Let’s say your startup has set a budget to spend on marketing over a period of time.
Let’s also say you have the superpower of being able to predict perfectly when your customer acquisition opportunity would be high, and when it will be low.
You might predict opportunity will be fairly consistent throughout the period, looking something like this:
This prediction might lead you to allocate marketing budget evenly across the period. You would feel pretty good about this decision because consistent spend feels more comfortable than wide variances in spend.
In fact, what you’d learn quickly is that opportunity varies widely, and the chart looks more like this:
This variance in opportunity means the customer acquisition cost (CAC) would vary widely as well. Because of this, it is generally the wrong decision to allocate spend perfectly evenly across a set time period.
Like a new car you are learning to drive and testing the motor, every entrepreneur must learn the conditions that make marketing opportunity for their business high vs. low — when, where, and how quickly to step on the gas vs. hit the breaks.
Every product has unique customer acquisition dynamics. A key part of growing a startup is learning the idiosyncrasies of marketing opportunity for your unique product.
Here are a few examples of the learnings you can expect as you start to test and scale marketing:
1. Holidays offer opportunity for some and challenges for others.
Valentine’s Day, Mother’s Day, Father’s Day and Christmas all present valuable opportunities to bring down CAC due to higher customer spend on gifts. The challenge is that every company knows this and allocates more budget to these times so the cost of a click goes up.
However, if you happen to have a highly targeted product to the occasion this can still be a big opportunity. For example, offering digital gifts is a differentiator around holidays. At Oyster we offered a last-minute digital gift card for those who were inside the window where e-commerce shipping would no longer arrive in time. We quickly learned the appeal of last-minute gifting and started to concentrate almost all of our spend in the 48 hours leading up to Christmas when many other retailers who shipped physical products stopped spending.
CAC can also drop steeply at the start of January as companies pull back from spend levels around the holidays and competition is reduced.
2. Aligning marketing spend with customer budgets can improve efficiency.
Customers will often deplete their personal budget (and willingness to spend) at the end of the month, and refill it at the top of the month. This can make CACs lower in the start of the month than toward end of the month for some products.
This is especially true if your product is billed through carriers who have monthly spend limits.
3. Understanding seasonality of the product and doubling down is key.
I once spoke with the CMO of a fitness company that spent 70% of their annual marketing budget in January to capitalize on New Year’s resolutions.
At Oyster we were a book reading application, so CAC went down during summer months when people went on vacation and read a lot of books.
4. Press (particularly national) can drive CAC anomalies.
CAC drops quickly during press weeks. This is particularly true for national press. Our CAC decreased by about 60% when we were featured on national TV. I have heard similar comps from other e-commerce businesses. As a founder, it is likely a good idea to concentrate spend around press events.
Customers often need to see your brand a few times before they are primed to take action on an ad. National press does this very effectively. It creates brand awareness quickly, so customers already know about your product and are more likely to click when they see an ad on Facebook.
You can also try to simulate this early on by running targeted brand advertising on podcasts and radio simultaneously with Facebook ads to a similar audience (i.e. in one city) to see the impact it has on CAC.
5. Channels with the same CAC can have very different retention.
You might find that CAC on Facebook is the same as Twitter, but that Facebook customers stay twice as long. It will take you a bit longer to figure this out, but it is usually effective to look at first month retention as a leading indicator.
The quality of customer that a channel sends is often product-specific as opposed to channel-specific (i.e. Pinterest ads might send great customers for a food subscription but bad ones for a mobile game), so it’s important to learn the unique retention curves of each channel for your offering.
Founders of new companies have the advantage over incumbents that they often know the nuances of the business more deeply — after all, they are the ones who built up every small detail of the company from nothing. The accumulation of this knowledge can ultimately be a differentiator for the business. Marketing follows this logic as well — if you can learn the market conditions that make marketing your product more efficient, you can outpace competition.
This is why I think its a good idea for founders to be deeply involved in marketing for an extended period of time when they start, rather than hiring immediately or handing it over to a third-party agency. By doing so, you will learn how to drive more quickly, and the instincts will stay with you as you scale.
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