Alex Berman, currently the Business Development Manager at Vimbly, originally contacted me via oHours in hopes of discussing how to best enter the New York tech scene. After networking his way into Vimbly, a new activity finding service, we reconnected to discuss sales tactics which resulted in the following video discussion.

Alex asked me via email, “When you set a quota for yourself, how do you come up with the order to call leads in? Do you put the easy ones first? The hard ones? People likely to say no?”

If you have additional questions, please do not hesitate to contact me. Click here to download and view the example Excel document we reference in the video (or a larger image).

Using the binary method to prospect and qualify leads is dependent on both industry and product. In our example, we take on the role of a B2C discount network for the hospitality industry. A few of the attributes we reference when determining deal strength were number of locations, warm versus cold introductions, and whether the restaurant location used OpenTable for reservations – using competing or related products shows a propensity to testing new technologies.

To clarify, deal strength is quite different than deal probability. While a leads probability helps quantify the likelihood of it closing, deal strength represents the potential return generated if such a deal comes to fruition.

When initially formalizing your business’s sales process it is necessary to complete A/B testing on your communication methods, talking points, and other strategies. If you are unaware of previous, successful methods, you can reference published case studies.

Once you contact a qualified lead it is necessary to organize your communications in a centralized location for your entire team, if not company, to be able to access. I would highly recommend Pipedrive (affiliate link), but other services offer similar solutions (Nutshell, Salesforce, Highrise, etc.).

Alex and I will review how we both utilize Pipedrive for managing our personal networks in an upcoming video. If you want to be notified when published, just signup for my newsletter – thanks!
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Alex also blogs about marketing and customer development on his blog Following the Rules, check it out for strategies and scripts you can use to learn more about who your startup’s customer’s are.

Seldom do businesses invest in understanding their cost of customer acquisition. It is an important metric to understand and monitor while developing new marketing initiatives, adjusting pricing models, and the like.

Customer Acquisition Cost (CAC) and its relation to Customer Lifetime Value (LTV) is a key indicator of a business’s health. To reiterate this series theme, the LTV of a customer needs to meet or exceed the CAC to remain a sustainable business.

CAC is calculated by determining the ratio of total cost of sales (including labor, marketing, on boarding, and all related expenses) to the number of newly acquired customers during a given period of time. CAC should be monitored each quarter to ensure business stability, in addition to before and after any large initiatives to measure their effectiveness.

While customer acquisition strategies depend on both industry and audience, the underlying concepts remain constant. There is an inherent need to position your product or service as both a solution to your prospect’s current business challenges, and as a service provided by a trustworthy market leader. Industry leaders continuously discredit paid media as their primary customer acquisition strategy. Blogging and other methods of content marketing prevail as the most cost effective.

Industry averages are important to understand as a benchmark for both CAC and LTV, and differ between industries:

• Travel: Priceline.com, $7
• Telecom: Sprint PCS, $315
• Retail: Barnesandnoble.com, $10
• Financial: TD Waterhouse, $175

When just starting out it may prove beneficial to use industry data in the absence of historical data.

As a note, for businesses with monthly projected revenue it can be beneficial to calculate the average payback period. Simply divide the CAC per new customer by the average monthly recurring revenue per customer. As a benchmark, this number (represented in months) should be less than the projected lifetime – thus, additional months represent profit.

Understanding how your Customer Acquisition Cost relates to your Customer Lifetime Value will enable your business to avoid costly customers.

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Update: Just saw this quote on Chris Yeh’s blog:

The average Constant Contact customer stays with the company for 45 months.  At their $39/month price point, this means that a customer generates about $1,800 in lifetime revenue, allowing Constant Contact to make money at a CPA (cost-per-acquisition) of $450.

- Constant Contact’s Success

Increasing inbound sales leads can minimize Customer Acquisition Costs (CAC). Inbound Sales leads are generated by referrals, organic site traffic, strategic press, word of mouth, white papers, networking, infographics, and the like. Creating a healthy inbound marketing channel will result in a reduced customer acquisition cost and more qualified prospects.

Recent shifts in advertising technology and consumer behavior have resulted in parallel shifts in inbound marketing strategies. The advent of TiVo, caller ID, spam filter (and the CAN Spam Act), and similar innovations have caused marketers to readdress their methods of projecting marketing messages on their audience members’ daily lives.

Secondly, the internet – especially mobile – has leveled the playing field between buyer and seller – from caveat emptor to caveat venditor, where the buyer educates the seller. There is no longer information asymmetry in sales.

