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As we step into 2024, it's time to set some New Year's resolutions for your small business.
And what better way to start than by focusing on the three wise-men of business metrics: Customer Retention, Customer Acquisition and Customer Satisfaction.
Aside from the obvious success markers like net profit and sales growth, these are the icing on the Christmas cake when it comes to understanding your customers, keeping your cash flow healthy, and growing your business.
Here's to making 2024 the year where your business not only grows but thrives!
CR & Churn - Customer retention and Churn Rate
Churn and CR rates are super important because they’re like a business's relationship barometer. Providing insights into customer satisfaction and loyalty.
They tell you how many customers are sticking around, and how many are waving goodbye. Getting a handle on these two metrics is key to keeping your customers happy, forecasting revenue and planning long-term growth strategies.
Churn Rate is the number/rate of customers leaving a business in a given period.
To figure out your business's monthly churn rate, use this formula:
(The number of customers at the beginning of month - the number of customers at the end of the month.
Answer ÷ the number of customers at the beginning of month X 100 = monthly CR as a percentage.)
Conversely, Customer Retention is all about, as you might have guessed, the ability to keep customers around - i.e. retain customers.
To figure out your business's monthly customer retention rate (CRR), use this formula:
(The total number of customers at the end of the month - number of new customers gained in that month.
Answer ÷ by the number of customer at the beginning of the month X 100 = monthly CRR as a percentage)
What’s a good CR and CRR?
The churn rate typically differs across industries, with some sectors experiencing rates upwards of 25% annually. A 3% monthly CR would be good for any business.
For customer retention, a rate of 35% - 40% and higher would be a good target.
CAC - Customer Acquisition Costs
Customer acquisition, as the term implies, involves the process of gaining new customers or clients for a business. This can be seen as a targeted marketing effort aimed at increasing the customer base, ideally attracting customers who will bring in steady, recurring business over the long term.
The Customer Acquisition Cost is calculated by dividing the total Sales and Marketing expenses by the number of newly acquired customers.
There are some more extensive and complex calculation methods that can be used to do this but let’s keep things simple for now:
(Sales & Marketing expenses ÷ the number of new customers for a given time period = CAC cost)
Customer acquisition cost is crucial as it reveals the expense and eventual profitability of your company's growth.
When CAC is disproportionately high compared to the Lifetime Value (LTV) of a customer, it leads to unsustainable growth, as the cost to acquire customers exceeds the profit each customer brings.
Customer Satisfaction Scores (NPS or CSAT)
Conducting customer surveys are a great way to measure customer satisfaction more directly and accurately. As opposed to solely relying on revenue as an indicator.
The Net Promoter Score (NPS) is a simple survey with just one question, asking customers about their likelihood of recommending your product or service.
To determine the customer satisfaction (CSAT) score, divide the sum of all responses by the total number of responses received.
It's beneficial to compare your CSAT scores with the industry average. Falling short of the average of 50 - 65 signals a need to enhance the customer experience.
Your wallet jingling all the way
These aren't just any metrics; they're the guiding stars leading your business sleigh towards a prosperous 2024. So, let's raise our glasses of eggnog and make a toast to a new year filled with success, growth, and happy customers.
For more awesome business tips like these, check out our knowledge base. It’s a stocking full of gifts for ambitious SMEs!
May your business resolutions shine bright and bring you joy and prosperity in the coming year. Merry Christmas and a Happy New Year to your thriving business! 🌟🎅🥂🎄🎆
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