Customer acquisition is the process of bringing in new customers to a business — from lead generation to conversion.
How do you build a well-defined customer acquisition strategy to attract and convert new customers while managing costs and amplifying lifetime value? Let’s break it down.
What Is a Customer Acquisition Strategy?
For a real-world example of a customer acquisition strategy — look at Netflix.
Netflix’s customer acquisition strategy showcases a dynamic approach to attracting new customers and retaining existing ones, a method that can be instructive for businesses looking to enhance their own strategies.
Central to their approach is a keen understanding of their target audience. Through sophisticated data analytics, Netflix identifies viewer demographics, preferences, and behaviors, tailoring their content to match. This focus on the customer journey ensures potential customers find exactly what they’re looking for, bolstering conversion rates.
Their marketing strategy is multi-channeled, leveraging digital marketing tactics like targeted email marketing campaigns and social media engagement to boost brand awareness. Netflix’s content marketing is particularly notable; by creating and promoting original, high-quality content, they not only draw in new customers but also keep their existing customer base engaged.
Netflix closely monitors various metrics, including customer acquisition cost (CAC), to gauge the effectiveness of its strategies. Keeping CAC in check while maximizing customer lifetime value (LTV) is a delicate balance that drives their decision-making process.
All of these factors together create a holistic strategy that allows Netflix to constantly add new users by continually innovating content production and delivery, creating a reason for users to always engage with the platform.
How to Build a Successful Customer Acquisition Strategy
A successful customer acquisition strategy should encompass several key elements to be effective. Here's a breakdown of the most important components, along with a real-life example to illustrate their application:
Define Your Target Audience
First dig into demographic information, firmographic data for B2B companies, and psychographic details to define your ideal customer profile (ICP).
RevOps teams use data and analytics to pinpoint characteristics that make up your most valuable customers. However, beware the common pitfalls of bad research. Ensure that your research teams aren’t just filling in the boxes but instead are finding data that will help your sales team close more deals.
Here’s an example of how to think about your customer’s buying journey and discover what matters to them: What is the buying cycle of your ICP? Do they have to present internally? If so, what questions are asked in those internal meetings?
Knowing Your ICP: A Case-Study
Dropbox's user base reportedly grew by 3900% over 15 months, largely attributed to this referral program.
Problem: Dropbox faced the challenge of acquiring new customers cost-effectively.
- Referral Program: Dropbox implemented a referral program where both the referrer and the referee received additional free storage space. They separated their value offer from price.
- Understanding the Audience: They knew their target customers valued more storage space.
- Value Proposition: The offer was simple yet compelling – more free space for their most loyal customers.
- Use of Metrics: Dropbox monitored the performance of this program closely, allowing them to see its effectiveness in real-time.
- Customer Retention: This customer retention strategy not only acquired new users but also incentivized their best customers to stay more engaged and loyal.
- Outcome: This strategy led to a massive increase in user base. The referral program was so successful that it became a case study in how to use customer incentives to drive growth. Dropbox's user base reportedly grew by 3900% over 15 months, largely attributed to this referral program.
Dropbox really dug into their ICP to understand what they wanted and created a compelling value proposition, leading to remarkable growth and nearly eliminating churn, especially in the early days of their rapid growth.
Set Cross Functional Goals
Aligning goals across Go-To-Market (GTM) teams is vital for creating a cohesive customer experience that efficiently converts prospects into paying customers while minimizing churn. This alignment not only improves the overall effectiveness of your strategy but also fosters a consistent and positive experience for the customer, critical for long-term customer loyalty and business success.
The most common goal and objective-setting frameworks are OKRs and S.M.A.R.T. Goals.
OKR (Objectives and Key Results)
Objective: An OKR starts with defining a clear and inspiring objective. This is a qualitative, high-level, and ambitious goal that is meant to motivate and provide direction.
Key Results: These are specific, measurable outcomes that need to be achieved to accomplish the objective. Key Results should be quantifiable and time-bound, providing a clear benchmark for success. Typically, there are 2-5 Key Results per objective.
S.M.A.R.T. is an acronym that stands for Specific, Measurable, Achievable, Relevant, and Time-bound:
- Specific: The goal should be clear and specific to focus efforts and clearly define what is to be achieved.
- Measurable: There should be concrete criteria for measuring progress toward the accomplishment of the goal.
- Achievable: The goal should be realistic and attainable to be successful.
- Relevant: The goal must matter and align with broader objectives
- Time-bound: The goal should have a clearly defined timeline, including a starting point and a target date, to create urgency and prompt action.
From Customer Acquisition Funnel To Flywheel
Classically, marketing and sales thought of a customer journey as a funnel. However, this mindset has shifted in recent years to a more modern development, the Flywheel.
Why did this thinking change? There is no perfect answer but I think it’s because of the development of the “Larger Market Formula.”
The Larger Market Formula is the understanding that in any given market, only 3% of prospective customers are actively buying. The top of the pyramid is ultra-competitive and limited. By shifting your focus to a larger market (aka the middle of the pyramid) you significantly increase your chances of reaching a larger audience and winning market share.
The flywheel is a response to the need for GTM teams to be constantly developing the Larger Market through refining customer personas and innovating retention strategies.
The flywheel emphasizes a more integrated and continuous approach, where customer acquisition is a cyclical process involving attraction, engagement, and delight.
Customer Acquisition Channels At Each Stage
This stage is all about making potential customers aware of your brand and offerings. The aim is to drive traffic to landing pages where potential customers can learn more about the products or services offered.
The most commonly used channels include:
- Content marketing: Share informative content that resonates with your target audience’s demographics and interests.
- Social media: Reach a broader audience and engage with them on platforms they use everyday.
