Every business wants to streamline its customer acquisition process.
To achieve that goal, you need to gather valuable data and interpret it correctly.
You’re on the right page for that. This guide discusses 10 important customer acquisition KPIs along with:
- Formulas
- Examples
- Insider tips on how to interpret them in correlation with other KPIs
- Industry averages
Keep reading below.
TL;DR: Top 10 Key Customer Acquisition Metrics
- Customer Acquisition Costs (CAC): Measures average cost to acquire a new customer.
- Formula: (Sales Costs + Marketing Costs) / New Customers
- Importance: Influences business strategies and direction.
- High CAC can be justified by factors like high customer lifetime value (CLTV), strategic market penetration, and competitive industries.
- Customer Lifetime Value (CLTV): Indicates net profit from a customer.
- High CLTV shows effective retention, but low CLTV isn’t always negative, especially in rapidly changing markets or for early-stage businesses.
- Conversion Rate: Reveals how effective strategies are at converting visitors.
- High conversion rates can be misleading if attracting low-intent users or focusing too much on final sales.
- Churn Rate: Percentage of customers leaving your service.
- Low churn can indicate a lack of innovation or artificially low rates due to barriers to exit.
- Average Order Value (AOV): Average spending per transaction.
- Low AOV can cater to diverse customers or be a gateway for larger future purchases.
- Shopping Cart Abandonment Rate: Frequency of carts being left without purchase.
- High rates can offer insights into customer behavior and be used for remarketing strategies.
- Demo Signups: Shows interest in products/services.
- High demo sign-ups need to be weighed against lead quality and conversion rates.
- Click Through Rate (CTR): Indicates ad relevance.
- High CTR can be deceptive if traffic is irrelevant or costs become unsustainable.
- Lead Generation Rate: Effectiveness at capturing potential customers.
- High rates must consider lead quality, conversion, and associated costs.
- Average Time to Conversion Rate: Time taken for visitors to become customers.
- Short conversion times can lead to post-purchase regret and missed upselling opportunities.
Conclusion:
- The article highlights 10 vital marketing metrics for organic and paid customer acquisition.
- There are other metrics to consider based on specific business models and goals, like MRR, NPS, and active users.
- Proper correlation and understanding of these metrics ensure optimal user experiences.
- A customer acquisition agency, like inBeat, can provide an in-depth analysis of these metrics for business growth.
1. Customer Acquisition Costs (CAC)
The customer acquisition cost quantifies the average cost a company forks out to acquire a new customer. CAC is an essential customer acquisition KPI because it influences your business’s strategies and direction.
Formula: (Total Cost of Sales + Total Cost of Marketing) / Total New Customers
Example: Suppose your company spent $10, 000 on sales and $5, 000 on marketing in a specific month. If these efforts led to acquiring 250 new customers, your CAC would be $60.
Insider tip: A higher CAC can sometimes be justified. And vice-versa, a lower CAC KPI can sometimes be misleading.
When might a higher CAC be justified?
- Higher customer lifetime value (CLTV): If the CLTV is significantly high, your business can afford a higher CAC. For instance, software companies with subscription models might see a return on their investment over several years. This makes a higher upfront CAC justifiable.
- Strategic market penetration: When entering a new market or launching a new product, you might accept a higher CAC initially, anticipating it to decrease as your brand awareness grows.
- Competitive industries: A higher CAC and other customer acquisition challenges might be the norm in industries where competition is fierce, especially if your company focuses on acquiring high-value customers.
2. Customer Lifetime Value (CLTV or LTV)
This customer acquisition KPI gives you a peek into the total net profit from a customer.
And since CLTV correlates with other crucial metrics, like CAC, it helps you make informed decisions on how much you can spend on acquiring new customers.
Formula: Average Purchase Value x Purchase Frequency x Average Customer Lifespan
Example: On average, a customer spends $100 every month (Average Purchase Value) and shops 12 times a year (Purchase Frequency). The customer’s lifespan is 5 years. In this case, your CLTV is $6, 000.
Insider tip: Higher CLTV suggests your retention efforts are working. But a lower CLTV is not necessarily always negative.
When might a lower CLTV be justified?
- Rapid market shifts: In fast-changing industries, a shorter customer life cycle means you can adapt to shifts more quickly without being tied down by long-term commitments.
- One-time purchase industries: In sectors where purchases are infrequent and high-value, such as luxury items or real estate, a lower CLTV is typical and doesn’t necessarily indicate your business health.
- Early business lifecycle: Startups or businesses in their infancy might expect a lower CLTV, especially if you’re still in the process of establishing your brand/ refining your offer.
