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STARTUP KILLERCAC, LTV & Other Metrics that will make (or break) you                             CAC                      ...
MICRO-ECONOMICS  PROFITABILITY AT THE CUSTOMER LEVELA POWERFUL WAY TO GAIN BUSINESS INSIGHT
An out of balance Business Model               Entrepreneurs are over-optimistic    Cost to   Acquire a   Customer    (CAC...
Simple Customer Acquisition Funnel         200 Visitors required for 1 cust                   Visitors    5%              ...
Add in People costs:- CAC increases dramatically   Input Variables   Total Web Visitors                  10,000   SEM cost...
Sales Complexity             No Touch      Light Touch    High Touch                   Field Sales Freemium               ...
How I assumed the two would relate
A rough estimate of CAC versus Sales Complexity                No Touch      Light Touch    High Touch                   F...
The relationship is roughly exponential                                     Clearly adding                                ...
CAC (logarithmic)                            10x                    10x            10x                      Sales Complexity
CUSTOMER MICRO-ECONOMICS    SaaS andRecurring Revenue
Cash Flow at the Customer Level   1000      0   -1000   -2000   -3000   -4000   -5000
Cumulative Cash Flow1000   0-1000-2000                     Ten months to-3000                 recover CAC-4000-5000
My rules for CAC/LTV balance      in a SaaS model     LTV           > 3x          CAC     Months to    recover CAC    < 12...
SALES & MARKETING FUNNEL METRICS
1 stTHE BASICSOF FUNNEL DESIGN
ExpandSuspects   Closed Deals    Upsell                          Cross sell
IN A PERFECT WORLD…       1 Step
IN A PERFECT WORLD…    MyProduct.com                            DESCRIPTION       HOW IT WORKS                            ...
REALITY IS DIFFERENT    Step 1       Step 2     Step 3             WE NEED TO BREAK THINGS DOWN               INTO MULTIPL...
WHAT WE ARE DOING   ACTION     ACTION     ACTION   MOVEMENT   MOVEMENT   MOVEMENT
2   MEASURE      "IF YOU CAN NOT MEASURE IT,      YOU CAN NOT IMPROVE IT."                   - LORD KELVIN
WHAT TO MEASUREFOR EACH STEP / ACTION:NO OF ACTIONS             % CONVERSION RATE                  TIME                   ...
THE KEY METRICS                    CAMPAIGNS                     TO DRIVE                     TRAFFIC                     ...
NOT ALL LEAD SOURCES ARE EQUAL     Google Ad Word Funnel        FaceBook Ad Funnel           Visitors                    V...
ROI by LEAD SOURCE    Cost per lead        OVERALL      CONVERSION %      (BY LEAD SOURCE)                         Lifetim...
THE ART OFMARKETING
DESIGNING YOUR FUNNEL
WHAT IS A FUNNEL?    ACTION    ACTION     ACTION   MOVEMENT   MOVEMENT   MOVEMENT
HOW DO WE DESIGN OUR FUNNEL?
THEBUYER
THE BUYING CYCLE                             PURCHASE             CONSIDERATION                                        CLO...
THEBUYER       CONSIDERATION        ADDRESS THEIR QUESTIONS & CONCERNS         • Will this work for my situation?         ...
TRIGGERS • Moving house     • Movers, phones, cable TV, furniture, insurance, etc. • Starting a new software project     •...
Suspects                                                           Suspects                                      Suspects ...
IMPROVE
IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS,I HAVE FOUND THAT THERE IS ACLEARPATTERN…
YOU ARE HOPING YOURCUSTOMERS WILL DOSOMETHINGTHAT THEY ARENOT MOTIVATED TO DO
IN OTHER WORDS…YOU DESIGNED YOUR FUNNELTHE WAY YOU HOPED IT WOULDWORK…BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUTTHE CUSTOME...
JBOSS EXAMPLEPUT A REGISTRATION FORMON THEIR WEB SITE BEFOREA FREE DOWNLOADIMPACTCUT THE DOWNLOAD RATEBY MORE THAN 10X
GET INSIDE YOURCUSTOMER’S HEAD            FRICTION &            CONCERNS            - Hate being sold to            - Find...
UNDERSTAND WHATMOTIVATES THEM           FRICTION &           CONCERNS           MOTIVATIONS           -   Want to solve my...
CREATE A SOLUTION THATENTICES THEM AND ADDRESS THEIR CONCERNS                    FRICTION &                    CONCERNS   ...
JBOSS EXAMPLE• Making $27,000 a month selling documentation• Solution:   • Give away documentation to get their email addr...
EXAMPLE: DRIVING TRAFFIC TO YOUR WEB                 SITE                          GETTING FOUND                          ...
