Marketing Strategies to Scale Up Your Acquistion
On today’s episode, we have recurring guest Mike Ferranti Founder and CEO of Endai. Damian and Mike continue their talk on New Customer Acquisition. Part 3 is all about how a company can scale net new customer acquisition.
Mike, first, gives his impressions on where the marketer is thinking today when it comes to scaling new customer acquisition. New customer acquisition is always on the minds of marketers, but it is getting expensive. There’s a very big desire to understand how media mix is impacting customer acquisition. Companies are looking to better understand how various touches in a new relationship lead to that ultimate sale.
Next, Damian gets to the heart of this topic and asks the logical question, “How do you scale New Customer Acquisition?” Mike answers by explaining his 3 levers to acquiring new customers:
- Increase the number of prospects you get in the top of the funnel
- Increase the rate at which you convert them
- Increase the value of those customers
Looking at those levers it seems pretty straight-forward but Damian asks Mike, “What challenges does cost create in scaling new customer acquisition?” Mike responds by going deep on the fourth lever cost/return
Marketer’s who have begun a new customer acquisition campaign and see signs of life are in a tough spot because to scale they will need to spend more. Mike answers the question, “How should a marketer go about asking for more budget to begin scaling?”
Then the guys get into a discussion about CPA and ROI. This then turns into a discussion about Lift-off and how to think about what lift-off means to other businesses.
The episode ends with a wrap up of Mike’s scale-up methodology:
- Wide Reach
- CPA that is inline with ROI
- Iterative testing
All of this and more in Part 3 of the Inevitable Success’s ongoing 6 part series on New Customer Acquisition.
Part 3 of a 6 Part Series
Need to catch up? Here are the first 2 parts:
What follows is a lightly edited transcript of Episode 10 of the Inevitable Success Podcast with Damian Bergamaschi and special guest Mike Ferranti. (Listen Here)
Damian Welcome to the inevitable Success Podcast, sponsored by BuyerGenomics where our goal is to help you, the marketer, make success inevitable. Each episode will discuss the craft of data-driven marketing, helping you uncover new and profitable ideas. You will also learn what works and what doesn’t work from top marketing professionals and thought leaders. I’m your host: Damian Bergamaschi and inevitable success starts here.
So Mike, in picking up where we left off. Where is the marketer’s thinking today when it comes to scaling new customer acquisition?
Mike So that’s a great question because this is one of the biggest topics on the minds of virtually all marketers that we deal with. Marketers are under some pressure. Marketers have a big opportunity when it comes to net new customer acquisition and acquiring new customers. One, it never goes out of style, but two it is always a main topic that our clients or customers want to focus on and talk about– they need help with. And so, I think it’s a great area of focus. The big things that they’re all thinking about today- one thing they all have in common is- they all need more. So whatever level of acquisition they’re at, they need to acquire more new customers. The second thing is they need better outcomes in general from their new customer acquisition.
So new customer acquisition has been expensive. Most brands are struggling with scaling true net new customer acquisition. There’s a very big desire to understand how media mix is impacting customer acquisition- sort of attribution related. They’re looking to understand better how various touches in a new relationship lead to that ultimate sale. And of course, if there’s more than one touch, that also means that they’ve had to spend across channels, that has cost implications, that has analytics implications, but there’s a very clear appetite to understand that better. And the other thing that there’s a pretty consistent appetite for at large is, what I would point out is a bit of instant gratification. Usually it starts in the CFO’s office.
There’s a growth goal, and basically there’s the budget that’s available divided by the number of customers that they have to acquire– the number of new customers that they need to acquire. And that gets to a target cost per order, and the starting gun goes off at the beginning of that quarter or the year. And sometimes that instant gratification and appetite have really got a degree of wishful thinking in it that the marketer is struggling with. So customer acquisition and net new customer acquisition is at the top of mind for pretty much everybody we work with, and it’s really a good topic. If we break it down into levers that are easy to think about. There are essentially three major levers. So you’d have to increase the number of prospects that you get into the top of your marketing funnel. So that traditionally has been described as reach. So you have to reach more folks that could buy your product, and you probably want to reach the right ones as best you can.
Damian Right, having the best target.
Damian So you want to have the right target and the most of them right.
