Your business has been collecting data but might be having difficulties turning that data into actionable insight. Getting the most out of your data means using the right formulas and collecting the right data. Today we introduce the main Calculations you need for your next cost-effective business decision.
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Customer Lifetime Value (CLV)
Customer Lifetime Value helps find how much revenue the average customer can generate over the entire customer/business relationship. Calculating CLV can be quite complicated but is incredibly valuable in terms of business insight. Using CLV data you can calculate how satisfied your customer is with your business and hopefully increase brand loyalty.
CLV = (Average Order Value) x (Sales Frequency) x (Average Retention Time)
Average Order Value = Total Revenue ÷ Number of Sales
Sales Frequency = Number of Sales ÷ Number of Customers
Customer Value = Average Order Value ÷ Sales Frequency
Average Retention Time = Customer Churn Rate ÷ 1
Customer Churn Rate (CCR)
Customer Churn Rate is necessary to calculate how loyal your customers are to your brand. How likely they are to come back to your shop. When calculating churn you need a specific time frame, say a business quarter or even a month to get the clearest result.
CCR = (Customers at beginning of Quarter – Customers at End of Quarter) ÷ Customers at Beginning of Quarter
*Note: CCR is easier to calculate for frequent customer interactions like app use or subscription. For less frequent interactions you may need to do a deep dive on customer behavior
Customer Acquisition Cost (CAC)
Customer Acquisition Cost helps you discover the average business cost (Marketing and Sales Expenses) to get one new customer. CAC can help audit how effective your Marketing Campaigns are and how to spend your budget wisely.
CAC = (Cost of Sales + Cost of Marketing) ÷ New Customers Acquired
Net Promoter Score (NPS)
Net Promoter Score is used to figure out how your customer feels about: your company/products. You can gather this data by asking a simple question: “How likely are you to recommend (Our Company/This Product) on a scale of 1 to 10”. NPS questions are simple and give great insight into how your customers feel.
From 1-10 scores 1-6 are Detractors, 7-8 are Passive, and 9-10 are promoters.
To calculate your NPS score subtract Detractors (Scores 1-6) from your Promoters (Scores 9-10).