Customer acquisition costs (CAC for short) are a measure of how much money it takes for your brand to acquire a new customer. These costs can take a variety of forms, from referral fees and free trials to search engine marketing and cost per click ads.
The equation of Customer Acquisition Cost
Customer Acquisition Cost = Total Acquisition Spend / Number of Customer Acquired
If you’re running a new or limited time acquisition strategy, such as a free trial or a referral program, it’s a good idea to calculate the CAC for each campaign as soon as it ends so that you can quickly assess its effectiveness. If you’re investing in a three month trial of pay-per-click advertisements, for example, you’ll want to run a quick CAC calculation immediately once the three months are up to see if it’s something worth investing in long term.
That being said, if you’re assessing your customer acquisition trends on a more ongoing basis you’ll want to make sure that you return to your CAC calculation at least quarterly. Checking in on your CAC at least once every three months will make sure that you catch any big swings in your customer acquisition trends. These regular analytics also make sure you’re never inundated with acquisition calculations!
How Often Should You Calculate Purchase Frequency?
Purchase frequency helps you measure how often your customers are shopping with you. When this number improves, it means you’re bringing back your customers more often for more purchases which is a sure sign of healthy customer relationships.
The equation of Purchase Frequency
Purchase Frequency (f) = Number of Orders (365 Days) / Unique Customers (365 Days)
As you can see with the calculation above, purchase frequency is a relatively simply calculation that’s typically measured on an annual basis. However, you can calculate purchase frequency at any time interval you like - all you need to do is change the date!
One of the best things about calculating purchase frequency is that it can also help you calculate your average time between purchases (as shown below).
Time Between Purchases (TBP) = 365 Days / Purchase Frequency (f)
Purchase frequency is typically calculated on either an annual or bi-annual (twice a year) basis.This is because you need a decent chunk of time to pass in order to collect enough data for an accurate calculation.
Calculating your purchase frequency in short intervals (such as daily) doesn’t give you the bigger picture of customer behavior patterns. Even brands like Starbucks, who have extremely high repeat purchase rates, would see “daily” purchase frequency values close to 1 because most customers only purchase coffee once a day. This “daily” purchase frequency doesn’t tell us if we can expect these customers back tomorrow, next week or next month. When we expand our time intervals to calculate monthly or annual purchase frequency, we start to see values that tell us a little bit more about our customer’s patterns.
In order to get this “big picture” sense of your purchase frequency, I recommend using annual time intervals and returning to your calculation once or twice a year. If your industry operates at a faster pace (such as coffee, groceries, or supplements) with customers buying from your brand multiple times a month, then you might consider shrinking your time interval (and calculation frequency) to reflect that.
Analyzing your churn rate will help you understand how many customers your business is losing on an ongoing basis.
The equation of Customer Churn Rate
Churn Rate (Period) = Customer Lost (Period) / Total Customers (Period)
Churn needs to be calculated more frequently that some of the other metrics on this list. The implications of letting your churn rate go unchecked are much more severe than those related to something like average order value or purchase frequency; while other metrics are warning signs, a churned customer is the end consequence. A churned customer is a customer your brand has lost, and it can be very hard to get them back.
Subscription brands should be calculating churn rates at the same frequency as their subscription payments (at the very least). If we use Netflix as an example, their monthly subscription fee would dictate that they should be calculating their churn rate on a monthly basis. Fab Fit Fun, on the other hand, offers a seasonal subscription and consequently should be calculating churn on a quarterly basis.
However, if your brand brand doesn’t use a subscription model (non-subscription brand), you’ll need to calculate your average time between purchases and then use that value as a basis for checking up on your churn rate.For example, suppose a brand calculates their purchase frequency and discovers that their customers make an average of three purchases a year. Using the time between purchases equation from the previous section, they could quickly find out that the average customer goes an average of around 122 days between purchases. Since 122 days is essentially four months, it would be a good idea for this brand to calculate their churn rate every four months (at the very least).
How Often Should You Calculate Average Order Value?
Average order value is a measure of how much your customers spend when they shop with you. If all other things remain constant and your AOV increases, then you’re selling more to each customer with every purchase and your revenue will climb accordingly.
The equation of Average Order Value
Average Order Value (AOV) = Total Revenue / Number of Orders Taken
The best practice is to calculate AOV monthly when you review your revenue and order values.
In order to calculate net promoter score (NPS) accurately, you actually need to survey your customers and ask them how likely they would be to recommend your store to others on a scale from 0-10.
The equation of Net Promoter Score
Net Promoter Score (NPS) = (Number of Promoters - Number of Detractors) / Number of Customers Surveyed
If you sending out this type of survey to your customers on a regular or frequent basis would get your emails marked as spam faster than unsubscribe.
If you need to calculate your NPS using a big batch survey, bi-annual and annual email surveys are enough for most brands. The most important thing is making sure you’re not annoying your customers by flooding their inboxes.
My recommendation is actually to calculate NPS on an ongoing basis using surveys at the end of important interactions like purchases, account creation, or customer service interactions.
How Often Should You Calculate Return On Investment?
Return On Investment (ROI) allows you to compare and contrast the different investments you make in order to better your business. Combining both the gain and the cost allows ROI to help brands figure out which investments are worth making and which ones should be passed over.
The equation of Return On Investment
Return On Investment (ROI) = (Investment Gain - Investment Cost) / Investment Cost
Return on investment is most relevant when you’re deciding between multiple opportunities or whether or not to pursue a single opportunity. The other relevant time to calculate ROI is after undertaking an investment to assess its effectiveness.
Read more: The Metrics to Measure Customer Loyalty Online
Read more: How to Calculate Customer Lifetime Value ?
Edited by: 浪子
Bibliography
Demi Oba. (2017). How Often Should You Calculate Your Metrics? Retrieved from
https://blog.smile.io/how-often-should-you-calculate-your-metrics
How Often Should You Calculate Your Metrics ?
Reviewed by 浪子
on
December 07, 2018
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Reviewed by 浪子
on
December 07, 2018
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