LESSONS FROM WEBSITEGRADER•   Free tools drive viral spread•   Low customer work required•   High value delivered•   Score...
using engineering for marketing
USING DATA TO DRIVE WEBTRAFFICSYSOMOS: SOCIAL MEDIA MONITORINGLEVERAGED THEIR DATABASE TOCREATE BLOG POSTS WITH DATA ONTOP...
LED TO:          SYSOMOS ARTICLES IN          ECONOMIST, NY TIMES  WEB TRAFFIC TO READ THE FULL REPORT  LEADS – IMPRESSED ...
DROPBOX: SIMPLE FILE SHARING SOFTWARE–   Get you hooked for free–   Storage slowly increases to the point where you need t...
First Contact                          Sell                   Build       BuildFirst Contact                          Sell...
OFTEN NECESSARY TO FIND TOPICSTHAT ARE NOT RELATED TO THE SALE                    Build          Build                 Rel...
SELLING IS   10X EASIER…ONCE YOU HAVE ESTABLISHED   TRUST
THE KEYS TO SUCCESS     THE  BUYER               GET INSIDE              YOUR BUYER’S                 MIND
CONCLUSION
WHAT I DIDN’T COVER•   Sadly way too many topics for this time slot•   Virality – see my blog•   NPS – Net Promoter Score•...
For More information   Visit my blog at www.forEntrepreneurs.com
APPENDIX
WHYCHURN IS SOIMPORTANT
Why Churn is so Important                 Bookings Versus Churn                                    MRR (Monthly Recurring ...
The Impact of Negative Churn                 Bookings Versus Churn                                    MRR (Monthly Recurri...
MICRO-ECONOMICSFOR A SALES PERSON
How Revenue Builds for a SaaS Salesperson                                                (assuming no ramp up time)       ...
The Cash Flow Gap          MRR vs Expenses – New Sales Hire                                                       Net prof...
The SaaS Cash Flow Trough           Cumulative Net Profit - New Sales Hire    $400,000    $300,000    $200,000    $100,000...
UNDERSTANDING CUSTOMERENGAGEMENT
THE OLD WORLD HUMAN INTERACTIONS
THE NEW WORLDMACHINE INTERACTIONS
THE PRODUCT    HAS BECOMEYOUR SALESPERSON
TRACKING ENGAGEMENT What do we know  about them?      What do their                   actions tell us?     Buyer          ...
Account Profile
WHY MEASURE ENGAGEMENT?INSIGHTWhich customers are about to Churn?ACTIONUse emails and/or customer service repsto increase ...
WHY MEASURE ENGAGEMENT?INSIGHTWhich Free Trials are going wrong?ACTIONUse emails and/or customer success repsto increase u...
WHY MEASURE ENGAGEMENT?INSIGHTWhich free trials are going really well?ACTIONGet Sales to call and ask for the order
Active Lists
Engaged Evaluators Report
WHY MEASURE ENGAGEMENT?INSIGHTWhich key features in the Free Trial have not been tried?ACTIONUse emails and/or customer su...
PATTERN DISCOVERY  AND THE NEED FOR DATA SCIENTISTS
Which behaviors are mostcorrelated with Churn?       Which lead sources lead to       the most profitable customers?      ...
THEBUYER   WHO IS YOUR BUYER?   • Who is involved?   • What are their roles     (Champion, Influencer, Decision maker, etc...
THEBUYER       UNDERSTAND THEIR BUYING PROCESS       • What are their approval processes?          • e.g. IT approval need...
USING METRICS TO MEET TARGETS           WORK BACKWARDS FROM THE TARGET
Example: JBoss - Sales & Marketing Machine                                                       EnterpriseSuspects       ...
Metrics: The End Goal         4:1         3:1        4:1        (25%)       (33%)      (25%) Raw     Web                  ...
Using the model to work backwards                  4:1               3:1             4:1 Raw               Web            ...
Add in People costs:- CAC
Add in People costs:- CAC
Add in People costs:- CAC
Add in People costs:- CAC
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Add in People costs:- CAC David Skok's, SMASH Summit NYC

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Add in People costs:- CAC increases dramatically Input Variables Total Web Visitors 10,000 SEM cost per click $ 0.50 Conversion to Trial % 5% Trial conversion % 10% No of Sales & Marketing Staff 3 Cost per employee per month $ 16,500 Marketing and Sales people Flow Qty. Conversion % involved: Total Paid Web Vistors 10,000 CAC rises to Trials 500 5% $1,000 Customers 50 10% SEM Marketing Spend $ 5,000 Total Headcount Costs $ 49,500 Cost of Customer Acquisition Without headcount costs $ 100.00 With headcount costs $ 1,090.00

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