Lessons on user acquisition from Morgan Brown
If you want to grow your app you need to design an effective distribution plan not only for your app but also for your content. To do that you need to understand your customer’s behavior, the economics of what you should spend to acquire new users, and do experiments that help you determine which acquisition channel works best for your product/service.
Customer behavior determines user acquisition strategy
The first thing you need to do is understand user behavior to know which channels you’ll need to explore when it comes to acquiring customers. Your customer behavior will determine your strategy. Some examples of this:
|User Behavior||Channel to explore|
|Are people using search to find a solution?||SEO/SEM|
|Do existing users share your product via word of mouth?||Virality or referral program|
|Does having more users improve the experience?||Virality|
|Are your targeted users already using another platform?||Integrations and Partnerships|
|Do users have a high lifetime value?||Paid acquisition|
Understand the economics of what you should spend
Customer acquisition is one of the areas where people waste more money. You need to calculate how much it cost to acquire a user and how much can you afford to spend. It’s also important to calculate the LTV by acquisition channel.
The typical calculation of LTV is LTV= monthly revenue * 1/Churn rate
This equation assumes that three things are always stable: the churn rate, the product, and the customer acquisition channel. In a startup, it can be a mistake to calculate the LTV with this equation because nothing is stable.
How your LTV can be impacted based on how your customer base churns or retains:
There are products that have a cliff when it comes to retention. You get a lot of users and after a period of time the vast majority cancels and large amounts retain. This is the case of having a free trial for example.
There are products that have annual renewal. For a year people stay but when it’s time to renew their subscription to the service, large chunks churn.
How can you calculate the LTV in those cases?
You can do a quick and dirty LTV calculation using the following equation:
LTV= monthly revenue * 1/Churn rate * 0,75
This is basically the same equation than before but you are applying a haircut so you get a more conservative estimate.
Another way to calculate is observing the LTV by acquisition cohort. It’s a good way to get more granular data on your LTV.
Read more about this:
Diligence at social capital part 3 cohorts and revenue LTV
Good targets when talking about LTV
As a rule of thumb, your LTV should be 3X your CAC (Cost Per Acquisition) and another thing you should consider is the payback. Ideal payback is less than twelve to fifteen months.
What are the best acquisition channels?
There are essentially three types of channels: viral/word of mouth, organic, and paid.
|Viral/Word of mouth||Organic||Paid|
|Social media (Facebook, Pinterest, Snapchat, Instagram,…)||SEO||Offline ads (TV, print, billboard)|
|Embeddable widgets||PR||Online ads (Adwords, Facebook ads, etc…)|
|Friend referral program||Content marketing||Affiliate advertising|
|Online video||ASO||Influencer marketing|
|Community engagement||Free tools||Radio|
|Contests and giveaways||Email marketing||Retargeting|
|Platform integration||Community building||Ad networks|
|Crowdfunding||Strategic partnerships||Sponsorships (blogs, podcasts)|
|Games, quizzes||Contributed articles||Native content ads|
Not all the channels work the same for all the products. In fact, there are channels that will not work for your product or service at all. For example, social media and word of mouth don’t work for things like debt/bankruptcy, legal troubles, or health issues.
For new products that don’t have demand yet, channels like Search or SEM probably are not the best to consider at the beginning.
How can you find a channel that works for your product?
There are two types of experiments you want to consider running
The seek and discover experiment. You go and test channels that are still untested or you have not try. Before going all the way and invest in a channel, you do little experiments to test your hypothesis and see the results you get.
The optimize and refine experiment. You do experiments on channels that are actually working well for you with the objective of optimizing them.
When choosing the channels you want to do the experiments on, keep in mind the time this particular channel needs to be effective, to give you results, and the payback period. For example, things like paid acquisition need a low period of time to get results and it’s very controllable and measurable. Content marketing and SEO, take more time to be effective but can be scale much greater than paid acquisition channels.
When you have decided on a channel or a strategy, drill down on that particular channel so you can get the most of it. For example, if you have decided that content marketing can be good for you, you need to consider all the types of content marketing and think about which one can work better for your company and product. There are case studies, how-to guides, press releases, infographics, special reports, articles, PDFs and Ebooks, web forums, reviews, videos, powerpoint presentations, images and photos, interviews, lists, Q&A websites, local business listings, Pinterest, Facebook, Instagram, Twitter, Snapchat, LinkedIn, Medium posts, testimonials,…
To decide what to prioritize take all your ideas around a particular channel and rank them on a scale of 1 to 10, being 1 less desirable and 10 most desirable, according to the following variables:
- Cost. How much money is it going to cost to take advantage of the channel
- Targeting. How narrow can you target
- Control. How much control do you have over the channel?
- Input Time. How much time is it going to take to get the experiment out into the channel
- Output Time. How long to see results from your efforts.
- Scale. If you get the channel to work for you, what is the potential?
|Cost||Targeting||Control||Input Time||Output Time||Scale||Average Score|
Once you have all your ideas prioritized, do your experiments quickly to learn as soon as possible what works and what doesn’t. Follow these steps:
- Step 1 Analyze. Discover promising new growth opportunities through qualitative and quantitative data dives.
- Step 2 Ideate. Generate hypotheses for growth experiments that are likely to move the needle.
- Step 3 Prioritize. Determine with a rigorous prioritization process which experiments to pursue.
- Step 4 Test. Test your experiments to see which one produces the biggest growth wins.
One of the biggest mistakes people make is not closing the loop on their acquisition channels, and don’t track their acquisition efforts all the way to the end user. Are you measuring your user retention rate for this particular channel? If not, maybe your resources will be best used on another acquisition channel.
When you find something that works, double down on that. Don’t leave it to go and try something else.
Quick ways for finding wins for customer acquisition
- Emerging channels can provide big first mover advantages. When it comes to customer acquisition, these channels are imperfect and inefficient, but because of this, they provide plenty of opportunities for first movers.
- Innovative tests can provide new growth. For example, if you are seeing results doing content marketing try new things, new types of content and measure the results you are getting. If a channel is working for you, don’t look only to optimize that channel, look for innovative ways so you can turn the dynamics of this channel to your advantage.
- Engagement loops can reduce CAC through new user adds. If you acquire one new customer from a friend referral for every four or five customers acquired through paid acquisition, you are lowering your customer acquisition costs between 20-25%.
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