Mike The next thing you need to do is, you have to increase the rate at which you can convert them. Now of course, if you get the target right, the odds of conversion are going to improve probably significantly. And then the last step is the actual value of those customers. That’s the one that’s often left out. There’s usually some assumption that is made about what a customer is worth. Very frequently, the value of the customer is described as average order size. So not really thinking in terms of lifetime value. And that of course, opens up an entire conversation that I think we’ve covered in other podcasts where lifetime value itself is something that can be debated, almost forever because there is the total lifetime of a customer, and there’s the lifetime that’s meaningful for the purpose of evaluating the customer acquired versus what it costs to acquire them. So customer value is very hard to have this conversation without. And given how competitive it is, customer value is becoming more important and is really driving a lot of them, sort of, CRM wave. Folks are trying to use CRM approaches to value customers more accurately- to understand their total relationship with the brand. And they are hopeful that that will inform a smarter strategy for new customer acquisition.
Damian Well, that sounds very straightforward, but there’s also the other component which is the cost- to basically get that reach, to get the right target because this is going to cost money. How does cost impact your ability to scale because certainly, it does?
Mike So that’s the rub. The fourth lever. So the first three are how you acquire net new customers. You get reach. You convert them, and if they have good value, then you’ve definitely acquired the right ones. But the last lever is cost/return, and that’s really important. And that’s why this new focus and customer acquisition, which is the value of the customer themselves, is so important.
Damian Totally. The lifetime value could really be almost a secret competitive advantage that you have in acquiring a customer.
Mike Yeah, it almost sounds a little bit funny to say that it’s the secret competitive advantage, but the truth is, it is the secret competitive advantage.
Damian: ‘Cuz you don’t have a lot of visibility into it typically.
Mike That’s right. So, too many brands are still struggling with getting a handle on what those customers are really worth and really in distinguishing between higher value customers and lower value customers.
Damian: One part of it actually gets to the whole instant gratification, because maybe you can see it, but you don’t care because you want to make this many dollars today on the market that you spent this morning.
Mike: Right. Right. It also gets to the other three levers because, if you think about it, if you want to acquire that very high-value customer, you also will need and want to convert them after you’ve made some significant effort in strategy and creative marketing. You might use an offer that’s more aggressive in order to get the customer in the door. And that’s a stage that is also often maybe not talked about enough in a lot of brands. Folks want to jump right from acquisition to big returns. But there’s an interim step if you’re really dealing with a net new customer, and that is trial. So that trial acquisition might mean you have to use a more aggressive offer to get them in the door the first time, and that could be anything from if you don’t love the product, use it for 90 days, and return it at our expense. And that comes at a cost. But it also drives conversion. There’s no game without conversion in the first place. So these levers all play off of one another, and they have to be pulled in a very strategic way. You can’t leave any of them out, or you really don’t have a strategy to scale new customer acquisition.
Damian: So when you hear the word scale, there are a few ways to do it, but most of the time, you’re investing more, right, because you say alright, there’s a success here, and that justifies investing more. Having a higher budget. How would you go about asking for, or articulating, that you need a higher budget for net new customer acquisition?
Mike: Yeah, that’s another thought that is on the minds of pretty much every marketing V.P. or marketing manager. If I just had the budget, what I could do. And I’ve yet to meet a marketer who said, I have too many resources and too much budget. So, the real answer to that question if you’re trying to get a bigger budget is, it’s going to come from analytics, and that would allow you to develop a rational, meaningful business case for making the kinds of investment that help you ladder up to the right cost per customer and acquiring the right customer in the first place. And of course, doing so at scale.
So the first thing you have to figure out is, you’ve got to go back to what are the customers worth. Because if you’re materially under-estimating the value of the customer, you sort of handicap yourself right out of the gate. When the majority of especially middle market customers have customers that have limited financing available to them– limited budgets– they look at every customer has to be X percent profitable on the first sale, and that’s a fine business model.
Nobody went out of business ever by adding customers and making money on every single one. So it’s hard to argue with that. But at the same time, if the objective is, well let’s get a lot more scale because this business is so much more interesting at scale. And I say that because we hear it only all the time. We hear CMOs saying it CFOs, CEOs. Everybody is saying: but this business is a great business, we just can’t scale it. And that’s what we need your help with.
