Using Data as a Tool to Drive Business (Part 2)
Last week we shared some tips with you on becoming a data driven organization. Now that we’ve established a proper mindset, it’s time to start applying those lessons. Here are just a few simple ways to leverage the data you collect on your prospects and clients.
Cost To Acquire (CAC)
Are you getting enough return on investment into your marketing and sales? You can find out by calculating your cost to acquire a customer. This little statistic can help you pinpoint whether you need to make budgetary and/or staff changes, as well as to look into what advertising and marketing channels work most effectively. To find out your cost to acquire a customer, simply add up all your marketing and sales costs (advertising, salaries, commissions, etc) in a period of time and divide by the number of new clients in that same time period. For example, if you spent $15,000 in a month and brought in 25 new customers, that means it cost $600 to acquire a customer.
On the flip side of customer acquisition, is customer attrition. What is the rate at which you are losing customers? Coupled with a little research into the reasons why clients leave, this metric can help to retain clients. Moreover, it can tell you how many new clients you need to acquire to maintain a balance. To find out your attrition rate, take the number of customers you lost in a given period (month, quarter, year) and divide that by your total amount of clients. So if you lost 50 customers and originally had 500, your attrition rate is 10%.
Lifetime Value (LTV)
Calculating the lifetime value of a customer helps you understand the revenue contribution of your customers during their entire relationship with your company. Take the value the customer pays you for the good/service multiplied by the number of repeat transactions and multiply that by the average retention rate of the customer. Have a look at this neat little tool from Harvard Business School and start plugging in numbers to find out where your company is at.
Time to pay back CAC
How long does it take for you to recoup your costs from acquiring a customer? If you know the answer to this, then you can find out if you’re losing money on customers and need to adjust your price points or leverage more affordable ways of attaining them. On the other hand, this metric can tell you at which point the relationship with your customer becomes profitable for your business. To calculate this take the cost to acquire a customer and divide the total by how much they pay you on average per month.
This is just a small sample of what you can do with the data you collect every time you interact with your customers and prospects. Yet already with just these four statistics, you can not only assess the health of your business, you can start taking measures to improve it! The best thing of all is that all you need to find this out is an Excel spreadsheet and a little bit of time.