Joseph is the CEO of SnapAds, which helps local businesses find, keep and reward customers.
Marketing is often misunderstood as a separate function from business, but it is, in fact, essential for any company to succeed. At its core, marketing is simply about understanding and communicating your value proposition to potential customers. By doing so, you can attract new business, increase customer lifetime value and reduce churn.
Understanding The Metrics
There are three key metrics that businesses need to track in order to understand how to grow their business.
1. Cost of customer acquisition (CAC): the amount of money it costs to acquire a new customer.
2. Lifetime value of a customer (LTV): the total amount of revenue that a customer generates over their lifetime.
3. Churn: the rate at which customers stop doing business with you.
To have a profitable business, you need to have an LTV that is greater than your CAC. This means you need to generate more revenue from your customers than it costs to acquire or find them. There are two main ways to do this: Lower your CAC and increase your LTV.
The Role Of Marketing
Marketing can help you lower your CAC by making it easier and more efficient to acquire new customers. For example, you can use marketing to generate leads, create awareness of your brand and drive traffic to your store. In addition, a modern form of marketing is rewards and incentives. This is nothing more than the old coupons and discounts that were once offered to generations before us. Rewards and incentives provide great ways for marketing to help improve the CAC.
It is important to understand that the most optimal CAC is not $0. In fact, spending more to get customers can actually help your business grow. This is because the first time a customer visits your business is often the hardest part of the customer journey. Once they become an actual customer, I’ve found you have a greater chance of getting them to come again. The real way to lower your CAC is by increasing the number of new customers, not lowering your spend.
An example can help illustrate this: Let’s say you pay new customers $10 as an incentive to come into your business. This may seem like a failed plan at first, as you would prefer the customer to pay you. However, once they become an actual customer, you have a greater opportunity to make money later through the LTV as that customer returns.
So, if we estimate your average sale at $8 and you pay $10 as a first-time visit, and the customer comes back a few times, then you are looking at $40 in sales for the expense of $10. That is a growing and profitable business. The magic in this scenario is that the marketing is actually performance-based, meaning that such offers only get paid out if the customer comes into the store.
Marketing can also help you increase your LTV by building customer loyalty and encouraging repeat purchases. For example, you can use marketing to offer loyalty programs, provide excellent customer service and personalize your marketing communications.
Strategies For Increasing LTV
Finding ways to keep your customers coming back is key to increasing LTV. This includes marketing activities such as reminding customers of sales via text, promoting upcoming events in the store and remembering customers’ names when they come in.
Loyalty programs are another great way to increase LTV. These programs reward customers for coming back to your business. Rewards and loyalty programs are especially effective because they are performance-based. As I mentioned earlier, this means that you only have to pay out rewards when customers come to your store.
To illustrate this, let’s extend the example above. Let’s say that you offer customers a $10 reward for every 10th visit. This means you have incentivized the customer to come to your store 10 times. That is sales of $80 now, which costs a total of $20, a net of $60. This magic also delays churn and keeps the customer coming back.
Improving CAC, LTV And Churn
Here are a few specific examples of how marketing can be used to improve CAC, LTV and churn.
CAC
• Use marketing to create awareness of your brand and drive traffic to your store through rewards for first-time store visits. For example, at my company, we do this by providing actual cash incentives for both visits and return visits. We ask the customers to scan a receipt to verify the purchase, and then we send cash.
• Generate leads through online advertising, social media marketing and email marketing.
LTV
• Leverage marketing strategies to build customer loyalty and encourage repeat purchases through loyalty programs and rewards, excellent customer service and personalized marketing communications.
• Upsell and cross-sell your products and services. This can be done by offering one product along with another product at the time of purchase. We all see this every time we go to a fast food restaurant, and they say, “Do you want fries with that?” That is cross-selling and marketing at the time of sale.
Churn
• Use marketing to reduce churn by staying in touch with your customers and providing them with valuable rewards and incentives.
• Identify and address customer pain points you solve. An example of this at my company is when we sent out an email with the title, “It’s time to plan your next vacation.” In the body, we explain that our solution is helping them grow their businesses so they can take a vacation. Reminding them of why they need our product helps get our message across.
Finding new customers is difficult, and keeping them is even harder. Creating ways to help you find new customers with rewards is an effective way of expanding your business and increasing your customer base. Cash-based incentives are nothing more than modern-day coupons and discounts that have been around forever. Utilizing such offers in the form of a reward gives customers a reason to check out your business and keep coming back.
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