Wednesday, 31st December 1969 | Sales,Marketing,Management
Measuring the value of your small-business’ customers
Owning and operating a small business involves keeping track of many figures. From your gross margin to equity and all the expenses on your balance sheet, it’s essential to keep these numbers top of mind to manage your business. Some numbers that are often overlooked include the lifetime value (LTV) of a customer and customer acquisition cost (CAC).
Owning and operating a small business involves keeping track of many figures. From your gross margin to equity and all the expenses on your balance sheet, it’s essential to keep these numbers top of mind to manage your business. Some numbers that are often overlooked include the lifetime value (LTV) of a customer and customer acquisition cost (CAC).
Since customers are what drive your business, it’s important to understand the value they bring your business. It’s also integral to understand how much of your money was required to get that customer’s business.
If you know what a customer is worth, you can review your marketing budget to determine how to allocate your money. Not only will this help you stay one step ahead in your marketing, you can also quickly make modifications to your campaigns to enhance their performance, where needed. Here’s how to measure the value of customers for your small business.
Calculating the lifetime value (LTV) of a customer
LTV is the revenue you obtain from a customer throughout your relationship. This number goes beyond one sale; it represents all cost-generating transactions from one customer.
The average cost of a sale X the average number of repeat transactions X the average number of years of a customer’s relationship with your business
This calculation works for one‑time transactions as well as repeats. Remember to factor in any maintenance your company might provide after a sale.
For example, let’s look at a company that sells utility vehicles. Their trucks and trailers cost between $10,000 and $150,000, but average around $50,000. The company also provides maintenance on the vehicles they sell for about 10 years after each purchase.
Using the LTV formula above, the calculation for this company would be:
$50,000 average sale X 1 transaction (vehicle purchase) X 1 large one‑time purchase = $50,000
Annual maintenance on the vehicles costs an owner $300 on average. Let’s add this in, here:
$300 average sale X 1 transaction (vehicle maintenance) X 10 years = $3,000
So, combined, the LTV of a customer for this utility vehicle company is approximately $53,000.
Calculating a customer’s acquisition cost (CAC)
You now know the value of a customer to your business. It’s time to calculate how much it costs to obtain a new customer and have them buy from you. This means determining how much you’re spending on sales and marketing.
(Sales costs + marketing costs) / Number of new customers acquired through these activities
Using the same sample company above, let’s say they have a single sales manager who earns $90,000 a year, with business expenses of $5,000. This company also spends $70,000 on marketing each year sing e-newsletters, print ads, social media, trade shows and special events. Through these tactics, the business acquires an average of three new customers each month.
Using the CAC formula above, the calculation for this company would be:
($95,000 for sales + $70,000 for marketing) / 36 new annual customers = $4,583 per customer
Therefore, the cost to acquire each customer for this company is approximately $4,583.
The importance of calculating LTV and CAC
What do these numbers all mean? The above formulas can assist in calculating the sustainability of your company. In the above sample, the LTV is greater than the CAC. This is preferable. It costs this company less to acquire a new customer when compared to their overall value to the business. This positions the business favourably.
However, if the CAC was more than the LTV, the business could soon be in trouble.
As a general guide, aim for a LTV that is approximately three times the value of your CAC. As another example, if a customer is worth $900 to you, it shouldn’t cost you more than $300 (at a three-times ratio) to acquire them.
The formulas above can serve as a basic starting point and frame of reference for most businesses. Remember that individual calculations and approaches can vary depending on specific company operating models, structures and strategies. However, these basic insights are beneficial in explaining breaking down the current value of your customers, which can, in turn, inform future decisions that you make about your customer marketing and sales tactics.
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Embracing AI: Small Business Marketing Success
Venturing into Artificial Intelligence (AI) may seem like treading uncharted waters, but it's an opportunity for small businesses to revolutionize marketing strategies and spark growth. Much like the buzz surrounding ChatGPT, AI tools offer myriad capabilities, ranging from task automation to personalized customer experiences. In fact, research shows that 39% of small businesses have already invested in AI tools to innovate their customer engagement and retention strategies, leveraging AI to save both time and money.
Unlocking the Power of AI Tools
AI tools span a wide spectrum of applications to streamline processes, analyze data, and optimize marketing campaigns. Let's explore some key AI tools commonly embraced in small business marketing:
Data analysis
AI-powered analytics programs sift through vast volumes of marketing data, distilling valuable insights and trends that inform strategic decisions and fuel campaign optimization. This enhances efficiency and facilitates cost savings, with 25% of businesses using these savings to increase wages and benefits.
