customer lifetime value

Customer Lifetime Value: Are You Spending Too Much to Get New Customers?

Creating outstanding content requires currency, whether that currency is money or time. When it comes to content marketing, how you spend both your money and the limited hours between now and your death boils down to one question:

 

Will you earn more from having a new customer than you spent to earn their business?

 

Officially, you’re comparing the customer acquisition cost (CAC) to customer lifetime value (CLTV).

  • CAC is how much you spend to acquire a new customer.
  • CLTV is how much profit you earn from your customer over the course of your relationship.

Ideally, you want to spend less on CAC than you earn in CLTV. If you’re spending a lot on content marketing to acquire new customers, and customers either aren’t appearing or aren’t sticking around, these questions will help you spend your CAC currency more wisely.

Expect CAC to Be Higher in the Beginning

If you’re just launching a startup or small business, unless you’re bringing customers with you, you’re starting from scratch in terms of figuring out who wants your product or service. Too many startups wait to market until they think their product is perfect. They’re afraid to burn money looking for customers when the product still needs work.

This is a big mistake.

Gabriel Weinberg, co-author of ” target=”_blank”>“Traction: How Any Startup Can Achieve Explosive Customer Growth,” compares the process of marketing a startup to filling a leaky bucket. Instead of setting your early CAC at zero, find cost-effective ways to gain awareness and then gradually plug the leaks in your bucket. You won’t retain every customer who looks at an early-stage product, but you’ll get feedback on making your product better.

  • Don’t market to a mass audience. Focus on building relationships with small but highly motivated groups of customers. Instead of spending a ton of money on a glitzy marketing strategy or buying expensive marketing automation software, get to know the people in your Chamber of Commerce, or join a networking group relevant to your business.
  • Set a CAC burner budget. Dedicate a set amount of money per month to figuring out how to acquire new customers. For example, someone who decides to start by giving presentations to local business groups might spend money on a projector, hiring someone to design a PowerPoint presentation, and printing handouts. After 10 presentations and no customer acquisition, the same person might switch to a new tactic. Sometimes, figuring out what doesn’t work is just as valuable as figuring out what does.
  • Track CLTV/CAC from Day One. Don’t just assume a marketing tactic is working. Prove it to yourself on paper.
  • Expect a slow start. In the first year or so, you might have a terrible CLTV/CAC ratio. As your reputation builds, however, you won’t have to spend as much to acquire new customers — and you’ll already know which marketing tactics work best for you.
  • Evolve at the right time. When business is really humming, start marketing to a larger group of customers. Again, put a little CAC burner money in your budget as you experiment to figure out what works.

Target the Right Customer

A lot of businesses focus their content marketing on the person who writes the check. In reality, it’s the person who influences the check writer that often becomes the real power behind the sale.

One of the most important things you can do is analyze how your customers make decisions. In most cases, someone has a problem and sees a product that might help. That person might do research on the product and email her manager about it. The manager might do more research and then email the VP for permission to purchase. Most likely, the VP will trust the people who did the research, so the VP isn’t really your target audience for content marketing.

Develop buyer personas for everyone who has a hand in the buying decision. Start by making content for the person who has the most influence on the ultimate purchase. If you’re not seeing a return on CAC when it comes to content, rethink your target audience. Alternatively, try to create content that works for every persona so you get more bang for your buck.

Additionally, when certain types of customers no longer generate value for your business, it’s okay to pursue new kinds of relationships. Customers change, and so will you. Not every relationship lasts forever.

Create the Right Kinds of Content

If you target the right buyer with the wrong content, you’ll spend too much on CAC. As you create content, track which types and tactics are most effective.

If those local small business association presentations have been effective at winning customers, then build your initial digital content marketing around sharing presentation videos (maybe create a YouTube or Vimeo channel), embedding your slides into your blog posts, and uploading your slides to SlideShare. Then, since people seem to benefit from your teaching, expand into new kinds of content focused on instruction, such as an online course or PDF workbook.

