Everyone wants growth.
And the good news is that there are certain levers that anyone can pull to achieve it. But to scale your business, you need more than growth – you need sustainable growth.
Achieving sustainable growth while maintaining operational efficiency in some ways, is an art, and in some ways, it’s a science, but by following some key principles it’s the sort of thing anyone with the right mindset can be coached through.
There are two metrics to focus on: CAC and LTV.
These are the two levers of business that can be worked on directly to improve your fortunes going forward. That in and of itself, is a simple concept, but the other positive thing is that there are plenty of different ways to approach those levers, so whatever your business and skillset is, there’s sure to be a tactic for you.
Table of contents
Customer Acquisition Cost (CAC)
CAC stands for customer acquisition costs and for sustainable growth, you need to be across those figures. It’s very well going all out on marketing campaigns that are sure to bring in new customers, but if that spend isn’t sustainable, neither is your growth.
It can be broken down into a simple formula:
CAC = (total cost across marketing + total costs of sales)/ number of new customers acquired
That’s the science, of course, you can be as creative as you want in figuring out how you want to break down smaller CAC figures. You could divide it into different channels, for instance, pinpoint your advertising CAC – that’s all up to you.
So, bringing that CAC down is what you’ll be looking to do, and there are different ways you can go about that. Let’s start with:
Organic revenue
Organic revenue comes from organic cost-free marketing on Facebook, Twitter, and across all social media platforms.
There’s a rule of thumb that says a healthy-looking revenue stream is about 70 percent from organic sources and 30 percent from paid channels. The more you can grow organically, the less strain is going to be put on your marketing budgets.
And yet, some businesses are so focused on paid channels that it makes up 90-95% of their overall revenue. This puts them at the mercy of algorithms and is unsustainable.
For a B2C company, your ratio should look more like 70-30, with 70% being the organic revenue. For B2B companies, a good rule of thumb is more like 50-50.
How you go about achieving that organic revenue can seem daunting, but it’s not as enigmatic a concept as it seems when you look at one simple and unifying piece of information: your ideal customer, whatever demographic or type that is, is spending on average 147 minutes a day on social media.
Knowing where your customers are and how to reach them is the first step, and there is your answer.
Not only that but from all your customers, whether that’s B2C or B2B, 75% of them are going to social media to research a company before they make a purchase according to Meta.
Find out what social media your customers are using, concentrate your efforts, and don’t let anyone tell you that trying to boost your follower account is an exercise in vanity.
Growth loops
What if you could let your customers do the work, and let them be the funnel through which you attract new members? And what if it didn’t cost you a cent? Depending on your model, this is possible and it’s called a growth loop.
Look at Trello, there’s an example of a product model where a growth loop is built in – when a Trello user shares a board with their team, suddenly, just by using the product as normal, they’ve brought in a load of new users who may return and bring even more users.
The idea is that as more users enter your platform, that platform will become a more vibrant and dynamic place and users will start getting more out of it.
Then, the more your users are getting out of your platform, the more likely they are to keep using it, which is more likely to draw other customers in.
This can help you drop your CAC by half at a minimum. Consider whether there is a way you can adjust or evolve your model to incorporate a growth loop.
Referrals
Existing customers giving referrals is an important method of bringing new customers in. Now, of course, doing everything to make your platform a positive environment is one way to convince your customers to give referrals, but you can also incentivize that process directly.
However, as simple as it is, there are still mistakes that companies make too often.
If you’re thinking of bringing in a referral system, make sure you’re offering a clear benefit to people, ideally to both the referrer and the person being referred – that double incentive is powerful. Be certain to integrate it into the customer journey, don’t let it become an afterthought. And make sure you make the actual process nice and easy – no unnecessary barriers and obstacles.
A/B Testing
The biggest and most successful companies rarely sit still. They are constantly trialing new marketing methods to see if it gives them an edge on their current process.
Organizations like Airbnb, Amazon, and Netflix run 500-1000 A/B tests a week. By running different variations on marketing strategies at the same time, you can get a clear picture of what works best. Then once you’ve got your winner, that tactic becomes your ‘A’ strategy.
Again, there are some things to avoid here: make sure you know what you’re looking for and have clarity on the metric that will define success.
You’ll also need to calculate the right amount of people you need for your A/B test to provide meaningful results – too many people get testing wrong at this stage. And to make sure your testing is properly controlled and providing valid results you need to be running your test for the right amount of time. If it’s just for a couple of days, the variations in people’s behavior make that result meaningless.
Partnerships and affiliates
Working with a well-selected partner or affiliate can broaden your reach and build your brand in a way that may have taken years to do on your own. Don’t be afraid to make propositions, figure out how a collaboration could be beneficial to both parties and you’ll suddenly have access to other people’s lists, and you’ll be reaping the rewards of any reputational boost.
Think creatively too, you don’t necessarily have to rule out partnerships with brands who are after the same customers as you, maybe there’s space for you both to grow into that space or grow that market as a whole.
One brand that serves as a great example of the power of partnerships is Go-Pro, they partnered with loads of different companies to scale themselves up. Working with Red Bull was a hugely successful partnership.
