Effective customer relationship management comes down to good systems, good processes, and constant improvement. The last of these can be achieved by tracking the right CRM metrics, analysing the results, and making data-driven optimisations. So, what are the ‘right’ CRM metrics, and how do you calculate them? We look at 10 of the most important ones and the best practices for tracking them in this article.
What are CRM Metrics?
A CRM metric is a measure used to understand the efficiency, effectiveness, and performance of your CRM system. Metrics allow product businesses to make data-driven decisions that improve processes and profitability.
Tracking the right CRM metrics will help your business increase sales and keep customers for longer.
1. Average Order Value (AOV)
What is it?
Average Order Value tracks the approximate monetary value of each order placed by customers during a set period of time.
Why's it Important?
Once calculated, it indicates where your investment should be directed (e.g., on advertising, sales, etc.,).
How's it Calculated?
💡 AOV = Total Revenue/Total # of Orders (expressed as a monetary value i.e. £, $)
AOV is simple to calculate manually, but depends on how many customers you have and the number of orders coming in. The higher the volume of orders and the larger the customer base, the harder it is to work out. To ensure it’s accurate, it should be evaluated pretty frequently - preferably daily - so that it takes into account things like buying trends or seasonal activity.
2. Average Order Frequency (AOF)
What is it?
Overage Order Frequency shows how regularly customers have purchased from you over a set period of time.
Why's it Important?
It can be an important indicator that you're losing customers to competitors. For example, if someone usually places an order twice a week, then suddenly doesn't place an order for three months, something's wrong.
How's it Calculated?
💡 AOF = Total # of Orders/Total # of Customers (usually expressed as a number of days or months)
Tracking order frequency across your entire customer base and analysing for trends is quite tedious to do independently and regularly.
3. Recency, Frequency & Monetary Value (RFM)
What is it?
RFM is a well-known, well-loved Marketing and Account Management strategy for segmenting customers using the data you have on their spend pattern. It segments customers by 3 dimensions - Recency, Frequency, and Monetary Value, then handily slots customers into the RFM segments, which include "Champions", "Loyal Customers", "At Risk" and "Hibernating".
Why's it Important?
High RFM scores identify the most promising customers, enabling your team to build experiences that keep them engaged, but lower scores are useful too. They help you identify new customers that need to be onboarded and nurtured, previously loyal customers that have found a replacement product and should be reactivated, and customers who buy low-value items regularly that are prime for an upsell campaign.
How's it Calculated?
Calculating RFM may seem complex and daunting - that's because it’s quite a complicated calculation for the average person. Take a look at this blog to learn more on how to calculate it manually. However, we strongly recommend you automate the process for accuracy and efficiency.
4. Churn Rate
What is it?
Churn is the rate at which customers stop buying from you.
Why's it Important?
High churn can stifle business growth. Your churn rate is a good indicator of customer loyalty and staying power.
❗ Note: you'll need to know your churn rate to be able to calculate number 5: CLTV!
How's it Calculated?
💡 Churn Rate = Lost, Cancelled or Inactive Customers *100/Active Customers (expressed as a %)
It's essential that you monitor your churn rate regularly and can interpret the results. For example, if your churn rate is high, why? Is it courier issues, late deliveries, or competitor activity?
5. Customer Lifetime Value (CLTV)
What is it?
CLTV predicts the total revenue expected to be generated by a customer throughout their lifetime buying from you. CLTV compares a customer’s revenue to their predicted customer lifetime.
Why's it Important?
CLTV helps you work out how long you need to keep a customer before you start making a profit! It also helps you compare the cost of retaining a customer vs. acquiring a customer, which can help inform marketing decisions - acquiring a new customer can cost up to 5x more than retaining an existing one.
How's it Calculated?
💡 CLTV = Average Order Value x Average # of Orders in a Year * Average Retention Time (expressed as years or months)
Automation can help you to work out this calculation as your business grows.
❗ Note: you need to know this for number 9: LTV/CAC.
6. New Customers Signed/ Month
What is it?
This provides a summary of all your new customers acquired in one month. This can be measured by both your gross customers and the net of your churned customers.
Gross customers signed each month are the total number of new customers added, whereas the net of your churn customers measures the difference between the rate at which you're losing customers and the rate that new customers are being added.
Why's it Important?
This metric indicates if customers are being retained or lost, so it's vital for B2B product businesses.
How's it Calculated?
💡 Net of Churn Customers = Net Revenue Lost from Existing Customers/Total Revenue at Beginning of Time Period
7. Customer Acquisition Cost (CAC)
What is it?
CAC calculates the costs of acquiring a new customer, mainly the required Sales and Marketing expenses.
Why's it Important?
CAC allows you to see if you're spending more on trying to attract new customers than the value of the customers you've acquired. So, keeping these customers for longer (i.e. your CLTV) is then even more important.
How's it Calculated?
💡 CAC = Total Costs Acquiring New Customers/# of Customers Acquired (expressed as a monetary value i.e. £, $)
❗ Note: you'll need to know this for 8: CAC Payback, and 9: LTV/CAC.
8. CAC Payback
What is it?
The number of months it takes to break even the money invested in Sales and Marketing by acquiring revenue from new customers.
Why's it Important?
A shorter payback time is better because it indicates that you're more profitable.
How's it Calculated?
💡 CAC Payback = Total costs invested in new customers/# of Customers Acquired (usually displayed as months, days or years)
9. Lifetime Value/ Customer Acquisition Cost Ration (LTV/CAC)
What is it?
A ratio that compares the costs of acquiring a new customer with the predicted revenue from their lifetime purchasing from you.
Why's it Important?
It determines whether you're spending too much or too little in acquiring new customers.
How's it Calculated?
💡 LTV/CAC = Customer Lifetime Value/Customer Acquisition Cost (displayed as a ratio e.g. 3:1)
10. Transactional vs. Relational Customers
What is it?
Calculates the percentage of new customers that become repeat customers, based on those who have ordered with you more than 4 times as they are likely to become relational customers.
Why's it important?
As a business selling hundreds, potentially thousands, of products B2B, it's critical you know what percentage of your customers turn into repeat business.
Once a customer has placed 4-5 orders, it becomes much more likely that they will place another order again soon, then settle into a weekly/bi-weekly purchasing pattern. Find out more about this in this blog.