Customer Acquisition at Scale

Check out some frameworks, examples & racing analogies to help acquire new customers at scale.

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Today, I’m talking about a topic that I’m currently working on, with a few consumer-tech products: Building Scalable Customer Acquisition Strategies

So here I bring together a few frameworks, examples and some racing analogies to help you decode this mystic yet really simple way to acquire new customers.

Let's dive in.

(brace yourself for a long road ahead)

As advisors to early & growth stage companies, I often come across this question from founders: “How do I make my product viral?” or “How do we scale really fast?”

Well, the answer to that is never easy. It’s a combination of a lot of factors. But today, we focus specifically on how to build scalable acquisition strategies.

Founders are often surprised to learn that there are very few ways to scalable new customer acquisition. For consumer companies, there are only three growth “DRIVERS” that comprise the majority of new customer acquisition:

1. Performance / paid marketing (e.g. Facebook and Google ads)

2. Virality (e.g. word-of-mouth, referrals, invites)

3. Content (e.g. SEO, YouTube)

In here, we wouldn’t cover any offline drivers like sales, partnerships or PR, since that’s something that might differ for each sector.

The most successful product companies globally have used one of these three drivers to acquire the majority of their customers.

The thing about customer acquisition at the very beginning of a product’s journey is: it’s wiser to start with focussing on just ONE driver of growth. Double down on it with relentless focus, while then starting constructs of growth with the other two channels.

Once you’ve reached diminishing returns through your primary channel, start building on your secondary channels from there on.

In the case of paid marketing and SEO, you are competing for a customer’s attention. Paid marketing becomes a business model competition (who can turn this customer attention into enough value that they can bid more than anyone else for that attention), and SEO (or content) becomes a ranking algorithm competition (who can capitalise on their content in such a way that “giants” like Google want to continue to send traffic their way).

In the case of virality, you are competing for something even more precious: a customer’s social standing. Consumers only want to recommend things that improve their relationships by genuinely helping other people with great recommendations, or perhaps just making them look cool. You can increase referrals with the right UX and incentives, but only to an extent.

The real challenge is deciding which driver to pick as your primary chauffeur for the journey. Startups often end up confusing themselves with HOW to pick one of these. Here’s a framework for you to be able to make that choice:

1. Validate that this driver is right for you

2. Commit the necessary resources to give the driver a real shot

3. Scale the investment to dominate your category

The first phase is to validate (as economically as possible) that the chosen driver is right for your business. There are two approaches to validating this, which when combined will help you build confidence that a lane is worth committing to.

(here we’ll look at all 3 drivers: paid, virality & content through the lens of your business model)

Each driver is naturally suited for different business models. And since each driver is so competitive at scale, you’ll need the built-in advantages that come with your business being a naturally good fit. Here are a few rules of thumb that we rely on:

Performance Marketing is a natural fit if:

You generate revenue directly from new users (e.g. purchasing a product, subscribing to a service), which you can then use to fund more marketing

Customers are not naturally going to be looking for your product, and thus you have to come to them (e.g. a new DTC brand or a fintech product)

Virality is a natural fit if:

Your product is better when your friends or colleagues are using it (e.g. social platforms, aggregator platforms with massive discounts)

The product is innately fun to share (e.g. travel photos, community driven products)

Content is a natural fit if:

Your users naturally generate free content (e.g. reviews or answers to questions) when using your product, which you can use to attract new users.

You have a lot of unique data (e.g. cafes in Bombay, travel tips for India, natural remedies for ailments, etc), which you can turn into rich auto-generated pages.

(here we’ll look at all 3 drivers: paid, virality & content through the lens of data)

Paid Marketing:

Your tests generate paying customers with a healthy payback period. Because it is relatively easy and economical to launch paid marketing tests through channels such as Facebook or AdWords, simply getting tests off the ground should be the core of your validation strategy.

The most important metric to measure is payback period: the amount of time it takes you to earn back what you spent to acquire a customer.

This is critical because it determines how quickly you can re-invest in more paid marketing. For most businesses, the payback period is only going to lengthen as you scale, so it needs to be pretty good from the start. Otherwise you need to have a clear line of sight to improving it, such as through conversion rate or monetization improvements.

For low frequency transactional businesses (e.g. buying car insurance), a common benchmark to target is payback on the first purchase. For high frequency transactional businesses or subscription businesses (e-commerce, media subscriptions), payback within 6-12 months would generally be considered healthy.

Virality:

Over 50% of your new customer acquisition today is through word-of-mouth, customers are naturally telling their friends and family about your product, and you’ve run a handful of successful experiments that increase this behaviour.

If your most satisfied customers aren’t already talking about your product or sharing it with their friends naturally, it’s going to be hard to make virality the cornerstone of your customer acquisition strategy.

Even if they are, you also want to understand if you have the ability to influence this behaviour, such as through an experiment where you encourage customers to share.

Content:

There is a high volume of keywords that are relevant to your product, and these keywords are not dominated by competitors that will be difficult to unseat.

Once you’ve validated a channel, the next step is to commit to the driver (paid, virality or content). In my experience, most companies underestimate how large and disciplined the effort will need to be to turn any of these lanes into a superhighway.

Committing to a driver generally includes doing two things, both of which can be scary, particularly early in a company’s life:

1. Dedicating a significant amount of cross-functional resources to the effort, including product, design, marketing, and engineering
2. Influencing the core product roadmap and customer experience to optimise for the lane being pursued

Some examples of commitment could look like this (you may want to pick the commitments that best suit your sector or driver):

• Wire your site architecture to suit your growth driver: build out thousands of pages targeted at high value keywords, and optimise their entire website and URL structure for SEO
• On-page content: To support the new pages, you build a massive volume of high quality, unique content.
• Link Building: invest in credible link building
• Build a dedicated team that drivers referral programs, to foster virality
• Build a dedicated team that drivers referral programs, to foster virality
• Landing Pages: if ads work really well for you, build out specific landing pages to attract users with different motivations and interests

Once you have committed to a growth driver and start to see meaningful results, the next phase is to become world-class at the lane. The hallmark of this third stage is overcoming diminishing returns. Virtually every customer acquisition channel becomes harder over time because you are acquiring lower and lower intent customers. This is often referred to as theS-curve of growth.

For paid marketing, this typically means that your customer acquisition cost will increase over time.

For SEO, you’ll have to start targeting less relevant keywords and lower intent customers, which will result in lower conversions rates.

And for virality, the percentage of potential customers that haven't already heard of and want your product will reduce over time, so you’ll see a degradation in the number of additional customers each new customer refers to) over time.

Some examples of scale could look like this (you may want to pick the commitments that best suit your sector or driver):

• Personalising referral programmes. Everyone receives a highly personalised referral message & link to join the product.
• Better friend suggestions in case of products that work on virality
• Widening your TAM to acquire a new set of customers through paid ad strategies

Wrapping it up:

Scaling a product is a tough journey. And especially while battling competition. With funded businesses investors want to know that you know how to turn their money into more money. Demonstrating validation of a scalable customer acquisition lane is one of the most important components of making your case.

The biggest customer acquisition mistake I see companies make is underestimating the time and effort it takes to make a lane really work, and spreading their efforts too thin as a result. It is easy to see why this happens. It’s scary to make the leap into a big investment when resources are limited and speed is of the essence. I hope this framework can help give you the structure needed to evaluate your options methodically and make big, disciplined bets in the right lanes.

And remember, all it takes is one highly successful driver to win the race.

Well, that’s it from me today. I hope you had a good Sunday read. Until next time,

With Gratitude,

Sak.