Customer Acquisition Toolbox
Does your team spend too much to acquire new customers? Download the [naem] presentation template to increase the ROI of your customer acquisition efforts with tools that help track and manage customer acquisition costs. The template includes slides on LTV to CAC ratio, Cohort Analysis, Customer metrics, viral growth loop, funnel analysis, market sizing, target prospects, the lead maturing cycle, a framework for customer acquisition, and additional dashboards to measure acquisition success. Plus, learn how a SaaS company like Adobe or Salesforce can use an LTV to CAC Ratio to steer their marketing efforts and control spending based on what industry they are targeting in our explainer video.
LTV to CAC ratio
First - to evaluate the efficiency of any marketing effort, you need to calculate the ratio between your customer acquisition costs and the lifetime value of your customer.
This slide lists the ideal LTV to CAC ratio, which is 3 to 1. So for a cost of $10, the new user should bring in $30 of revenue. This is the 'goldilocks' zone to acquire new customers. If you get a ratio of 1 to 1, it means you are spending too much. But a ratio of 5 to 1 means you're spending too little on growth in favor of margin, and you can actually spend more to gain new customers.
The chart below the ratio formula links to a spreadsheet, and the dial can be rotated manually as the ratio changes over time. (Slide 5)
Customer retention is almost as important as new customer growth, yet only 40% of companies prioritize turning return customers into lifetime customers. This is despite the fact that Bain found a 5% increase in retention can improve profits by 25% to 95%, and a 10% increase in retention can increase a company's overall value by 30%.
This cohort analysis visualization quantifies the percent of customer retention by total customers. Each row in the table represents a different cohort and the month they joined. Since cohort one joined in January, 100% have been retained. The next cell is blank because it's focused on new members from February.
This data helps you visualize a trend to discover where churn becomes a pattern over time. For example, it looks like customers are mostly satisfied in the first three months, but then drop off after the first quarter. This will help you analyze what is missing to improve retention based on churn patterns. (Slide 7)
Next, execs need a dashboard to track recurring customer metrics. This dashboard tracks KPIs like overall committed monthly renewing revenue or CMRR per customer, customer churn, and revenue churn, which you can measure against your CAC and payback in months to determine when you break even and begin to profit.
At the bottom, two graphs link to spreadsheets that can be edited to measure whatever metrics are most important to an exec's business. (Slide 16)
Viral growth loop
Last, execs need Viral Strategies. This viral growth loop details the viral coefficient needed to drive existing customers to acquire more customers. It starts with a new user. Assume a new user that is actively engaged in the brand will do the work. Of every new user, 75% become actively engaged and invite their friends.
The branching rate is the average number of users that get invited from each new user. So each actively engaged user branches out to invite 7 of their friends, of which 50% click-through, and of which 40% become a new user. To calculate the viral coefficient, multiply all four of those numbers and you have the viral coefficient, which is the number of new customers that are generated by every new user. In this instance, for every new engaged new customer that we generate, this new person will bring in additional 1.05 people.
Execs can input their own data into the formula to find the number of new customers that are generated by their own viral coefficient. Any number above 1 is good because, for every new user the company acquires, it will gain an additional user or more. (Slide 22)
LTV to CAC use case
Let's jump back to LTV to CAC. Different companies have different ideal LTV to CAC ratios depending on where they are in their life cycle. For example, a SaaS company like Salesforce or Adobe has an LTV to CAC ratio that's closer to 5 to 1 than the typical 3 to 1. First, it raises its LTV over time as it expands its product lines and utilizes its scale to achieve better pricing. Once the company is no longer in a high growth stage, it becomes judged on its profitability instead. This higher LTV also comes from organic marketing channels, where Adobe or Salesforce might spend more to create thoughtful content that educates users as opposed to burning as much spend on ads.
Also, remember the LTV to CAC benchmark varies across industries. For instance, a traditional business service like Salesforce might strive for a 3 to 1 LTV to CAC ratio, but a design company like Adobe might strive for a 12 to 1 ratio, especially when the LTV of an enterprise client is much higher.
This presentation has two additional slides dedicated to help execs list business components that determine customer acquisition costs, like advertising costs and overhead expenses. (Slide 3 and 4)
With viral growth, stronger monthly tracking, improvements to customer retention, and a company's LTV to CAC ratio, execs can dramatically increase their organization's profitability and lower acquisition costs.
To download the full Customer Acquisition Toolbox presentation template for additional tools to increase your organization's profitability and lower acquisition costs, become a You Exec Plus member You'll gain additional slides that analyze and track customer funnels, market size, target prospects, and lead nurturing, and be able to access additional resources on Customer Journey Maps, Business Benchmarking, and Value Proposition, as well as 500 more business presentation templates, spreadsheet models and book summaries.