Learn to Calculate Customer Metrics

Metrics plays a vital role in defining or redefining any action or campaign in marketing. Anyone involved in defining buyers journey, PPC expert , email marketing expert will definitely need these metrics to plan their campaigns accordingly.

What is Customer Acquisition Cost (CAC)?

Customer acquisition cost, or CAC, is the amount of money spent on sales and marketing required to close a deal. It is calculated by summing a company’s total sales and marketing spend and dividing it by the number of new customers. Companies can calculate CAC for a given time period or all time and is helpful to compare the effectiveness of different marketing tactics and strategies. A lower CAC is better, as it suggests your marketing and sales teams are efficient and properly scaled.

E.g

Amount Spent on Sales & Marketing $                 –  
New Customers Acquired 1
Customer Acquisition Cost $                 –  

With Value:

Amount Spent on Sales & Marketing $  1,00,000.00
New Customers Acquired 86
Customer Acquisition Cost $       1,162.79

What is Customer Lifetime Value (CLV)?

Customer lifetime value equates to revenue an average customer will provide a company before they discontinue their patronage. There are a few different equations used to calculate CLV, but for our purposes, we’ll be using the simple CLV formula to multiply average annual revenue by the average lifespan of a customer.

E.g

Average Annual Revenue Per Customer $                  –   Per Year
Average Lifetime of Customer0Years
Customer Lifetime Value $                  –    

With value:

Average Annual Revenue Per Customer $      1,000.00 Per Year
Average Lifetime of Customer4Years
Customer Lifetime Value $      4,000.00  

CAC-to-CLV

This metric compares the customer’s acquisition cost to the revenue that customer will provide over time. It helps businesses know if customers churn before they start contributing profit to the company. Support leaders can use this information to discover if they need to invest more in customer support tools if this is the case.

E.g

Customer Acquisition Cost $       1.00
Customer Lifetime Value $1,000.00
CAC-to-CLV $   999.00

Customer Retention Rate

Retention rate is a metric used to see how many customers have stopped coming to your business or have canceled their membership, subscription, or patronage. A low churn rate is good – that means you’re keeping most of your clients and customers happy.

E.g

Customers at the Start of the Period1
Customers at the End of the Period5
New Customers Acquired in the Period6
Customer Retention Rate0.66666667

What is Revenue Churn?

Revenue churn reveals how much revenue was lost in a given period. For subscription-based companies, this is an important metric to calculate.
Starting MRR or ARR $  1,000.00
Ending MRR or ARR $  2,000.00
Total New ARR $  1,000.00
Total Revenue Churn-2

So, these are some metrics that can be calculated to define your business goals. All the above examples are calculated using excel, you can download the excel file below.