Damian: Well, typically you can. It’s just not cost effective, or fast enough.
Mike: Well, and I think that’s part of what has to be defined. What is cost effective and when? So, if you’re in the early stages of solving the problem of new customer acquisition, your allowable cost per order and a program that’s going to work is almost always higher than what it will be after you’ve solved the problem. So if you don’t move off that number for the purpose of testing and learning, if you’re not trying new things, if you don’t have the ability to invest in doing things a little bit differently, then that creates budget limitations that make it very very hard to scale.
By the same token, nobody is going to sign up for it, and if you’re the marketing manager making this request, your board or your CEO or the CMO or chief financial officer, none of them are going to sign up for, Just let me spend money, and we’ll see what happens. So now what you have to do is, you have to find the investment premise that says something along the lines of, If I spent 1.2 times what we used to spend to acquire a customer, I will land a customer that earns us maybe break-even, as opposed to 20% net profit, but I will also acquire a customer that I can sell to two, three, four or more times.
Now, you’d have to have some analytics that supports that, and that gets back to some of the fundamentals of database marketing and knowing your customer and having clean data- really having your data house in order-, but sometimes the return you could produce is so much greater when you acquire the right customer that it more than justifies it. So you would need to have some metrics that would inform over what period of time would we have to finance that new customer acquisition.
Mike: And so that probably means that there needs to be some improvement or change in the way that we think about new customer acquisition, and it typically means we need better analytics than we may have had in the past.
Damian: Yeah, and just from a practical standpoint, if you have a brand or organization that has been doing marketing at some breadth or scale, there probably is something in there that, if you look in the analytics, is already working. So if you do segmentation say, where are the best customers that I have today? -Where do they come from?- then, very often you can at least, even if it is not being accomplished at scale today, you can say, Oh here’s an investable premise. We’re doing it today… inside of maybe a larger campaign. Is it already something that can scale? Maybe you already have something that could work, and you’re just not taking advantage of it. And if not, then at least you have something that you could bring as a premise to say, This is what it looks like when we’re doing it well. Well, I gonna do more of that.
Mike: Yeah, I think a great test-bed for this kind of thinking and this kind of problem-solving that marketers have to do in order to grow their new customer acquisition is Search- because it’s the most measurable. It’s all digital. Everybody’s doing it.
Damian: It has a lot of reach.
Mike: Has huge reach, and it also has the ability to get you customers that know your brand, and those are brand search customers. They came in by looking for you, but it has the ability to get customers that are shopping your brand, or your category I should say- the category your brand is in, but they don’t know your brand name and they didn’t use that when they went looking. So we know that these are very much new customer acquisitions. Well, inevitably when you look at those two populations in terms of scale and cost, you see two very very different pictures. And so the reason this is a good example, I think, is because everyone can relate to it. The CFOs heard the reports, have seen the reporting, knows the numbers, knows the returns, knows the costs, and what they see as a very simple dichotomy that I think is illustrative of the problem in general, the brand customers have great conversion, it’s easy to reach them, and they have a killer low cost.
So we get low cost. We get a high conversion rate. We get easy to reach. There’s an example of something that’s working, but the limiter on it, of course, is how many brand searches do you have? And if you’re a fighter brand or a middle-market brand or an upstart brand, those limits are significant, and you’re probably already bought up to the cap on them. So that’s issue 1.
Damian: And it’s hard to manufacture brand demand. You’d have to do a lot of net new brand advertising to do that, and that’s not instant gratification either.
Mike: That’s right. And there are brands that are trying to do that. So they have the budget they have to run. In the fashion category, it’s frequently magazine pages. More of it’s gone online, but it’s the highly luxury sort of taste-maker publications that that brand “needs” to be there- “needs” to be in. And it’s very very expensive. Now one might argue if your brand search doesn’t eventually go up after committing to it for a year and two years, you might have to re-evaluate if that’s where the tastemakers– are they succeeding in creating the taste around your brand? But this is an opportunity because, again, it is illustrative of the challenge of the caps that come on this very effective type of customer acquisition.
