As we stride into 2024, let’s establish some New Year’s resolutions for your small business.
And what better way to kick things off than by prioritizing the three stalwarts of business metrics: Customer Retention, Customer Acquisition, and Customer Satisfaction.
Beyond the overt indicators of success such as net profit and sales growth, these metrics constitute the icing on the cake when it comes to comprehending your customers, maintaining robust cash flow, and fostering business expansion.
Here’s to crafting 2024 as the year when your business not only expands but flourishes!
CR & Churn – Customer retention and Churn Rate
Churn and CR rates play a vital role as they serve as a barometer for a business’s relationships, offering insights into customer satisfaction and loyalty.
They indicate how many customers are staying loyal and how many are departing. Gaining control over these two metrics is essential for ensuring customer satisfaction, predicting revenue, and devising long-term growth strategies.
Churn Rate represents the number or rate of customers who leave a business within a specified period.
To calculate your business’s monthly churn rate, apply this formula:
Subtract the number of customers at the end of the month from the number at the beginning of the month.
Divide the result by the number of customers at the beginning of the month, then multiply by 100 to get the monthly CR as a percentage.
Conversely, Customer Retention focuses on the ability to maintain and keep customers, essentially retaining them.
To calculate your business’s monthly customer retention rate (CRR), utilize this formula:
Subtract the number of new customers gained in the month from the total number of customers at the end of the month.
Divide the result by the number of customers at the beginning of the month, then multiply by 100 to determine the monthly CRR as a percentage.
What constitutes a good CR and CRR?
Churn rates tend to vary by industry, with certain sectors experiencing annual rates exceeding 25%. For any business, a 3% monthly CR would be considered favorable.
As for customer retention, a rate of 35% to 40% or higher is a commendable target to aim for.
CAC – Customer Acquisition Costs
Businesses engage in customer acquisition, as the term suggests, by actively securing new customers or clients. This involves targeted marketing efforts aimed at expanding the customer base, with the goal of attracting customers who will provide consistent, recurring business in the long run.
To calculate the Customer Acquisition Cost (CAC), you divide the total expenses incurred in Sales and Marketing by the number of newly acquired customers.
While there are more intricate methods for performing this calculation, let’s maintain simplicity for now:
(CAC cost = Sales & Marketing expenses ÷ number of new customers within a specific time frame)
Customer acquisition cost holds immense importance as it unveils the costs and eventual profitability associated with your company’s growth.
When the CAC significantly surpasses the Lifetime Value (LTV) of a customer, it results in unsustainable growth, as the cost of acquiring customers exceeds the profit generated from each customer.
Customer Satisfaction Scores (NPS or CSAT)
Conducting customer surveys is an excellent method to directly and accurately gauge customer satisfaction, as opposed to relying solely on revenue as an indicator.
The Net Promoter Score (NPS) represents a straightforward survey consisting of just one question, where customers are asked about their likelihood of recommending your product or service.
To calculate the customer satisfaction (CSAT) score, you should divide the total sum of all responses by the overall number of responses received.
Comparing your CSAT scores to the industry average proves advantageous. If your scores fall below the industry average range of 50 to 65, it indicates a need to improve the customer experience.
Your Wallet Ringing All the Way
These aren’t just any metrics; they’re the guiding stars leading your business sleigh towards a prosperous 2024.
May your business resolutions shine bright and bring you joy and prosperity this year.
Should you require assistance with your financial and accounting needs, do not hesitate to reach out to us at Count – your trusted financial partner.