In determining whether paid advertising is viable for your business we need to understand your Customer Acquisition Costs (CAC). The simple way to do this is to add up the quarterly sales and marketing expenses for a company and divide that by the number of new customers acquired in the quarter. But how do we know if the CAC is worth it?
To answer this question, we need to look at the Customer Lifetime Value (LTV), which is calculated by (Annual Recurring Revenue x Gross Margin) ÷ (% Churn + Discount Rate). As a general rule: if LTV is 3X or greater than CAC, that’s a good sign that the business model is working.
If the LTV is close to or less than CAC, then something is out of balance; it suggests the company is spending more money to acquire customers than it generates in profits over the customer’s lifetime. This could be because the company hasn’t figured how to effectively monetize its customers. Or that customers are leaving before they’ve spent enough money to cover the costs to acquire them. Or that the company isn’t effectively scaling its customer acquisition costs.
And then there’s “Churn“, which is the ultimate measure of customer satisfaction. There are two types of churn: customer churn and revenue churn, however for our calculator we are simply concerned with Customer churn. Customer churn is the % of total customers who churned in a given month or year. Low churn means happy customers; high churn means they head for the exits fast. For this reason, we look at the churn relative to the rate of new customer additions. It tells us how leaky your bucket is: as long as the hole (churn) is small, you can keep the bucket full by adding more water (customers) than is draining out.
Churn is perhaps most important to forward growth outlook — especially as the need to replace lost business greatly increases at scale.
There are several ways that a company can offset or overcome churn: add new customers at a faster and faster pace; have “negative churn” (which happens when expansion revenue is larger than the revenue lost from churned customers), and reduce churn itself — that is, retain customers! This is why marketing, sales, and customer management functions are so crucial.
Sources: Forbes & MIT Technology Review Insights Survey
Using AI in 2015
Using AI in 2019
Using AI by 2025
Say AI boosted productivity
Reported no increase in productivity
Willing to Use AI
Reluctant to Use AI
NOT Willing to Use AI
Consumers Willing to Share Data with AI
Consumers Unwilling to Share Data with AI
Sources: PWC 2018, Salesforce 2019, Gartner 2019, Fortune Business Insights 2020
Sources: Statista, Unctad.org, onlinelibrary.wiley.com, Investopedia, Hootsuite
Social Media is a double-edged sword. By now, regardless of demographics, your audience is online in some form or other. And more so as a result of the pandemic. Whether or not your business should promote itself online is like asking whether all your billboards should go on abandoned dirt roads vs. highways. But it's also a fraught and volatile space. So you do want to have social media savvy professionals managing your online presence, outsourced or internal.
Don't think we'll forever live our lives mostly online. This pandemic will end, and when it does, think 'event marketing'. People are going to party like it's your birthday.
Graphic Design, Motion Design, UI/UX Design, Process Design: The accelerated rush towards online living means businesses are catching up to each other technologically. What will distinguish them is design, speed, and quality of service.
What is now a whisper in the zeitgeist is going to become a big topic of discussion in the next couple of years. The machines truly are starting to take over much of what we once did ourselves and eventually they will be better than us at most of it. Our industry is one of the canary's in a coal mine, so it's time to start asking; How do I/we add value. This is a complex subject, but a simplified short answer is; creativity and the synthesis of broad-ranging knowledge.
Video already occupied 80% of online use before the pandemic started, however, due to initial success and likely continuation of remote work; video training, streaming video and online conferencing have and will continue to explode.
We are for the first time, CAUTIOUSLY advising small businesses START thinking about A.I. The big players are already using it in a meaningful way. Small players are finding efficiency gains but there are good reasons to remain cautious. Our industry is a perfect example. What was once marketing science fiction is now a reality: A.I. that curates content (images and copy) to auto-generate ad variations for split-testing, which it then manages, collects and analyses the data which it uses to refine the ads it generates. But we're not ready to fire our copywriters just yet!
J.D. Nevins is your ideal partner for innovation. We specialize in Rich Media Production and Education Program Design. In short, we make online experiences magical. We are ideas-people and design thinkers. Whether it’s in the context of graphic-design, motion-design, user-experience & interface design, or in a broader sense such as strategy and process design, we have demonstrable experience and technical depth.
In short, we are a tight-knit group of inventors, tinkerers, analyzers, perfectionists and makers of cool stuff.