3. Conversion Rate
Knowing your customer conversion rate helps gauge your customer acquisition strategies’ effectiveness in turning visitors into customers.
Formula: (Total Conversions / Total Visitors) x 100
Example: If you have an online store with 500 visitors daily and 25 make a purchase, your conversion rate is (25 / 500) x 100 = 5%.
Insider tip: The average conversion rate across all verticals and industries is 2%.
Here is the current average conversion rate you can expect for online shopping across verticals.
Insider tip: The average conversion rate for influencer marketing is over 3%.
Considering that influencer marketing is cheaper than other strategies, you can earn more conversions with less money, thus optimizing your customer acquisition efforts.
When might a high conversion rate not be a positive sign?
- Sacrificing profit margins: If you get a high conversion rate by consistently offering steep discounts or promotions, it might harm your long-term ROI even if you get quick sales.
- Quality over quantity: A high conversion rate could sometimes mean you’re attracting many low-intent users. These users might convert quickly due to a compelling discount but might not engage with the product or service in the long term. That leads to higher churn rates.
- Over-optimization: Businesses might sometimes over-optimize for conversions, focusing too much on the final action (like a sale) and neglecting other parts of the user journey. This can lead to missed brand-building opportunities or fostering long-term customer relationships.
4. Churn Rate
Losing customers is never fun, but you must know what percentage of customers choose to go in another direction.
Calculating your churn rate allows you to identify specific areas for improvement to power up your marketing efforts.
Formula: [(Number of Customers at Start of Time Period – Number of Customers at End of Period) / Number of Customers at Start of Period] x 100
Example: If you started the month with 1000 customers and ended with 950, your churn rate is (1000-950) / 1000 x 100 = 5%.
Here’s the current customer churn rate you can expect in your industry:
And here’s the customer retention rate by industry:
Insider tip: A low churn rate is not always a positive sign, and a high churn rate is not always negative.
When might a low churn rate not be necessarily good?
- Stagnation: If you’re not innovating or attracting new customers, a low churn rate might indicate that your existing customers have few alternatives or are resistant to change. And that’s not a long-term sustainable position.
- Low customer feedback: A very low churn rate might mean customers are content but not necessarily delighted. This complacency can hide the critical feedback you need to innovate.
- Barrier to exit: Sometimes, contractual obligations, high switching costs, or the absence of better alternatives can artificially keep churn rates low. This KPI doesn’t always indicate customer loyalty.
- Misleading metrics: You may measure the churn rate inaccurately or may not consider certain categories (like paused accounts). These errors don’t show you true customer satisfaction levels.
5. Average Order Value (AOV)
The average order value tells you how much, on average, your customers are spending in a single transaction.
This customer acquisition KPI gives insights into customer spending behavior, guiding your upselling or bundling strategies.
Formula: Total Revenue / Number of Orders
Example: If you made $5, 000 in a day with 50 orders, your AOV is $5, 000 / 50 = $100.
Most sources suggest you need a high AOV. But again, you shouldn’t judge this metric as a standalone indicator of your business’s performance.
When might a low AOV not be necessarily negative?
- Broad customer base: A lower AOV might indicate that you cater to a wide range of customers, ensuring diverse revenue streams.
Gateway for larger purchases: Lower initial purchase values can be a strategic move to introduce customers to a brand or service, with the expectation of upselling or cross-selling in the future.
6. Shopping Cart Abandonment Rate
We’ve all added items to our online cart and then just… left.
It’s essential to know how often this happens on your website because it might signal issues in your checkout process, or pricing strategies, and affect your e-commerce customer acquisition cost.
Formula: (Number of Completed Purchases / Number of Shopping Carts Created) x 100
Example: If 100 people put items in their cart but only 60 buy, your abandonment rate is (100-60) / 100 x 100 = 40%.
Insider tip: A low shopping cart abandonment rate is not always good and vice-versa.
When might a high shopping cart abandonment rate not be necessarily bad?
- Browsing behavior: Some customers use the cart as a wishlist or to check out the final price with taxes and shipping. In these cases, the cart isn’t truly abandoned but part of the customer’s shopping process.
- Leveraging this data: A high abandonment rate can provide valuable insights into what products customers consider to purchase, even if they don’t immediately convert. Plus, abandoned carts are a goldmine for remarketing strategies. Sending targeted follow-up emails or discounts can turn these abandonments into sales.
7. Demo Signups
If you’re offering complex products or services, demos can be a game-changer. Knowing how many website visitors sign up for your demo can give insights into product interest and the effectiveness of your demo pitch.
