Customer Acquisition
From Entrepedia: The Entrepreneurship Wiki
If you are looking for direct customer acquisition, then you will want to focus on one market and channel, but also scale across markets and channels. Keep in mind the high costs for marketing! If you haven't already, take a moment to sketch out a profile of your ideal customer, to help you better understand how you should approach potential customers and increase not only your customer acquisition, but the number of loyal customers that your business has obtained.
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Distribution Partners
- Traditional contractual relationships
- Consumers discover a great service through the partner and begin direct relationship
- e.g. Google with Yahoo, AOL etc.
- High costs for Business Development
- "Free-rider"/Unofficial relationships
- e.g. PayPal and eBay (pre-acquisition)
- e.g. Slide/Youtube and myspace
- High costs for Engineering
Viral Customer Acquisition
One of the largest facets of customer acquisition is driven by other customers. There are two stages to this process: stage 1, acquisition of customers, and stage 2, retention of customers.
In the first stage, acquisition, you will want to reduce friction and increase your viral coefficient (>1). You must have a symmetrical relationship between customers. Look into address book blasting, but don't get caught in spam filters / monitor emails (services). Focus on your sign up conversion, new user flow, and conducting A/B testing. Guide the audience towards the markets you want to grow.
In the second stage, retention, you should turn your attention toward product improvement. Pick a market with maximum time on site (e.g. Bebo vs. LinkedIn), and figure out how to keep your users on the site longer.
Customer Lifetime Value (CLV)
There are some terms that you will need to know when you are calculating the Customer Lifetime Value, or CLV. First of all, CPA indicates the Cost Per Acquisition of a customer; secondly, PV refers to the Present Value of a single customer’s future profits; finaly, CLV itself is the calculation of a customer’s present value minus acquisition costs. Remember, based on this the formula for figuring out a customer's CLV would be:
- CLV = PV – CPA
Influencing CLV
In order to maximize your CLV, you will also want to maximize the PV - present value of a single customer's future profits. Some ways that you might approach this would be to increase retention and usage. You will certainly want to focus on minimizing your CPA through a combination of an increase in customer satisfaction – which will in turn increase your word of mouth marketing – and increasing your conversion rates. You may also look into increasing the price of your product or service. Conduct an analysis of your customer sign up flow, and follow up with any incomplete conversions. Focus on simplifying this flow through A/B testing, and optimise your channels. You will also need to undertake a quantitative analysis of customer satisfaction to determine your Net Promoter Score, or NPS.
- Use a 0 to 10 scale rating whether or not a customer would recommend this service to a friend or colleague
- 0 to 6 – Net Detractors – extremely unlikely to recommend
- 7 to 8 – Passive Promoters – passively satisfied
- 9 to 10 – Net Promoters – extremely likely to recommend
Your Net Promoter Score (NPS) drives word-of-mouth ($0 CPA) and increased retention: it can be calculated according to a formula in which your NPS = % Net Promoters – % Net Detractors. For example, if 50% answered a 9 or 10 and 20% answered a 0 to 6, then NPS = 30%. 75% is the minimum a venture will require to begin to garner world-class customer loyalty.
Further Reading
- “The One Number You Need To Know”, F. Reichheld, Harvard Business Review
