When it comes to paid marketing, you're going to want to give it some extra
thought, and consider a few things before going out there and
paying to acquire new customers.
After all, we are a start-up so we want to spend our money wisely.
Now, if you want to make sure your growth is sustainable and
your money is well spent, you want to keep in mind a few metrics.
Starting with ARPU or your average revenue per customer, the LTV or
lifetime value per customer, and the CPA cost per acquisition.
Now, you want to think about how much money you're willing to spend per
customer to get them in the door.
So these are the things you need to consider to determine this.
So there's your ARPU, your average revenue per user.
So how much money are you going to make per given customer over a certain
time frame?
Knowing your ARPU and your retention rate, so how long you're keeping your
customers with you can help you calculate your lifetime value or LTV.
Your LTV is the amount of money you're likely to make from
a given customer over the time that they're affiliated with your company.
Okay, let's take the lifetime value of a gym member for example.
So let's say the member spends $20 a month over three years on their
membership.
So that's $20 a month for 12 months for three years,
giving you a total lifetime value of $720 for
that one customer in total revenue, about $240 per year.
Now, for startups who haven't acquired any customers yet,
determining your LTV is nearly impossible to do.
But since it's so helpful in helping you define your goals and
setting a baseline, It's really worth an effort to at least estimate it based on
the number of transactions a given customer will make over a month or
even over a year.
Okay, let's take a aBARKment for example.
We charge $20 a month as a fee for sitters to be listed on our site.
And every time they get a sitting job, we get 15% of what they're charging,
which averages out to be around $15 per month.
And most sitters stay with us for about 24 months, so
this makes their lifetime value $840.
Your LTV and average revenue per user is going to help drive how
much you're willing to spend to get new customers.
So, if our cost per acquisition is too close to our lifetime value or
average revenue per user, then we're doing something wrong.
However, if our cost per acquisition is $70 per sitter,
we're profiting about $770 per sitter we have on our site.
This should make our average revenue per user higher than how much it costs
us to gain that user, which is really what your goal is.
One thing I want to point out is you should be looking at your LTV or
ARPU per segment.
Think back to market segmentation about this.
That way you can determine how much you could have paid to acquire different
users from different segments.
For example, if we decide to have our dog owners pay a $50 monthly fee,
and then we get 15% of all of their bookings,
which average out to about $22.50 a month and they stay with us for
three years, we're looking at an LTV of $2,610.
So we know we can spend more to gain dog owners, because their
lifetime value is significantly higher than the lifetime value of dog sitters.
Now, if your company has different subscriptions,
you may see that people in one subscription group have a much lower
lifetime value than somebody from another subscription group.
That'll help you determine how much you want to spend on getting people into
different subscription tiers.
For example, if people in the lowest paying subscription don't stay with
you as long,
you're not going to want to spend as much to acquire them as a customer.
However, if people in, say your platinum level stay with you for
a long time and spend a ton of money with you,
you can be willing to spend a little bit more to acquire that customer.
Now having said that, our company is a marketplace.
So in order to maintain this healthy marketplace We have to ensure both
supply and demand.
So sometimes we may need to spend more on sitters to sustain our supply or
else the company would fail.
Being a company the offers to babysit your dog without people
to actually babysit the dog, it wouldn't work out too well.
So these metrics are valid across online customer acquisition channels and
they're just beginning.
You can also consider conversions.
So, how many people actually become customers, bounce rates for emails and
even traffic from specific channels and much more.
We'll talk more about a few of these during this lesson and the next.
So let's hear from Talley about her advice on paid marketing.
And then, we'll start talking about our first channel, SEM, or
search engine marketing.