Here at Smile.io, we love helping ecommerce merchants calculate and improve their metrics because we know that when it comes to commerce it can be pretty hard to manage things that you don’t measure.
This attitude informs a lot of what we do, and has driven us to write a number of posts that deal with this directly:
- the most important retention metrics a merchant should be calculating
- the four metrics that can help you assess your customer loyalty online
- "how to" guides on calculating everything from your customer acquisition cost, to your net promoter score.
However, while knowing how to calculate metrics is helpful, we understand that this is only one half of the equation. It’s equally important to know how often you should be calculating each of these retention metrics. As a result, we’ve created a quick guide on how often you should be calculating some of the most popular business metrics. Not only will this guide keep your business on a data driven path to success, but it will also keep you from drowning in constant calculations.
How Often Should You Calculate Customer Acquisition Cost?
Your customer acquisition costs (CAC for short) are a measure of how much money it takes for your brand to acquire a new customer. These costs can take a variety of forms, from referral fees and free trials to search engine marketing and cost per click ads. In our guide on calculating your customer acquisition cost we break down how to calculate CAC under a variety of different scenarios, but the basic formula can be neatly summarized in the image below:
So how often should you be calculating your customer acquisition cost? Well, as we discussed in our step by step guide to calculating CAC, acquisition costs are most helpful when analyzed per period or per campaign.
If you’re running a new or limited time acquisition strategy, such as a free trial or a referral program, it’s a good idea to calculate the CAC for each campaign as soon as it ends so that you can quickly assess its effectiveness. If you’re investing in a three month trial of pay-per-click advertisements, for example, you’ll want to run a quick CAC calculation immediately once the three months are up to see if it’s something worth investing in long term.
That being said, if you’re assessing your customer acquisition trends on a more ongoing basis you’ll want to make sure that you return to your CAC calculation at least quarterly. Checking in on your CAC at least once every three months will make sure that you catch any big swings in your customer acquisition trends. These regular analytics also make sure you’re never inundated with acquisition calculations!
At the end of the day, the drivers that affect CAC tend to be bigger, slower moving factors. As a result, keeping a light tough on you CAC pulse should give you all the information you need to make the necessary adjustments to reduce your acquisition costs in the event of a spike.
How Often Should You Calculate Purchase Frequency?
Purchase frequency is one metric that’s actually as straightforward as it sounds. In simple terms, it helps you measure how often your customers are shopping with you. When this number improves, it means you’re bringing back your customers more often for more purchases which is a sure sign of healthy customer relationships.
As you can see with the calculation above, purchase frequency is a relatively simply calculation that’s typically measured on an annual basis. However, you can calculate purchase frequency at any time interval you like - all you need to do is change the date!
One of the best things about calculating purchase frequency is that it can also help you calculate your average time between purchases (as shown below). Keep this secondary calculation in your back pocket because we’re coming back to it in the next section!
As I already mentioned, purchase frequency is typically calculated on either an annual or bi-annual (twice a year) basis.This is because you need a decent chunk of time to pass in order to collect enough data for an accurate calculation.
With that in mind, calculating your purchase frequency in short intervals (such as daily) doesn’t give you the bigger picture of customer behavior patterns. Even brands like Starbucks, who have extremely high repeat purchase rates, would see “daily” purchase frequency values close to 1 because most customers only purchase coffee once a day. This “daily” purchase frequency doesn’t tell us if we can expect these customers back tomorrow, next week or next month. When we expand our time intervals to calculate monthly or annual purchase frequency, we start to see values that tell us a little bit more about our customer’s patterns.
In order to get this “big picture” sense of your purchase frequency, I recommend using annual time intervals and returning to your calculation once or twice a year. If your industry operates at a faster pace (such as coffee, groceries, or supplements) with customers buying from your brand multiple times a month, then you might consider shrinking your time interval (and calculation frequency) to reflect that.
How Often Should You Calculate Customer Churn Rate?
Analyzing your churn rate will help you understand how many customers your business is losing on an ongoing basis. You can calculate and decrease your customer churn rate by delighting your customers and creating switching costs, and the basics of the churn calculation are as follows:
Churn is one of the most important customer metrics in your brand’s toolkit. As a result, it needs to be calculated more frequently that some of the other metrics on this list. The implications of letting your churn rate go unchecked are much more severe than those related to something like average order value or purchase frequency; while other metrics are warning signs, a churned customer is the end consequence. A churned customer is a customer your brand has lost, and it can be very hard to get them back.
So how often is often enough when it comes to checking up on your churn rate? If your brand operates as a subscription service the answer becomes a little easier. Subscription brands should be calculating churn rates at the same frequency as their subscription payments (at the very least). If we use Netflix as an example, their monthly subscription fee would dictate that they should be calculating their churn rate on a monthly basis. Fab Fit Fun, on the other hand, offers a seasonal subscription and consequently should be calculating churn on a quarterly basis. Matching these frequencies allows subscription brands to keep a watchful eye on both customer and revenue churn with minimal effort.
