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Author: Sumit Aneja
ENTREPRENEUR LEADERSHIP NETWORK CONTRIBUTOR
Chief Executive Officer of Voxco
Most business professionals have a heated, ongoing love affair with quantifiable metrics. That’s because metrics allow you to objectively assess which direction to move in with your team. You can track a plethora of different metrics, depending on what you’re aiming to do or find out. But, since most of us realistically don’t have the time or resources to measure everything that’s out there, as a starter, consider these key areas.
1. Customer acquisition cost
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 organizations look at CAC as it relates to customer lifetime value (CLV or LTV), which is all the revenue 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 CLV ratio will help you get a concept 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. Both are essential to short and long-term goal setting.
2. Customer churn
Think of customer churn as the hot potato metric — it 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 13, then the churn rate would be 13 out of 100 or 13 percent.
To be clear, every business is going to lose customers. That’s just competition, and 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, a continued series of bad, publically visible ethics choices by your managers, or any number of things. But high customer churn always necessitates some internal review or extended reanalysis of your target customers.
3. Net promoter score
Your net promoter score (NPS) is really all about your customers’ experience. Applied 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, marketing materials, representatives 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 percent of customers are detractors and 85 percent are promoters, then your NPS is 80.
Determining your NPS is important because there’s truly nothing better than free word-of-mouth advertising. People really are more willing to buy if they’ve been given good recommendations from others, especially if those recommendations are from family and friends. And the more people are willing to stick their necks out to recommend you, the less effort and resources you need to put toward bringing new customers into your fold or reducing customer churn — and the bigger your profits can become.
4. Employee net promoter score
This is essentially the same concept as NPS and is calculated the same way (subtract the percent of detractors from the percent of promoters). You just apply it to your employees for a grasp of how satisfied they are with your business or a specific manager. This makes an enormous difference when it comes to developing your company culture and overall team engagement. ENPS offers good insights into what needs to change to retain talent and serve customers well.
5. Customer satisfaction score
Referred to as CSAT for short, this score tells you the percentage of your total customers who are satisfied with your services or products. If you have 100 customers and 90 are satisfied, then your CSAT is 90 percent. Like NPS, CSAT is simple to implement. It can help you overcome customer-company disconnects and respond quickly to problems so people keep buying and recommending you. Implementing it immediately after a transaction or any interaction (e.g., by customer survey or star rating) is an excellent way to get a real-time pulse of what customers think of you. You can also trend it over time to identify issues as they arise.
Metrics don’t have to overwhelm you. Start with core basics such as these, and then expand based on your other unique business objectives. These form your roadmap and enable you to progress with confidence. Measure your final metrics set consistently and you’ll set the stage for truly solid decision-making across the board.