When making any measurements to help improve performance, the first step of defining what you are measuring is not always as easy as it may seem. A customer is something that we all know but don’t give much more thought about defining it.
Bendle (et al. 2016) defines customers as the number of people who buy from the organisation within a specified timeframe. The time frame can be adjusted based on the goals of what you are trying to measure. For some businesses, it can become increasingly difficult as to what level to define the customer at i.e. household, individual or contracts.
Some businesses may also count their customers in different ways, this may be per visit or per transaction depending on what is chosen as the defined customer. They key for success is to stick to the definition and avoid double counting to skew results.
Recency is the length of time since the customer’s last purchase (Bendle et al., 2016). When looking at defining recent and/or current customers, it is relevant to the product and the market. FMCG customers would have a completely different purchasing behaviour to a car yard… This metric allows an organisation to know how many customers they currently have.
Retention rate is the ratio of customers retained to the number of customers at risk (Bendle et al., 2016). The essence of this is identifying the number of existing customers who continue to be customers, a perfect example is any customer who renews a subscription or membership to a product or service.
Bendle, NT, PW Farris, PE Pfeifer & DJ Reibstein (2016) Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, 3rd edition. Pearson: New Jersey