,
13 tweets,
2 min read
Read on Twitter
1) Entrepreneurs and VCs often complain that the cost to acquire customers goes up “too much” as you start to saturate acquisition channels.
2) This is true. For example, if you are launching a new canned tuna company, and you start taking out ads, your cac might start out at $3 to acquire a buyer and go up to $10.
3) This is why there are a lot of naysayers on things like one-trick pony D-to-C companies and alike. Afterall, it’s tough to force someone to buy more canned tuna to increase the LTV of a customer.
4) So everyone tends to spend an enormous amount of time talking about ways to reduce or maintain CAC. Eg how to diversify away from ads into SEO or even partnerships w Whole Foods or whatnot.
5) While I think CAC optimization is necessary and good, I actually think we should talk more about how companies expand their offering to increase LTV. There is only so much CAC optimization you can do.
6) The best companies in general are constantly trying to upsell. In SaaS, this is talked about a lot - how do you build more value add features and get your customers to buy higher priced packages. In other verticals, ppl are too fixated on CAC optimization.
7) In part, I think there’s more hesitation because adding things in other areas feel like “distractions”. I’ll give you some examples:
8) I know several marketplace companies that initially made little money per transaction. This is common for marketplaces but what they did to increase value was upsell other complementary products.
9) You see this a lot with big companies. On Expedia, if I book a flight, they take a small cut in between. But then they try to sell me on a rental car and a hotel and activities. GoDaddy is the same way - I buy a domain and then they sell me hosting, an email address, etc
10) For startups, there’s much more reluctance for a marketplace startup to try to upsell other things for many years. But SaaS companies create new features and higher paying packages much more quickly and earlier in their lifetime. Why is that?
11) So going back to my canned tuna example, once I’ve optimized as best as I can for CAC, I really should be trying to see if I should also be selling crackers or bread or maybe mayonnaise or a whole lot, perhaps. Or maybe different variations on canned tuna.
12) it’s obviously a balance - you need to worry about cac and LTV but having a higher LTV gives you more leeway to acquire customers. And more channels can potentially work for you.
13) So if I had to pick just one, I would pick focusing on increasing LTV over trying to reduce CAC. It’s just much easier to try to upsell ppl more things once you have someone’s trust than it is to optimize acquisition IMO.
