While you likely understand what BRB means and can probably suss out the intent behind LMAO, the acronyms used in sales can be a lot less obvious. Even less obvious is how these strings of letters can actually impact your business.
Read on to learn the meaning behind five integral sales acronyms, as well as how you can apply them to your own business strategy.
MRR/ARR: Monthly Recurring Revenue/Annual Recurring Revenue
This acronym refers to all revenue that can be counted on to repeat, organized into monthly and yearly reports.
Eg. You have ten restaurants that each have a standing order for $500 worth of paper cups every month. Your MRR in this case is $5,000, while your ARR is $60,000
500 x 10 = $5,000 MRR
$5,000 x 12 = $60,000 ARR
ARPA: Average Revenue Per Account
While relying on information from the MRR or ARR, ARPA provides a slightly different look at the state of your business.
In the above example, all ten restaurants have equal recurring purchases, but in the real world this will rarely happen. Your actual sales are far more likely to look something like this:
Restaurant 1: $100/month
Restaurant 2: $225/month
Restaurant 3: $375/month
Restaurant 4: $415/month
Restaurant 5: $585/month
Total MRR: $1,700
To calculate your ARPA, then, you will divide the MRR by the number of restaurants (in this case 5), for an average of $340. This same formula can be used to calculate ARPA on a quarterly or yearly scale, depending on your needs.
(100+225+375+415+585) ÷ 5 = $340 ARPA
ARPA is a great way to see how your business is evolving. If it increases every month, quarter, or year, you know that your business is moving in the right direction, while if it’s consistently decreasing, you know it’s time to reassess your marketing, sales tactics, or product.
CAC: Customer Acquisition Costs
Customer Acquisition Cost lays out the resources needed to bring in new customers. It encompasses the cost of marketing and advertising efforts and sales personnel, including salaries, bonuses, overhead, and ad placement. This is an important metric for businesses to keep an eye on because if your CAC is higher than your sales, you’re actually losing money. Generally, the lower the CAC the better, but it’s important to make sure that you’re not cutting this budget so low as to make your acquisition efforts ineffective.
To determine your CAC, take your total cost of sales and marketing for a given time period, and divide it by the number of customers gained in that same time period.
Eg. In March, you spent $1,000 in sales and advertising for your paper cup business. During that time, you brought in eight new customers, meaning it cost you $125 in sales and marketing for each of those new customers.
1000 ÷ 8 = $125 CAC
CCR: Customer Churn Rate
CCR, or Customer Churn Rate, is the number of customers lost in a given timeframe. It can be expressed as a percentage or number of customers lost, the value of lost recurring revenue, or any other metric that is relevant to your business.
While losing customers from time to time is inevitable, it is important to track your churn rate nonetheless. According to Fred Reichheld’s 2001 Prescription for Cutting Costs, “return customers tend to buy more from a company over time. As they do, your operating costs to serve them decline.” By paying attention to your churn rate you will be able to quickly notice any increases in customer loss and can make the necessary moves to prevent more — whether that means addressing an issue with your product, in your customer service, or elsewhere in your business.
CLTV: Customer Lifetime Value
While it is difficult to predict exactly how much a customer will spend over the duration of their relationship with your business, being able to make an educated guess is key to properly planning and executing your marketing and sales strategies. This is where the Customer Lifetime Value comes in.
Also known as LTV (lifetime value) or CLV (customer lifetime value), this metric uses past data from your business to estimate how much a new customer can be expected to spend over their customer lifecycle. Calculating the CLTV will look different for every business, but generally involves multiplying the ARPA by the average amount of time a customer is retained by your business.
Some businesses will get more in-depth with these calculations, categorizing past and potential customers in an attempt to get a more detailed look at how much revenue a lead could potentially generate. By categorizing your leads and customers, your organization will be better equipped to craft marketing and sales efforts that are focused on acquiring the leads that are the most likely likely to bring in long-term, high dollar-value sales.