Budgets

Toad made an iOS app.

“This app looks pretty nice,” said Toad.

He set up a Facebook app download ad.

“And look, now people are downloading it,” he said.

Toad ran to Frog’s office.

“Frog, Frog,” cried Toad, “check out our app downloads!”

Frog looked at the app downloads.

“This is the biggest app we’ve ever made!” said Frog.

Frog and Toad got many downloads, one after another.

“You know, Toad,” said Frog, paying the ads bill for Facebook, “I think we should stop spending so much on marketing. We will soon be broke.”

“You are right,” said Toad. “Let us do one more campaign, and then we will stop.”

Frog and Toad set up one last adwords campaign on Google. But there were many apps above them in the app store ranking.

“Frog,” said Toad, “let us set up one very last campaign and then we will stop.”

Frog and Toad set up one very last Twitter app download campaign.

“We must stop spending!” cried Toad as he added new customer segments.

“Yes,” said Frog, increasing the bid max limits, “we need a target CAC.”

“What is a CAC?” asked Toad.

“CAC is the cost of acquiring customers and should not exceed the customer lifetime value,” said Frog.

“You mean we shouldn’t spend more to acquire customers than we make from them using our product?” asked Toad.

“Right,” said Frog.

Frog set the target cost per install to half of the price to purchase the app.

“There,” he said. “Now we will not lose money on our app downloads.”

“But we can always monetize our install base in other ways,” said Toad.

“That is true,” said Frog.

Frog set the target CPI to the price for purchasing the app.

“There,” he said. “Now we will break even on cost of advertising.”

“But our app has a social component that makes it viral with more downloads, and we can monetize the install base in other ways,” said Toad.

“That is true,” said Frog.

Frog looked at the cash reserves. He set the target CPI to 50% more than the price of the app.

“There,” said Frog. “Now we will not burn through our cash reserves for 6 more months.”

“But we can raise more money on the social component that makes it viral with more downloads, by showing how we can monetize the install base in other ways,” said Toad.

“True, sometimes you have to prime the pump,” said Frog.

Frog took their cash reserves and bid on premium Facebook ad placement for the cookie-loving 18–84-year-old demographic. He created an ad that said “BEST COOKIE DELIVERY APP! LIKE OUR PAGE FOR FREE DOWNLOAD AND FREE FIRST DELIVERY!”

People from all over San Francisco came to the app store. They ordered exactly one free order of cookies and never returned. Frog and Toad ran out of cash and turned off all the ads.

“Now we have no more runway,” said Toad sadly, “Not even one month.”

“Yes,” said Frog, “but we have a really good marketing CAC.”

“You may keep your CAC, Frog,” said Toad. “I am going back to the office to raise a series C.”