Why is Customer acquisition a wrong metric for measuring Growth ?
People have a threshold in terms of spending habits. Startups try and make the people accustomed to the new services/products by providing it at a discount or for free. Thereby setting a new threshold.
Threshold doesn’t always mean lower costs. Sometimes it’s better user experience, better output or simply better customer satisfaction.
When do Startups know a threshold has reached ?
Startups spend a lot of money in the form of discounts, freebies, advertisement for customer acquisition and product adoption. A number of metrics are used to keep track of growth.
Number of users is never a good metric to judge the success/failure of a product.
Customer Retention / Repeat customers is a much better metric because it tells you that users are liking the products and are readily coming back.
Getting a new customer could be for a varied number of reasons like good advertisement, niche market, less competition, word of mouth publicity, etc. but customer retention is only possible with either a good product or a niche market. These users don’t require continued spending on advertisement to be retained.
Threshold → Repeat Customers
False positives for threshold
- Continuous discounts / freebies.
- Niche market
What to do when a threshold is reached ?
When a product reaches a threshold, it’s a sign that the product is market fit. Consumers like the product enough to come back and continued investment in advertisement and new customer acquisition will only grow the user base, right ?
Not really.
When users start coming back on their own accord, the focus can shift to getting more users.
More users while adds to the metric and increase the cash flow in the short run but could be detrimental in the long.
Why ?
Because the ecosystem around the product was not updated to handle the added traffic. This, after a while could lead to bad user experience, which decreases the repeat customers if not handled properly. So, when the threshold is reached, the focus should also be on providing a better product experience.
Advertisement is not the only way to get new users. When users are satisfied it could lead to referrals. But if the ecosystem is not updated, not only the referred users will be lost but also the current ones.
How to provide a better product experience ?
By taking feedback from the users and working on it.
By providing an experience, not just a product, to users.
Thanks for reading. Checkout some of my other posts:
