Mark Klein’s Customer ChroniclesAs more marketers convert to the discipline of making data-driven decisions, these are the data points that should drive many of those decisions. We think it is difficult to be an effective marketer today without knowing these numbers...
1. Customer lifetime value (CLTV)
The sum of the future money you will get from a customer. Too many companies make the mistake of thinking they can calculate one number for their entire customer population. It’s more useful and accurate to segment a population and then calculate a different CLTV for each segment. This is the number that guides your marketing spend and marketing methods.
2. Cost to acquire a new customer
Add all of your acquisition expenses for the year and divide by the number of new customers you acquired. Then hope your answer is less than the CLTV. If it isn’t, you need to change your business model.
3. Money lost on each one-time buyer
Subtract the acquisition cost (number 2, above) from the median gross margin on a first time purchase. Generally this is a negative number; they cost you more than you spent to acquire them. A consumer usually needs to make multiple purchases before the gross margin on those transactions exceeds the cost to acquire the customer. Until that happens, the customer is unprofitable. When you multiple this dollar amount by the number of one-time buyers, you get a scary picture of how much these single purchasers are costing your company, and hopefully some resolve to fix the problem.
4. Retention rate
What percent of your customers from your last period are still your customers this period? Is your retention rate improving or getting worse? Is your bucket of customers overflowing, filling, or leaking? As one of my networking contacts wrote me after reading an early version of this post, “Preventing base erosion is a red-hot concern, especially in rough economic times when every dollar matters.”
(Thanks to the Institute for Faith, Work, and Economics for the image.)Mark Klein is a serial entrepreneur, former theoretical physicist, current novelist, and founder of customer analytics company Loyalty Builders Inc. He is passionate about finding new ways to use science and mathematics to improve marketing. When he’s not writing or golfing, he’s working at his day job of running the latest of the four companies he’s founded. He and his wife of many years live on an island just off the coast of New Hampshire.