If you pivot to those who either didn’t see that sort of taste-maker or brand advertising and therefore didn’t come looking for you in particular but show interest in your category, you typically see the volume goes up dramatically. So now we know that there’s an awful lot of reach out there. There’s an awful lot of people to sell to. But why is it so incredibly expensive when we try to buy those searches that don’t have the intent for our brand. Well, the short reason or one explanation is, the consumer has an almost unlimited choice in the digital age. Those choices are a finger tap or a click away. And so that creates a very competitive situation.
Mike: All media has become, or most media today has become bid based, and all of it eventually will be I think. And so these are challenges that put pressure on that cost per acquisition. So the marketer now has to think, and another good model might be the 70-20-10 rule. They have to think now, for those folks that are going to buy in this category, and let’s just say that they’re not the whole population of folks that do a non-brand search, but that’s that population that we see it, we feel it, we get it, we know what it costs, we know how it converts, but now we have to think about 70-20-10 which is 70% is defining the target right in the first place. So if you get the target right, you’re 70% of the way to success. 20% is the message or the offer, and the last 10% is creative. Now that is sometimes shocking for folks that place a tremendous emphasis on creative. And we do not suggest, and we would never suggest, that you spend less time and energy and effort or just don’t do as good a job.
What we would suggest is, in terms of the magnitude of the impact that it can have in getting a sale now which is what you’re doing if you’re measuring cost per acquisition, then getting the target right is the most important part. And what we learn from that… So if we put together this experience or this illustration that non-brand search provides us that everyone in the boardroom can understand, if we put that together with 70-20-10, it says that although they’re looking for a black dress or evening wear or white tennis shoes, that’s just not a tight enough target to make an acquisition that you will by default be happy with in terms of cost and return. That gets to those very high CPAs. So we have to do a better job at the target. And Google has been evolving and in terms of how they can help you do that. But it’s really important that you start with that clarity that as soon as we move off of, they’re looking for our brand. It’s a challenge to acquire net new customers at any value and at any cost.
Damian: I mean by definition, once they’re seeking you out directly, you’ve already invested in marketing in the past that has accomplished that. So in some ways, when you get the brand sale, even if it’s a new sale, it’s from previous marketing budget not necessarily the marketing budget that you’re spending in this period.
Mike: That’s right. And there’s where attribution gets pulled back in.
Damian: So there’s this concept of, you wanting to have– sometimes people say– the most efficient, the lowest CPA possible, but I know that you and I, we typically talk about what’s the lowest logical CPA, and it’s not always the physically lowest CPA. And some of the reasons for that are, well maybe the lowest CPA is in a channel that really doesn’t have any scale. It’s the best one, but you’re only going to get 10 customers a month from it, whereas somewhere else you get thousands of customers a month once you crack it.
There are other reasons that you’re looking for the lowest logical CPA. You’ve kind of hit on one which is customer value. I’m okay paying a little bit more per acquisition if my customers are worth 2, 3, 4x more. We know that most databases only have 20% of their customers driving most of their revenue. So that means two out of every 10 acquisitions are really the good ones. That’s the right customer. So what if you paid a little bit more, and you could get 6-8 of those customers to be the right customer.
Mike: Sure. Now you’re pulling on the customer value lever which puts you light years ahead, if that’s not even part of the conversation, or if it’s not part of your analytics, it’s surely not part of the end of the conversation around new customer acquisition. The other reason you might think in terms of lowest logical cost on your CPA is, it’s not logical cost if it doesn’t allow you to achieve your goals. But it’s also not a logical cost if you’re acquiring customers, for example from a coupon-heavy site, and you’re a brand that doesn’t discount. So, now you might reel in some kind of incentive-driven customer that you could never get to the second sale because you made a promise…
Damian: Or at full price right.
Mike: Right. You made a promise you can’t keep because you’re not going to incentivize the second sale. So your strategy for your second and third sale is just as important as the strategy to get that first sale, and that all backs into that cost per customer coming in the door in the first place.
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Damian: Yeah, I, when I think about what the ultimate situation, would be for scaling new customer acquisition, ideally it would be self-funding new customer acquisition where you’re profitable on the first sale, and there’s an infinite pool of prospects to go after. How do you begin to, let’s say you’re where you’re at now, which is– nearly nobody is there– How do you start to find how close you can get to that?
