Sooner or later, it happens to every platform: You reach a point where that explosive growth suddenly stops. When that happens, it might seem like you’ve hit your limit. It’s harder to attract new users. You can’t seem to optimize your UX any further. And no matter what you do, it just seems like your platform has crossed the line where it cannot possibly add more value for your users.
This is what we mean when we talk about “gravity.” It’s like an inevitable force of nature that pulls at your digital platform. And when gravity starts to take effect, it’s time to start applying your data in new ways. To help you defy gravity and get back on the path to growth, we’ve created this series of 3 articles. Each one focuses on a different phase of the customer journey. This is part 1: acquisition.To ensure sustainable growth for your e-commerce, media or contentplatform, it’s important to follow a unique set of metrics for each stage of your customer journey. Tracking a different set of metrics for each of these phases helps you gain focus and make better choices when planning your strategy. Acquisition, engagement and the retention phase simply require different sets of data and activities to drive growth.
Below, we’re focusing on the acquisition phase. We’ll get back to engagement and retention later in this series.
Cost versus value
If you’re trying to get new users onto your platform, then your most important marketing metric is Cost per Acquired Customer (CAC). Other common metrics like Monthly Active Users (MAU) and Gross Merchandise Value (GMV) won’t be of much use to you during the acquisition phase. They simply don’t tell you where your users and your turnover are coming from, or what you had to do to get them.
The danger of getting caught up in MAU and GMV is that you keep injecting capital into marketing activities that focus on saturated markets. You can boost these metrics by investing more in marketing, but gravity will eventually set it. And when that happens, you’ll see a spike in your CAC and end up with customers who cost more than they bring in.
And while we’re on that topic: How can you be sure that the customers you acquire will actually bring in money? To figure that out, compare your CAC with your Customer Lifetime Value (CLV). The ratio of acquisition costs to turnover per customer ultimately determines how effective your marketing is.
To calculate your CLV per segment and per customer, you’ll need a reliable Customer Data Platform (CDP). That means a system that gathers the data from all your processes and systems in one place and gives you a 360-degree customer view. It’s also important to remember that a customer brings you more than just direct sales. Once you’ve acquired one customer, there’s a chance that they can bring in more customers for you, thanks to the network effect. This kind of word-of-mouth advertising is the best-case scenario, because it means you get multiple customers for the price of one. When you factor these effects into your CAC calculation, you get a “blended CAC,” which gives you a fuller picture of what it really costs to acquire a single user.
To sum up: Successful acquisition starts with choosing, using and calculating your metrics correctly. And once you’ve got the right metrics in view, you can start optimizing.
Reducing CAC with growth hacking: 7 tips
To improve your CAC-to-CLV ratio, you can do two things: lower your CAC or increase your CLV. Let’s start with the first. I want to show you 7 classic growth-hacking techniques that can help you start bringing in new customers while spending less.
1. Word of mouth
Satisfied customers not only stay longer, they also bring in new customers. So, keeping your customers truly happy is an effective way to lower your acquisition costs. Your blended CAC lets you see exactly how strongly the network effect and word-of-mouth advertising are working.
2. Search engine optimization
Search engine optimization (SEO) is far from free, but it does scale better than online advertising. After all, your average acquisition cost drops with every search engine visitor you convert. And SEO keeps generating traffic over a longer period of time, unlike CPC ads on search engines and social media, where you pay for each click and the extra traffic stops immediately when the campaign ends.
3. Gap analysis: Where are the gaps in my competition?
Acquisition costs can soar on keywords and channels where lots of companies are competing fiercely for visitors and customers. Insurers, for example, have to pay around €50 per click on the search term “insurance”. To find gaps where the competition is less fierce, try analyzing data about competitor activity on a variety of channels. By finding those gaps, you can lower your CAC, even in a crowded market.
4. Attribution modeling
If you want to know how well individual channels, campaigns and ads are performing, try linking advertising and media data to internal data about sales and customer behavior. Simple models such as “first click” or “last click” (in which the entire customer value is attributed to a single action) just aren’t finely grained enough to accurately reflect the complex digital reality. Instead, try leveraging machine learning and advanced data technology to build better attribution models and learn where your ad budget is best spent.
5. Optimize keywords, channels and creative
CX platform markets are starting to look more and more critically at how individual keywords, channels and content perform. Based on real-time data, they switch out campaigns and add new ones on a daily basis. This process of continuous experimentation and tracking lets them focus their efforts where they’re having the greatest impact, which keeps CAC under control. But for this type of optimization, you’ll need a solid data platform that gives you a complete view of the customer journey.
Brand value, or brand equity, is notoriously tricky to measure. As a result, attribution models often place too much emphasis on digital channels and not enough on offline experiences. But branding has a strong influence on click-through rates, conversion and the overall customer experience. So, by carefully building a strong brand, you ultimately lower your CAC.
7. Try new channels
Continuously testing new acquisition channels is always a good idea. When it comes to finding new places to reach out to potential customers, your options are virtually unlimited. And you won’t know if a new channel works for you until you’ve tried it. Remember that your creativity is always your main competitive advantage.
It starts with your data platform
As we develop CX platforms, we see again and again how important it is to open up more data sources to get a true 360-degree view of the user. This not only allows you to calculate your CLV properly, but it also provides a strong basis for attribution modeling. At Triple, we are primarily a technology partner in this: We give our clients tools and frameworks to build their data platform, gain a full view of their customers, work with their data and test different models. This enables our clients to answer important questions: Where are my best target groups? Which targeting works and which doesn’t? A good attribution model based on complete customer data answers those questions and filters out the noise. And that’s step one towards lowering your CAC.
Keep on experimenting
Experimentation is also very important in acquisition. In the end, the data only tells you what’s happening, not what you need to do to change it. To figure that out, keep testing new creative expressions and continuously fine-tuning your attribution models, SEO, marketing mix and ad strategy. But above all, remember that acquisition doesn’t happen in a vacuum. It’s intertwined with the other phases of the customer journey: engagement and retention. So, you’ll want to be sure your data platform is monitoring all three phases simultaneously.
That’s how you build a platform that eventually becomes indispensable to your users in their everyday lives. In part 2 of this series, we’ll look at how to drive engagement and increase usage on your platform.