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This last step is growing customers for the web/mobile channels.
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Now if you remember we started here on the left. We did earned and paid media. We got customers, acquired them, and activated them.
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We've kept them, trying to keep the churn to a minimum.
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And now we're going to grow customers with a series of activities just like in the physical channel.
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Can we up-sell, can we next-sell, can we cross-sell, and can we get referrals that will get us a viral loop.
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One of the most important metrics to think about, now that we have an end-to-end funnel,
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is something called lifetime value.
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And a lifetime value, LTV, is not your lifetime, but your customers’ lifetime.
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How much will they spend with you and your company from the beginning to the very end?
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And this is kind of an interesting idea because most startups and most founders are focused on, how do I get them to activate here?
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But for you to be a successful company and actually thinking about how much you could spend on them over here,
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you need to understand - can I get them to spend more and more over time? And how to keep them longer and longer by reducing churn.
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So one of the interesting equations for every startup is that lifetime value needs to be greater than customer acquisition cost.
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Seems intuitively obvious, but what you want to make sure is, the amount of money you're collecting over here is bigger than the customer acquisition cost - you remember the amount of money you're spending from here to here.
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That was the customer acquisition cost, CAC, here.
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So lifetime value needs to be greater than customer acquisition cost.
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And as you get more familiar with your company and start talking to investors, the real interesting thing is what is this ratio?
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For example, in SAS software, some investors think that number should be 3>1.
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In Telecom, it might be something else.
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But the key idea is, you are now not just focused on the initial purchase, but you're focused on the lifetime value.
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If you have world's most perfect business model, investors would love to see this number much bigger than this number.
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And so, what you want to look for is a well-balanced model that takes into account, how much you need to acquire customers,
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but how much ultimately you'll extract from them over the lifetime.
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What's the lifetime?
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That really is up to you and your investors and how many years you calculate lifetime value.
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Some use 3 years, some use 5, that's a question that you and your investors will discuss.
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This acquisition cost versus lifetime value discussion really is a balancing act.
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So what are some of the balancing acts?
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Well, in the customer acquisition cost, if all of a sudden, you could get a viral loop going,
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well, that decreases your cost of acquisition.
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If in fact, your conversion rate between acquisition activation could be increased.
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Again, it decreases your customer acquisition cost.
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If you could do in physical channels, telesales or inside sales versus having a direct sales force,
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again, your CAC declines.
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The idea is what can you do to make this very efficient?
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And therefore, also, on lifetime value, how do you reduce churn and attrition in keeping customers?
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Do you have scalable pricing? Are you cross-selling and up-selling a lot?
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Can you expand your product line?
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And again, are you getting a viral loop and referral loop from happy and satisfied customers telling others, word of mouth?
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And so, this is a balancing game, and for first time entrepreneurs who are focused here,
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it's really important to think about customer acquisition cost and lifetime value.