Welcome to this week’s installment on key metrics everyone should be monitoring to measure your organization’s financial health! Head over to our Youtube channel, and take a look at these articles from Investopedia and geckoboard to learn more.
Today’s two metrics: revenue per customer and percentage of repeat customers. These are closely related, but they tell you very different things. Revenue per customer is often referred to by many different names. If you’re in a subscription business, you have a statistic that you call RPOO or Average Revenue Per User. If you are in a professional services business, you’re going to monitor revenue by client and revenue by billed hour to get your effective hourly billing rates. If you’re a retail business, either e-commerce or physical, you’re going to also look at revenue per customer. Retail will also look at something called average order size, and what that means is each time somebody comes, what is the average amount of money that they spend? If you own a dry cleaning store, you simply take your amount of revenue and divide it by the number of tickets you wrote up, and that’s your average revenue per customer or your average order size.
Closely related to this is the percent of repeat customers. The average revenue per customer is quite easy to calculate. It’s revenue divided by number of customers. Percent of repeat customers requires you to track a little bit more data. Maybe you’ve got some sort of a CRM where you calculate the number of customers, and then you do the same math again to figure out how many times a repeat customer is coming in. For instance, in the not-for-profit world, and in many retail high-volume type worlds, they don’t really count you as a customer until you’ve bought twice, or in the not-for-profit world until you’ve donated twice. A one time gift of twenty-five, fifty, or even a hundred dollars does not make that person a donor, but once they have given twice, they’re deemed a donor and looked at a little bit differently internally. You always want to know what percentage of your customers are doing repeat business, because that dictates how you’re going to market to them. It also dictates how you’re going to organize your business, because when you have a high percentage of repeat business, you’re going to focus on things like customer retention, which is a completely different process in business than marketing or customer attraction.
Back to revenue per client: why is that important? If you know your average revenue per client, and most of us who’ve started small businesses start with one customer and work up, you can evaluate which clients are taking up more than their fair share of company resources. You look at the numbers, and you ask, “Am I making any money off of this customer compared to that customer?” That’s why you do the analysis. You want to identify who your profitable customers are, and then you want to try to maximize that business. Then you can look at the other customers who aren’t profitable and structure how to make them more profitable or sometimes get rid of them all together.
Both of these metrics are things that you need to analyze regularly, at least on a monthly basis. If there’s anything we can do to help you with that, please let us know. This is what we do! We’re here to be your CFO if you need one, so give HGC a holler.