Growth Equation: Customer Acquisition and Activation — Part 2
There are many reasons why a business should want to employ a marketing and expansion strategy. This can be a great move for companies whose growth has peaked in current channels, though they aren’t the only ones that can potentially benefit from this. In fact, a clear strategy for marketing and expansion can help make growth more structured and sustainable for any kind of business with long-term goals.
At SnapEx, we took cues from the famous Growth Formula proposed by Alex Schultz and Andy John. The formula cleverly breaks down the growth of any businesses into 3 major pillars and emphasizes that if the Core Product Value doesn’t exist, even the greatest traffic or the best emotional response won’t lead to growth that is sustainable.
Understanding your market, and how your core product creates value for it is a fundamental part of any business model, and while growth can benefit from bells and whistles, it’s important to maintain how well your product caters to the market. Your customers don’t pay you for the dressing, they pay you for the salad.
Alternatively, you can also look at the equation as such: by giving the “Top of Funnel”, “Magic Moment” and “Core Product Value” a maximum score of 5, 5, and 5 respectively. The closer the overall scoring is to 125, the more sustainable the growth of your business becomes.
This simple growth equation can be a remarkable tool for analyzing growth. It not only helps identify where best to direct your resources but also aids in managing your overall efforts to maintain sustainable growth. However, do take note that there isn’t a one-size-fits-all growth equation, always consider one that fundamentally reflects the nature of your business and operations. In the later section, I will also share across a general Growth Template in Excel format as a reference.
Throughout the expansion journey of SnapEx, our team assessed and tested various strategies, plans, and implementations. This allowed us to determine product-market fit at the very early stages, and map out exactly what the demands of our customers are from our ‘Core Product Value’ offerings.
Time may stretch on forever, but there are only 24 hours in a day. There will always be areas that demand your time, and this will vary as time passes, but investing some of it in understanding your market can work wonders. This is reflected by the exponential customer growth we’ve seen over the last few months.
Top of Funnel: Customer Acquisition and Activation
At SnapEx, our “Top of the Funnel “ is represented by the customer lifecycle framework, described by the Pirate Metrics (AARRR), shown below.
This framework lets us categorize metrics based on which side of the business needs to be analyzed. Pirate Metrics is divided into five sections on the inverted pyramid, and while we will only be discussing the first two in this article, the rest is just as important.
This growth framework can aid in finding the right areas to prioritize efforts and spending — the highest impact areas — while also enabling the team to have a better view of the company’s strategy and direction. There is an abundance of Acquisition and Activation strategies out in the market but remember you need to find one that suits your business and one that improves the bottom line.
The end goal is to convert strangers into promoters, as shown in the Pirate Metrics diagram above. With this in mind, it’s important to consider how users transition from one role to the other as they gain awareness of your product and brand before eventually deciding to trust you with their money.
Having a good understanding of where to use your resources can be crucial, especially in the early stages, when there may not be as many resources to go around. This can be very clear in hindsight, but not so much when faced with the problem itself. As the famous Warren Buffet once said, “In the business world, the rearview mirror is always clearer than the windshield.”
SnapEx’s current company-wide top-line approach, our primary Acquisition and Activation channel have been mostly KOL engagement. A large portion of the marketing expenditure and effort is spent directly on our network of KOLs in various key markets.
Through small-scale studies, we are also looking into incorporating other strategies to aid in our expansion, such as social media, email, and content marketing, as well as search engine optimization methods.
Like all other inbound marketing strategies, a reasonable plan should be put forward before any engagement takes place.
During the customer acquisition and activation phase, typical growth measurement metrics include signups, follows likes, and shares. While these do give you an early indication about projected traffic and conversion rates from the various channels, these are only vanity metrics, and, in most cases, do not impact the bottom line of the business too much.
Similarly, the term ‘Active Users’ must be carefully defined depending on your specific business model. If Facebook, for instance, measured anyone with an account who spent more than a minute on the platform as an Active User, that would work in their favor. For a business that relies on users spending money on the platform, not so much. In our case, a user is only “Active” when he or she deposits, trades, and contributes a sum of handling fees to the platform.
Key Considerations
When building customer acquisition and activation models, it’s also important to consider the determination process for new customers, conversion rates through the various channels, as well as customer segmentation for quality distribution.
A good understanding of your business is paramount to accurately determining what parameters are suitable as success metrics. As with the Active Users example above, this will vary based on your business and business model. But in general, it’s always a good idea to have a clear definition of customer acquisition cost and cost per activated user (CAC and CPA).
We’ve also used the formula derived by Brain Balfour (ex-VP Growth at Hubspot) to define our CPA and CAC. Here, customer acquisition cost equates to the cost to acquire users that deposit and trade on the platform, while the CPA encapsulates the cost to acquire new users, getting them to trade using a demo account, and engaging with us on social media.
Due to gaps in the specific data set and limitations of the current system in tracing acquisition paths at the customer level, we are still having difficulties trying to trace the user’s journey from lead generation to the final lead conversion.
Instead, we have reverse-engineered the process and assumed that money spent on marketing is directly proportional to users acquired through various channels. Once data tracking becomes more accessible, we will incorporate actual acquisition numbers metrics to further refine the current model.
From these definitions, we can infer that CPA measurements only affect vanity metrics. Therefore, to simplify things, we have omitted CPA computations from our model. However, there are additional parameters that can be included in the CAC calculation, and what those are will largely be case-specific.
It’s important to note that CPA and CAC expenses increase based on the performance of each channel at every level of the funnel. Understanding the direct or indirect influences from A/B testing can help to optimize your decision and future CPA and CAC calculations.
And with this, our customer acquisition cost calculation becomes rather straightforward.
The end goal is to create a growth framework or template based on this equation. Tailoring to case-specific requirements will bring out the best results, and understanding how to tinker with the framework to produce valuable and actionable insights is key to a company’s growth.
The equation can be as simple or complex as needed. Whether you include every metric or rely on just one (say, trading volume) to quantify growth, ensure you’re well aware of its capabilities in terms of what it can tell you, and how that information can be applied.
No company is the same, and that’s a good thing. The road to a successful, sustainable business varies on a case-to-case basis, and though this competition-focused environment can lead to some sticky situations, it also breeds innovative ways of growing businesses.
What’s Next?
The journey of a customer from being acquired to promoting your business is a long and arduous one. Care must be taken at every step to ensure the most number of customers are taken forward to the next stage.
Though the entire process relies on the first step, customer acquisition, there is hardly any economic benefit to the company from stopping at this stage. In fact, customer retention is one of the most important segments of our growth framework.
Customer retention not only increases each user’s lifetime value, which boosts revenue, it also helps build strong, trust-based relationships with customers. Additionally, it measures how good a company is at attracting new customers, as well as how well they are satisfying existing ones.
That being said, the absolute lifetime value of each user is also dependent on the target market. The quality of our users varies based on all kinds of parameters. For example, if your target markets are in different countries, you would essentially need a different funnel for each country.
Maintaining your customer-base can be as important as, and even a vital part of maintaining your company. There are hardly any sustainable business models that can scale which do not incorporate customer retention in some form or the other, and a business that does not grow is a business that will (eventually) fail.
In the next article, we’ll explore customer retention and the strategies we employ at SnapEx in that regard.
