You may have heard that knowledge is power. Well, it is when it comes to business. When you have the knowledge of what your company is doing, you have the power to reach your goals. Business metrics are the parameters you use to gain the knowledge you seek that will empower you to reach your goals. And, while you may know to keep track of revenues and losses, there are a few more overlooked metrics that need to be discussed.
Cost to Acquire Customers (CAC) is the cost it takes you to land a customer. If you spend $20 and get one customer, then your CAC is $20. However, if you spend $100 on a campaign and land 20 customers, your CAC is reduced to $5. Is lower a good number? Well, that depends on your budget and business model first off, but keep in mind that each customer you land can turn into a repeat customer or Lifetime Value of a Customer (LTV).
If you have repeat customers you need to consider their LTV — or the value they contribute over the span of time they are a customer. Admittedly, this is a little tricky to do and depends on your business model. For example, if your business model says that every new customer should have you break even, these repeat customers will be all profit from these customers. Together, these two metrics mean that you could have some adjustments to make. If you have a rising CAC or a falling LTV, you need to think about cutting costs, raising prices, or do a better job in marketing and sales – or a combination of all three.
A good, solid way to quantify these two business metrics together is by the churn rate. The churn rate is the number of participants that discontinue a service divided by the total number of participants over a given period of time. When the number rises, it indicates a number of factors:
Dissatification with products or services
New competition in the market
End of a product or service cycle
The churn rate is an indication of the successes — or failures — that your company might be facing at the time. Having good, solid data and data mining practices about your business’s customers will give you the background knowledge to understand what is going on so you can do something about it.
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