Mike: Yeah, I think it’s helpful to think in terms of a spectrum. So on one end of the spectrum, there are self-funding or profitable customers, and you can get them at scale if the cost to do that is particularly low in order to drive that return. Boy, you’re just hitting on all the levers, and this is working really well. The opposite end of the spectrum is, you’re at a level of customer acquisition maturity where customers cost a lot more through the best means that you have available at that point in time. They cost a lot more than they are worth on their first sale. And so there are two ways we can look at that.
Direct marketers 10, 20, 30 years ago even figured out that if they wanted to grow their businesses and scale them up, they had to, or they would scale much faster if they invested the entire first sale and didn’t make money on the customer. They got to break even. If they could get to break even on that first sale, now they had essentially a free net new customer who they could test, learn, and grow the value of.
Mike: And that’s when things like segmentation were really evolving because then we were able to figure out, Well now I have a sandbox filled with customers that cost me in effect zero because I broke even, as opposed to I don’t have any new customers or have so few that I can’t really do anything with it because I squeezed out all the customers I could get at this juncture by requiring a higher return on them. Now bear in mind neither one is right or wrong. If anything, you would say that the brand that is acquiring them profitably is, in many ways, you could say they are the most right.
However, they are also likely, unless again they’re a unicorn that doesn’t fit in with the other 98 or 99 percent of businesses, their ability to scale is going to be much much less. And so, ultimately again, if you think in terms of a spectrum, there’s the brand who has such a high lifetime value that they can afford to outspend their customers and eat up all the traffic– the most qualified traffic.
Damian: Even in that case though, it’s not just about the lifetime value. I mean, what if it takes 30 years to get that lifetime value. Does it need to be, well when do you get the return on your investment, not just the return on your investment? Because otherwise, you need to bridge the gap.
Mike: [00:25:34] Well, and there’s always going to be that limitation. So, businesses typically measure their performance annually. They may measure them over time as well. They may have a multi-year strategic plan for where they’re trying to go. But the reality is for public companies, at a minimum, there’s a quarter at which their success is measured. Even for a privately held business, there’s going to be a look in the mirror at the end of the year and say, Are we where we need to be? And so most brands don’t look beyond a year, even the most evolved, but a brand who has very clear visibility and financial services is one example. They tend to have long customer relationships, insurance companies, diversified financial products companies. The lifetime of those customers is very long. Premiums keep getting paid year after year after year. New products are sold, and there’s compounding that happens with those customers. And as a result, the cost of customer acquisition is very very high simply because it’s worth it.
Damian: Yeah, one of the things I’ve seen with organizations that I’ve worked with personally that do a really good job at this, even in the early stages, they’ll invest some fraction of their budget to– and they’ll stay small typically I’ve found– to figure out how to acquire net new customers, and if they stay small, it doesn’t have a huge impact positive or negative to the overall business in those periods. And that’s a way you could take a long view because I’ve seen over six months, 12 months, 18 months we’ve gotten to the place where, Yep, this is actually interesting, and you’re focusing in an area where you can build scale.
So, that actually sets you up to kind of make the pro forma, so to speak, to ask for a lot more budget to do something that we call liftoff. And you can basically test that small, get it to work, but do it in places where there’s Reach because then, you’re really doing two things. You’re building this strategic asset that you can actually just use multiplication to lever up and also acquire customers profitably at some level… when you’re ready to scale up.
Mike: Sure sure. We actually define– when we do modeling and new customer acquisition modeling– we call our ultimate model that we use to roll out and acquire the largest number of customers that we can of the highest value– we call it our Lift Off Model for that reason. And what we do is, we try to start with our first focus being the target. So, we’ll do a lot of work on quantitatively defining that target, and we’ll use the existing most valuable buyers in the database, call them MVBs.
Once we know what that is in, again, quantitative terms, now we can go out and start looking for the most valuable buyers that we don’t have. And if we get that target really tight, now we can go and get numbers, we could acquire customers, run campaigns, and that will give us the numbers we need to figure out, what does that liftoff look like? What is the cost of that customer? What does the value or the projected value of that customer look like? because we’ll get signals right away. We’ll see, we got to purchase 1. We know average order size. We can then watch that sample of net new customers over a month, two months, three months, six months, and we could start to get a sense for what the second purchase rate looks like. So are we getting repeat purchases?
