The Coronavirus pandemic is disrupting business worldwide, but well-managed companies are using the crisis as an opportunity to improve their businesses. WalletHub reported in April of 2020 that 87% of small businesses are struggling, due to the pandemic. Doing business will be different in the future, and successful firms are making changes to adjust.

Analyzing your financial statements is important, but you can also find ways to improve using three marketing metrics. These metrics help you answer three basic questions:

  • How much do I spend to find a new client?
  • How much repeat business do I generate each month?
  • How long can I retain clients, and how much revenue can I generate?

Here’s why the answers to these question are so important

Why it matters

Finding new business is far more expensive that retaining existing clients. The Harvard Business Review explains the issue this way: “Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.”

This issue becomes even bigger during tough economic times, when you may have less cash to operate, and lower revenue. Spending decisions are more difficult, and you need a plan to get a high return on your marketing and sales efforts.

So, what is finding customers costing you?

Working with customer acquisition cost

Neil Patel defines customer acquisition cost (CAC) as the expense incurred to convince a customer to buy a product or service. The CAC calculation is (marketing expenses for the period) divided by (the number of customer acquired during the period).

Your sales cycle impacts the CAC calculation, because a prospects may interact with your company over months (or even years) before making a purchase. As a result, it’s best to look at CAC over a long period of time. If you’ve updated your website to make online purchases easier, for example, it will take time before prospects decide to use the new system and buy a product.

Calculate CAC for a six-month period, or annually, and decide if your marketing efforts are paying off.

Once you bring in a new customer, how often do they make a purchase?

The value of monthly recurring revenue

Monthly recurring revenue (MRR) is the amount of income that a company can reliably anticipate every 30 days.

Think about the products are services that you purchase each month. You shop at the same grocery store each month, and you pay your subscription to Netflix. MRR has tremendous value, because the revenue and cash inflows are more predictable. If you sell a product or service that solves a problem, you can generate repeat business.

Finally, consider the value of a customer who does business with you over time.

Measuring customer lifetime value

Qualtrics explains that customer lifetime value (CLV) “is a measurement of how valuable a customer is to your company with an unlimited time span as opposed to just the first purchase. This metric helps you understand a reasonable cost per acquisition.”

A car repair shop is a great example, since you may visit the shop for years. Just how valuable is a customer to the repair shop? Well, check your bank statements and determine how much you’ve spent on car repairs for the past five or ten years.

The higher the CLV, the more you can justify spending to convert a prospect into a client. Businesses that sell high-ticket items, such as corporate software products, are willing to put in years of work to secure new business. Over time, the marketing costs are far less than the revenue generated from the customer.

So, where do you go from here?

Applying the concepts to your business

The best way to dig into these concepts and improve your business is to survey your best customers. Who is doing repeat business with you, in spite of the pandemic? Ask them what they like about your company, and where you can improve.

As your gather results, you may start to notice trends. Maybe your best customers prefer a specific product line, or always respond to a particular marketing promotion. Change your marketing, sales, and customer service efforts based on the survey results.

You’ll have a more targeted marketing message, and you may increase repeat business. Apply these concepts to improve your business results.