Nsf online lecture 5 customer relationships

NSF I-Corps
The Lean LaunchPad

Lecture 5
Customer Relationships
How Do You Get/Keep/Grow Customers?

Version 6/13/12


How do you Get, Keep and Grow Customers?

Physical & Web Mobile Are Different

© 2012 Steve Blank

Physical Products – Get Customers

© 2012 Steve Blank

Customer Archetypes
Drive Get/Keep/Grow
Lab Manager: Brian

• 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?

Paid Demand Creation Activities
“Paid” Media

Demand
Creation
• Public Relations
• Advertising
• Trade Shows
• Webinars
• Email marketing
• On-line SEM
• Biz Dev

Free Demand Creation Activities
“Earned” Media

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

Physical Products – Get Customers

CAC =
Customer Acquisition Cost

© 2012 Steve Blank

Customer Acquisition Cost versus
Sales Complexity

No Touch Light Touch High Touch Field Sales
Freemium Field Sales
Self-Service Inside Sales Inside Sales with SE’s

Rough Estimates of Cost of Customer Acquisition (CAC)
$0- $50 – $1,000 - $3,000 - $25,000 – $75,000 –
$10 $200 $2,000 $8,000 $75,000 $200,000

Source: David Skok Matrix Partners

Physical Products – Keep Customers

© 2012 Steve Blank

Physical Products – Keep Customers

Attrition/Churn
© 2012 Steve Blank

Physical Products – Grow Customers

© 2012 Steve Blank

Physical Products – Get/Keep/Grow

LTV = Customer Lifetime Value
© 2012 Steve Blank

Web/Mobile Products– Get Customers

© 2012 Steve Blank


CPM = cost per thousand hits

© 2012 Steve Blank


CPA = Cost per Action

© 2012 Steve Blank

SaaSProducts– Get Customers

Organic Traffic,
SEM, Other Paid
Sources Registered Visitors

Raw Leads
Qualified Leads

Inside Sales
Closed Deal

© 2012 Steve Blank

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

1 qualified lead
5 raw leads required
167 visitors required
$125 Cost of visitors (also = Cost per qualified lead)



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

1 qualified lead
5 raw leads required
167 Visitors required
$125Cost per qualified lead



Cost per Qualified Lead $125
Leads to closed deal 10
Marketing Costs per closed deal $1,250


We Can Compute CAC and LTV

Excludes people costs
Lead Gen costs per deal $ 1,250 (Cost per qualified lead x no of leads
required per closed deal)

Selling costs per deal $ 1,620 Excludes cost of sales management
Excludes people costs in marketing, and
Total CAC $ 2,870 sales management.
(CAC= Cost to Acquire a Customer)
Calculated by dividing average monthly
Total LTV $ 16,000 gross profit per customer (ARPU x Gross
Margin ) by the churn rate

This excludes people costs in marketing, and sales management costs


Balancing CAC/LTV in a SaaS model

LTV >3x CAC

Months to
recover CAC <12 months
Required for Capital Efficiency


What Investors are Looking For

A well balanced business model

Monetization
(LTV)

Cost to
Acquire a
Customer
(CAC)


The Balancing Act
• Viral effects
• Inbound Marketing
• Free or Freemium
• Open Source
• Free Trials
• Touchless conversion
• Inside Sales
• Channels
• Strategic partnerships

Cost to Acquire a Customer Monetization
(CAC) (LifeTime Value LTV)

• Scalable Pricing
• Cross Sell/Upsell
• Product line expansion
• Lead Gen for 3rd
parties


The Balancing Act

• Viral effects
• Inbound Marketing
• High Churn Rates
• Free or Freemium
• Open Source • Low customer
• Free Trials satisfaction
• Touchless conversion
• Inside Sales
• Channels
• Strategic partnerships

Cost to Acquire a Customer Monetization
(CAC) (LifeTime Value LTV)

• Field Sales • Scalable Pricing
• Cross Sell/Upsell
• Outbound • Product line expansion
Marketing • Lead Gen for 3rd parties


Web/Mobile Products– Keep Customers

© 2012 Steve Blank

How Churn affects LTV

• Average customer lifetime in months =

1 / Monthly Churn


How Churn affects Lifetime

Months Lifetime vs Churn Rate
120
100
100

80

60 50
40
20
20

0 Monthly
Churn
1% 2% 5%

How Churn affects LTV

Lifetime Value

Monthly
Churn

Impact of lowering Churn
Cumulative Net Profit
Net Profit $7,000,000
$1,200,000
$6,000,000

$1,000,000 $5,000,000

$4,000,000
$800,000

$3,000,000
$600,000
$2,000,000

$400,000
$1,000,000

$200,000 $-

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
$(1,000,000)
$-

$(2,000,000)
$(200,000)
$(3,000,000)

$(400,000)
$(4,000,000)
Churn 1.25% Churn 2.5%
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

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


Web/Mobile Products– Grow Customers

© 2012 Steve Blank

Web/Mobile Products Get/Keep/Grow

© 2012 Steve Blank

Ag Robot
Customer Relationships Example

Demand generation plan and budget

• Word of mouth generation
– 2 systems for “Demo day events”
– 2 systems for customer demos
– 4 x 30K each = $120,000
• World Ag Expo Booth
– 1 x 40x40 corner booth with demo
– Hold press event breakfast
– $ 15 K (booth, banners, hotels)
• Magazine campaign
– 3 ads in 2 magazines
– Goal – get 2 articles on us
– 2 x $ 10K + Ad agency = 30K
• Total $165 K
“You prove that it works and everything else is easy. Distribution is not that
complicated in farming.” – Wyatt Duncan, Integrated Crop Pest Control