Affiliates are a great way to get your name out there – influencer marketing is one form of affiliate marketing that has proved to be an effective brand builder in recent years.
Customer Lifetime Value (LTV)
LTV stands for the Customer Lifetime Value, generally taken as an average, the important figure here is:
- sum of average order value,
- times purchase frequency, and
- times average customer lifetime.
This figure is a big pivot point, you may have the same customer acquisition and retention figures as another company, and you may be spending that same amount to achieve that.
But if your customers are engaging with you far more and spending more money in the fullness of time, then you’ve already come out on top.
To get this figure up you can implement:
Subscriptions
Now this one makes a lot of sense – if the nature of a customer engagement with your company is a subscription, then during the lifetime of that customer’s involvement with you, you are bringing guaranteed additional value month on month.
Think about the shape of your offering – is it something that could be turned into a subscription?
It’s something that Mindvalley did a couple of years ago, but another great example of a business that grew its LTV by pivoting to a subscription business model is Adobe. They moved away from the perpetual license that they’d previously offered to the Creative Cloud subscription service in 2013. By 2019, their LTV had jumped from $1,400 in 2013 up to over $10,000.
Upselling/Downselling/Cross-Selling/Bundles
At the point of purchase, you have to think of what you are doing to increase value – do you accept that your customer knows exactly what they want, or do you take that clear display of interest that is entering the checkout phase and do you make some offerings? What’s the worst that can happen?
Answer: they ignore them and you lose nothing.
- Upsell: if the customer wants one product, why not offer them the most advanced (more expensive) version of that product. If they’re interested in product A, they’ll be at least tempted by product B.
- Downselling: what if the customer has shown interest in a product but balked at the price? Do you let them go, or do you find something else you can give them at a cheaper price? Making a less valuable sale is better than not making a sale at all.
- Cross-selling: offering similar products, complementary items. If a customer is buying something, you have the benefit of knowing what kind of product they’re interested in – it’s not a big leap to try and figure out what else they might want and offer it to them directly.
- Bundles: Harry’s, a men’s care brand is a great example of how to bundle offerings together to best serve a demographic that prioritizes convenience.
Amazon has been a huge beneficiary of all these tactics. Who hasn’t been tempted by the ‘customers who bought this also bought this’ function?
Order Bumps
Order bumps are a similar concept. It’s about making it easy for your customers to slightly increase the value of their interaction at the last minute. Just as they are about to pay, one little button that will add an additional item for a reasonable amount.
One customer making a tiny little bump to their order may not make a huge difference, but scale that across your customer base and those little bumps will start adding up.
Email flows
Keep in contact with your customer through various situations. And in this day and age, it’s quite simple to set up various automated email interactions.
Say a customer abandons a cart, you should be following that up. Say they were looking at a number of similar products for a long time, that’s worth making contact about. Price drops? Low stock? Keep your customers in the loop, keep reminding them you’re there and you’re there for them.
According to a study, Automated email campaigns generate 320% more revenue than non-automated campaigns. The most opened email of any customer journey is the welcome email, so if you have one set up, how are you making the most of it? It doesn’t just have to be a welcome, it can offer upgrades, cross-sells, and all sorts of revenue-driving schemes.
Campaigns
Stay dynamic, move with the seasons, make new offerings. And while you’re introducing a new campaign, make sure it’s clear that this isn’t forever. The temporary, transient nature of campaigns is what engages large numbers quickly. Use urgency and scarcity in your language to encourage immediate interaction.
- Scarcity: low on stock.
- Urgency: sale ending soon.
Maybe it’s Valentine’s Day, so you can run something for that. Likewise with Black Friday. Don’t let these opportunities pass without making the most out of them.
See how compelling and finely tuned this campaign for Columbia is with its tie-in to the specific gear that the site believes the customer will like.
Upgrade/Downgrade
Having different levels within your business is a smart way of keeping a wider range of customers interested. Maybe if the top level is a little too expensive, don’t let them disappear to a competitor. Life happens, so stay flexible and move with your customer, just don’t let them leave without having done all you can to keep them.
Offer them a different tier. And while you still have them, by making the different tiers distinct, with their own perks and advantages you can make them points of aspiration. So when that customer on the lower tier suddenly gets a promotion, they’re there ready to upgrade and increase that LTV figure.
A good example of this idea is ClassPass. ClassPass have reported that offering customers the ability to downgrade their subscription plan has helped improve customer retention for those that would have otherwise canceled due to financial reasons or travel schedules.
Retention/Loyalty
There are many ways to try and keep customers interested and make that LTV as big as possible. But if you’re relying on retaining customers and keeping them engaged with you for a long time, don’t neglect to reward that loyalty.
Here is another example of a win-win situation, the more you reward loyalty, the more loyalty you will yield and the happier the customer will be.
Recap
Scaling a business can be daunting but if you focus on your goals, it doesn’t have to be overly complicated.
Sustainable growth has to be the mission, and if you concentrate on LTV and CAC, it won’t be long before you’re reaping the rewards.
