will successfully make it out of the funnel and close the deal.
Customers that do reach the end of the funnel and close the sale may do so only once or twice before taking their business somewhere else. The problem is that the value of their business might not have been enough to make your efforts to acquire them worth it in the first place. This is where customer retention kicks in.
If you have a loyal customer base, you don’t have to keep spending on ads to drive profit. In fact, increasing customer retention rate by just 5% can increase profits from 25% up to 95%. With repeat customers, you are essentially generating more income while reducing your costs.
Top 10 Customer Acquisition and Customer Retention Metrics
Luckily, there is a way to quantify things like customer satisfaction and loyalty. The nuances of customer retention and acquisition are represented by the following key metrics:
1) Customer Churn
The customer churn rate describes the percentage of buyers that opt out of your product or service within a certain time frame. They have either lost interest or decided to work with a competitor instead.
While customer churn is common in any business, a large percentage of customer churn is typically indicative that your consumers are not happy with your product or service. Common causes for churn include:
- Products/services are too expensive for customer base
- Customer support is not helpful to customer base
- Customer base quickly outgrows the solution
- The product or service offers no recurring value
For example, if you begin with 150 customers at the start of the year and end with 130, that means you have a 13% churn rate. Ideally, you would have a 0% churn rate, but it’s difficult to achieve that especially for businesses with short customer life cycles. At most, you should not exceed a 10% churn rate in 365 days.
Tracking customer churn rate is a great way to understand your product or service’s value. Even without a survey, you can assess how many customers leave your business, and determine whether or not it’s a recurring pattern.
2) Customer Lifetime Value
The customer lifetime value (CLV) represents the value of a single customer from the moment they enter your business up to the time they leave your customer cycle. The CLV compares the value of your current target market vis-a-vis the cost of acquiring a new one.
Let’s say the average CLV of your consumer is $500, but it costs $700 to get a new consumer due to marketing and advertising costs. This clearly signals that your lead generation efforts are way too expensive, or that you need to rethink your prices or the quality of your customer base to increase your revenue.
Knowing each customer’s CLV can help you distinguish high-value clients from low-value clients, which comes in handy when you’re launching customized marketing campaigns.
3) Repeat Purchase Rate
The repeat purchase rate (RPR) is another great metric for measuring retention. This measures the percentage of customers that have purchased from your shop again. Although it’s commonly used to track success in eCommerce sites, RPR can easily be applied for subscriptions and contract renewals.
The repeat purchase rate can be calculated by dividing the number of customers who have shopped more than once on your website by your total number of customers. The great part about the RPR is that you can track it at any interval of the year and still extract actionable data.
Keep in mind that the RPR doesn’t always accurately represent the general purchasing habits of your customer base. For instance, if you have 2,000 clients by the start of the month and 1,300 clients who have shopped more than once, you’ll have an RPR of 65%. This number doesn’t account for the individual value purchases of each consumer.
The RPR only gives you a general idea of your current retention rate. Nevertheless, it’s still one of the best customer retention metrics you can track.
4) Purchase Frequency
The purchase frequency (PF) refers to how often the average shopper buys from your store. Just like the RPR, this metric is commonly used for B2Cs, but is applicable as well when projecting retention rates for subscription-based services or products.
The purchase frequency describes how often the average shopper buys from your store. It’s a good metric to track if you’re looking for a way to answer the following questions:
- Are my products/services worth paying for?
- Do my customers agree with the value of my products/services?
- Are my products/services fulfilling a recurring need?
- Are my products/services sustainable?
You get the PF by dividing the number of orders made within a certain time frame by the number of unique customers. Make sure that you’re only using unique customers, which means you should only count visitors and buyers once regardless of how many times they have made a purchase within the timeframe you’re calculating. Doing so preserves the data and provides the most accurate calculation possible.
Purchase frequency is one of the customer retention metrics that you can actively influence. Look into common buying triggers like seasonal events and discounts to understand your customer base’s purchasing habits. You can increase your clients’ purchase frequency by sending targeted offers and emails around the most opportune time.
5) Loyal Customer Rate
The loyal customer rate simply describes the percentage of loyal customers you have out of your entire customer base. For most businesses, loyal customers take up anywhere between 8 to 20% of their customer base; the rest are first-time users or infrequent shoppers.