Whereas sales relies on interruptions, inbound marketing focuses on establishing yourself as an educational resource within the industry. As a result of your reputation as an industry thought leader, potential clients will look towards you and your resources when conducting research and contemplating a purchase decision.

However, similar to sales, your tactics for creating leads are highly dependent upon industry and audience. For example, just because you offer a new mobile application doesn’t mean you should target the tech blogs during a press release.

Who are your potential customers? Who is the end user?

If the mentioned mobile application is for pet owners, then where do they spend their time online? Sure, a few may split time between TechCrunch.com and LifeWithDogs.tv, but the majority are probably avid readers of Petco, DogChannel, VetStreet, and DogSpired. Your press on TechCrunch, interview on Mashable, and product demo at the local Tech Meetup aren’t going to generate new users – and certainly won’t build up sustained traction.

Targeting your inbound marketing efforts and press will ensure continued inbound leads and increase conversion and retention rates.

On the contrary, while not all press produces quality leads, and not all networking events are populated with members of your target audience, these tactics still get your name out there and result in increased traffic to your website and brand recognition in the future.

So, what can you do to ensure you are i) generating inbound sales leads, and ii) targeting potential customers?

Branded Material
Branding yourself as a thought-leader within the industry will ensure that potential customers look to you when making their purchase decisions. A company blog is a great place to start, but branded materials can extend to white papers available for download, infographics shared on industry sites, and even free webinars for those who subscribe to your Newsletter. Securing multiple touch points creates trust and a sense of reliance for the potential customer, which minimizes the barrier to purchase.

Networking
Producing and publishing branded materials is time consuming and requires a significant investment prior to reaping the returns. A great way to start building a network and establishing a name for a new business is through networking at industry events, attending trade shows, and securing strategic partnerships. Ensuring you have a good rapport with complementing businesses will generate referrals for work.

Social Media
Engaging with online communities is a necessity, regardless of your company’s industry. As mentioned previously, determine where your target audience is most active and participate on those channels. Depending on the industry, conversations, reviews, news, etc. will be shared on LinkedIn, Facebook, Twitter, or countless other social channels. The conversation will take place with or without your involvement – interject by listening and providing value.

Paid Inbound Leads
Online advertising is poised to increase online ad spend by 18.1% in 2013 to $36.2 billion (including mobile, social, display, and search). A nominal investment of $200 per month can result in nearly 300 qualified leads after initial keyword optimization, landing page improvements, and bid adjustment. Research, analyze, and select the best keywords to target your audience.

Once you have successfully built inbound traffic to your website it is essential to capture potential leads. Do not rely on visitors contacting you via the online form or your phone number. Provide an incentive that will allow you to capture their contact information. A proven method is to offer a free webinar or white paper, but do not allow for an RSVP or download without capturing contact information and other relevant sales insights (i.e. industry, company, position, responsibility, etc.).

Be strategic and focus on growing your inbound sales leads. Dedicate time each week to growing one channel – whether it be an infographic, blog post, attendance at an industry event, or optimizing an online ad buy. The results are not immediate, but will greatly influence your sales cost and overall bottom line in the long run.

Churn Rate is a primary factor in determining sales goals, projecting cash flow, and managing business growth. To determine a sound customer acquisition strategy it is necessary to examine the average lifetime value of a business’s customers. Understanding and accounting for churn rate will ensure stability at scale.

“Churn rate represents the number of customers that will end their contracts over a given amount of time. Correctly identifying when new customers must be retained to replace the lost once ensures continued growth.”
- Generating Repeat Customers

While average customer lifetime and customer life cycle are typically defined by time, it provides greater insight to view churn rate as a proportion of customers and their associated revenue loss on a per month basis. This way, the exact figure of future gains lost, and their inherent need to be accounted for in cost savings or additional sales, can be shared across departments.

Churn rate is a good indicator of everything from customer dissatisfaction to necessary tweaks to customer relationship management and a potential increased emphasis on creating customer dependence to extend average customer lifetime.

Customer dissatisfaction can cause an increased churn rate. However, if cancelling the service or breaking a contract comes with high barriers, churn rate can improve (caused by high customer forced retention) while customer dissatisfaction increases. In this case the short-term business health appears to rise, but the long-term reputation for the business will ensure its future failure.

Customer Relationship Management (CRM) can greatly affect a business’s churn rate. Managing client relationships and the techniques used to measure monthly support time including client emails, calls, meetings, and work result in either transparent working relationships or unhappy customers. Client contracts should clearly state the monthly time allocated to support services and the tracking method used to manage such interactions. After each client interaction a confirmation should be sent to the client stating the number of minutes/hours used, their current monthly total, and either their remaining time or monthly overage and associated charges. Creating a transparent working relationship will minimize client confusion, and thus, client dissatisfaction.

