In case you missed it, we talked with Chris Arndt, the Director of ORBA’s Cloud CFO Services to pull back the curtain on what your customers are worth to your business and how to decide which customers to focus your investments in. Join us as we dive deep into the two key metrics that reveal how fast your business can grow – customer acquisition costs and customer lifetime value.
Here's what we learned:
- Customer acquisition costs (CAC) and customer Lifetime value (CLTV) are the key metrics that are the most important to track to grow and scale a business.
- The formulas for CAC and CLTV can be used to serve every type of business whether its service-based or product-based, or subscription or project-driven.
- The biggest risk of not tracking these metrics is not that you could be overspending to acquire customers, but that you might be underspending, holding you back from growing as quickly as you could be.
- The customer payback period reveals how long it takes to turn a profit from the moment you acquire a customer to where you break even.
- This payback period includes the customers you’re not acquiring, so improving how many sales you close and shrinking the time spent per customer acquisition can.
- A good ratio to keep in mind is: 3:1 – for every $1 you spend on a customer acquisition, you gain $3 in profit, i.e., the customer’s lifetime value.
- Segment for success! Break down your customers into subgroups to identify which types of customers are more valuable to you, and therefore who to focus a heavier investment in to acquire them. Look for shared characteristics among customers like size of the business, location, industry, and the sales channel they came through.
- Get creative with cross-sell and upsell opportunities to increase your customers lifetime value by keeping the experience of being a customer fresh and satisfying.
- Referral programs can be a double win for businesses by lowering your cost per acquisition and increasing the CLTV. Insights into what your customers value can help you create low-cost incentives that are of high value to loyal customers.
- What if customers aren’t paying off? See which metric is weighing your 3:1 ratio down. If CLTV is low then, it may be that customers are leaving too fast. Can you improve the customer experience? If CAC is the culprit, maybe your sales approach needs fine-tuning or a makeover.