March 22-25, 2018 | Scotts Valley, CA
The Science of Customer Acquisition
By Ryan Allis
ICONTACT CUSTOMER GROWTH
There’s a science behind scaling like this.
THERE’S A SCIENCE BEHIND SCALING
It’s called unit economics.
WHAT IS UNIT ECONOMICS
Unit Economics (n.)
The profitability of a single customer
THE TWO KEY METRICS YOU MUST KNOW
There are two metrics you need to track to master unit economics.
LIFETIME VALUE (LTV)
How much a customer is worth to you in revenue throughout their time as a customer with your company
CUSTOMER ACQUISITION COST (CAC)
How much a customer is worth to you in revenue throughout their time as a customer with your company
A REAL EXAMPLE…
HOW LONG DID A CUSTOMER STAY WITH US?
Monthly Churn Rate = 3.3%
Avg. Customer Life = 30 Months
Avg Customer Life =
1
Monthly Churn Rate
1
0.033
ACL =
ICONTACT EXAMPLE: LTV
Avg. Monthly Rev Per Customer = $50
Avg. Customer Life = 30 Months
LTV = ?
50 x 30 = $1500
ICONTACT EXAMPLE: CAC
CAC =
Total Sales & Marketing Expenses
Total Customers Acquired in a Month
$2,000,000
4000
CAC =
CAC = ?
LTV FOR NON-RECURRING BUSINESSES
Avg. Order Per Customer = $100
Avg. Orders Per 5 Years = 50
LTV = ?
100 x 50 = $5,000
HOW MUCH CAN YOU SPEND TO ACQUIRE A CUSTOMER?
We chose to spend 1/3rd of the lifetime value of a customer to acquire the customer.
CALCULATING OUR MAXIMUM CAC
Since our LTV was $1500, we could spend up to $500 in advertising costs to get one additional customer.
ONCE WE KNEW OUR MAX CAC…
Once we knew our maximum customer acquisition cost ($500), we tried every advertising channel to see which generated customers for less than $500/customer.
ADVERTISING CHANNELS WE TESTED
TRACKING CPL AND CAC
Using cookies and promo codes, we tracked the Cost Per Lead (CPL) and the Customer Acquisition Cost (CAC) for each of the ten major advertising channels.
OPTIMIZING OUR CHANNELS
We scale the channels that generated customers for less than $500, and turned down the channels that cost more than $500 per customer.
THE FREE TRIAL WAS OUR LEAD MAGNET
We offered a 15 day free trial of our service as our lead magnet
TRIAL CONVERSION RATE
1 in 6 (16%) of our trials converted into paying customers. So we knew we could afford to spend up to $80 to acquire a 15-day trial user.
OUR 3 BEST CHANNELS
Our three best channels by far were:
EXAMPLE OF OUR MONTHLY CHANNELS REPORT
| Spent | Trials | Customers | Trial Cost | CAC |
Adwords | $960,600 | 9606 | 1601 | $92 | $600 |
Facebook Ads | $189,005 | 2202 | 367 | $79 | $515 |
Banner Ads | $333,450 | 3078 | 513 | $58 | $650 |
LinkedIn Ads | $31,500 | 252 | 42 | $75 | $750 |
YouTube Ads | $25,305 | 210 | 35 | $62 | $723 |
Trade Shows | $35,105 | 210 | 35 | $118 | $1,003 |
Direct Mail | $54,150 | 342 | 57 | $135 | $950 |
Radio Ads | $91,500 | 600 | 100 | $152 | $915 |
Affiliates | $44,600 | 1200 | 200 | $34 | $223 |
Resellers | $81,250 | 1500 | 250 | $42 | $325 |
Word of Mouth | $0 | 4800 | 800 | $0 | $0 |
AVG/TOTAL | $1,846,465 | 24000 | 4000 | $77 | $462 |
THE RESULTS WE GOT
In 2011, we added 216,000 new trial users, 36,000 new customers, and spent $18M on advertising.
We generated a total of $49M in sales that year and sold the company in Q1 2012 for $170M.
AND THAT IS HOW WE DID THIS
THE LESSON
If you want to grow faster, spend more on scientifically tracked digital advertising.
Q&A
Questions?