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These 5 Customer Metrics Will Determine the Growth of Your Business

Here’s a hard truth that many business owners only find out when it’s too late: the fact that you’re gaining new customers doesn’t automatically mean your business is on the right growth track.

Even when clients are regularly beating a path to your door, there may still be enough going on beneath the surface to trouble your business somewhere down the road.

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This explains the failure of numerous small enterprises and large corporations despite the impressive customer acquisition and sales numbers they report. It’s the sort of collapse that you’d want to avoid as a business owner- one which wreaks its havoc before you even learn how to identify it.

But how can companies tell if their client numbers are really as good (or bad) as they look?

In this article, we’ll be going over five key customer metrics you should be measuring as a business. They’re gleaned from Printivo, a leading digital design and prints outfit in Nigeria.

These customer metrics will give you a better view of where you’re at with your customer acquisition efforts, and help you decide what you actually need to do more (or do differently).

1. Customer Acquisition Cost (CAC)

The Customer Acquisition Cost (CAC) measures the cost of acquiring a single customer. It takes the total amount you have spent on marketing and other efforts put into gaining new customers and divides it by the number of customers they have gained for your business.

Here’s an example illustrating this metric. Let’s say your business has spent ₦500,000 on market research, branding, and marketing aimed at gaining customers. This drive gets you about 50 new customers. If we employ the CAC formula, we’ll find that it cost you ₦10,000 to acquire one customer.

Of course, you’ll want your CAC to be on the low side. One way to achieve this will be to make your marketing more specific. In other words, focus on the specific groups (demographics) that are likely to purchase your products and services, instead of just marketing to everyone in your path. 

We’ll come back to the significance of the CAC shortly.

2. Average Order Value (AOV)

This is a measure of the amount that each customer spends when they order things from your website. To obtain this metric, divide the total revenue you get from all orders by the number of customers who place orders at your store.

So if you’ve gotten orders worth ₦600,000 from all 600 customers who have made purchases last month, the Average Order Value (AOV) for each customer from that month is ₦1,000.

How do you increase your AOV?

Try upselling: offer them higher quality (i.e. higher-end) versions of the product they’ve bought from you. Those versions will cost more, but if your customers appreciate the superior quality, they’ll buy. This means more value generated per customer, and ultimately, higher AOVs.

You could also try cross-selling: offer customers goods or services that are good additions to the ones they’ve already bought. For example, some nice sneakers to go along with the sporty tops you’ve sold them.

3. Conversion Rate (CR)

In marketing-speak, conversions refer to actions that businesses want their target audience to take. They may include the purchase of an ebook, email signup, registration for an event, or the purchase of a product.

This measure is especially important in the world of online marketing, where businesses are always trying to up their conversion numbers. Websites or apps may be aiming for multiple kinds of conversions; for instance, they may be seeking both product purchases and registrations for an upcoming seminar.

So what’s a conversion rate? It’s the number of times a conversion happens, divided by the number of visitors to the website. If there are 100,000 visitors to a website in one month and there are 1,000 product purchases in that site in the same period, the conversion rate will be 0.01, or 10%.

You can increase your conversion rates by selling more stuff that people really want to buy (and taking out the ones they aren’t buying), and by attracting them with nice offers. Also, make sure that your website is easy to navigate.

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4. Customer Lifetime Value (CLV)

This is the total value that your customers’ purchases add to your business throughout their time as your customers. It’s basically a sum of all you’ve gotten from them in payments for goods and services you delivered to them.

Now, here’s where we circle back to Customer Acquisition Cost (see metric 1).

As a business, you should ensure that your Customer Lifetime Value exceeds your Customer Acquisition Value (i.e. CLV>CAC), by a significant margin. This ensures that you’re getting more value from your customers than it cost you to gain them in the first place.

5. Churn Rate (CR)

The churn rate measures the proportion of people who stop being customers of a business within a specific period. This isn’t the most pleasant metric to calculate; we would prefer that our customers stick with us, especially if they’ve been consistent, high-value buyers. But even the best businesses have to do this sometimes.

Companies can minimize churn rates by delivering great products, and improving their customer service.

Final Words

If you are able to track the five customer metrics we’ve discussed here, you’ll get some good insights into your business’s engagement with prospects and customers. With those at your fingertips, you could steer your enterprise in the direction of stronger, more sustainable growth.

Featured image source: Your Black World

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Ikenna Nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.



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