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.

4. Recency
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?

Customer lifetime revenue is the total amount of revenue that a customer is likely to get in for the company.

The computation of the customer lifetime revenue is relatively easy:

Customer lifetime revenue = average purchase amount x purchase frequency in a year x number of years customer is expected to stay

or in exponential form with a yearly discount rate

CLR = Total Revenue per client * (r/(1+d))

where r is the retention rate and d is the discount rate.

It is also important to keep in mind that if your product has serviced the customer well, there is a likely chance that the estimated volume of purchase per cycle and therefore the estimated average amount per purchase occasion increases over time. However, this is something that also depends on the category in question. The number of sanitary pads that a woman purchases in a month is not likely to increase just because she is satisfied with the product. However, the share of wallet on some multi brand categories is likely to increase over time with higher levels of customer satisfaction.

Customer Lifetime Value
Simply put, customer lifetime value of a customer can be defined as the value of the customer to the business. This pertains to the total value that the customer can bring to your business across a specific period of time. Factors that need to be taken into account to calculate the lifetime value of a customer include the amount of money being spent on the customer for acquisition and retention. In addition to that there is also the aspect of the referral value of a satisfied customer in terms of good word of mouth. The lifetime value of a customer therefore needs to be a summation of the profit that she or she is likely to bring to the business and the referral value too.

Computing the lifetime value of customer is not easy. It needs to take various aspects into consideration.
Estimated customer lifetime value – (Customer lifetime revenue – customer lifetime cost) + expected number of referrals x expected value of the referred customers)

Some businesses however do not like to add in the referral value of a customer in the overall computation since it can bring in duplication over a period of time. Therefore the calculation is limited to:

Estimated customer lifetime value – Customer lifetime revenue – customer lifetime cost

The customer lifetime cost can be calculated by looking at the profit per sale and the number of times purchase has been made.
Knowing the customer lifetime value helps in assessing the amount of money that you should be spending on certain segments of customers in order to retain them. It helps in ensuring that the return on investment of specific customers is high and in accordance with the kind of returns that the company is looking at.

A company can use the values of lifetime value by categorizing people into various groups based on the level of lifetime value – high medium and low. These people can be profiled based on their categorizations and once you know the specific types of people in each group, the company shall be in a better position to spend the marketing budget in the right direction. This data can also be used to plan invites to high profile events and loyalty programs.

Customer Lifetime Value or CLV is one of the best ways in which the objectives of the company can be defined for the year. Defining the company objective based on CLV can help in ensuring that the future of the company is also being taken into account and that the marketing strategies being developed are not merely short term and tactical.

Efforts of the sales force can also be defined in keeping with the customer lifetime value so that you can be sure that you are keeping the high value customers happy and content.

There is nothing wrong in trying to retain customers using various tactics that there are. However, what is futile is to believe that the customer is a fool and that he will fall prey to strategies that you have created. Marketing efforts to retain customers work only if they are genuine and if they provide real value to the customer. Some of the customer retention and loyalty tactics that you can use include:

a. Be truthful with your customers – It is important that they start seeing you as their partners in fulfilling the need that they have rather than an entity that is interested in making money off them.

b. Provide full information – Having fine print that is likely to spring itself after the sale is made is likely to leave a bad impression on the client. While hiding information may help you get a sale for the first time, retention will definitely be a challenge.

c. Confidentiality – In the world where privacy can be invaded at the drop of the hat with Internet access and more, maintaining confidentiality of the customers is something that they appreciate to a large extent.

d. Service orientation – Each and every client likes to be pampered and considered special. When you go that extra mile to please and delight customers, you are sure to ensure customer retention.

e. Flexibility – Large organizations are often associated with inflexible rules and policies that they will not budge from. Make exceptions at times and you will make the customer feel wanted and special.

f. Loyalty enhancing tactics – Use loyalty programs, special discounts and more to achieve short time loyalty as you build up your image with regards to the above mentioned aspects.

g. Study defectors – Make sure to understand and study the defectors that do leave your brand or company. You will be able to categorize them into price defectors, product defectors, service defectors, market defectors or technology defectors. When you know where the issues is you can quickly devise strategies to plug the hole.

With the large number of options that customers have today, it is becoming increasingly tough to hold their attention. The situation is so competitive that the minute they leave your website, your store or your office they are at a risk of being pried away by your competitors with some new marketing gimmick, tactic or strategy.

If you have had the good fortune of acquiring some customer and doing business with them once, you must make sure that they continue to come back for more. The need of the day is to block competitors away. However, you cannot stop the competition from approaching your customers. Therefore, you must work on your customers in order to ensure that competition cannot take them away.

