Thread by @dunkhippo33

Today's tweet storm is on customer acquisition costs (CAC) -- do they go up or down?

1) tl;dr your CAC (almost) always goes up over time. So, if it's not good or barely good in the beginning, you'll want to think through some things.

And there are exceptions too...read on >>

2) Why does CAC (mostly) only go up?

When you think about, CAC is "lowest" in the beginning, because you have no customers. You can get the low-hanging fruit cost effectively.

Think ad spend. Outbound sales spend. etc. First movers are ready to buy quickly.

3) There will be local maximas and minimas on your spend.

E.g. sometimes ad prices go down or up depending on what your competitors are doing, etc. Like now is a great time to buy FB ads even though it has nothing to do w/ your company.

But that's a local minimum.

4) So if you aim for immediate payback on your initial CAC goals, you will be fine. Hit that in the beginning. Don't aim for 3 mo payback or 6 mo payback, because your payback per will only go up.

5) Once the low hanging fruit customers have been sold to, you need to buy a new list to cold email or try more expensive ad campaigns / channels.

That's when CAC goes up. If your immediate payback goes up to 3 mo payback, that can be ok - you now know your LTV better.

6) And if you have great rapport w/ your long-standing customers, eventually you can cross-sell or upsell them on other things, increasing the LTV more.

7) But there are a couple of exceptions where what I've said is not true. Not *all* concerted marketing costs go up.

SEO, for example, is the opposite.

8) For SEO, if you spend $$ on a writer & a BD person to get you links and articles, that cost will be upfront. And over time, the price per lead you get from that 1 time payment, will go down as you get more leads.

BUT, your tradeoff here is this doesn't happen immediately.

9) It takes YEARS for SEO to really kick in -- at least 3+ yrs to see significant results.

So even if you start a repeatable SEO process on day 1, you have to last 3 yrs w/ basically no $$.

10) On top of that, most VCs don't want to fund SEO cos because of that long cycle. So you have to eat glass to make that work.

It CAN be done. and you CAN build a big business from SEO (@NerdWallet is a great example), but it's important to know what you are walking into.

11) AND, if you want to make that work, SEO doesn't mean you just sit back and wait for traffic to come. It doesn't mean that you write an article here or there w/ a couple of keywords in mind.

You still have to think of SEO in a process-oriented way like other types of mkting.

12) Specifically, you have to know

a) how much does it cost you to get a link? (on what type of domain / site)
b) how much does it cost you to write an article (what cat? what type? on what site?)

Compute this based on the cost of your ppl you contract.

13) Then later on, you'll compute

a) how much traffic did link / article get you? conversions? how much was it worth? after 1 yr? 2 yrs? etc
b) can you rinse & repeat the process to build links / articles -> traffic -> conversions produced?

And earn more rev than those costs?

14) A lot of ppl think SEO is about writing. But it's actually very quantitative and measured. The best companies doing SEO know to the T what links and articles (and nuances on those) are worth to them.

15) So, SEO can farm a lot of good $$ over the yrs, but still need to keep an eye on costs (when you have no money in the beginning).

And then track ROI over time to know how to improve your SEO process / spend.

16) In that sense, even though a particular link may decrease in CAC over time, I wouldn't say it's any easier than other mktg channels that only increase in cost over time.

That upfront cost for SEO is still a challenge to deal w/.

17) In concl, quick pre-seed rules of thumb:

a) aim for immediate payback
b) most cust acq channels (ads / sales) go UP over time, so you'll need to retain well & upsell later as payback period goes up
c) SEO - need to build a repeatable process & be cheap