For small businesses and startups, content marketing isn’t shock and awe. An arms race isn’t cost-effective, and you can’t compete with the big guys. Instead, expand your content creation strategy logically, step by step, based on what has been shown to win new customers. Also, don’t forget to retire outdated content, and retool or abandon pieces that no longer work. When content is done, it’s done. Don’t keep relying on the same old stuff.

Pinpoint the Right Stage of the Buying Process

If you Google the term “sales funnel,” you’ll find many examples outlining the steps in the buying process. Every example looks different, but if you think about it, the buying process is pretty intuitive:

1. Learn About a Product

This happens when frustration with a problem leads your customer to find you during a Google search, or a piece of shared content (or maybe earned media) makes a customer note your existence.
When customers learn about you with intent – they want to find someone just like you – it tends to shorten the buying process and lower CAC.
A good referral source lends authority to your brand. Figure out how to get mentioned by sources people trust or, if all you have right now is shameless self-promotion, make sure your efforts look highly professional – no cheap graphics, bad video lighting, or sloppily written blog posts.
When customers just randomly hear about you, it takes repeated contact to learn of your existence. Creating repeated opportunities for contact raises your CAC. In these cases, spend wisely by going after a highly targeted audience.

2. Decide Whether to Buy It

The decision-making process might be quick or lengthy dependent on a few factors.

  • Price. Most people take their time when they’re spending a lot of money.
  • Commitment required. When people have to commit to a lengthy subscription or a hardcore deployment process, or when they have to forego other things because they’re making a big purchase, the product becomes psychologically expensive.
  • Previous attachments. If customers are switching from another product to yours, particularly if they have a relationship with a salesperson from the other company, they will take longer to make a purchase.
  • Level of inconvenience. If your customer is exploring your product as a solution to a major, pressing problem, the buying process will be shorter than if your customer is dealing with a minor inconvenience.
  • Number of decision-makers. Purchasing takes longer when it has to go through several levels or through a cumbersome procurement process.

Again, it’s critical for you to understand how the decision happens so you can customize your content for different situations.

  • If your product is free or cheap, and using it requires virtually no commitment, focus your content on getting customers to try it.
  • When buying your product is costly or requires a big commitment, create content that makes them feel confident that this big ask – for money or trouble or time – is going to make them look good in the end.
  • Customers that are switching from something else need to know your product is good enough to warrant the inconvenience of switching or hurting their salesperson’s feelings. Work on getting them to agree to a demo so they can use your product themselves and meet your equally (if not more) agreeable sales rep.

3. Purchase It and Take Possession of It

Don’t forget the importance of creating great content for after the purchase, which can include guides on getting the most from the product, information on product updates, or promotions to encourage future purchases.

Build Relationships the Right Way

If a prospect gives you an email address to watch one of your webinars, don’t just add the email address to your automated marketing list and blast your new prospect with unwanted emails. Blanketing your new lead with emails will lead to an unsubscribe, not to a purchase. Instead, send targeted follow-ups that will be welcomed, such as the following:

  • “Since you watched this webinar, you might like this.”
  • “Since you demonstrated an interest in this subject, here are some other resources.”
  • “You appear to have this problem. Here’s a case study from a customer with the same problem who had success with our product.”
  • “You indicated that you work in the insurance industry. Here’s how people in your industry are using our product.”
  • “You’re having great results with our product. Here’s a new add-on that could make your experience even better.”

Also, don’t forget to review the frequency of content sharing. Creating and sending too much content when you don’t really need to will increase CAC.

Connect With Customers in the Right Places

You can create the world’s most outstanding content, but if you distribute it in the wrong places, you’ll end up raising your CAC. Start by identifying your customers’ preferred distribution channels – organic search, email, social networks, publications, etc. – and put your content in places that actually get customers into your sales funnel.

Conclusion

You have to spend money to acquire customers, but make sure you spend it wisely. When your investment in content marketing CAC delivers big CLTV, it’s a win-win for both.

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