The numbers of marketing and customer metrics that are floating around seem to sometimes inundate the marketing professional. In fact with competition at its highest, each consulting company tends to create a new metric (that is sometimes marketed as a black box) to impress potential clients. While there may be a large number of metrics, here are the top 7 metrics that we feel any business should track if they are interested in ensuring a good sustainable client base.
1. Customer Lifetime Revenue
Customer lifetime revenue is the total amount of revenue that a customer is likely to get in for the company. This metric was discussed in detail on our previous post.
2. Average Purchase Amount
The average purchase amount is the revenue that the business gets per purchase order. It is the revenue that the business gains per sale or per order. Knowing the average purchase amount for customers can help you segment them and service them accordingly. It can also be coupled with the conversion rate so that a business can forecast at the expected revenue for the next 3. year.
3. Purchase Frequency
Purchase frequency can be defined as the number of times that a customer makes a purchase in a given period of time. This is a metric that can be calculated for a week, a month, 6 months or a year depending on the specific category that is being studied. When you find that purchase frequency for certain subset of customers is lower, depending on the category that they are buying, can lead to strategic marketing initiatives for upsell/cross-sell.
This term refers to the amount of time that has lapsed since the last purchase. While there is a lot of emphasis on frequency of purchase and the number of times that a customer comes back, recency is the one metric that can actually help retailers to a large extent. When tracked, recency can help create targeted communication that is more effective due to the timeliness of the communication. While there are other aspects such as the content of the communication, offers, discounts and more that also impact customer behavior, the timing of the communication is paramount. Tracking campaigns across various companies has shown that when the first email is sent seconds after the customer signs up for an account, it is likely to have the highest open, click through and conversion rate as well.
5. Retention Rate
The customer retention rate is a metric that indicates the proportion of customers that have stayed with you for a while. The retention rate can be calculated annually, monthly or weekly. The periodicity depends on the purchase cycle and the frequency at which the purchases are generally made.
It is known that acquiring new customers 5 times costlier than retaining existing ones. This means that maintaining a high retention rate can save the company precious dollars every year. Working on the retention rate also ensures that there are less disgruntled customers leaving your company. This means that you will have a lesser amount of bad word of mouth.
6. Customer Engagement
Customer engagement is a step ahead of customer satisfaction. When a customer is engaged, he or she becomes a marketing manager for your product. The factors that need to be considered while computing customer engagement include product involvement, frequency of interaction, extent of referrals, purchase behavior, virility of information shared. There is no standard model for calculating customer engagement and most companies develop their own based on the category in question.
This metric can be used to target specific groups of customers in order to increase their involvement with the company. It can also be used to measure the effectiveness of various campaigns that have been targeted at increasing retention and customer engagement. Web based strategies to increase customer engagement can be created to target individual customers.
7. Share of Wallet
Share of wallet can be defined as a metric that tells you the proportion of dollars that the customer is spending on your brand. The calculation can be done at various levels and you can define the share of wallet on the base of specific variants of a category, the entire category or even monthly expenditure if the category merits it. Calculating share of wallet is especially important for categories where the customer operates from a basket of preferences. The metric allows marketers to understand the average number of competitors that it is dealing with along with the overall position that the brand has.
There you have it, our set of the top 7 customer metrics that every online retailer should track. What other metrics do you consider important?