There are different ways to identify customer loyalty, and the parameters you set will also inform the data you extrapolate from this metric.
Knowing your loyal customer retention rate is crucial in understanding how dependent you are on acquiring new customers. If the majority of your revenue comes from loyal customers, it can signal that you have great retention strategies and even better value provision.
To calculate this metric, just divide the number of repeat customers you have by the total number of customers. Again, the value you use for repeat customers depends on the parameters you set.
Let’s say you identify 40 existing customers with more than 1 month of subscription and 15 customers who made multiple purchases, regardless of subscription cycles, as loyal customers out of your 100 customer base. This would mean you have a 55% customer retention rate.
6) Customer Acquisition Cost
Utilizing a combination of tools and strategies to expand your market reach and acquire new customers can rack up a hefty bill if you’re not careful. Instead of estimating how much you’re spending on attracting new leads, you can use this metric to learn the actual numbers.
To calculate, divide all the costs spent on marketing and other lead generation efforts by the number of customers you acquired during the time period. So if your marketing and advertising expenses for a whole campaign are $4,000 and you acquired 55 customers, your CAC is $72 per customer.
Ideally, your average customer lifetime value would be higher than your CAC because you want to ensure that your revenue is higher than your ad spend. B2Bs can easily achieve this by implementing strong retention techniques and improving customer experience to promote loyalty and longevity.
7) Conversion Rate
The conversion rate describes the successful transition of a buyer from one part of the funnel to another. For simple customer cycles, defining a “buy” as a conversion is the easiest way to extract data. For more complicated sales cycles, you might want to look at stage-by-stage conversion through the pipeline or funnel to understand where your leads are leaking.
To get your conversion rate, divide the number of conversions you had from your total number of interactions. For example, if 400 leads sign up for your email campaigns but only 130 of those ended up making a purchase. This means you have a conversion rate of 32%.
The conversion rate is a great way to understand sales and marketing performance. It can answer questions like:
- Are my leads converting into paying customers?
- Are my sales/marketing techniques successful in pushing prospects closer to a sale?
- At what stages of the funnel/pipeline do I experience the most leaks?
8) Click Through Rate
Lead acquisition is about targeting the right people with ads they can’t resist. Measure how effective your ad spend is by looking at the click through rate (CTR). This metric tells you the number of people that click through your ad VS the amount of people who have seen it.
So, if your ad generates 3,000 impressions (meaning 3,000 people have seen it), and 700 of which clicked through, you have a click through rate of 27%.
On its own, the click through rate can be deceiving. While you can have targeted ads that work well for you, there’s no saying that they will actually convert clicks into buys. To get a more holistic representation of your ad’s performance, measure your CTR with the conversion rate to find out the percentage of customers that do commit to a sale.
A high CTR but a low conversion rate could mean your ads are well-targeted and optimized, but that your landing page is lagging behind.
9) Lead Generation Rate by Channel
Different lead generation channels will yield different results. Your company might be spending on more channels than you need without even knowing it.
Let’s say you’re using Facebook ads, Google Adwords, and Instagram ads to generate leads. Each platform attracts a different kind of lead, and knowing the demographics each platform has to offer can help you zoom in further on your target market.
For instance, if you’re a SaaS provider, you would get better results focusing on local keyword search, not Instagram ads. By tracking the lead generation metric, the numbers will be able to reflect each channel’s performance.
10) Time To Conversion
Time to conversion describes the amount of time leads usually take to decide before making a purchase or signing a contract.
Time to conversion could take anywhere from mere seconds to a couple of weeks. A visitor seeing your page for the first time might click on an ad and buy instantly, while another prospect might take 5 days to decide before buying through your email.
This metric doesn’t just offer insight on the time leads spend in the funnel; it also reveals your average sales cycle which will help you understand whether you need to add or reduce points of contact before going in for the sale.
For B2Bs, this metric can help you decide the points of interaction you have with your prospects, including how many emails you need to send and the interval between one piece of content and the next one.
Track It All With Commence
Wrapping your head around data and analytics doesn’t have to be complicated. With Commence CRM, you are able to track these metrics and give your organization a 360 view on your lead generation and acquisition efforts.
Never launch a campaign in the dark. Book a free demo today to learn more about the specific metrics you can track with Commence.