Did you know it costs you five times more to acquire new customers than it does to retain current customers? And did you know existing customers are 50% more likely to try a new product of yours as well as spend 31% more than new customers?
Customer Acquisition Cost Formula
Customer acquisition cost (CAC) is the average expense you spend to attract a new customer. It’s calculated by dividing your total expenses relating to sales and marketing programs by the number of new customers attracted during a specific time period. The total expenses for marketing and sales should include salaries.
If your total sales and marketing expenses for the period were $25,000 and you got 100 new customers, the CAC is $250, which means that you spent $250 per customer acquired.
Customer Lifetime Value Formula
The customer lifetime value (CLV) is the amount of revenue you expect to earn from any given customer. It’s a measurement that spans the customer’s entire purchasing relationship with your company.
In addition to product purchases, CLV incorporates ongoing services provided. The formula attempts to gauge the average amount of business generated due to a customer’s repeat business.
Although there are several complex formulas to calculate the CLV, the easiest way to get a rough estimate is to divide your net profit for a specific time period by the number of customers served over the same period of time.
For example, if you had net profits of $750,000 over five years and served 1000 customers during that time, your CLV is $750.
Most CLV guides identify three variables that should be tracked for your customers. These are:
- Monetary value
Higher customer lifetime values correlate with longer periods of time making purchases, higher frequency of purchases, and more money spent per purchase.
The idea is to use this information to segregate your customers into high-, medium-, and low-value groups. From there, calculate the CLV for each segment.
What is customer loyalty?
Customer loyalty is a customer’s willingness to repeatedly return to a company to conduct some type of business due to the delightful and remarkable experiences they have with that brand.
Why is customer loyalty important?
Customer loyalty is something all companies should aspire to simply by virtue of their existence: The point of starting a for-profit company is to attract and keep happy customers who buy your products to drive revenue.
Customers convert and spend more time and money with the brands they’re loyal to. These customers also tell their friends and colleagues about those brands, too which drives referral traffic and word-of-mouth marketing.
Customer loyalty also fosters a strong sense of trust between your brand and customers — when customers choose to frequently return to your company, the value they’re getting out of the relationship outweighs the potential benefits they’d get from one of your competitors.
Since we know that it costs more to acquire a new customer than to retain an existing customer, the prospect of mobilizing and activating your loyal customers to recruit new ones — simply by evangelizing a brand — should excite marketers, salespeople, and customer success managers.
But how do you do it? How do you take happy, satisfied customers into loyal brand evangelists? How do you use positive Yelp reviews, glowing tweets, and Instagram mentions to propel your brand’s growth? It’s Simple… You launch your IBO – Initial Backers Offering and Up-sell them with Equity!