Is your organisation wasting time and money on a poor paid acquisition strategy? If you’re spending the money- you’ll want to read this first!
The professional services company, Accenture has reported that a “lack of benchmarking media performance and media spend” is one of the five biggest areas of company overspend. In other words: businesses waste money on marketing campaigns, and lack insight into their performance. It’s easy to be seduced by slick advertising agencies and viral media campaigns, but if it’s not producing sustainable growth, what’s the point?
If you’re like me, you might see marketing programs as equal part data science and part sales. That’s not to say digital marketing has changed selling, but you have so many more tools at your disposal to make quantifying your efforts easy. Actually, it can be quite overwhelming.
So, I thought we could share some insights that we have learned and help give you more of what works, and reduce wasting time and dollars on what doesn’t – the aim – to better your results. Better results lead to better revenue, so let’s take a look at how to ensure your paid acquisition efforts are worth it.
If we first do a quick deep dive into some of the terminology, that may be handy, and offer some action opportunities that can help underpin your attempts to secure more customers. For those of you that are wasting time and money on a poor acquisition strategy- listen up!
What is Paid Acquisition?
Simply put, paid acquisition is anything you do to acquire customers that costs you money. For example:
- Social media advertising (Google, Facebook, Amazon).
- Press and TV advertising
- Pay-per-click advertising
- Display ads (site banners, billboards)
- Paid search
Affiliate deals also fall under the banner of paid acquisition, but since you only pay if you get a sale, it’s much easier to manage.
How to Recognize Profitable Paid Acquisition
The success of paid acquisition depends on two metrics: Lifetime Value (LTV) of customer and Customer Acquisition Cost (CAC). LTV measures a customer’s total worth to your business over time. Generally, this is customer profit, minus the cost of acquiring and retaining the customer. CAC measures how much it costs to acquire a new customer. In other words, the amount you spend on paid acquisition.
A positive LTV means you’re making money, while a negative LTV means you’re losing money. The CAC is the likely culprit behind a negative or low LTV. However, there are costs to retain customers and this might be another area in which to assess performance.
If you have spent money and time on the paid acquisition of customers, have you stopped to calculate the above metrics? Maybe now is as good a time as any!
How to Improve Your Lifetime Value (LTV)
If you want to improve your LTV, which ultimately boosts revenue, you need to reduce the CAC. A high CAC could be symptomatic of one or a number of issues. Here’s a few key questions to ask yourself.
- Are you selling to the right people?
- Are you selling on the right channels?
- Are you selling using the right medium?
- Are you being persuasive?
- Are you being timely?
- Are you incentivizing action?
- Are you and your offers credible?
- Are you testing and optimizing?
So, what answers did you come up with?
Let’s roll up our sleeves and focus on the next step.
Who is Your Ideal Customer, and What Does Their Journey Look Like?
This exercise is all about understanding who your ideal customers are, and using the best means to reach them with an offer they can’t refuse. First, identify where your existing customers came from, and understand why they bought from you. You then know what messaging to replicate, and whom to target.
For example, your ideal customers — those for whom you add the most value — should serve as a look-alike audience for Facebook ads. You’re then advertising to the people who would benefit from your product or service. Google ads, for example, should include keywords relevant to your customers’ needs. The search engine results page (SERP) will then display your ads as solutions or answers to their queries.
You must also think in terms of the customer journey. Are you selling to people who know you? Are they aware of the problem your business solves? Hubspot defines the customer journey in three stages, and you should customize your ads to each stage.
Awareness: First, the customer has a problem to solve, but doesn’t understand it, yet. They’re doing research to understand their problem better. You should therefore focus ads on the problem itself, contextualizing it, exploring how it impacts customers’ lives and so on. This helps the customer understand the nature of their problem and you as the possible solution.
Consideration: Next, the customer understands their problem and is considering solutions. They’re still researching, so you should focus on why your solution outshines others, focusing on the ease, speed, price or efficacy of your product or service. If you sell software on a subscription model, you might focus on the affordability over owning a full license. If you are a service provider, you might look at retainer-based servicing versus a lump sum project investment.
Decision: The customer has decided on the best solution. They’re now comparing vendors before making a final decision. Now is the time to focus on why the customer should choose your business. You might quote customer feedback/reviews, publications press coverage or include a compilation of customer video testimonials. Tell them clearly how you provide a return on investment.
This is so very important and often left out of the conversation.
Paid acquisition works best when you know your audience and how to sell to them. Once you understand the basics of this set-up, turning a negative or flagging LTV into a positive one is a matter of testing and refinement until you hit your target.
A Strategy For Combating Profitable Paid Acquisition
If your budget is swirling down the drain due to paid acquisition, the first thing you can do is turn off the tap.
There’s no point in wasting money, even if growth slows. With budgets on hold, identify where things are going wrong. Then, with an evidence-led hypothesis behind you, formulate a reentry plan using the above as a guide.
Should you steam ahead with a full budget? No. Doing so only risks getting it wrong again. Instead, increase the budget in test-led increments. If you’ve plugged the leaky hole in your acquisition strategy, you’ll rack up profits instead of watching them go down the drain. Add a little more budget and keep your eye on revenue levels until you’re back at full budget but with a commensurate boost in revenue and profit. If your CAC creeps up again, dial back budget until you’ve fixed the issue.
Monitor what matters!
You should already know who your customers are (your buyer personas) and where they are looking (on Facebook? On SERPs?). You should also know how your product improves their lives. At the intersection of these two points lies a paid acquisition strategy that catalyzes growth.
Do the work outlined above and you’ll find it.
Keep Scaling Up – Go well
Nick & the Next Practice Team