How to take prospective customers from ‘maybe’ to ‘yes’ in the customer acquisition journey
The idea of customer acquisition is a powerful thing. Which business would not want to bring in more customers? However, founders with expansive customer acquisition plans may find themselves looking at a house of cards in many cases, because it costs dearly to acquire customers, retain them, and keep them paying.
One of the predominant reasons for startup to fail, Matrix Partners General Partner David Skok notes in an article, is the cost of acquiring a customer (CAC), and a subsequent inability to adequately monetize acquired customers.
Skok accurately highlights CAC and the lifetime value of the customer as metrics that are integral to a startup’s business model, but a successful customer acquisition journey is a result of larger, well-oiled machinery. In most cases, it should involve the company’s strategy, process, and people working in tandem.
Planning this journey provides great strategic value to the company, and puts it on the course to generating long-term returns from its customers. Here’s how to approach the customer acquisition journey.
Step 1: Know Your Customer
This is the definitive first step in building your customer base and a golden rule in marketing: know who your prospects are.
Work closely with data (that has been shared with consent) to understand the expectations that prospects may have for your product, as well as for your sales pitch.
Once you do, don’t stop there. When mapping out your approach, create broad persona groups for your target customers that factor in both demographic and psychographic characteristics – their personalities, their buying behaviors, their attitudes, and values.
Knowing your target audience is a basic requirement, but you can improve this by deeply defining their personas as well.
Step 2: Recognize that acquiring customers will cost you
As Skok recommends in his article, the two metrics you need to keep a close eye on are CAC, and the customer’s lifetime value (LTV or CLV), or the total profits that will emerge from a relationship with that customer.
Needless to say, if the CAC surpasses the LTV, that relationship is not effectively putting to use the business’ time or money.
The ideal LTV:CAC ratio for your business varies depending on the industry you are in, and the technology your company offers.
For instance, B2C fintech companies often operate on fine margins so it becomes important for them to keep their CAC as low as possible, although that may not yield an ideal ratio. At the same time, a ratio of 3:1 or 4:1 for B2B Software-as-a-Service or SaaS companies is not just good, it’s also very much possible (especially with cloud penetration).
Startups can find their CAC by dividing the total of their sales and marketing expenses by the number of new customers they have acquired during the period. Online calculators such as this one by Nickelled can help.
Similarly, you can determine your LTV by multiplying the average value of each purchase by the number of purchases per unique customer, times the average number of years for the customer relationship, adjusted for costs. Or, if you need a hand with the math, try this calculator by WebFX.
Remember that this may seem straightforward, but it isn’t always so. Former VP-Growth at Hubspot Brian Balfour explains that CAC depends on several variable factors, such as the time between a marketing touchpoint and sale transaction, differences in pricing tiers, and the number of returning customers.
So, online tools may only get you so far. If you are serious about devising a lean and effective customer acquisition journey, get a capable CFO on board.
Step 3: Chart out marketing and sales touchpoints
While planning is undeniably an integral part of the customer acquisition journey, it is in execution that the real meat of the matter lies. From a startup’s perspective, this takes two routes – marketing and sales.
Marketing is all about knowing where prospects will be, online and offline, and then casting your net there. At a startup, this can become an unwitting drain on resources because of the sheer volume of media options available.
This is why it’s so important for the company to know who they are selling to (refer to Point 1), and then choose carefully from the long list of marketing options, including social media, search engine marketing, sponsored content, affiliate marketing, and events.
Just like marketing, sales at a startup requires great intuition, creativity, and negotiation skills, but it also requires the ability to customize. Where marketing is a broad approach to customer acquisition, sales focuses on each customer’s individual needs. The good news is that startups don’t have to go in blind.
In his talk at this year’s SaaStock Remote, Managing Director of Storm Ventures Tae Hea Nahm highlighted the benefits of streamlining the sales process.
Starting with identifying customers with the most urgent pain points, startups need to make themselves strategically beneficial to these customers. In addition to product-market fit, this includes having a concrete, compelling brand story to tell.
Further, Nahm noted that a customer-centric go-to-market playbook can be a foolproof way for sales executives to close conversions.
Using reliable strategies, appropriate ‘dos’ and ‘says’ at each stage, and a wow factor to round out the impact of the sales pitch, a playbook can give sales reps the right mix of strategies (freebies, communications, value add-ons) to win leads as customers.
This helps companies leave a lot less to chance than they would otherwise have to. It also gives sales reps a solid framework and the confidence of knowing exactly what they are doing, without leading to templated or boring sales pitches.
Ultimately, the finer details of the customer acquisition journey – which marketing channel to choose, which other metrics may be relevant, which prospects make for the quickest conversions – are contingent on your startup’s needs. If there is a one-size-fits-all model in the startup world, it is not here.
Start by focusing on the direction and outcomes of the customer journey. By applying data-backed insights, strategies, and math to ground your approach and vision on a strong foundation, you are likely to get more bang for every buck spent on customer acquisition.
Header image by Charles Deluvio on Unsplash