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How to Reduce Customer Acquisition Costs and Optimize Advertising Spend

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Discover how you can optimize your advertising spend, boost your ROI, and reduce your CAC with Optimizely’s senior strategy consultant, Brad Yee.

What you will learn:
- How to run effective landing page campaigns that boost the ROI of your digital programs
- Best practices for unlocking the power of symmetric messaging to acquire more leads at no cost
- What strategies we’ve seen to be successful at reducing CAC and sales support costs

Published in: Software
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How to Reduce Customer Acquisition Costs and Optimize Advertising Spend

  1. 1. 1 Brad Yee Sr. Strategy Consultant Reduce Customer Acquisition Costs and Optimize Advertising Spend
  2. 2. ● Customize the widgets on your page to your preference ● This webinar is recorded and you will receive the link with the slides in the next few days ● We will have time for questions! Please submit them in the Q&A box on the left side of the screen ● A short survey will pop up once the webinar has ended—We’d love to receive your feedback. Housekeeping
  3. 3. Brad helps leading organizations use data with purpose to drive quantifiable business impact. He facilitates the transformation of mindsets, drives the cultural shift for product teams, and encourages the replacement of digital guesswork with evidence-based optimization. Opticon Education Day Leader Led courses at Opticon on Full Stack Testing and Scaling Experimentation. Selected experience Customers Brad Yee Sr. Strategy Consultant, US Education & Certification Duke University Master of Engineering, Engineering Management UC San Diego Bachelor of Science, Civil Engineering Areas of expertise & industry Strategy Consultant, Optimizely Advise enterprise customers on implementation of experimentation programs through Optimizely’s technologies Digital Transformation Consultant, Capgemini Driving a multi-disciplinary project team of IT and Business stakeholders to develop a digital strategy Roll-out and Enablement Instills best experimentation methodology practices with teams to ensure strong hypotheses and analysis.
  4. 4. 4 Strategy Consultant, Professional Services Who we are: Strategy experts provide insights, guidance, and best practices on our Customer’s optimization program to ensure long-term success and accelerate speed to value Examples of what we do: • Advise on optimization roadmap using Optimizely’s frameworks • Provide expert ideation, optimization process, and program management tools • Define key experiment metrics, integrations, and audience types to be implemented Why Strategy?
  5. 5. 5 https://www.optimizely.com/outperform-webinar-series/
  6. 6. ● What are Customer Acquisition Costs and why do we care about it? ● What are the strategies and examples to optimize the Marketing Costs associated with CAC? ● What are the strategies and examples to optimize the Sales Costs associated with CAC? ● Did we find the best solution? Agenda Reduce Customer Acquisition Costs and Optimize Advertising Spend
  7. 7. 7 What is a Customer Acquisition Cost and why do we care about it?
  8. 8. 8 CAC Definition CAC = Total Cost of Sales & Marketing # of Customers Acquired EQUATION:
  9. 9. What are the levers that affect CAC?
  10. 10. What are the levers experiment opportunities that affect CAC?
  11. 11. 11 ● Visually analyzes the entire site’s opportunity to weigh opportunity cost ● Allows teams to explicitly align testing goals to business goals; keeps ideas tightly focused ● Strategic foundation for creative brainstorming *Orange = KPIs that can be influenced by digital optimization via Optimizely Goal Tree Revenue: $2.0m Revenue Per Visitor: $1.00 Average Order Value: $50.00 Average quantity: 2.00 Average Price per Unit: $25.00 Conversion Rate: 2.00% Add to Cart Cart Checkout Rate Visitors: 2.0m User acquisition: 1.5m User retention 33% But we’re not here to talk about Purchases or Add-to-Cart!
