What’s the return on investment (ROI) of a loyal customer?
People ask me this question all the time. It’s a great question, and the answer is not as straight-forward as you might think.
The equation is much simpler for customer acquisition expenses and returns.
1 customer > 0 customers
It’s easy to exclaim: We’re winning! We’re on top! If we invest $5.00 in customer acquisition, and we get a customer for $19.99, then it’s easy to see we’ve quadrupled our investment. Yay for us!
The mathematics behind customer loyalty is messy. It’s much more difficult to calculate, there is no simple equation for how to get a solid figure, and it depends on factors that fluctuate, such as discounts. The fatal error, however, occurs when we ignore customer loyalty. You see, even if calculating the customer lifetime value (CLV) is too daunting, you can get still get a good idea of your customer churn rate.
For an excellent explanation and walk-through of CLV, check out this infographic from KISSMetrics.
Keeping it real, churn-style
Churn is a little easier to digest. For the sake of keeping it simple: it’s literally the number of customers you acquire versus the ones you happen to be losing. If you gain 100 customers in a... Read more