A dynamic environment serves as a good reminder that we need to constantly adapt our marketing metrics. People often ask us, “What metrics should we use to measure marketing?” There really isn’t a specific list applicable to every company all of the time. It’s almost impossible to come up with one set of metrics that will be in place forever. A recent study from Aberdeen Research, Recessionary Marketing: How Best-in-Class Companies are Weathering the Storm, that polled 250 marketers across various industries, found that 82 percent of respondents reallocated their marketing spend to invest more in activities that resonate with customers and tie back to bottom-line revenue. Metrics related to brand awareness, shareholder value metrics are being pushed further down on the list while metrics related to customers, particularly existing customers, have moved to the top. There are three customer value metrics that every company should be familiar with and know how to calculate: Churn/Attrition Rate, Customer Retention Equity, and Share of Wallet. You can read more about how to calculate these in the TIPS database, but here’s a quick summary of what each is.
- Churn rate is a measure of customer attrition. Today, companies realize the value of focusing on and investing in keeping customers. A commonly accepted statistic related to customer retention and churn include (source: "Leading on the Edge of Chaos", Emmett C. Murphy and Mark A. Murphy):
- Aquiring new customers can cost five times more than satisfying
and retaining current customers A 2% increase in customer retention has
the same effect on profits as cutting costs by 10%
- The average company loses 10% of its customers each year
- 5% reduction in customer defection rate can increase profits by 25-125%, depending on the industry
**Data also shows that companies with high retention also grow faster.
Knowing how many are defecting and why is the reflection of knowing how
many are staying and why.
- Customer Retention Equity/Lifetime Value. In most businesses, existing customers are the most valuable assets that a company has. Most surveys across industries show that keeping one existing customer is five to seven times more profitable than attracting one new one (source: "Companies Don't Succeed - People Do!", Graham Roberts-Phelps).
- Share of Wallet and Potential Wallet Value. Many businesses use “share of wallet” as a way to improve their understanding of where added value may exist among their customers. The wallet of a customer is defined as the total amount this customer can spend in a specific product category. The share-of-wallet then is how much they spend with a particular seller. By understanding the total wallet and the share-of-wallet you can identify which customers are the most “loyal” and which customer have the greatest growth potential. Both the ratio and the actual difference is important – the first tells us the share of wallet and the second the potential value.
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