We all track sales and revenue numbers, and while important, they are certainly not the only two growth-related numbers you need to understand and follow.
This post will outline a few essential growth metrics you have to keep a close eye on and a few examples of vanity metrics you should ignore (for the most part).
1. Customer Acquisition Cost
Every marketing campaign and growth strategy has to have a customer acquisition cost associated with it. In our opinion, this is the most important metrics you should track. Not only will it help you differentiate between profitable and unprofitable marketing campaigns, but it will crystalize your growth path.
Customer Acquisition Cost = the cost to acquire customers / number of acquired customers.
A few examples:
- If you acquired 10 new customers by spending $1,000 on Google Ads, your customer acquisition cost is $100/customer.
- If a trade show you attended costs $5,000 and it resulted in 1 new customer, your customer acquisition cost is $5,000/customer.
- If your Facebook Ads cost $500 to run, and it helped you sell 50 widgets, your customer acquisition cost is $50/customer.
After you understand your customer acquisition cost for all your marketing campaigns (print, email, ads, social media, SEO, etc.), it should be straightforward to differentiate between profitable and unprofitable campaigns.
For example, if your internal cost is $100 per product, you can’t spend $120 to acquire a new customer. Even if some become repeat customers, this acquisition cost is not sustainable. Of course, you should experiment with some campaigns (even if they are unprofitable), but experimental campaigns should never be more than 20-30% of your marketing budget.
Note: some digital marketing channels (e.g., SEO) may take longer to grow, but this doesn’t exempt them from customer acquisition cost analysis.
Many growing businesses have gone out of business because they didn’t pay close attention to customer acquisition costs. Irrespective of your industry, the customer acquisition cost should be at the top of your monthly, quarterly, or yearly growth review meeting.
2. Customer Lifetime Value
Not all customers are created equal, so the next most important metric you should track is Customer Lifetime Value (CLV). In simple terms, Customer Lifetime Value is the financial value of your customer during their entire relationship with your business.
CLV = “Average Sale” x “No. of Repeat Sales” x “Average Retention Time”
Example: Suppose we are calculating a CLV for a local restaurant where the average customer spends $38, and where most customers come back 10 times a year. Also, let’s assume our average customer retention is 2 years.
CLV $760 = $38 (average sale) x 10 (repeat sales) x 2 (retention)
Knowing your customer’s lifetime value is extremely important because it helps you calculate your marketing return on investment (ROI). For example, suppose a customer’s lifetime value is $200, and it costs you $100 to acquire a customer. In that case, your customer acquisition cost is acceptable, and you should continue using the same acquisition strategy. On the other hand, if your customer acquisition cost equals or exceeds your customer lifetime value, then you need to go back to the drawing board.
Furthermore, CLV will help you identify your best and worst long-term growth tactics. For example, two campaigns can have very similar customer acquisition costs (e.g. Facebook = $200/customer and LinkedIn = $250/customer), but a the same time they can have very different customer lifetime values (e.g. Facebook CLV = $250/customer and LinkedIn CLV = $400/customer).
In the example above, attracting a price-conscious customer (e.g., offering a hefty discount on Facebook) may bring you a customer, but not a repeat customer. Obviously, our LinkedIn marketing campaign is a lot more valuable in the example above because it produces repeat customers. Even if the customer acquisition cost is higher, the long-term benefits are much greater.
CLV forces you to think long term – “How do we acquire loyal/repeat customers?”, rather than short-term – ‘How do we acquire a customer?”.
In summary, customer lifetime value (CLV) will help you 1) shape your customer acquisition strategy, 2) evaluate your marketing campaigns, and 3) measure the effectiveness of your customer loyalty programs.
3. Customer Engagement
Any numbers that help you understand customer engagement will help you grow faster. For example, how long visitors spend on your website and how many pages they visit is a great indicator of engagement (or lack of it).
More specifically, if most website visitors leave after a few seconds, or leave without browsing to another page, then you likely have engagement issues. The longer someone spends on your website, the more likely they are to contact you or purchase your product/service.
Another example is email; if your “open” and “click-through” rates are extremely low, you have an engagement issue. Or if you have 10,000 registered users/members, but only 5,000 are actively using your website/product/service, you have an engagement issue.
With social media, it’s better to focus on engagement numbers (e.g., likes, comments, shares, etc.) than vanity numbers like the number of followers.
In summary, we all know that acquiring a new customer is a lot more expensive than keeping an existing customer; therefore, keeping a close eye on your engagement numbers and optimizing them is one of the most economical ways to grow your business.
Ignore Vanity Growth Numbers
It is very tempting to throw around big numbers, especially when you are trying to show growth, and vanity metrics are usually the vehicle to do so. For example, website visits, number of downloads, number of followers, and registered users. These are all vanity metrics and can be misleading and easily manipulated.
Many growth strategies can spike your traffic, but how many of those visits convert into real leads? If your traffic increases by a factor of 100, but none of those visits convert into leads, what have you achieved? You increased brand awareness, but for most small businesses and startups, that is just not enough.
We are not suggesting that you completely ignore these numbers, but they should not drive your growth strategy. For example, you should focus on ‘active users’ rather than registered users—also, conversion numbers rather than visitor numbers.
Real growth numbers have an impact on your bottom line, vanity metrics typically do not.
Focusing on vanity growth numbers will undoubtedly boost your ego, but it won’t help you grow your business.
Without exception, growing businesses focus on real growth numbers like revenue, sales, customer acquisition cost, customer lifetime value, and engagement. And they spend very little time on vanity growth numbers like traffic, followers, number of email subscribers, etc.
Start tracking real growth numbers, and you will transform your business.
Related: Making Big Marketing Bets