However, if your brand brand doesn’t use a subscription model that doesn’t mean you’re off the hook. Instead, you’ll need to calculate your average time between purchases (I told you it would come in handy!) and then use that value as a basis for checking up on your churn rate.For example, suppose a brand calculates their purchase frequency and discovers that their customers make an average of three purchases a year. Using the time between purchases equation from the previous section, they could quickly find out that the average customer goes an average of around 122 days between purchases. Since 122 days is essentially four months, it would be a good idea for this brand to calculate their churn rate every four months (at the very least).
I can’t stress enough how important it is to keep your customer churn rate top of mind. The signs and symptoms of customer churn can often be easy to miss! So if your churn rate increases, you need to know about it fast and do something about it even faster!
How Often Should You Calculate Average Order Value?
Average order value is a measure of how much your customers spend when they shop with you. It’s an extremely useful metric to have handy because of the direct relationship it shares with revenue. Simply put, if all other things remain constant and your AOV increases, then you’re selling more to each customer with every purchase and your revenue will climb accordingly.
As illustrated above, the AOV calculation is a quick division of your total revenue by the number of orders that went towards creating that revenue (and yes, you guessed it - we’ve got a step by step guide to calculating and increasing your average order value too).
As for how often you should be calculating AOV, the fact that is has such a direct impact on revenue (combined with the ease of calculation) make this metric one that you can and should calculate frequently. Since most brands take a look at their revenue and order data on a monthly basis, a quick division of the two shouldn’t be asking too much.
Keeping a monthly check on your AOV will let you know if customers are putting more or less in their carts, and can help you take quick action to make sure it’s the former and not the latter.
How Often Should You Calculate Net Promoter Score?
Net promoter score (NPS for short) is one of the more interesting metrics in today’s rundown. In order to calculate it accurately, you actually need to survey your customers and ask them how likely they would be to recommend your store to others on a scale from 0-10.
Their responses will place them somewhere on the scale you see above. Promoters are those who respond with a 9 or 10, passives are your 7’s and 8’s, and your detractors are anyone who answers with a number between 0 and 6. To turn these responses into an actual net promoter score, you’ll need to subtract the percentage of your customer base that are detractors from the percentage of promoters.
If you’re looking for a more detailed breakdown of calculating your net promoter score (and ways to improve it), we’ve got you covered.
Now I know that you’re probably thinking that this is a metric you’d like to be calculating as often as possible, but the reality is that sending out this type of survey to your customers on a regular basis would get your emails marked as spam faster than you can say unsubscribe.
If you need to calculate your NPS using a big batch survey, you shouldn’t be sending out any more than one per quarter at the most. In fact, bi-annual and annual email surveys are enough for most brands. The most important thing is making sure you’re not annoying your customers by flooding their inboxes.
My recommendation is actually to calculate NPS on an ongoing basis using surveys at the end of important interactions like purchases, account creation, or customer service interactions. That way you can keep a running NPS score that changes dynamically as new responses come in without sending mass messages to your entire email list.
How Often Should You Calculate Return On Investment?
ROI (or return on investment) is what we like to call an efficiency metric. It allows you to compare and contrast the different investments you make in order to better your business. It’s similar to customer acquisition cost in that it can help you assess the effectiveness of many different acquisition campaigns, but return on investment calculations can actually have a much wider range of uses.
That’s because the ROI calculation doesn’t just take into account the costs you bear to make an investment happen but the financial benefit you receive as a result of the investment as well. Combining both the gain and the cost allows ROI to help brands figure out which investments are worth making and which ones should be passed over.
Learning how to calculate your return on investment is an important skill for any decision maker in an organization, but how often should you be calculating it?
Return on investment is most relevant when you’re deciding between multiple opportunities or whether or not to pursue a single opportunity. As a result, it should be calculated whenever those decisions present themselves. The other relevant time to calculate ROI is after undertaking an investment to assess its effectiveness.
The moral of the story is the more investment decisions you need to make for your brand, the more often you’ll want to be calculating your ROI.
Stay on Top of Your Metrics and Get Customer-Centric
As you can see, staying on top of your most important customer metrics doesn’t have to be a full time job - after all, you’ve still got a business to run! With just a few regularly scheduled calculations you can stay on top of everything from NPS to AOV.
Calculating these numbers is just the first step, though. With these calculations in mind, you’ll need to think critically about what the values you’re seeing are actually telling you about the customer behaviors that matter most to you.
So what are you waiting for? It’s time to meet your metrics!