- Podcasts: Offer a unique way to connect with audiences by providing valuable content in an easily digestible format.
This phase of lead management corresponds with the consideration stage of a traditional sales funnel. Here is where you should offer more in-depth information and demonstrate the value of a product or service. Try out:
- Webinars: Allow for real-time interaction, offering an opportunity to address questions and concerns directly, which significantly enhances the customer acquisition process.
- Case Studies: Provide tangible evidence of the product’s effectiveness and success, reinforcing trust and credibility.
- Automation: Nurture leads through personalized marketing campaigns without hours of manual work from your team.
At this stage, prospects are nearly ready to buy. It’s all about lowering the barrier to entry, allowing customers to experience the product or service firsthand. This firsthand experience can significantly boost the conversion rate, as customers are more likely to purchase after they’ve seen the value for themselves.
- Free trials: Free trials are particularly relevant in SaaS and other subscription-based models, where experiencing the service directly can lead to a long-term commitment.
- Discounts or promotions: Discounts and promotions, remain powerful incentives, especially in the competitive ecommerce landscape. They can be the final push a potential customer needs to choose your product over a competitor’s.
Customer Acquisition Cost (CAC)
CAC refers to the total cost of acquiring a new customer, including all marketing and sales expenses over a specific period (yes, that includes CRM software costs).
These expenses typically include advertising costs, the salaries of marketing and sales teams, the costs of sales and marketing tools and software, and any other resources used in the customer acquisition process.
It’s a crucial metric to track for any business, particularly from a RevOps leader’s perspective. Understanding CAC is what allows you to budget and plan your customer acquisition strategy.
Calculating CAC is relatively simple, the formula below shows you how to do it.
One note from experience: Make sure that the total marketing and sales spend is based on your RevOps team's definition of marketing and sales costs, not accounting.
Now is not the time to use ‘Hollywood accounting,’ to create the illusion of more efficient and, ultimately, more successful systems. This will only hurt your credibility and your business in the long run. You and your team MUST account for all of your expenses honestly if you are going to truly understand how your business operates and work to improve it.
Using CAC as a Decision-Making Tool
CAC becomes significantly more insightful when paired with another key metric: customer lifetime value (LTV). By evaluating the LTV-to-CAC ratio, a crucial benchmark emerges, especially for SaaS businesses.
This ratio is important because it provides a clear indication of the profitability and sustainability of the customer acquisition strategies. A higher LTV-to-CAC ratio suggests that a company is generating significant value from its customers relative to the cost of acquiring them.
In practice, and from my experience in RevOps, a growing SaaS company should be looking for an LTV-to-CAC ratio of 6:1.
Any lower than 6:1, and your team will have inefficiencies in the customer education and acquisition systems. Inversely, if your company has a high LTV-to-CAC ratio, 10:1 or more, you’re not investing enough in sales and marketing. In this scenario, you can significantly increase revenue by ramping up lead generation campaigns.
If you’re a RevOps leader and you’re looking to take advantage of a high ratio, think about utilizing lead generation software to automate some low-level work and get your team focusing on higher-impact tasks.
Strategies for Lowering CAC
Optimizing Ad Spend
- Better Targeting: Use modern lead generation tools to understand your audience better. This helps focus your marketing efforts on people more likely to buy, saving time and money.
- Use NPS Surveys to Keep Customers Happy: Continuously poll your customers to see their level of satisfaction. Work on keeping your current customers. It’s cheaper than finding new ones. Happy customers can also bring in more business through referrals.
- Use Authority Building Marketing: Focus on SEO, blogs, and social media before pay-per-click (PPC). They’re often cheaper, especially for SMEs, and allow your GTM teams to really engage your ICP before investing heavily in PPC.
- Improve Your Ads: Regularly test and improve your ads. Find out what works best to drive new business and stick to it, making every dollar count.
Leveraging Organic Channels
SEO (Done Right)
Search Engine Optimization (SEO) is often thought of as the black sheep of marketing. If you’re like me, in the consulting world, most people don’t understand SEO at best. And at worst, they think of it as a waste of valuable PPC spend. But SEO is the best way to increase your organic search volumes — especially with AI-driven search becoming more popular. SEO should be all RevOp’s leaders foundation, it’s your word of mouth, your authority, and your Google search ranking.
According to SmartInsights, 94% of searchers skip over the paid section in a Google search and go right to the top three organic rankings. Now of course keywords and consumer intent are essential factors on the SERP but the point stands, great SEO creates great rankings. Great rankings drive clicks.
Implement a customer referral program or encourage word-of-mouth through incentives. Customers acquired through referrals often have a lower CAC because you're leveraging your existing customer base to gain new ones.
Additionally, referred customers tend to trust your business more quickly and may have a higher lifetime value. For SaaS sales leaders, you’ll have a real opportunity to save on significant sales costs by having warm or hot qualified leads come right to your closers. In my experience, referrals also typically result in lower operational costs due to skipping free trials or lengthy sales cycles.
Actionable Steps For Immediate Implementation
To sum it all up, there are three things you can do right away to build and implement an effective customer acquisition strategy:
- Enhance Audience Understanding: Use advanced data analytics to gain in-depth knowledge of your target audience’s preferences and behaviors. This can help tailor your marketing efforts more effectively.
- Optimize Digital Marketing Channels: Implement a diversified digital marketing strategy that includes content marketing, social media engagement, and email campaigns. Regularly analyze these channels for effectiveness and adjust strategies as needed.
- Leverage Customer Referral Programs: Develop a robust referral program to capitalize on word-of-mouth marketing. Offer incentives to existing customers to refer new customers, which can help lower the overall CAC.
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