“A healthy business is a growing business” is an obvious statement, but which specific growth numbers to focus on is less obvious. Of course, we all track sales and revenue numbers, but they are just a starting point – not even the bare minimum.
This post will outline a few essential growth metrics you should know in your sleep and some which you should only pay minimum attention to.
Customer Acquisition Cost
Every marketing campaign and growth strategy should have a customer acquisition cost associated with it. In our opinion, this is the most important metric you should track. Not only will it help you differentiate between profitable and unprofitable marketing campaigns, but it will crystalize your best ath to growth?.
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 you $5,000 and results in 1 new customer, your customer acquisition cost is $5,000/customer.
- If your Facebook Ads cost $500 to run and 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 easy 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 they become repeat customers, this acquisition cost is not sustainable. Of course, you can experiment with some campaigns – understanding that they may not be profitable, but experimental campaigns should not be more than 20-30% of your marketing budget.
Some digital marketing channels (e.g., SEO) may take longer to grow, but this doesn’t make them exempt from customer acquisition cost analysis.
Not paying close attention to customer acquisition costs has put many growing businesses out of business because they kept losing money with every product/service they sold.
The customer acquisition cost should be at the top of your monthly, quarterly, or annual growth review meeting regardless of your industry.
Customer Lifetime Value
Every customer is not 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.
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. But, 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.
CLV will also 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 at 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. So 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.
Related: Customer Lifetime Value 101: How Much is your Customer Worth?
Understanding customer engagement numbers is essential. For example, how long visitors spend on your website and how many pages they visit are critical because they indicate engagement or lack of engagement.
More specifically, if they leave after a few seconds on your website, or leave without checking 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 1,000 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 is one of the most economical ways to grow your business.
Vanity Growth Metrics
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. Unfortunately, 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 not enough.
We do not suggest that you completely ignore these vanity numbers, but they should never drive your growth strategy. So, 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, and vanity metrics typically do not.
As a business owner, entrepreneur, or executive, choosing the right growth opportunity to focus on is one of the most important things you can do. The same applies to marketing – focusing on vanity growth numbers will undoubtedly boost your ego, but it will do very little to grow your business.
Without exception, high-growth businesses focus on real growth numbers like revenue, sales, customer acquisition cost, customer lifetime value, and engagement. And less attention on vanity growth numbers like traffic, followers, number of email subscribers, etc.
Without question, if you start tracking real growth numbers, you will transform your business!
Related: Why Being “First” Is Overrated