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Customer profitability

Churn rate

churn

Churn rate is the amount of customers who cut ties with your company during a given time period.

The calculation of churn can be straightforward. Take the number of customers that you lost in a period of time and divide that by the number of customers that you started with in that period of time. The resulting percentage is your churn rate.  As an example, a company that started last quarter with 100 customers and lost 3 over the course of the quarter would have a churn rate of 3%. You can also calculate churn based on the number customers lost, the value of recurring business lost, or the percent of recurring value lost.

Regardless of how you choose to represent churn, tracking your churn rate is key. It’s almost always cheaper and easier to retain customers than it is to go through the process of acquiring new ones. Monitoring churn is the first step in understanding how good you are at retaining customers and identifying what actions might result in a higher retention rate

Here’s an example to think through the impact of your churn rate today on your business over the next five years:

If you have monthly recurring revenue of £15000 and that every month you add another £2000 to that. However, you have a churn rate of 3%. If all of that persists for the next 5 years, you’ll end up generating almost £2.6 million. If you’re able to decrease your churn rate by 10%, to 2.7%, that gives you an extra £100,000 in revenue. If you’re able to reduce your churn by 30%, that’s even better. Your revenue goes up to £3 million!

Based on an article by http://www.churn-rate.com/

 

Retention rates

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Do you know what you spend on gaining new customers compared to keeping the customers that you already have? How effective are you at keeping your current customers? With all of the time, resources, and money put into acquiring customers it is important to know that your efforts aren’t wasted when customers don’t remain loyal.

Your customer retention rate is a great way to measure how successfully you are maintaining customer relationships. On a more granular level, you also need to know which types of customer you are remaining loyal and at which point in the relationship a customer leaves, so that you can make the necessary adjustments.

According to a recent study by social media marketing software provider, Flowtown, they found that maintaining existing customers costs six to seven times less than acquiring new customers. A study by Bain and Company reported that increasing your customer retention rates by just five percent led to an increase in profits between 25 and 95 percent.

Calculating your customer retention rates

Step #1

The first thing you need to do to calculate your retention rate is identify the specific period of time you’re focusing on. Perhaps you’re looking at the last year or maybe the last six months.

Step #2

Next, you need to know how many customers you had at the end of that period of time. If you’re calculating a current retention rate at the end of the period during which you’d like to measure, it might be as easy as determining how many customers you currently have. This number is represented by CE in the formula.

Step #3

You also need to know how many new customers were acquired during the period of interest, so that you don’t include them as retained customers in your final retention measurement. This number is represented by CN in the formula. Now you’re ready to do your first calculation: subtract your CN number (new customers acquired during the period) from your CE number (number of customers at the end of the period).

Step #4

The final number you need to know is how many customers you had at the start of your period of interest. This number is CS in the formula. For your next calculation, you will take the solution to Step 3 (CE-CN) and divide it by how many customers you had at the start of your period (CS). This covers the first part of the equation: ((CE-CN)/CS)

Step #5

Finally, you want to turn that number into a percentage by multiplying it by 100. Your final number is your customer retention rate for your period of interest. ((CE-CN)/CS)) x 100.

Based on an article by on the socious community blog.

http://blog.socious.com/bid/70287/how-to-accurately-calculate-your-customer-or-member-retention-rate

Your top customers by Profit or Life Time Value

Sounds simple but identify your customers who drive the most profit for your business. Rank them and understand how impactful they are as individuals or as a segment for your business.

Ranking these customers from highest to lowest by Profit or Life Time Value lets you see which individuals or groups drive an outsized portion of your business results.  When you can look at a single list and see your main customers you have the power to identify the unique characteristics of this group and work hard to attract more.  Is it who they are, where they live, or what they buy?

Knowing that answer can be more valuable than just making the sale. By focusing your customer service, marketing, promotions, and sales offers, you can build the long-term value with these customers and find more existing and new customers who share the same characteristics.

Returning vs New Customers

Do you have a good balance of returning vs new customers? How well you are maintaining your customer relationships over time?  How much do new customers compared to your returning customer spend with you?

The returning vs new customer metric can help you to compare the value an average new customer brings to your business vs a returning customer over the lifetime of your relationship. It’s worth considering with this metric the costs associated of attracting new customers compared to that of existing customers.

Use this metric to monitor the split over time or see how the business generated between the two groups varies over time. It can be an early indication of longer term customers views towards your organisation and their likely purchase intentions. For a product that supports repeat customers more so than one-time buyers, this can be the difference between struggling and thriving business.

Web Conversion Rate

Web conversion rate is one of the most important indicators of whether your digital efforts are paying off. High levels of traffic to a website without completion of your key goals or calls to action is pointless, as these are a company’s route to growth.

If the conversion rate of your website is stubbornly low, two things could be wrong. First, consider what percentage of your site traffic is qualified. If it’s in the single digits, your target audience probably isn’t hearing you. Next, consider users’ online experience. If the checkout is cumbersome or your site is confusing, visitors are unlikely to convert.

Complicated forms are a common stumbling block in the user experience and can damage conversion rates. Consider giving users a guest checkout option. If visitors must register before checking out, make the process as simple as possible. If a longer form is absolutely necessary, try prepopulating data fields to minimise the hassle.

A website that lacks responsive design can also sap conversions. Most of your users are probably on mobile devices so ensure your website can adjust to small screens.

Based on an article from Deren Baker – Five Key Marketing Metrics CEOs want to see.  http://performancein.com/news/2016/01/18/five-key-marketing-metrics-ceos-want-see/

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Net Promoter Score

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Net Promoter or Net Promoter Score (NPS) is a customer loyalty metric. It can be used to gauge the loyalty of a firm’s customer relationships and serve as an alternative to traditional customer satisfaction research.

Many senior managers care about the Net Promoter Score because they want to guage the loyalty of their customers. What’s more, there’s a strong correlation between a high Net Promoter Score and company growth. NPS can be as low as −100 (everybody is a detractor) or as high as +100 (everybody is a promoter). An NPS that is positive (i.e., higher than zero) is felt to be good, and an NPS of +50 is excellent.

Surveys provide a great tool for tracking the Net Promoter Score: You can ask respondents how likely they are to recommend a company to a friend or colleague, then ask them to score their satisfaction with your company between zero and 10.

To calculate your NPS work out the percentage of responses that scored your company between seven and 10, then zero and six. Subtract the zero-to-six percentage from the seven-to-10 percentage, and you have your Net Promoter Score.

You can also use the same survey to ask customers how you can improve. Your senior managers will be impressed with the insights you can provide with the data gathered by the Net Promoter Score.

Presenting metrics to senior managers

Senior Managers don’t want numbers thrown in their faces, so marketers need to use data to tell a story. An endless stream of data, numbers and metrics are tough to digest and carries less meaning than visual methods of presenting data.

When telling your story, make clear, data-grounded recommendations. For example you may say “You’ve noticed that your organisation spends 20% of the marketing budget on social media, but you’re not seeing great results. I recommend cutting back and allocating money elsewhere.”

Efficient marketing requires data, but senior managers aren’t concerned with every scrap of it. They want a clear view of how your customers behave and how marketing projects impact revenue. To keep your senior managers in the loop without wasting his time, present them with these metrics.

Measure what can be measured, and make measurable what cannot be measured.  Galileo Galilei

 

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