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How to Reduce Customer Acquisition Costs and Optimize Advertising Spend
The document outlines strategies to reduce customer acquisition costs (CAC) and optimize advertising spend, emphasizing the importance of evidence-based experimentation methods. It discusses various tactics for enhancing marketing efforts, such as landing page optimization and referral programs, while highlighting the significance of understanding marginal CAC. The content encourages businesses to adopt structured experimentation frameworks to improve customer acquisition and overall effectiveness in their marketing initiatives.
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Introduction to reducing customer acquisition costs and optimizing advertising spend. Webinar details provided, including Q&A.
Brad Yee's role as a strategy consultant focusing on data-driven business impact and customer optimization.
Definitions of Customer Acquisition Cost (CAC), its importance, and factors affecting it.
Visual frameworks (Goal Trees) for analyzing CAC in e-commerce and their applications.
Exploration of CAC implications for B2B and SaaS companies through goal trees.
Details on marketing and sales costs influencing CAC.
The importance of CAC and visual representations of its relationship with customer lifetime value.
Experiment strategies to reduce marketing acquisition costs, including landing page optimization.
Classpass case study on optimizing free trial programs and the effect on CAC.
Concept of Marginal CAC and its importance relative to Customer Lifetime Value.
Strategies to enhance referral programs and improve new member sign-ups through A/B testing.
Improving sales support processes through chatbots to enhance lead qualification.
Exploring experimentation frameworks to identify effective solutions for CAC.
Summarizing strategies to improve CAC, the risks of growth without control, and importance of experimentation.
Thank you slide and information about the next session in the Outperform series.
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How to Reduce Customer Acquisition Costs and Optimize Advertising Spend
- 1. 1 Brad Yee Sr. StrategyConsultant Reduce Customer Acquisition Costs and Optimize Advertising Spend
- 2. ● Customize thewidgets 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. Brad helps leadingorganizations 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 Strategy Consultant, ProfessionalServices 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.
- 6. ● What areCustomer 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 What is aCustomer Acquisition Cost and why do we care about it?
- 8. 8 CAC Definition CAC = TotalCost of Sales & Marketing # of Customers Acquired EQUATION:
- 9. What are thelevers that affect CAC?
- 10. What are thelevers experiment opportunities that affect CAC?
- 11. 11 ● Visually analyzesthe 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 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 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 Goal Tree -Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely
- 15. 15 Goal Tree -Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely
- 16. 16 Goal Tree -Customer Acquisition Cost for E-Commerce *Orange = KPIs that can be influenced by digital optimization via Optimizely
- 17. 17 How would thislook for a B2B or SaaS Company? Skip or move fast
- 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 Goal Tree -Customer Acquisition Cost for SaaS *Orange = KPIs that can be influenced by digital optimization via Optimizely Skip or move fast
- 20. 20 Lets drill downinto the cost-side
- 21. 21 Goal Tree -Customer Acquisition Cost
- 22. 22 • Advertising through paidmarketing 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 Importance of CACand its influence on Lifetime Value
- 24. 24 Visualizing CAC andLTV CAC Profit Time
- 25. 25 Visualizing CAC andLTV CAC Payback CAC Profit Time
- 26. 26 Visualizing CAC andLTV Churn CAC Payback CAC Profit Time Net LTV
- 27. 27 Visualizing CAC andLTV: Reducing CAC = Faster CAC Payback, Higher LTV Net LTV Churn CAC Payback CAC
- 28. 28 Visualizing CAC andLTV: Increasing CAC = Longer CAC Payback, Lower LTV Net LTV Churn CAC Payback CAC
- 29. 29 What are someexperiment strategies to optimize Marketing Costs?
- 30. 30 • Advertising through paidmarketing 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 Strategy 1: Optimize landingpages to convert paid traffic and optimize our advertising spend
- 32. 32 • Advertising through paidmarketing 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 Strategies and Tacticsapplied 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 Strategies and Tacticsapplied to Landing Page Optimization Landing Page Optimization Symmetric Messaging Wording / messaging Goal Strategies Tactics
- 35. 35 What is SymmetricMessaging? Control Experiment Variations
- 36. 36 Symmetric Messaging >90% statistical significance 40%Lift Form Submits
- 37. 37 Strategies and Tacticsapplied 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 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 Strategy 2 Optimizing FreeTrial Programs
- 40. 40 • Advertising through paidmarketing 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 Classpass Win BackExperiment 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 Classpass Win BackExperiment 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 Classpass Win BackExperiment Example V1: Control V2: Extended Offer Reactivated Free Trial 100 125 +25% Cost of Goods (COGS) Retained After Free Trial Average CAC
- 44. 44 Classpass Win BackExperiment 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 Classpass Win BackExperiment 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 Classpass Win BackExperiment 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 Classpass Win BackExperiment 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 Classpass Win BackExperiment 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 Benchmark for LTV:CAC is 3:1 CACPayback Model LTV Churn 1 3 CAC
- 50. 50 Benchmark for LTV:CAC is 3:1 CACPayback Model LTV Churn CAC >1 <3
- 51. 51 Growth at anycost is a recipe for disaster
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- 53. 53 • Advertising through paidmarketing 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 A/B Testing ReferralSign-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 A/B Testing ReferralBonus 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 A/B Testing ReferralBonus 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 A/B Testing ReferralBonus 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 A/B Testing ReferralBonus 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 A/B Testing ReferralBonus 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 A/B Testing ReferralBonus 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 What are somestrategies to reduce Sales Support Costs?
- 62. 62 Strategy 1: Optimize thesales support process
- 63. 63 • Advertising through paidmarketing 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 Optimizely Example: ChatBot 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 Optimizely Example: ChatBot on the Sales Contact Pages Original variation
- 66. 66 Optimizely Example: ChatBot 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 We Believe in‘Drinking Our Own Champagne’ COnsider skipping here
- 68. 68 How do weknow if we found the best solution
- 69. 69 Audiences Areas Metrics Goal Levers Experiments What solutions couldexist? 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 Audiences Areas Metrics Goal Levers Experiments What are ourKPIs / 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 Audiences Areas Metrics Goal Levers Experiments What are ourKPIs / 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 Audiences Areas Metrics Goal Levers Experiments Experimentation Framework These strategies andtactics guide the solutions could exist
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- 74. 74 There are manylevers 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
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- 77. 77 How to CaptureYour Customers at the Top of the Funnel Tuesday, January 21, 2020 | 10 AM PT / 1 PM ET Coming Up Next in the Outperform Series