‘What get’s measured get’s managed’. KPI’s are key to any businesses ongoing success, allowing you to objectively assess performance against your plan. But with a plethora of different metrics available, where do you start? Since most of us realistically don’t have the time or resources to measure everything that’s out there, as a starter, I would always recommend incorporating these key metrics into a performance dashboard for any business.
Customer acquisition cost (CAC) is simply the total expenses you spend to turn somebody into a buyer, divided by the total number of buyers. For example, if you spent £100 and brought in five customers, the customer acquisition cost would be £20.
Many businesses look at CAC as it relates to customer lifetime value (LTV), which is all the profit you can expect to generate from a customer over your entire relationship with them. You typically want the cost of getting new customers to be lower than the CLV, because otherwise, you’re either just breaking even (no growth) or, worse, losing money. Knowing the CAC to LTV ratio will help you get an idea of how much profit you’ll get within a given window of time, and it can prove that you need a shift in your marketing channels or other operations.
Customer churn measures how many people drop you and stop buying. You find this rate by dividing the number of customers you lost by the number of customers you had at the beginning of the given time period. So, if you had 100 customers to start with and lost 15, then the churn rate would be 15 out of 100 or 15%.
To be clear, every business is going to lose customers. That’s the reality of dynamic market demands. So, you’re not looking to keep this metric at zero. What you want is just to ensure that you’re not losing customers faster than you can replace them. If you see that, it means there’s a real problem within the business you need to address. This could be a lack of good customer service, the fact that you switched to an inferior product material, or any number of things. But high customer churn always necessitates some internal review or extended reanalysis of your target customers.
Your net promoter score (NPS) is really all about your customers’ experience. Generally, it can tell you how loyal people are to you and how they view your brand. Applied more specifically, it can also tell you how much people like certain products, services, account managers and more.
To find your net promoter score, ask your buyers how likely they are to recommend your business, product or service to somebody else. They rate you from 0 (wouldn’t recommend you at all) to 10 (extremely likely to recommend you). Then, you separate detractors (0 to 6) from passives (7 to 8) and promoters (9 to 10). Subtract the percentage of detractors from the percentage of promoters for your final score. For instance, if 5% of customers are detractors and 75% are promoters, then your NPS is 70.
Determining your NPS is a great indicator as to the amount of free word-of-mouth advertising you get. People are more willing to buy if they’ve been given good recommendations from others, especially if those recommendations are from family and friends. Additionally the more people are willing to stick their necks out to recommend you, the less money you will need to spend to bring in new customers.
"KPI’s are key to any businesses ongoing success, allowing you to objectively assess performance against your plan"