Medical Device

Housing App
Customer Relationship Example

• We ran a Facebook ad to test actual willingness2
to pay for this service

49

• To test willingness to pay we used three 2
identical ads with three different landing pages

50

• To test willingness to pay we used three 2
identical ads with three different landing pages

Ad Sign-ups Clicks Ad spend

Free 0 23 $25

$1/household 0 25 $25

$1/user 0 24 $25

• Unfortunately, test results only proved users did not trust our site
for payments
• Facebook traffic on this campaign was on our page for 4
seconds on average
• Roommate campaign had a 1:37 site time average
• Outstanding question: can we win trust in other ways and then
engage users to pay rent through us?

51

• Customer archetype: Sara

How she searches
 Wants to be efficient (will use a broker if doing a
search on her own is too painful)
 Asks friends for recommendations

What Matters to Sara
 Wants to live in a fun place that is safe
 Doesn’t want to overpay
 Doesn’t have much time to hunt for a place
 Live with someone she trusts (moving to DC)

Influences
 Where friends go out/live
 Work location

52

Online Dating

What We Did: Landing Page + Web App

What We Found: High referral traffic

4 day progress report

Overall Signup progress

1258
31 filled 5-
136 min survey

10.8%

What we did: Targeted women, all couples Demand generation test

Hypothesis: Women-in-relationships are likelier to click
through, irrespective of distance status

Tested for $30 Facebook click through & conversion from FB
impressions
Ad-1 Ad-3

Ad-2 Ad-4

What we found: women click more
...................................but not clear who will pay!

Couples will pay subscription if they find more Subscription model test
1 sharing during free trial valuable

LDRs 1 Takeaway: “More
6 sharing” without
Paid convenience will have to
be free.
SLRs 4
Good if free

Women likelier to click through irrespective of Demand generation test
II
distance status
Click
LOCATION Impressions Through Men Women Women-in-rel
rates
87140

What we found: Clicks, no web app usage Demand generation test

Funnel: “Couples” campaign
$ 29.7 this week

304,286 0.01 c
impressions

122 uniques 0.35 c/new
85 new

24.6% conversion
30 sign-up 0.99 c
clicks
but one used web app

Online Sales

Year 1 Web funnel Year 5

100 000 hits Referenced to our web site 300 000 hits

50% 70%
Fill out savings calculator
20% 30%
Send request to sales
30% 30%
Reconnection with viable
customer
80% 80%
Visit to site
10% 20%
Close sale
Total Total
Revenue
1.44 million Revenue
18.14 million

Mobile App

Success Depends on Virality> Churn
Ratio of early stage viralityrate to churn rate = 2.00x

Success Depends on Virality>Churn

Demand creation via website

1 2 3

“Not a landing page” Doesn’t show the
No Indonesian version product

Demand creation via website -
results
Clicks CTR
100 74 2.00% 1.56%
68 1.25%
50 22 1.00% 0.59%

0 0.00%
1 2 3 1 2 3
People need to use the product
CPC for us to maximize Conversions per click
learning
1.5 1.34 6.00%
4.05%
1 0.62 4.00% 2.94%
0.54
0.5 2.00%
0.00%
0 0.00%
1 2 3 1 2 3

Software Reference Tool

AB Testing Results

0% conversion 42% conversion 75% conversion 32% conversion

• Original Peaya website has 66% conversion rate
• Conversion defined as people clicking the download button on the landing page
• Experiment still underway; too few data points for drawing conclusions

Google &Facebook campaigns

• Keywords: free endnote, reference manager, pdf
manager, Itunes for digital content, I tunes, manage
pdf, organize paper, paper manager, citation
manager, paper citation, cite pdfs
• 24 impressions, 2 clicks on googleadwords
• Clicks on free endnote and organize paper
• No Facebook response
• 1 Post on ResearchGate drew 7 visitors

We’re “a little” viral
12% of sign-ups from referrals
14 of 117 new registrations came
from referrals by 3 people from Jan
1 to Feb 1.

Referral bonus promoted in tutorial

Collaboration doesn’t “pop”…. yet
“Rate & Discuss” is least
interesting tutorial screen so far

However:
1) we can test different messages
(ie “collaborate”)
2) experiment is slightly biased in
ordering, we need further testing

Search Keywords

Lesson Learned:
Very little search traffic -> a “missionary” sales effort

Highly Competitive Keywords

Lesson Learned:
AdWords (paid SEM) is not going to be an efficient channel with these
keywords

ChannelIncentives

VP

All Institutions
Out-patient care/ Per Service High Value
home setting Revenue Model Therapies

Hospitals Private Dosing flexibility
Hospitals, specialty
clinics Efficient patient
Pain Clinics management

In-patient care/ Per Diem
hospitalization Pharmacoeconomics
Revenue Model
HMO, ACO, Non-
profit, University
Hospitals

Demand Creation
Patients/Advocacy
Groups

Conferences / Trade magazines / PR
Societies conferences
$20k/event * 6 events $20k/event * 4 events

Research Journal
One on one Meetings
$150k/year travel
Adoption Publications
(Free)

Budget ~ $300 k/year

Nsf online lecture 5 customer relationships

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