CRM KPIs. That’s a lot of acronyms to handle. Okay, there are just two — but if you don’t know what they are, that’s a lot!
Let’s break them down:
- CRM stands for customer relationship management. In other words, it’s a strategy for managing customer relationships. This involves using data you collect to improve communication and understand customer needs and preferences so you can tailor your products and services to align with them. When you buy a tee shirt online that actually fits (shocker, I know) and then get an ad for the same company or notifications for when that brand has a sale, that’s the work of an efficient CRM.
- KPIs are key performance indicators. They are quantifiable metrics you use to measure performance and determine whether a project is meeting your objectives and goals. For example, if you’re running an online tee-shirt company and want to boost sales by 50%, you could track your progress using a KPI.
When it comes to small business marketing, here are five CRM KPIs you should be tracking. And yes, there are waaaaaaay more than five CRM KPIs to track, so we’ll be covering more next week.
Customer Acquisition Cost (CAC)
You want to acquire as many high-quality leads as possible for the least amount of money. However, marketing and sales funnels have many moving parts, and their leaks can cost you dearly. As a CRM metric, CAC can help you identify these leaks so you can patch them up.
Here’s the formula:
- CAC = Total spend / # of customers acquired
How to use: If you spend $500 on a Facebook ad campaign that takes your audience to a landing that attracts ten new customers, your CAC is $50 per customer. If you adjust your targeting and run a second $500 campaign that attracts 20 new customers, your CAC is $25 per customer. Congrats! You’re on the right track. Now, it’s time to figure out what you did differently and how you can do it better.
Close Rate
Another way to identify sales funnel leaks is to know your close rate. Your close rate refers to the number of deals you’ve closed compared to the number of leads you have initially. Simply put:
- Close rate = # of leads / # of deals closed
How to use: If you started with 50 leads and only closed five deals, your close rate is 10%. This is not usually ideal, but it provides growth opportunities to learn from your mistakes. One way to do this is to ask your leads to partake in a short (and we mean SHORT) survey for feedback. Learning why some leads didn’t become clients will help you improve your close rate.
Customer Attrition Rate
Even the most successful companies have an attrition (or churn) rate, whether it’s a business no longer carrying your product or someone unsubscribing from your mailing list. As a business owner, you usually want your attrition rate to be as low as possible because it’s cheaper to keep customers than to find new ones.
Here’s how to measure your churn rate:
- Customer attrition rate = # of customers leaving / Total # of customers
How to use: While this CRM KPI can’t tell you why some of your customers are leaving, you’ll at least know the rate at which they’re going and may be able to rule out a few variables. If you track your attrition rate each month or year, you can start identifying trends based on internal changes you’ve made and external shifts that may impact you or your customers.
Renewal Rate
Your rate of renewal shows you how many customers are retaining your services. It’s a great indicator of how much your business is growing. And if it’s not, you should identify why that is.
The formula is:
- Renewal rate = # of renewing subscribers / Original # of subscribers
How to use: Let’s say you have 100 customers subscribing to your services for 12 months. At the end of those 12 months, 75 renew their subscription, making your renewal rate 75%. Using this metric over several periods will help you learn your average rate of renewal, which will help you plan when acquiring new customers.
Customer Lifetime Value (CLV)
Your CLV identifies how much revenue you’re receiving from a customer throughout your engagement with them. The formula is a little more complicated than the other CRM KPIs on this list. You need to know the averages of your:
- Purchase value (Total annual revenue / # of annual purchases)
- Purchase frequency rate (# of annual purchases / # of unique customers)
- Customer value (Average purchase value X average purchase frequency rate)
- Customer lifespan (How many years the average customer buys from you)
Your CLV = average customer lifespan X average customer value
Let’s say you know the following:
- Annual revenue = $250,000
- Number of annual purchases = 5,000
- Unique customers = 1,000
- Average customer lifespan = 5 years
Using this information, you can solve all of the above:
- Purchase value = $250,000 / 5,000 = $50
- Purchase frequency = 5,000 / 1,000 = 5
- Customer value = $50 X 5 = $250
- Customer lifespan = 5 years
- CLV = $250 X 5 = $1,250
How to use: Once you know your average CLV, experiment with different scenarios to maximize it. If you learn that you’ll keep your customer for seven years if your purchase value is $45, then:
- Customer value = $45 X 5 = $225
- CLV = $225 X 7 = $1,575
Decreasing your price by $5 per year will increase your CLV to $1,575. You’ll also have to factor in your gross vs net profits, but you can see where this is going.
Final Thoughts on CRM KPIs
If you’re not using CRM KPIs already, now’s the time to start. They’re an excellent way to identify your strengths and areas for improvement. Without this data, you won’t know if your business is performing as well as you’d like. Stay tuned for part 2 of CRM KPIs next week…
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