  12. 12. 12 Goal Tree - Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely Skip or move fast
  13. 13. 13 Goal Tree - Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely Skip or move fast
  14. 14. 14 Goal Tree - Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely
  15. 15. 15 Goal Tree - Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely
  16. 16. 16 Goal Tree - Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely
  17. 17. 17 How would this look for a B2B or SaaS Company? Skip or move fast
  18. 18. 18 Goal Tree - Customer Acquisition Cost for B2B *Orange = KPIs that can be influenced by digital optimization via Optimizely Skip or move fast
  19. 19. 19 Goal Tree - Customer Acquisition Cost for SaaS *Orange = KPIs that can be influenced by digital optimization via Optimizely Skip or move fast
  20. 20. 20 Lets drill down into the cost-side
  21. 21. 21 Goal Tree - Customer Acquisition Cost
  22. 22. 22 • Advertising through paid marketing channels • Customer referral programs • Free trial programs • Promotions Goal Tree - Focus on Acquisition Cost Marketing Costs • Sales support call centers • Partnerships and Alliances Sales Costs Skip or move fast
  23. 23. 23 Importance of CAC and its influence on Lifetime Value
  24. 24. 24 Visualizing CAC and LTV CAC Profit Time
  25. 25. 25 Visualizing CAC and LTV CAC Payback CAC Profit Time
  26. 26. 26 Visualizing CAC and LTV Churn CAC Payback CAC Profit Time Net LTV
  27. 27. 27 Visualizing CAC and LTV: Reducing CAC = Faster CAC Payback, Higher LTV Net LTV Churn CAC Payback CAC
  28. 28. 28 Visualizing CAC and LTV: Increasing CAC = Longer CAC Payback, Lower LTV Net LTV Churn CAC Payback CAC
  29. 29. 29 What are some experiment strategies to optimize Marketing Costs?
  30. 30. 30 • Advertising through paid marketing channels • Customer referral programs • Free trial programs • Promotions Focus on Optimizing Acquisition Costs Marketing Costs • Sales support call centers • Partnerships and Alliances Sales Costs
  31. 31. 31 Strategy 1: Optimize landing pages to convert paid traffic and optimize our advertising spend
  32. 32. 32 • Advertising through paid marketing channels • Free trial programs • Customer referral programs • Promotions Focus on Optimizing Acquisition Costs Marketing Costs • Sales support call centers • Partnerships and Alliances Sales Costs
  33. 33. 33 Strategies and Tactics applied to Landing Page Optimization Landing Page Optimization Symmetric Messaging Wording / messaging Unique hero imagery Design / color / iconography Reducing steps in process Reduce questions / steps Pre-fill data Limit number of choices Communicate Unique Selling Points Select/target the right USP’s Refine the messaging Communicat e visually Design Intuitive Navigation Use a clear, consistent layout Structure, naming, and order of sections Use iconography Market Products Effectively Test ideal product visuals Use the right review systems Find ideal description text / length Build a Sense of Urgency Show quantity left Push temporary offers Promote buying before set times Goal Strategies Tactics
  34. 34. 34 Strategies and Tactics applied to Landing Page Optimization Landing Page Optimization Symmetric Messaging Wording / messaging Goal Strategies Tactics
  35. 35. 35 What is Symmetric Messaging? Control Experiment Variations
  36. 36. 36 Symmetric Messaging >90% statistical significance 40% Lift Form Submits
  37. 37. 37 Strategies and Tactics applied to Landing Page Optimization Landing Page Optimization Symmetric Messaging Wording / messaging Unique hero imagery Design / color / iconography Reducing steps in process Reduce questions / steps Pre-fill data Limit number of choices Communicate Unique Selling Points Select/target the right USP’s Refine the messaging Communicat e visually / leverage CTA Design Intuitive Navigation Use a clear, consistent layout Structure, naming, and order of sections Use iconography Market Products Effectively Test ideal product visuals Use the right review systems Build Trust/Social Proof Build a Sense of Urgency Show quantity left Push temporary offers Promote buying before set times Goal Strategies Tactics
  38. 38. 38 Landing Page Optimization: Strategy to Build Trust/Social Proof ● Social-validation, “you're not alone in your financial situation” ● Build as sense of urgency; people are being approved right now ● Lots of money borrowed, we are definitely trusted ● Additional social-proof and credibility
  39. 39. 39 Strategy 2 Optimizing Free Trial Programs
  40. 40. 40 • Advertising through paid marketing channels • Free trial programs • Customer referral programs • Promotions Focus on Optimizing Acquisition Costs Marketing Costs • Sales support call centers • Partnerships and Alliances Sales Costs
  41. 41. 41 Classpass Win Back Experiment Example Experiment Background ● Winback campaign offers a free re-trial period targeting inactive members ● Experiment tested increasing the free trial period from 1 to 2 weeks Hypothesis If we extend our winback offer by 1 to 2 weeks We will see our reactivation rates increase Because members have more time to experience new classes Measurement of success: Increase in reactivations need to offset the costs with the increase duration of the free trial Enjoy 2 weeks freeEnjoy 1 week free
  42. 42. 42 Classpass Win Back Experiment Example Optimizely Results Page Results ● Extending winback lifted reactivations by 25% >90% statistical significance 25% Lift Reactivations (Free trial) >90% statistical significance 19% Lift Retained members ● But was this enough to offset the costs with an additional 1 week trial? To uncover this, we need to explore Customer Acquisition Costs (CAC)