If so, we can get a sense of what the cadence looks like. And now we could start to build that pro forma that everybody wishes they had except we’ve built that instead of on a pile of assumptions that were driven by wishful thinking, we’re building it on actuals. And when those actuals are based on some strategy and doing a good job with defining the right customer, getting the right message in front of them which implies we had to do some testing.
Damian: =Yeah. No, that’s a big part of it… I’m gonna test matrix.
Mike: Sure. You know, again, when you want instant gratification, that’s another thing that gets cut. Well, we go faster if we don’t test. Or, let’s just do an AB test, and we’ll take the winner of that, and that’s where we’ll leave it. And that will get you faster, but it doesn’t necessarily get you the best outcome.
Damian: There are some tricks you can do to get those answers a bit quicker actually. One that I like that I’ve been doing recently is doing massage and offer testing on Facebook simply because the Reach and the Volt, the speed, at which you can get the answers about which kinds of offers work is fast, and that can give you some insights as to getting your message and offer right.
Mike: Oh sure. Yeah, there are many ways I think that any brand can get that validation relatively quickly. We call it “Looking for the signs of life.” So…
Damian: That’s a huge concept. It’s really big.
Mike: Yeah, well that’s a good point because this is one of the things that is often overlooked, and I think it gets back to is defining success up front. You asked earlier if I’m a marketing manager out there that says, Look, I know I have $10 in acquisition, and I have 2,000 acquisitions or 200,000 acquisitions I have to go get. But outside of my brand search, my acquisitions are costing more like 100. How am I supposed to get the budget to do any better because all I have is bad news? And this is a very real problem. And most marketers that are listening right now, are probably kind of shaking their heads saying, Yep I’ve kind of been there. And so the answer to that is, it’s about the definition of success, and it’s the success that you have at the point in the new customer acquisition maturity cycle that you’re at. And if the stage you’re at is, I’ve only acquired customers successfully from those that are looking for my brand, you are at the earliest stages of new customer acquisition, and that has to influence how successful you are. Nobody would go home and tell their 3-year-old, You’re a failure if you can’t do linear algebra because they’re just not there yet.
Mike: But when you go to the office, and you talk about the marketing budget, if the fluency and the experience aren’t there, and the organization isn’t aligned on it, they’ll be asking you to do the linear algebra at age 4. And the equivalent, of course, if you don’t have the learning, the testing, the experimentation, you haven’t made the right investments that will allow you to identify the right customer that you can ultimately acquire an ever greater rate and improve the total yield on customer acquisition. And so what looks like success for an early stage marketer in the new customer acquisition maturity cycle might be much much higher than what the brand had originally thought.
The question then becomes, Is there “signs of life,” And signs of life might be, Well we’d have to get 2.2 sales on average for this cost to work. And the question is, Do we have any customers that have made 2.2 sales? Do we have any evidence of that? If the answer to that is yes– actually we have thousands of them– then I would say that might be signs of life for that brand. But it is not the same as the instant gratification that you get from spending a few dollars and getting a brand search back. Now it doesn’t mean you leave it there. You have to advance through these evolutions of your new customer acquisition maturity cycle.
Mike: And that comes through testing, learning, and being very disciplined in that process, but that cost will come down as your sophistication grows methodically.
Damian: I was going to say another sign of life could also be just the trend in CPA going down. So that is typically something you’ll see well before the tide turns in your favor. So if you have customer acquisition, and to use your example before, it was $100 before, but through being methodical, you’ve seen it go to 90 to 80 to $70. It still might not be where you needed to be, but that in itself proves that you can affect the outcome, and eventually, maybe you can get that outcome to where you would want or make a strong case to scale it.
Mike: Yeah. Well, and that’s a good point because that is the predominant measure used– cost per acquisition versus spend. But the other variable is, you can also see when you get the target right, and you do a good job converting those folks, you can also see pretty early in the game, then maybe you’re bringing in a better customer who has a higher average order size. And we see that all the time when we nail the target.
Damian: And frequency.