Formula: Number of Demo Signups / Total Visitors x 100
Example: If 200 people visited your product page and 20 signed up for a demo, your demo signup rate is 20 / 200 x 100 = 10%.
Insider tip: While the number of demo sign-ups is a valuable metric, you should analyze it in the context of conversion rates, lead quality, and broader business objectives to derive actionable insights.
When might a high number of demo sign-ups not be necessarily good?
- Low conversion rate: Many demo sign-ups might not be great if only a small fraction of these sign-ups convert to paying customers.
- Lack of preparedness: An unexpected surge in demo requests can strain resources if your business is unprepared to manage them. This can lead to poor demo experiences and potential lost sales.
- Low-quality leads: Not all demo sign-ups are from high-quality leads. Some explore options without a real intention to buy, which can skew metrics and divert focus from genuine prospects.
- High CAC: If your advertising and promotional costs are skyrocketing to get these sign-ups, the ROI might not justify the high numbers.
8. Click Through Rate (CTR)
CTR is a go-to customer acquisition metric for anyone running online ads.
CTR shows how many people clicked on your ad after seeing it. And that tells you how enticing or relevant your ad is.
Formula: (Total Clicks on Ad / Total Impressions) x 100
Example: If your ad was shown 1, 000 times and received 50 clicks, your CTR is 50 / 1, 000 x 100 = 5%.
When might a high CTR be bad?
- Irrelevant traffic: You may get many clicks, but not from your target audience. This can lead to high bounce and low conversion rates, making the high CTR deceptive.
- Increased costs: In Pay-Per-Click (PPC) advertising, a high CTR means you’re paying more. If these clicks aren’t converting to sales or desired actions, the cost of acquisition can quickly become unsustainable.
- Click farms or bots: A sudden and unexplained spike in CTR might be due to malicious click farms or bots, which can inflate costs without genuine engagement. In this case, you’d better consider working with a better ad agency.
9. Lead Generation Rate
A ’lead’ is a potential customer. So, this metric shows you how effectively your marketing strategies capture these potential customers.
Formula: (Number of New Leads / Total Visitors) x 100
Example: If you had 1, 000 website visitors and captured details of 100, your lead generation rate is 100 / 1, 000 x 100 = 10%.
According to Hubspot, the average monthly generated leads is 1, 877, and 1, 523 marketing qualified leads (MQL).
Insider tip: To draw accurate insights from lead generation rates, consider lead quality, conversion rates, CAC KPI, and your broader business strategies.
When might a high lead generation rate be bad?
- Quality over quantity: If many leads are irrelevant or not genuinely interested, this KPI can be misleading, causing wasted follow-up resources.
- Overwhelming sales teams: A sudden influx of leads can strain sales or support teams if unprepared, leading to poor follow-ups and missed opportunities.
- Increased costs: Some lead generation tactics may have associated costs. The ROI might not be justified if the cost to acquire these leads is high and conversion rates are low.
- Mismatches in messaging: If the offer generating the leads isn’t aligned with your actual product, it can lead to dissatisfaction and a drop in trust among potential customers.
10. Average Time to Conversion Rate
This tells you how quickly (or slowly) visitors become customers. A longer time might indicate a need to streamline your sales process.
Formula: Total Time Taken for Conversion / Total Conversions
Example: If 10 people took 50 days to make a purchase, the average time to conversion is 50 days / 10 = 5 days.
Insider tip: The ideal time to conversion varies based on industry, product type, and your business goals.
When might a short time to conversion be bad?
- Post-purchase regret: If customers are rushed through the sales process, they might make impulsive decisions and later regret or return the product, leading to higher return rates.
- Customer Lifetime Value (CLTV): Rapid conversions might result in one-time purchases without creating loyal customers. Building a relationship can take time but often leads to higher CLTV.
- Reduced upselling or cross-selling opportunities: If customers move too quickly through the sales process, they might miss out on other products or services that complement their primary purchase.
Wrapping Up
This article discussed 10 key metrics to follow in your marketing campaign to optimize your customer acquisition strategy and marketing budget.
There are two problems:
- These are just key metrics: You have many other customer acquisition KPIs to consider based on your specific business model and goals. Monthly recurring revenue (MRR), net promoter score (NPS), and active users are just three examples.
- You should know how to correlate these metrics: This helps you understand if your business creates top-notch user experiences, responding to your target customers’ needs.
A solid customer acquisition agency like inBeat can help you understand the bigger picture.
We’ll analyze all your marketing activities, investigate your essential metrics, and give you an in-depth report to maximize your return on investment.
Let’s schedule a free strategy call and skyrocket your business growth.
