Timestamps:
10:22 - Understanding your clients (needle question)
14:55 - Getting your customers to use your product more often
17:00 - Achieving negative churns, incentivizing referrals
24:51 - The best lifetime value vs customer acquisition costs ratio
36:53 - When to pull the plug on a certain channel
The Episode in 60 Seconds
How to find, optimize and scale your sales funnel from early stage to exit.
The early mistakes to avoid
- Sell like the incumbent: just because one sales funnel is working well for incumbents in your field doesn’t mean it will work for you. Especially if your unit economics are different (think for example on-premise software vs SaaS).
- Ignoring the unit economics: especially if you are entering the market with a new kind of business model, it’s very important to know your unit economics in order to understand if you are selling your product in a margin enhancing way or if every sale you achieve actually incurs a net loss.
- Only focusing on closing the deal: your long term goal will be to achieve negative churn (gaining more customers than you lose in a certain interval). This will not happen if your product does not delight customers across the entire lifecycle.
On data and experiments
- Data is your best friend when it comes to finding your most effective sales funnel. Don’t allow your organization to go astray on hunches and gut feelings.
- Becoming a data driven organization starts with the mindset and the mindset starts with the people you hire.
- Run experiments, and run them often. There is no way you’ll know from the start which funnels will work for you, so testing (and failing) is the only way to find out.
- To run a meaningful experiment you need two things: a quantifiable definition of success (and therefore failure) and a significant sample size. Leave either one out and the experiment will not deliver its value.
Customer Lifetime Value and Customer Acquisition Cost
- A good way to measure success of your sales funnel is the ratio between customer acquisition cost (CAC) and customer lifetime value (LVT). So what you spend to acquire a new customer and what they in turn spend on your product during all the time they are your customer.
- There are a variety of ways how to calculate these two numbers. Whichever you choose, make sure it is comparable to benchmarks in your industry.
- A good ratio of LTV/CAC is 3-4. If you are higher, you are not spending enough on marketing / growth. If you are lower, you either have a lifetime value problem or you are not spending your marketing / sales budget effectively.
Scaling and optimizing your sales funnel
- Don’t forget that once your sales funnel works and you have an acceptable and proven LTV/CAC ratio, this will help you get money from investors, because you can say: for X amount of money in, we’ll very likely get Y amount of revenue out. That’s a pretty safe bet.
- If you are scaling one of your sales funnel rapidly (especially online), most likely prices will increase because of the higher demand. Therefore it’s important to continuously optimize. Optimization is never done.
- Over time, a funnel may change and become less valuable to you. It’s time to pull the plug when you see the quality of customers you are getting through that funnel decrease (i.e. lower LTV).
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