Natural Language Processing (NLP)
NLP technology empowers chatbots and virtual assistants to engage customers in natural conversations, enriching customer service and sales interactions.
Automated decision-making
AI algorithms offer actionable recommendations, guiding marketing strategy decisions to ensure resource allocation aligns with business objectives and budget constraints.
Content generation
AI-driven tools churn out written content, such as blog posts and social media captions, at scale, freeing up time for creative endeavours while maintaining quality and consistency.
Real-time personalization
Leveraging customer data, AI enables personalized marketing experiences by delivering tailored recommendations and offers, thereby enhancing engagement and driving conversions.
Leveraging AI for Marketing Success
Incorporating AI tools into the marketing toolkit can yield substantial benefits for small businesses. Here's a roadmap to harnessing AI for marketing success:
Harness data insights
Utilize AI analytics platforms to extract actionable insights from marketing data, empowering informed decision-making and continuous optimization.
Elevate customer engagement
Deploy AI-powered chatbots and virtual assistants to provide personalized customer experiences, fostering satisfaction and loyalty.
Make informed choices
Rely on AI-driven recommendations to shape marketing strategy, ensuring alignment with business objectives and market dynamics.
Streamline content creation
Utilize AI content generation tools to produce high-quality written content efficiently, maintaining relevance and resonance with the audience.
Deliver tailored experiences
Leverage AI to deliver real-time personalized marketing messages and offers, nurturing deeper connections and driving conversions.
Designing an AI Marketing Strategy
Designing an effective AI marketing strategy requires careful planning and strategic execution. Here's how to do it:
Identify Business Requirements
Assess business needs and objectives to determine how AI can support marketing goals.
Decide AI Framework
Choose AI tools and technologies that align with business requirements and budget constraints.
The Right Approach
Adopt a strategic approach to implementing AI in the marketing strategy, focusing on areas where it can deliver the most significant impact.
Evolve
Continuously monitor and refine the AI marketing strategy to adapt to changing market dynamics and emerging trends.
By embracing the power of AI, small businesses can unlock new avenues for growth and competitiveness in the ever-evolving digital landscape. With careful planning and strategic implementation, AI can be a game-changer for small business marketing, driving engagement, loyalty, and business success. So, let's embark on this exciting journey together and seize the opportunities that AI has to offer.
Blog ,Sales ,Marketing ,Accounting ,Management
Cybersecurity Strategies for Small Businesses
As we embark on a new year, the ever-evolving digital landscape presents opportunities and challenges. In 2024, one of the paramount challenges demanding attention is the persistent threat of cyber attacks.
Safeguarding your business against these threats is not just advisable—it's imperative. Let's explore the crucial cybersecurity strategies every small business should adopt for a secure and prosperous journey throughout 2024.
Understanding the Landscape
The IBC’s 2023 Cyber Security Survey revealed a concerning trend among small businesses. Despite over 60% considering their size immune to cybercriminal attention, small businesses with 1,000 or fewer employees experienced a surprising 43% of yearly cyber attacks in 2023.
Crucial Cybersecurity Strategies for Small Businesses
Educate Your Team
Empowering your team with effective cyber threat identification skills is essential. Regular training sessions can equip them to recognize phishing emails, use strong passwords, and identify potential security risks. A well-informed team serves as the first line of defence against cyber adversaries.
Ensure your training addresses these common security issues:
1. Phishing attacks: Deceptive tactics to trick victims into sharing sensitive information or deploying harmful software.
2. Malware attacks: Cyber threats involving malicious software executing unauthorized actions.
3. Ransomware: Malicious software designed to deny access to files, demanding a ransom for decryption.
Employee Training and Awareness Programs
Acknowledge that your employees are not just integral to your business—they are the first line of defence against cyber threats. Regular training and awareness programs inform your team about the latest cyber threats and preventive measures. Cultivate a culture of cybersecurity awareness where every team member actively contributes to the protection of your business.
Strengthening Your Digital Shield
Crafting an impenetrable shield for your small business involves developing good cybersecurity habits through daily practices:
1. Regular Software Updates: Keep all software, including operating systems and security applications, up-to-date to patch vulnerabilities.
