Even as departments and channel managers within retail organizations optimize for their siloed metrics, the goal that the retailer C-Suite most aspire to is true customer-centricity in every facet of the business — from supply chain to marketing to customer service.
For marketers, being able to communicate the right message to the right customer at the right time is critical.
Customer-centric marketing operationalizes the once-abstract notion that customers each have different behaviors and preferences, and it does this by leveraging first-party data and putting certain customer key performance indicators (KPIs) at the center of all reporting and decision-making.
And now, thanks to advances in technology, methodology and tools, it’s possible to appeal to each customer as an individual.
However, becoming a customer-centric marketing organization takes buy-in on many levels. One of the first, and most important, steps is agreeing on the KPIs that your team will use to determine success.
Since you’re looking to become more customer-centric, it’s important that you rely on KPIs that complement your new customer-centric marketing efforts. This is not to say that you should stop monitoring marketing metrics that are not customer-centric, like sales by product type or revenue generated by marketing channel. But maintaining a customer-centric approach requires a shift in view toward how individual customers behave over time and how your organization can maximize the value of every customer relationship.
In this article, we break out the key KPIs into high-level metrics (Executive Level) — indicating the overall performance of a company’s customer-centric marketing strategy — and tactical metrics (Managerial Level), which highlight concrete marketing opportunities.
You can use this as a guide toward implementing some of these metrics yourself. You can also download a handy cheat sheet summarizing these KPIs at the bottom of the page.
These Executive-Level KPIs give you a high-level view of the health of your customer base.
1) Customer Lifetime Value (CLV)
The basis of what makes CLV your most important metric is the simple fact that there are some customer in your customer base who spend a lot more money with your business than the majority of your customers.
In the broadest terms, CLV is a measure of an individual's total spending over their entire relationship with a brand. Inevitably, some of your customers will make large-basket-size purchases at regular intervals while others will make just a single small-ticket purchase. The first group of customers is far more valuable; for the average retailer, the top 10% of its customer base generates roughly 50% of its revenue.
CLV is the Northstar metric that provides insight into how effective your marketing strategies have been. Rising CLV strong indicates that you have been developing more meaningful, profitable, long-term customer relationships.
For more on CLV, click here for our book on retail's most critical metric, The Chance of a Lifetime: How to Use Customer Lifetime Value to Grow Your Retail Business.
2) Customer Equity
Customer Equity is the total value of all of the new customer relationships created in a given period. It’s equal to the number of new customers acquired in a given period, multiplied by the CLV of those customers.
Customer Equity provides a broad view of how much customer value your company is creating— and whether you are striking the optimal balance between quantity and quality of new customers acquired.
Managerial Level KPIs
To understand changes in CLV or customer equity— and take action on opportunities from the data — we need to drill into some specific acquisition and retention KPIs, which we present here as Managerial-Level Metrics.
3) Acquisition: CLV by Channel
CLV by Channel is exactly what it sounds like: a view of the CLV of customers acquired across different acquisition channels
When you identify the channels that attract your highest-value customers and the channels that bring in lower-value customers, you can make more informed decisions about where your marketing budget should go.
4) Retention: Lifecycle Status Distribution
Lifecycle Status Distribution is a snapshot of where your customers fall within the customer lifecycle status, i.e., are they active, fading, churned, etc.
If you see significant shifts in the lifecycle status distribution of your customers — like a sudden shift toward fading and churn — you can dig into additional retention triggers (Early Repeat Rate, Overall Repeat Rate, and Winback Rate) to identify segment-specific retention opportunities. You can also prioritize your retention strategies by CLV, so you can roll out the red carpet to win back those high-CLV customers who mean so much to your organization.
5) Retention: Early Repeat Rate
Early Repeat Rate is the percentage of new customers who have made a second purchase by a certain fixed point in time.
Second-time buyers are enormously more likely to go on to have a longer lifecycle with a brand than one-time buyers, so tracking Early Repeat Rate and experimenting with strategies to increase that number — like instating cultivation triggers to educate new customers about your brand and drive repeat purchases — will have a big effect on your overall CLV numbers.
6) Retention: Overall Repeat Rate
Overall Repeat Rate is the percentage of repeat customers who go on to place another purchase within 60 days of their last order. In our analysis of the KPIs that have the most drastic positive effect on revenue growth, we found that — even more than acquisition, retention, or basket size — purchase frequency was the best leading indicator of revenue growth.
One way to optimize for ORR and deepen your relationship with customers is through a cross-sell strategy to introduce them to new product categories based on what they’ve bought in the past.
7) Retention: Winback Rate
Winback rate is the percentage of inactive or lapsed customers in a given period who were “won back” into making a purchase. To move the needle on this KPI, experiment with winback triggers and different messaging to re-activate customers as they show signs of slipping away.
8) Retention: Leaky Bucket Ratio
The Leaky Bucket Ratio metric shows the number of customers “lost” in a given period relative to the number of new customers acquired. What can you do to get a good Leaky Bucket Ratio? Put in place an effective winback strategy to minimize the rate at which customers churn and optimize your acquisition rates — though remember it always comes back to CLV; you want to prioritize high-CLV acquisitions over "just as many as you can get."
It can seem daunting to embrace a new set of KPIs, especially if your organization already has a host of metrics in place to measure and track the effectiveness of your marketing efforts. But the KPIs outlined above are the most important source of visibility into how your marketing strategies are creating and retaining customer value.
Placing CLV and Customer Equity front and center in the marketing dashboard — and understanding the impact that acquisition and retention strategies have on these metrics over time — is the first step toward aligning marketing efforts around customer-centric marketing principles.