Is CAC irrelevant?

Is CAC irrelevant?

As business owners and entrepreneurs, we often find ourselves obsessed with reducing Customer Acquisition Cost (CAC). The logic seems sound: the less it costs to acquire a customer, the better for our bottom line. But what if this fixation on lowering CAC is actually hindering our growth and profitability?

After listening to the Chief Marketing Officer of Revolut, Antoine Le Nel, it occurred to me instead of relentlessly chasing a lower CAC, it’s time to shift our focus to Return on Investment (ROI) and Customer Lifetime Value (LTV). By doing so, we not only consider the cost of acquiring a customer but also the revenue and profit they bring over time.

Obsessing Over CAC – The Downside

Reducing CAC can indeed bring in more customers at a lower upfront cost. However, a sole focus on CAC can lead to unintended consequences:

  • Attracting the Wrong Customers: Lowering CAC might mean targeting a broader audience that isn’t the ideal fit for your product or service. These customers may not stay long or engage deeply with your offerings.
  • Compromising on Quality: Cutting costs in acquisition efforts can reduce the effectiveness of your marketing strategies, leading to lower-quality leads.
  • Short-Term Gains, Long-Term Losses: A low CAC doesn’t guarantee profitability if the customers acquired don’t contribute significantly over time.

Why ROI and LTV Matter More

  • Quality Over Quantity: Focusing on ROI ensures that your marketing efforts generate profitable returns. It’s not just about how many customers you acquire, but how valuable they are to your business.
  • Sustainable Growth: LTV measures the total revenue a customer is expected to generate over their lifetime with your company. By maximizing LTV, you foster long-term relationships that contribute to sustained profitability.
  • Informed Decision-Making: Prioritizing ROI and LTV provides a more comprehensive view of your business health, allowing for smarter investments in marketing and customer retention strategies.

Balancing CAC with ROI and LTV

This isn’t to say that CAC should be ignored. Instead, it should be balanced with ROI and LTV:

  • Calculate the Ratio: Use the LTVratio to assess the efficiency of your acquisition strategies. A higher ratio indicates that the value of customers outweighs the cost of acquiring them.
  • Segment Your Customers: Identify which customer segments have the highest LTV and focus your acquisition efforts there, even if the CAC is higher.
  • Invest in Retention: Allocate resources not just to acquire new customers but to retain existing ones, thereby increasing LTV.

Action Steps

  1. Analyze Your Metrics: Start by thoroughly understanding your current CAC, ROI, and LTV. Identify trends and areas for improvement.
  2. Refine Your Target Audience: Focus on attracting customers who are the best fit for your product or service, even if it means a higher CAC.
  3. Enhance Customer Experience: Invest in quality customer service and support to increase satisfaction and loyalty.
  4. Leverage Upselling and Cross-Selling: Introduce complementary products or services to increase the value each customer brings.
  5. Monitor and Adjust: Continuously track these metrics and adjust your strategies accordingly.

Quick 3 Questions

  1. Are you attracting the right customers who will provide the highest LTV, even if it means a higher CAC?
  2. How can you enhance your product or service to increase customer satisfaction and ROI?
  3. What strategies can you implement today to balance CAC with a stronger focus on ROI and LTV?

—Rickard

This this help you? Feel free to reach out to me over instagram https://www.instagram.com/rickardlong/

How to beat Starbuck

How can a business with no sales department expand to more locations and grow faster than Starbucks?

Greg Glassman, the founder of CrossFit, often said they never had a marketing or sales department. People came to them because they wanted to be part of what CrossFit offered. Instead of traditional sales tactics, they had a committee to review applications from prospective affiliates.

The selection process was simple yet profound. Applicants who expressed a genuine mission to help people got the green light. Those who touted their MBA degrees or claimed to have a unique business model were often declined. Glassman knew that the only way to succeed with a small gym was to be entirely client-centric starting and ending with the client’s needs.

The success of CrossFit boiled down to two key elements:

  1. A Great Product: CrossFit delivered results like no other. The workouts were effective, the community was supportive, and the transformations were real. This made people naturally enthusiastic about sharing their experiences.
  2. Authentic Storytelling: CrossFit produced media that shared genuine stories from clients, gyms, and athletes. These videos garnered millions of views because they showcased real proof of the product’s impact. They were rough. They did not look like commercials. The stories resonated because they were honest and relatable.

Most affiliate buyers were individuals who had experienced their own transformation through CrossFit. The product was so compelling that it inspired people to become part of the mission themselves.

The Takeaway

Marketing doesn’t always require a massive budget or a dedicated department. Sometimes, it simply requires an exceptional product and authentic stories that resonate with people. When your service genuinely helps others, they will become your most powerful advocates.

Quick 3 Questions

  1. Is your product or service so good that people can’t help but talk about it?
  2. Is it so authentic and impactful that you could bring in a camera at any time and capture compelling stories?
  3. Are you genuinely starting from the client’s perspective and focusing on their needs?

“1000 Songs in your pocket”

In the world of business, the difference between success and failure often lies in how we communicate value. One of the best examples of this is how Apple introduced the iPod. They didn’t just list the features, like “5 GB storage.” Instead, they framed it in a way that made sense to people: “1000 songs in your pocket.” Simple, clear, and relatable.

This focus on results over features is why businesses like Apple thrive. They make it easy to understand the value of their product. You don’t have to be a tech expert to know that carrying around your entire music collection is life-changing.

So, how does this apply to gyms?

Gym owners often fall into the trap of marketing equipment or class availability. But what really matters to your clients is what those features will do for them. Here are some examples of how to position your gym to focus on results, not features:

  • Feature: “We have 10 rowing machines.”
    Better: “You’ll build stamina and shed pounds in half the time.”
  • Feature: “We offer a variety of classes.”
    Better: “Transform your body and mind with workouts that fit your life.”
  • Feature: “We have a fully equipped strength training area.”
    Better: “Feel stronger, look better, and live healthier with our personalized strength programs.”

To take this approach one step further, gather data from your clients’ results and share it. For example, track progress, share testimonials, and highlight the changes they’ve made in their health. Just like Apple, you’ll make it easy for prospective clients to see what’s possible for them.

When your gym becomes more about the transformation than the equipment, you’re no longer selling a service…YOU’RE SELLING A SOLUTION.

That’s where the real value lies, and that’s what will help you stand out.

This is how you can charge 10x more than your competitors.

QUICK ACTIONS

Here are three quick, actionable questions for entrepreneurs to gain better clarity:

  1. What problem am I solving for my clients, and how does it improve their life?
    • Action: Write down the tangible outcomes your product or service delivers, not just its features.
  2. How easy is it for my clients to understand the value I provide?
    • Action: Revisit your messaging. If it’s full of jargon or overly complex, simplify it to one sentence anyone can understand.
  3. What metrics am I tracking to show that my solution is working?
    • Action: Choose 1-2 key performance indicators (KPIs) that directly reflect the results your clients get from using your service. Then, make those results part of your marketing.