Customer growth rate refers to the speed with which you acquire new customers for your product or company. It is an important KPI to take into account while evaluating the growth of your company. A positive growth rate indicates that there is a market demand for your product and that you’re successfully tapping into this demand. Since the customer growth rate is the rate of new customer acquisition, it can be used to chart your company's financial future and is a reliable indicator of the increasing market share of your product.
How to calculate customer growth rate?
A quick way to calculate customer growth rate would be:
This would give you a quick numerical value to assess your customer growth and you can calculate it on a daily, weekly, monthly or yearly basis. In the world of SaaS, the monthly and yearly time periods would be useful metrics for evaluating the b2b customer growth rate. However, the results of this customer growth rate formula alone would not suffice in reflecting the overall customer growth rate for your product. You will need to evaluate other metrics to get a holistic overview of your product’s growth.
Other metrics to complement customer growth rate
The average customer growth rate alone is not a reliable indicator of the health of your company on its own but coupled with the right metrics, it can provide a clearer overview.
- Churn rate: The churn rate refers to the rate at which you lose customers of your product. It is calculated by: Number of customers lost divided to total number of customers X 100. Churn rate together with the customer growth rate reflects net growth in the number of customers. This formula will give you a net customer growth rate after accounting for churn. Churn rate can again be evaluated for a variety of time periods but monthly and yearly time periods would be the most relevant.
- NPS: The NPS or net promoter score is used to evaluate customer satisfaction. Using the NPS in conjunction with the customer growth rate will help you evaluate how happy your customers are with your product and also assess how likely you are to keep your customers after signing them on.
- LTV: LTV or lifetime value elucidates the total amount of money a customer spends on your product throughout their entire duration with you. Deriving additional revenue from existing customers is the only other way apart from new customer acquisition to increase revenues. An increasing LTV indicates that your customers see the value in your product and are likely to make repeat purchases. LTV and customer growth rate together provide a clearer picture of the future revenue projections for your product.
Things to keep in mind while looking at the customer growth rate
- Evaluate your dataset. Always check the sanity of the data that you’re using to calculate the customer growth rate. If you’re using the total number of accounts or signups, make sure there are no test accounts or duplicate accounts included in this data.
- Time Period. The monthly customer growth rate is generally a good metric to evaluate the rate of new customer acquisition. However, if you’re using an annualized customer growth rate then any seasonal fluctuations in the demand for your product may not be visible. Moreover, long time periods end up hiding insightful granularities that might be important for your business. Thus, it would be a good idea to use the smallest relevant time period to calculate the growth rate and then create a line chart or a column chart to represent this data over a longer period of time.
- Falling growth rate. A falling growth rate doesn't always represent a reduced demand for your product or a slowdown in new customer acquisition. It all depends on what number of customers you start your calculation with. For example, if you add 20 customers over 100 initial customers then that’s a 20% growth rate but if you add 20 customers over 1000 initial customers then that’s only a 2% growth rate. In this case, the number of customers you acquired was the same but the customer growth rate varied significantly based on the count of your initial customers. Thus, over time, most companies face a declining growth rate since they have a larger existing customer base but this doesn’t mean that the absolute growth of the company is slowing down. Always take a look at the absolute customer count to verify if a falling growth rate actually reflects a slowdown in the rate of new customer acquisition. As companies capture more market share, their new customer growth rate may slow down organically.