User base growth 101: Coordinate Marketing, Product and CLM efforts

The Produce Many Customers method. Actually, the (tech) Product, Marketing and Customer lifecycle management method. Give it whatever gimmickly name you will, but it’s the cornerstone to user base growth in a tech startup.

This method is particularly relevant for subscription models, but it applies just as well to e-commerce. It’s about leveraging your communication channels with the customer to acquire the market.

Now, it’s clear to everyone why Marketing is typically in the lead of any user acquisition strategy. However, it might not be clear to everyone what Product and CLM have to do with it.

How to acquire the market with Marketing without going broke?

tl;dr for profit: CAC <= Gross Profit (only sell at profit)
tl;dr for growth: Profit after CAC = Constant (reinvest everything).

If your startup has much more investor money than it has scale, then you are probably not too worried about cost of customer acquisition (CAC). However, this is not the case for most startups, and their CAC becomes a limiting factor. Typically, you would budget a percentage of your margin to marketing to be able to make the sale.

For example, if you are selling a basket worth 80 with a 25% repeat purchase rate, your customer is worth 100. Assume goods cost of 40, and you will probably want your average CAC to be <= 60, so you are able to at least break even on every sale.

For a subscription example, assume you charge 10/month for services costing 4, for 10 months average lifespan (half churn at first month, the rest stay avg 19 months).

However, not all CAC is built equally and the average CAC hides a distribution. For the sake of example, let’s assume your CAC goes up by 1 with each new member and starts from 1 for the first member. You will only be able to acquire members profitably up to the terminal (max) CAC of 60 (60 members, of which the last bringing 0 profit). Usually, the slope gets very steep very fast when you have already reached most of your target market.

Now, if those members were more profitable, it might look different.

Chart that shows max profit is achieved at max(CAC) = CLV, at which point 60 customers were acquired
Your maximum profit is reached when your max(CAC) = CLV


How does product pay a role?

tl;dr: Customer success or CR increase resulting in small CLV increases leads to large member base increases.

Product is responsible for assisting to convert visitors and tentative customers into successful customers. In the context of subscriptions where the user has to get repeated value, or of repeat purchases where the customer comes back because he had a good experience, it is vital to consider customer success.

While specific to your product, do whatever it takes to ensure your customer gets value from the start. If you are running a subscription model, make sure your customers are using the product they paid for proficiently, and that they are fully onboarded. If you are selling goods, make sure the shopping experience is easy, the order tracked, communicated, delivered on time.

If we manage to get that repeat order rate from 25% to 38%, (or that first month retention rate from 50% to 56%, then we increase the CLV by approx 10%.

Now, your max profit is 2145, up 21% from where we started with 66 customers, up 10%. Or, if we are optimising only on customers, we would be able to reach a whopping 93 (+55%!!!) customers while keeping profit the same as in the first scenario.

Small improvements on product make all the difference. As long as the strategy is executed coherently, a small nudge from Product to increase the CLV by 10%, leveraged by Marketing, becomes a +55% avalanche of users.

10% CLV while keeping profit steady leads to +55% increase in users

In a subscription model, your total members is a measure of customers and lifetime duration. Such, in the example above, we lowered first month churn, increasing avg lifetime of the user from 10 months to 11. Such, our total members over time goes up an additional 10%, leading to a whopping +65% total member base increase.

In the wild, your cost curve will look different. If you have already reached most of your market, your cost curve is harsh. However, most startups are still startups because they have not reached the entire market, and such have milder CAC curves.

So how does CLM play a role?

tl;d: for profit More lifespan(+60%) = more CLV(+60%) = more money = more customers (+75%) = more money (+212%)

tl;dr for expansion: More lifespan(+60%) = more CLV(+60%) = more customers (+220%) = more user base (+460%)

CLM makes good members better. Customer lifecycle management, which is often reduced to CRM in e-commerce, can easily account for a +60% increase in your sales from your existing customers. A standard for e-commerce is likely closer to +25-40%, while for subscription models it usually starts at +50% (that’s why your phone company keeps making you those offers when you are on a prepaid card)

So let’s assume a +60% increase in customer lifetime, which leads to the same increase in CLV. How does this play out in our scenario? We can maximise our profit at 5523 (+212%), with 105(+75%) customers, or we can maximise our customers while keeping profit constant, reaching 192 (+220%) customers.

192 customers at 1747.2 profit

What does this look like for that subscription model? Well, increasing customer lifetime directly increases total user base. Adding to our previous scenario, we reach a total user base 5.6 times larger.

How to take advantage of both this and product, to bring them to the point where they win the market?

With data of course. You are unable to acquire accurately without visibility and clear attribution.

You need data to improve product – you are unable to optimise product without well designed experiments. (and most product managers already do it right)

You need data to improve CLM – you need it to understand your customers and to send them personalised relevant communication at the right time. You need it to measure the effect of what you do, to make sure you aren’t doing more harm than good.

In conclusion

To sum up, you leveraging CLM and Product together with Marketing allow you to leverage the same resources (assuming salaries are only a fraction of marketing budget) to achieve vastly different results.

In our example we can see how a coordinated strategy helps in reaching a significant 5.6x increase in total user base for the expansionist on a budget, or 3x profits and 1.75x members if optimising for profit. And how does this scenario work with salaries? well, assuming the above scenario is happening daily, you could easily give up some conversions in favour of profits to pay your staff.

The numbers above are more or less arbitrary chosen for the sake of easy representation. Your mileage may vary.

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