The whole idea is to engage in customer loyalty marketing so that you can ensure that the customer is no longer open to the ideas that competition puts forward in front of them. By providing the best offering that the customer may want, you can change the state of mind of your consumer. It requires a receptive mind to listen to what customers are saying.

The essential steps to ensure customer retention and loyalty have been listed here. These three steps of customer loyalty marketing can ensure that your relationship with the customer becomes so strong and invulnerable that it becomes everlasting.

1. Personalized and customized communication
The Internet allows us to be far more personal than ever before. Avoid techniques that club all the customers into one large group. Segment your customers with demographics, behavior, and opinion data and then target them with the words that they want to hear. The level to which you segment depends on the kind of clientele that you have and the base that you service. If your clientele is extremely up scale and you have a few customers that give the company a large amount of profit and revenue, then individual attention and communication is necessary. In such one-on-one marketing the marketer needs to have specific information about the client’s preferences, so that you can identify the needs, differentiate your services, interact with the customer and then customize all communication accordingly.

2. Real time customer engagement
Time is extremely critical in the whole process of customer loyalty marketing. A slight slip or delay can cause competition to be on your back trying to snatch away all your clients. What marketing people need is a system that can help alert them immediately about specific aspects to look into. One does not have the luxury to wait for the month’s aggregated report to come through in order to take overall decisions. High speed analytics that can offer immediate information that needs action is the essence of the day. Delivering such speed in terms of all offerings requires the entire company to be in tune with the culture of the company so that there are no delays ever – even of a split second.

3. Customer retention and satisfaction
Customer retention is one of the aims of customer loyalty marketing and customer satisfaction is one of the various metrics that leads to a better understanding of retention. While satisfaction is a measure, retention is the goal that needs to be achieved. When you indulge in customer loyalty marketing, you focus your energies and marketing budgets towards the customers that you have. With increasing competition, stagnant or mature markets and the rising cost of reaching out to new customers, customer retention and loyalty have become extremely important. It is not right to assume that customer satisfaction is enough to achieve customer retention. It is possible to have high customer satisfaction and yet lose a customer. This is something that can happen if the product category is a low involvement product or there are various substitutes that are possible or even when the cost of switching is low.

The implementation stages of market research include questionnaire development, data collection, and analysis. At the questionnaire stage avoiding questionnaire bias is important. The manner in which you ask a question can sometimes affect the response that you get. At other times, there are some socially unacceptable answers that you will never get unless you use projective techniques to mask them. All attribute questions should be rotated among respondents so that order bias does not creep in. Unless you are careful about this, the data that you get from the survey will not be useable.

Some of the other aspects that need to be remembered are specific to the kind of research that you are doing. If you are doing a product test then you may want to decide whether you want the same customer to try out the various product variants that you want to test or whether you will prefer to have monadic panel testing. The one that you want to do depends largely on the product category that you are researching and other factors. These are not dictated by the book and have to be decided upon based on experience and practice.

Then there is the aspect of deciding the analysis that you want to do to confirm or negate the hypothesis. The part where you decide the specific analysis is an art but conducting the specific analysis is a science that you can learn from the book. For example, when you want to understand the cause and effect relationship between satisfaction on specific attributes and the overall satisfaction, you need to use regression analysis. Correlation analysis can only tell the simultaneous existence of two variables and does not indicate cause and effect.

While the fundamentals of market research are seeded in statistical analysis, there is a lot more to market research then just statistical analysis. As they say data can be molded to state what you want to see. In addition to that, if the research is conducted among the wrong demographic segment or a biased sample is chosen, the entire results of the market research can take you in a direction that will end in disaster. You will create strategies based on wrong interpretations and none of these will bear fruit.
It is important that market research should be done in the right manner and in order to do that, you have to ensure that you take care of some tasks before you start the market research process. Below are the details of what you should keep in mind at these three stages of market research.

This is the stage before you actually start the process of market research. And this starts even before you start to make the list of questions that you need to ask the customers. The first thing that is important is to understand why you are doing the research. Doing research just to gather some data does not make sense and you are likely to get junk data that you cannot possibly use to your benefit.

The objectives of the research are extremely important. Even if you are not required to justify the research to anyone, make sure that you list what you expect from the research at the end of the process and the answers that you are seeking. Market research best practices also require you to make a list of some hypothesis that you have from your understanding of the business so that you can either prove or negate the hypothesis after analyzing the data.

One of the major mistakes that people do is to forget to make a list of the information areas that will be covered in the research followed by an analysis plan that will be used to answer the questions that the marketing research has set out to answer. The reason why market research best practices requires you to do this is because many times one finishes data collection only to realize that you need a specific variable to be able to answer some questions.