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Today, we'll dive into amazing handbook created by Intercom, explaining how they went from 0 to 30,000 customers. This book will help you and your business understand everything related to growth. It serves up a full package of ideas, suggestions and lessons from across the entire spectrum of growth. The book consists of 6 parts. We will dive into part 1 today.
Acquisition Strategies
Activation Strategies
Retention Strategies
Monetization Strategies
Testing and Optimization Strategies
Metrics and Measurement Strategies
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Acquisition strategies
The new sales and marketing funnel
The concept of sales and marketing funnels is not new, but it is undergoing significant changes. Many businesses, both B2C and B2B, are shifting towards subscription models. This shift alters the way we close deals with customers. Instead of focusing solely on converting customers, it is now crucial to prioritize retention. In this new era, acquisition is no longer as important as retention. Therefore, businesses should plan accordingly to ensure strong customer retention and maximize customer lifetime value.
The Effectiveness of Acquisition is Diminishing
The prevalence of competition and the rapidity in producing products has made acquisition much harder. It is not only difficult to acquire customers, but also to retain them. Focusing solely on acquisition leads to a leaky bucket, where you keep losing customers and have to constantly add new ones to make up for it.
A simultaneous equations model was used to compare the impact of efforts on acquisition, retention, and monetization. The findings show that improving retention and monetization has 2-4 times the impact as improving acquisition. Improving acquisition by 1% leads to a 3% boost in the bottom line, while improving retention and monetization by 1% results in roughly 7% and 13% boosts respectively.
The relationship between retention, monetization, and acquisition indicates that improving retention and monetization has a greater impact on the bottom line. However, the focus tends to be on acquisition, despite data suggesting that this trend is getting worse over time. It is important to shift the focus towards retention and monetization for sustainable business growth.
Don't trade growth for profitability
The author, Brian Kotlyar, emphasizes the importance of not sacrificing profitability for the sake of growth. He criticizes the common belief among venture-funded businesses that they can acquire users at a high cost and figure out monetization later. However, he argues that if a company doesn't make money on its transactions, it won't be profitable regardless of its volume. He advises that the value of the customer should exceed the cost of acquiring that customer, and although it doesn't need to be solved on day one, there should be a plan in place to ensure profitability.
After product-market fit comes product-channel fit
Sujan Patel explains that once a company has achieved product-market fit, it's crucial to focus on finding the right marketing channels to take the business to the next level. Instead of trying to invest in multiple marketing channels simultaneously, Patel suggests identifying one or two channels that can be optimized for growth. He gives examples of successful companies like Apple and Microsoft, which typically have one main channel and a few secondary channels. Patel advises startups to prioritize one channel, get it working effectively, and then move on to the next one.
Why every business needs a mechanism for free acquisition
The recurring revenue model of B2B SaaS companies and the regularity and habit formation in transactional marketplaces like Uber contribute to better lifetime value and organic acquisition. Companies like Dropbox, Slack, and DocuSign benefit from a natural network where users have the opportunity to acquire their co-workers. Additionally, the little window on the bottom right of Intercom's interface has led to free acquisition for the company.
Why content is your most powerful acquisition channel
According to Eric Siu, CEO of Single Grain, content marketing is the foundation for successful acquisition. By creating great content, you can build an audience, retarget people, and increase your domain authority through link building. Content marketing allows you to collect more emails, optimize conversion rates, and branch out into other areas. Siu shares his own experience of starting a podcast and emphasizes the importance of being relentless and patient in content marketing.
Acquiring the right kind of customers
Rachel Hepworth, Head of Growth Marketing at Slack, emphasizes the importance of acquiring teams that have the potential to pay for Slack services. They shifted their focus from simply creating teams to creating work teams that actually invite others to join. By looking at metrics beyond team creation and considering factors like team activity and message
How early is too early?
Sujan Patel discusses the timing of customer acquisition efforts. He warns against investing in acquisition too early, before the product has achieved product-market fit. Doing so can lead to wasted resources and a negative first impression of the product.
Your ideal customer profile should bend –but not break.
This section discusses the flexibility of the ideal customer profile. While it's important to have a clear idea of who the ideal customer is, businesses also need to be open to opportunities outside of this profile. However, they should not stray too far from their ideal customer profile, as this could dilute their value proposition and lead to lower customer satisfaction.
Following is the short overview of the remaining paragraphs that we will dive into later:
Section 2: Activation
The second section underscores the importance of activation in the customer lifecycle. Activation is the process of turning acquired users into active customers who pay for and value your solution. A large number of free trial signups is a vanity metric if no one actually uses your software. The real growth problems start when people land on your product and then leave. Therefore, optimizing the activation process is crucial for business growth.
The text explains that since activation comes right after acquisition and right before revenue, it’s an incredibly important part of your business to optimize. When a lot of companies are struggling with growth, it’s not that too few people are coming to the products. The real growth problems start when people land, and then leave. Therefore, businesses need to focus on turning acquired users into active customers who see value in their solution.
Section 3: Retention
The third section, written by Des Traynor, discusses the impact of churn on the SaaS business model. Churn is usually seen as a factor limiting growth on a month-to-month basis, but the impact on customer lifetime value (LTV) is equally significant. It’s hard to build a subscription business on short-term subscriptions. The whole idea of the SaaS business model assumes the lower revenue per customer per month is offset by a longer lifetime of that revenue.
Traynor suggests that businesses should engage with their customers more often to understand what's going right and wrong for them. If your customers aren’t sticking around for years then you have a business model problem. This is common for products that have immediate upfront value, but give no reason to stick around months later. In these cases, businesses need to rethink their business model and focus on customer retention.
Section 4: Monetization
The fourth section, written by Brian Kotlyar, Director of Demand Generation at Intercom, discusses the concept of earning the right to upsell. He explains that it's not realistic to get every customer to buy everything at once. Instead, businesses should focus on selling the part of their product that has the strongest value, brand positioning, and differentiated capabilities, and can create the most value the fastest.
Kotlyar suggests that businesses can identify these patterns by looking at their best customers and finding others who have followed similar patterns. Once customers see the value in the initial product, businesses can then upsell additional products or features. This approach to monetization is about marrying your business model to customer value. Do that successfully, and you’ll be able to reinvest in new features or solutions, which will provide more value and bring in new users.
Section 5: Testing & Optimization
The fifth section emphasizes the importance of testing and optimization in driving meaningful growth. It suggests that businesses should focus on high-impact tasks rather than low-effort, low-impact work. Continually challenge yourself to tackle more significant growth opportunities. Use data to make informed decisions and automate processes. Leverage data in your products to personalize experiences and allocate marketing spend effectively.
The text explains that the best lessons in business come in plain English and speak uncomfortable truths. One such example is something we learned from Hunter Walk. He pointed out how fundamental it is to avoid low-impact work. This advice is crucial for businesses looking to optimize their growth strategies.
Section 6: Metrics & Measurement
The sixth section discusses the importance of measuring the right metrics for tracking and evaluating your growth efforts. It suggests that businesses should set up key performance indicators (KPIs) and establish a solid foundation for measuring growth. Ensure you have the necessary data infrastructure in place. Once the basics are in place, focus on scaling your measurement capabilities.
The text explains that we’ve coined an accounting term, 'the SaaS Quick Ratio.' It measures assets and liabilities that we apply to SaaS businesses. It’s the MRR (Monthly Recurring Revenue) that’s gained every month divided by the MRR that’s lost. This metric is crucial for businesses looking to track their growth and make data-driven decisions.
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