The Lean LaunchPad
Lecture 5:
Customer
Relationships
Version 6/13/12
How Do You Get/Keep/Grow Customers?

Customer Relationships
How do you Get, Keep and Grow Customers?

© 2012 Steve Blank

Customer Relationships
Physical & Web Mobile Are Different
© 2012 Steve Blank

Customer Relationships
Physical Products – Get Customers
© 2012 Steve Blank

Customer Archetypes
Drive Get/Keep/Grow
• What’s their role?
– How this person is evaluated / promoted /
compensated?
• Who are they?
– Buyer’s name
– Position / title / age / sex
• How do they buy?
– Discretionary budget (name of budget and
amount)
• What matters to them?
– What motivates them?
• Who influences them?
– What do they read/who do they listen to?
Lab Manager: Brian

Paid Demand Creation Activities
“Paid” Media
• Public Relations
• Advertising
• Trade Shows
• Webinars
• Email marketing
• On-line SEM
• Biz Dev
Demand
Creation

Free Demand Creation Activities
“Earned” Media
• Publications in journals
• Conference speeches/papers
• Educational seminars
• Public relations
• Blogging / Sharable content
• Social Media
• Communities
Demand
Creation

Customer Relationships
Physical Products – Get Customers
© 2012 Steve Blank

Customer Relationships
Physical Products – Get Customers
© 2012 Steve Blank
CAC =
Customer Acquisition Cost

Customer Acquisition Cost versus
Sales Complexity
Freemium
No Touch
Self-Service
Light Touch
Inside Sales
High Touch
Inside Sales
Field Sales
Field Sales
with SE’s
$0-
$10
$50 –
$200
$1,000 -
$2,000
$3,000 -
$8,000
$25,000 –
$75,000
$75,000 –
$200,000
Rough Estimates of Cost of Customer Acquisition (CAC)
Source: David Skok Matrix Partners

Customer Relationships
Physical Products – Keep Customers
© 2012 Steve Blank

Customer Relationships
Physical Products – Keep Customers
© 2012 Steve Blank
Attrition/Churn

Customer Relationships
Physical Products – Grow Customers
© 2012 Steve Blank

Customer Relationships
Physical Products – Get/Keep/Grow
© 2012 Steve Blank
LTV = Customer Lifetime Value

Customer Relationships
Web/Mobile Products– Get Customers
© 2012 Steve Blank

Web/Mobile Products– Get Customers
© 2012 Steve Blank
CPM = cost per thousand hits

Web/Mobile Products– Get Customers
© 2012 Steve Blank
CPA = Cost per Action

SaaS Products– Get Customers
© 2012 Steve Blank
Organic Traffic,
SEM, Other Paid
Sources
Raw Leads
Registered Visitors
Qualified Leads
Inside Sales
Closed Deal

Web/Mobile Products– Keep Customers

Our Example Marketing Funnel
Quick Marketing Calculation
50% amount of traffic that is organic versus paid
$1.50 cost per paid visitor (Google AdWords, etc.)
$ 0.75 Cost per visitor (both paid and unpaid)
3% visitors convert to raw leads
20% number of raw leads that turn into qualified leads
1qualified lead
5raw leads required
167visitors required
$125Cost of visitors (also = Cost per qualified lead)
Source: David Skok Matrix Partners

Our Example Marketing Funnel
Quick Marketing Calculation
50% amount of traffic that is organic versus paid
$1.50 cost per paid visitor (Google AdWords, etc.)
$ 0.75 Cost per visitor (both paid and unpaid)
3% visitors convert to raw leads
20% number of raw leads that turn into qualified leads
1qualified lead
5raw leads required
167Visitors required
$125Cost per qualified lead
Source: David Skok Matrix Partners

Our Example Marketing Funnel
Cost per Qualified Lead $125
Leads to closed deal 10
Marketing Costs per closed deal $1,250
Source: David Skok Matrix Partners

We Can Compute CAC and LTV
Lead Gen costs per deal $ 1,250
Excludes people costs
(Cost per qualified lead x no of leads
required per closed deal)
Selling costs per deal $ 1,620 Excludes cost of sales management
Total CAC $ 2,870
Excludes people costs in marketing, and
sales management.
(CAC= Cost to Acquire a Customer)
Total LTV $ 16,000
Calculated by dividing average monthly
gross profit per customer (ARPU x Gross
Margin ) by the churn rate
This excludes people costs in marketing, and sales management costs
Source: David Skok Matrix Partners

Balancing CAC/LTV in a SaaS model
LTV CAC
> 3x
Months to
recover CAC < 12 months
Required for Capital Efficiency
Source: David Skok Matrix Partners

What Investors are Looking For
Monetization
(LTV)
Cost to
Acquire a
Customer
(CAC)
A well balanced business model
Source: David Skok Matrix Partners

The Balancing Act
Monetization
(LifeTime Value LTV)
Cost to Acquire a Customer
(CAC)
• Viral effects
• Inbound Marketing
• Free or Freemium
• Open Source
• Free Trials
• Touchless conversion
• Inside Sales
• Channels
• Strategic partnerships
• Scalable Pricing
• Cross Sell/Upsell
• Product line expansion
• Lead Gen for 3rd
parties
Source: David Skok Matrix Partners

The Balancing Act
Monetization
(LifeTime Value LTV)
Cost to Acquire a Customer
(CAC)
• Viral effects
• Inbound Marketing
• Free or Freemium
• Open Source
• Free Trials
• Touchless conversion
• Inside Sales
• Channels
• Strategic partnerships
• Field Sales
• Outbound
Marketing
• Scalable Pricing
• Cross Sell/Upsell
• Product line expansion
• Lead Gen for 3rd parties
• High Churn Rates
• Low customer
satisfaction
Source: David Skok Matrix Partners

Customer Relationships
Web/Mobile Products– Keep Customers
© 2012 Steve Blank

How Churn affects LTV
• Average customer lifetime in months =
1 / Monthly Churn
Source: David Skok Matrix Partners

How Churn affects Lifetime
100
50
20
0
20
40
60
80
100
120
1% 2% 5%
Lifetime vs Churn Rate
Months
Monthly
Churn
Source: David Skok Matrix Partners

How Churn affects LTV
Lifetime Value
Monthly
Churn
Source: David Skok Matrix Partners

Impact of lowering Churn
$(400,000)
$(200,000)
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Net Profit
Churn 1.25% Churn 2.5%
$(4,000,000)
$(3,000,000)
$(2,000,000)
$(1,000,000)
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
Month
1
Month
3
Month
5
Month
7
Month
9
Month
11
Month
13
Month
15
Month
17
Month
19
Month
21
Month
23
Month
25
Month
27
Month
29
Month
31
Month
33
Month
35
Cumulative Net Profit
Churn 1.25% Churn 2.5%
• Impact of lowering the churn rate is felt more heavily in the later years, as expected
• It has a significant impact on the long term profitability of the business
Source: David Skok Matrix Partners

Churn
• 1% to 2.5% churn per month is acceptable
• Higher than that, you are filling a leaky bucket
– Need to understand why you have low customer
satisfaction and address the problem
Source: David Skok Matrix Partners

Customer Relationships
Web/Mobile Products– Grow Customers
© 2012 Steve Blank

Customer Relationships
Web/Mobile Products Get/Keep/Grow
© 2012 Steve Blank