  43. 43. 43 Classpass Win Back Experiment Example V1: Control V2: Extended Offer Reactivated Free Trial 100 125 +25% Cost of Goods (COGS) Retained After Free Trial Average CAC
  44. 44. 44 Classpass Win Back Experiment Example V1: Control V2: Extended Offer Reactivated Free Trial 100 125 +25% Cost of Goods (COGS) $15,000 (avg $150 per customer) $24,375 (avg $195 per customer) +30% Increase in class redemptions Retained After Free Trial Average CAC
  45. 45. 45 Classpass Win Back Experiment Example V1: Control V2: Extended Offer Reactivated Free Trial 100 125 +25% Cost of Goods (COGS) $15,000 (avg $150 per customer) $24,375 (avg $195 per customer) +30% Increase in class redemptions Retained After Free Trial 80 95 +19% Average CAC
  46. 46. 46 Classpass Win Back Experiment Example V1: Control V2: Extended Offer Reactivated Free Trial 100 125 +25% Cost of Goods (COGS) $15,000 (avg $150 per customer) $24,375 (avg $195 per customer) +30% Increase in class redemptions Retained After Free Trial 80 95 +19% Average CAC $187.50 $256.58 +37% relative
  47. 47. 47 Classpass Win Back Experiment Example V1: Control V2: Extended Offer Reactivated Free Trial 100 125 +25% Cost of Goods (COGS) $15,000 (avg $150 per customer) $24,375 (avg $195 per customer) +30% Increase in class redemptions Retained After Free Trial 80 95 +19% Average CAC $187.50 $256.58 +37% relative Average CAC increased, but we should be more concerned with Marginal CAC!
  48. 48. 48 Classpass Win Back Experiment Example Marginal CAC = $625 > ⅓ Lifetime Value (LTV) Experiment is a Loser V1: Control V2: Extended Offer Reactivated Free Trial 100 125 +25% Cost of Goods (COGS) $15,000 (avg $150 per customer) $24,375 (avg $195 per customer) +30% Increase in class redemptions Retained After Free Trial 80 95 +19% Average CAC $187.50 $256.58 +37% relative Marginal CAC CAC to acquire the “next 15 members” --- ($24,375 - $15,000) /15= $625
  49. 49. 49 Benchmark for LTV:CAC is 3:1 CAC Payback Model LTV Churn 1 3 CAC
  50. 50. 50 Benchmark for LTV:CAC is 3:1 CAC Payback Model LTV Churn CAC >1 <3
  51. 51. 51 Growth at any cost is a recipe for disaster
  52. 52. 52 Strategy 3 Optimizing Referral Programs
  53. 53. 53 • Advertising through paid marketing channels • Free trial programs • Customer referral programs • Promotions Focus on Optimizing Acquisition Costs Marketing Costs • Sales support call centers • Partnerships and Alliances Sales Costs
  54. 54. 54 A/B Testing Referral Sign-ups Conversion Rate Symmetric Messaging Wording / messaging Unique hero imagery Design / color / iconography Reducing steps in process Reduce questions / steps Pre-fill data Limit number of choices Communicate Unique Selling Points Select/target the right USP’s Refine the messaging Communicat e visually / leverage CTA Design Intuitive Navigation Use a clear, consistent layout Structure, naming, and order of sections Use iconography Market Products Effectively Test ideal product visuals Personalize to the persona Build Trust/Social Proof Build a Sense of Urgency Show quantity left Push temporary offers Promote buying before set times Goal Strategies Tactics To increase Referral program usage, same CRO principles … but what if we wanted to test variable components (e.g. Referral Incentive amounts)
  55. 55. 55 A/B Testing Referral Bonus Amounts Hypothesis If we increase our referral offer from $300 to $400 for the referring customer in addition to $100 for the new member (double-sided incentive) We will increase new member sign-ups via the referral program Because members will have an even larger financial incentive to refer a friend *Measurement of success: Increase in new member sign-ups need to offset the costs of the increase referral offer
  56. 56. 56 A/B Testing Referral Bonus Amounts V0 (Control): $300/$100 Referral Offer V1: $400/$100 Referral Offer Referred New Members with Funded Account within 14 days 100 180 +80% Cost of Referral $300 for referral, $100 for new member Average CAC Marginal CAC
  57. 57. 57 A/B Testing Referral Bonus Amounts V0 (Control): $300/$100 Referral Offer V1: $400/$100 Referral Offer Referred New Members with Funded Account within 14 days 100 180 +80% Cost of Referral $300 for referral, $100 for new member $40,000 $90,000 Average CAC Marginal CAC
  58. 58. 58 A/B Testing Referral Bonus Amounts V0 (Control): $300/$100 Referral Offer V1: $400/$100 Referral Offer Referred New Members with Funded Account within 14 days 100 180 +80% Cost of Referral $300 for referral, $100 for new member $40,000 $90,000 Average CAC $400 $500 Marginal CAC
  59. 59. 59 A/B Testing Referral Bonus Amounts V0 (Control): $300/$100 Referral Offer V1: $400/$100 Referral Offer Referred New Members with Funded Account within 14 days 100 180 +80% Cost of Referral $300 for referral, $100 for new member $40,000 $90,000 Average CAC $400 $500 Marginal CAC -- ($90,000 - $40,000) / 80= $625
  60. 60. 60 A/B Testing Referral Bonus Amounts V0 (Control): $300 Referral Offer V1: $400 Referral Offer Referred New Members with Funded Account within 14 days 100 180 +80% Cost of Referral $300 for referral, $100 for new member $40,000 $90,000 Average CAC $400 $500 Marginal CAC -- ($90,000 - $40,000) / 80= $625 Marginal CAC = $625 < ⅓ Lifetime Value (LTV) Winner! (Hypothetical)
  61. 61. 61 What are some strategies to reduce Sales Support Costs?