Mike: Frequency is the next one. There’s also the inter-order purchase time between first purchase and repeat purchase. So, do you get to that second sale faster than you have in the past? So does that superior customer that you’ve been able to target, Does that give you an advantage there? So these are all levers that can accelerate and demonstrate that there’s incremental value that would justify the business case to continue to work on solving that customer acquisition problem of Scale.
Damian: What’s interesting is, there’s some of them aren’t actually those straightforward ways of scaling up your customer acquisition. So one would be, you actually have a flat budget, and you were able to get more with less. You’d actually be more efficient. That’s a way of scaling. You’re getting more customers. Another way would be that you’re actually okay with getting fewer customers, but because you’re getting better customers, you’re scaling up revenue or quality of it. I know the third one is the most obvious, you actually are able to get more budget.
Mike: Right. So I think a good place to leave our listeners on the podcast with, Where do you go from here? Number 1, you have to start with your benchmark. And then, I think you really need to answer the question, Is my benchmark helping me or is it hurting me in terms of developing a budget and developing the growth that you would achieve with that budget? And the example we used, in this case, is a good one because not every marketer has a really tight database with great analytics in place. And so if you use Search, and you break out your brand vs non-brand, you’ve got a pretty nice dichotomy that you could use to start thinking about the cost in an efficient medium like Search to understand what that range of cost per customer look like today. And you could really start to articulate the differences and illustrate the challenges that those differences have between those who already know the brand and those who are just shopping the category. Once you’ve done that, you have some real actual numbers that you can use to define what that strategy should look like going forward. So we might say, if a non-brand customer is costing us $300 to acquire and a brand customer is costing us $50 to acquire, true net new customers are more costly to acquire.
Now, of course, we’ll always want to see that number at its lowest logical level, and we have to decide, Have we been successful at this juncture acquiring customers that don’t know the brand, that are “out in the wild” as we like to say, at any scale at all? And if the answer to that is, Not really– most of our customers come from either walk in in the physical world which we can debate what part of that is marketing-driven and what part of that isn’t. And maybe we even have some analytics on that, but that can help us get a better sense as to where we really start. If we start with a number that is purely built on assumptions, most of the time we are going to start with an unrealistic number to scale from.
When we get the more realistic number that may not be the one we want, we then move to– and again I’m going to give you– a simple model which is 70-20-10. The first thing we need to do is start to think much more about our target because someone that’s looking in the category as Search will show you, that’s usually not enough to get you a lowest logical cost acquisition. Instead, what we do is we look for “signs of life” when we try a better target– when we use a target that is developed using intelligence about our most valuable customers today. And when we’ve done that, we have a number that we may not love it, but we love the fact that it has the opportunity to really go somewhere in terms of scale and cost. And then it’s an iterative test and learn process where we improve the message, we improve the offer. We might reduce the total value of that customer on the first sale in the interests of achieving trial.
Mike: We might get a higher value customer because we improve the target and the potential of that customer. And then we have to work on getting greater value in a shorter period of time, and if we cap that period of time at a year, or some brands will go to 18 months. Some brands will go to 24 months. But looking at that data can help and form very meaningful next steps, and it can help create an actuals-based rationale for ongoing investment and that bigger budget that the marketer is looking for.
Damian: Thanks so much, Mike. Next episode we’re going to go way deeper on how to acquire the MVBs, the most valuable buyers, but surely a great start to scaling new customer acquisition. Thanks a lot.
Mike: Super. Thank you.
Damian: If you enjoyed today’s episode, we ask you please leave a rating and write a review. Or better yet, share it with another marketer. Be sure to subscribe to the podcast for new episodes. Also, check out the show description for complete show notes and links to all resources covered in today’s episode. If you’d like to speak to someone about any topics covered in today’s episode, please visit BuyerGenomics.com and start a chat with the BG team today.
Host: Damian Bergamaschi
Special Guest: Mike Ferranti
Mike is the Founder and CEO of Endai, brings 20 years of marketing, analytics and technology depth. He has developed solutions and software to major brand clients and niche marketers alike. Mike is a recognized thought leader in the database, search engine, email, and direct response marketing. He provides commentary and analysis to the media including Bloomberg TV, Brandweek, and DM News. Mike earned an MBA from The University at Albany and an Entrepreneurial Masters from the Massachusetts Institute of Technology