Conversion Rate and Churn
A couple metrics you should be tracking are your company’s Sales conversion rate, and your customer churn rate.
Conversion rate speaks to the percentage of customers you are converting from your marketing and sales channels into paying customers.
This is calculated by dividing the number of customers you obtained in a certain period of time by the number of prospects contacted during that same time frame.
Using this same data you can also use the cost spent on these marketing/sales channels during this time to find your Customer Acquisition Cost (CAC). Divide the amount spent on marketing/sales during this time period on a certain channel by the total number of customers acquired using that channel to get your Customer Acquisition Cost(CAC) for that channel.
Each marketing/sales channel will have different conversion rates and (CAC). The channel with the highest conversion rate is where your company should invest most of its time, and resources.
These 6 channels are explained in the other part of this section.
The other metric is Customer Churn rate.
Customer churn calculates the amount of customers you have each month that are leaving your customer base. If you have a subscription based business, these are the customers that are unsubscribing. To calculate churn you take Lost Customers for a time period divided by the Total Customers at the Start of Time Period and multiple by 100.
Ideally you would have more customers coming into your business each month than the amount leaving. Without tracking these numbers each month you’re guessing at whether your business is gaining or losing customers.
Sometimes this can be reflected in profits. However, in most cases 20% of the customers produce 80% of your profits inside a business. With this in mind, you could be growing profits while losing customers each month. If you are not blind to these numbers, if the main customers start to leave as well you’ll be in big trouble.
You’ll also need churn to figure out your Lifetime value of the average customer in your business. This is important for an Owner to know, as well as, others who might look to acquire your business one day. Acquirers will not make an offer on a business who’s CAC(customer Acquisition cost) to LTV(customer Lifetime Value) ratio is less than a 3:1. Meaning if you don’t make at least 3 times the amount in profit from a customer as what it cost the business to acquire them, your business is not valuable enough to even make an offer on.
The CAC:LTV calculator is provided in the subscription based portion of this website, and something I work through with all of my business coaching clients to make sure they are as profitable as possible, all while creating the highest potential valuation for their business.