  62. 62. 62 Strategy 1: Optimize the sales support process
  63. 63. 63 • Advertising through paid marketing channels • Free trial programs • Customer referral programs • Promotions Focus on Optimizing Acquisition Costs Marketing Costs • Sales support teams • Partnerships and Alliances Sales Costs
  64. 64. 64 Optimizely Example: Chat Bot on the Sales Contact Pages Goal ● Improve the experience of the Contact page ● Allow a known/qualified lead the ability to directly schedule a call with sales team ● Reduce funneling unqualified leads to our sales support team Hypothesis If we trigger the Drift bot on the Contact page and personalize the bot based on the firmographics, so that for each of these firmographics we’d provide the associated options: ● Known/qualified lead: Provide an a way to contact and schedule a meeting with sales team immediately ● Known/unqualified lead - Verify visitor's country and then qualify ● Unknown lead - Qualify before putting them into contact flow We will increase $ ACV, Lead + MQL volume in our pipeline (with the same sales workforce) Because we will fast-track our most valuable leads directly to our sales team
  65. 65. 65 Optimizely Example: Chat Bot on the Sales Contact Pages Original variation
  66. 66. 66 Optimizely Example: Chat Bot on the Sales Contact Pages Variation - For Target Countries FY19 and Demandbase Employee 1000+ Results ● Grew $ pipeline across for high-valued accounts in Target countries ● Increase operational efficiency - more booked meetings per sales team member
  67. 67. 67 We Believe in ‘Drinking Our Own Champagne’ COnsider skipping here
  68. 68. 68 How do we know if we found the best solution
  69. 69. 69 Audiences Areas Metrics Goal Levers Experiments What solutions could exist? Which is the best solution? What are our KPIs / business initiatives? How do we identify customer problems for those? Where and what is the problem? Who does it impact? Experimentation Framework
  70. 70. 70 Audiences Areas Metrics Goal Levers Experiments What are our KPIs / business initiatives? How do we identify customer problems for those? Where and what is the problem? Who does it impact? What solutions could exist? Which is the best solution? Experimentation Framework
  71. 71. 71 Audiences Areas Metrics Goal Levers Experiments What are our KPIs / business initiatives? How do we identify customer problems for those? Where and what is the problem? Who does it impact? What solutions could exist? Which is the best solution? Experimentation Framework
  72. 72. 72 Audiences Areas Metrics Goal Levers Experiments Experimentation Framework These strategies and tactics guide the solutions could exist
  73. 73. 73 Takeaways
  74. 74. 74 There are many levers at our disposal to improve Customer Acquisition Costs. As exemplified in the Goal Tree, visually mapping this out helps plan our experimentation strategy. Landing Page optimization is a simple yet powerful strategy to convert paid traffic and optimize our advertising spend Growth at any cost is a dangerous way to run a business. I challenge you to better understand your marginal CAC in your acquisition channels and programs Experimentation is about finding the best solution (out of many potential solution) that solves your customer problems; and generates sustained revenue (lifetime value)! Four Key Takeaways
  75. 75. 75 Thank you
  76. 76. 76 Questions?
  77. 77. 77 How to Capture Your Customers at the Top of the Funnel Tuesday, January 21, 2020 | 10 AM PT / 1 PM ET Coming Up Next in the Outperform Series

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