2. Security Audits: Conduct routine security audits to identify and rectify potential weaknesses in your systems.
3. Password Policies: Enforce strong password policies, promoting the use of complex, unique passwords.
4. Require long, varied passwords for sensitive accounts.
5. Enable two-factor authentication for added security.
Invest in Cybersecurity Technology
As cyber threats advance, upgrading defences is crucial. Invest in state-of-the-art cybersecurity tools like antivirus software, firewalls, and intrusion detection systems to serve as your digital guardians, actively monitoring and thwarting potential threats.
Proactive Preparedness
Craft a comprehensive incident response plan that includes:
1. Communication Protocols: Clearly define communication channels during a cyber incident.
2. Data Backup Strategies: Regularly back up critical data to minimize the impact of potential data loss.
3. Mitigation Steps: Establish procedures to mitigate potential damage during and after a cyberattack.
The Stakes Are High
In 2023, small businesses accounted for a significant portion of annual cyber attacks, emphasizing the need to view cybersecurity not as an expense but as an investment. Cybersecurity is not a luxury—it's a prerequisite for sustainable success. As you navigate the intricate web of business operations in 2024, remember that a secure foundation is key to achieving your goals. Despite the challenges in the digital realm, informed decisions and proactive measures can help your business emerge stronger and more resilient than ever.
Blog
The Top 10 Small Business Trends for 2024
As small business owners, anticipating the shifts that shape success is always on your agenda. In the ever-changing business landscape of 2024, specific trends will be crucial to staying relevant and thriving. Let's recap the top 10 trends that should be on your radar for the coming year:
1. Tech Integration for Maximum Efficiency:
Small businesses are unlocking the power of technology to streamline operations. From intuitive software to smart automation tools, embracing these innovations can enhance efficiency, trim costs, and keep you at the forefront of your industry.
2. Sustainability and Climate Change:
Sustainability is not just a buzzword; it's a game-changer. Small businesses are discovering the benefits of eco-friendly practices, not only for the environment but also for their bottom line. Going green can set you apart and resonate with conscious consumers.
3. Flexible Work Models:
The 9-to-5 office setup is evolving. Small businesses are embracing flexible work arrangements—remote work, flexible hours, and hybrid models—opening doors to a global talent pool while fostering a healthier work-life balance for your team.
Related: A shortened workweek: fad or the future of work?
4. Personalized Customer Experiences:
In an era where personalization reigns supreme, small businesses are customizing customer experiences. From targeted marketing to personalized products and services, understanding and meeting individual customer needs are keys to success.
5. Continued Growth of E-commerce:
E-commerce is not slowing down. Small businesses are seizing the opportunity to reach a broader audience, implement targeted marketing, and offer convenient purchasing options. Investing in a robust online presence is no longer a choice—it's a necessity.
6. Prioritizing Mental Health and Well-being:
A healthy work environment is essential. Small businesses are putting employee well-being first, introducing initiatives like employee assistance programs, flexible schedules, and wellness benefits to create a thriving and productive workforce.
7. Digital Marketing, Content Creation, and Artificial Intelligence (AI):
Stay ahead in the digital era by creating valuable content, engaging with customers through social media, and implementing SEO strategies. Integrate AI to streamline content creation processes, adding a layer of innovation to your marketing strategy.
Related Article: 7 ways how AI empowers small businesses to achieve more in less time
8. Cybersecurity and Data Protection:
In the digital age, safeguarding your business is crucial. Invest in strong cybersecurity to protect sensitive data and maintain customer trust. Shockingly, small businesses, including those with 1,000 or fewer employees, account for 43% of annual cyber attacks in 2023. This data underscores the need for comprehensive cybersecurity strategies to fortify your defence against potential threats.
9. Innovative Payment Solutions:
How we pay is evolving, and your business should evolve with it. Consider offering various payment options, including mobile wallets and contactless payments, to cater to diverse customer preferences.
10. Agile Business Models:
Agility is the cornerstone of success in 2024. Be responsive to market changes, adapt swiftly to challenges, and capitalize on emerging opportunities. Flexibility in operations and decision-making will give your business a competitive edge.
Incorporating these trends into your business strategy isn't just smart; it's the key to staying relevant and successful. Keep these considerations in mind as you navigate the dynamic landscape of 2024.
Sales ,Marketing ,Accounting ,Management ,Personal Loan