Creating customer dependency can include a number of services or products. One such strategy we implemented at CNSLT.us was the development of proprietary technology allowing for i) mobile, trackable redemption of coupons (CNSLT.bz), and ii) instantaneous customer reviews at both hotels and restaurants to ensure customer satisfaction and loyalty (CNSLT.in). As a result of building your own barriers, you can minimize clients not renewing contracts (or breaking them) and increase returning customers after departures. The result of measuring the churn rate with the number of returning customers is referred to as gross churn.

By determining what the majority of customers’ reasons for returning are, a business will be able to highlight its differentiating factor (value add) to be used in future sales and marketing.

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Note: While featuring a business’s differentiating service or product properly will increase sales, I would caution making it available as a discounted loss lead product where the future, full list price will cause current clients to leave the service and only return upon future sales – circumventing ever remitting payment for the true selling price.

Determining a viable Customer Acquisition Strategy is highly dependent on cost. To reiterate, compared to the Customer Acquisition Cost (CAC), the Lifetime Value (LTV) of a customer needs to meet or exceed the CAC to remain a sustainable business.

If you want to stay in business forever, increase the LTV of your customer. A customer’s Lifetime Value is based on the average revenue per customer, average customer lifetime, and the annual costs to support each customer. Ignoring costs, this presents you with two opportunities.

Average Revenue Per Customer

A business owner has numerous options to increase average revenue per customer depending on the industry and product. As an example, upsells allow for businesses to remind clients of services they might not otherwise have known are offered. While upsells within restaurants may be obvious (i.e. “Would you like fries with that?”), other industries – including services – can turn even the most reliable customer into a more valuable one:

“Kelley Briggs, CEO of DesignWorks NY, a graphic design and marketing communications firm in Westchester County, New York, sends a personal letter to every customer once a year. She includes a list of her services with the ones they’ve used check off. ‘It reminds them of the types of projects we’ve worked on in that past year and shows them what services they did not use,’ she says. ‘It’s an excellent cross selling tool.’ In recent years, clients who received the letter have signed on for additional projects such as annual reports, website design, and marketing strategy.”

- Donna Fenn, Inc.com

Average Customer Lifetime

Determining a strategy to extend an existing relationship with a customer will ensure future cash flows for the business. Maintaining an ongoing relationship with a customer, rather than just a single sale, can be achieved through several methods.

At CNSLT.us, we focus on providing ancillary support services even when contracted on a project basis – versus a retained client. For such projects (i.e. mobile site design and development), a standard agreement outlines initial consultation, preliminary designs, approval of final designs, development of a staging site, quality assurance, and finally, the completion of the contract. However, CNSLT.us focuses on acquiring and retaining clients. Thus, our project-based sales process and contracts include ancillary services that prolong the customer’s relationship.

Examples of such services include hosting, ongoing support, monthly design work, and various upsells (analytics reporting, online advertising campaign setup and management, newsletter management, etc.).

Other businesses, across industries, can provide similar support services to retain otherwise onetime customers. For example, a software firm with a product offered as a download for a fee would typically have one touch-point per client. However, if the business offers monthly support for a nominal fee, it can greatly increase not only its average revenue per customer, but also its average customer lifetime.

As a result of providing ongoing support services as a value add, it has been CNSLT.us’ goal to create customer dependence. The concept is that, by offering continued services, clients are more likely to remain customers over time because of the positive experience, trust, and developed understanding.

Properly projecting the average customer Lifetime Value allows for future cash flow projections as well as an understanding of customer turnover. The churn rate represents the number of customers that will end their contracts over a given amount of time. Correctly identifying when new customers must be retained to replace the lost once ensures continued growth.

All customers are divided into real, expected, and potential value. The following chart represents how each of these segments aligns with a customer as she is converted from a one-time shopper, to a repeat customer, to a highly valued brand advocate. Cultivating repeat customers with strong brand affinity increases the average customer’s Lifetime Value.

When projecting customer lifetime value it is beneficial to understand the cost of replacement versus the cost of retention. By analyzing this factor, a business can determine the amount of effort necessary to retain current clients before accepting a loss and replacing them with a – typically more expensive – new sale. A strategy to retain current clients may include providing discounted products or services to continue the relationship. However, measuring the potential return of discounted continued services compared with a new contract, signed at current standard rates, will allow for a more informed decision, resulting in the greatest gain for the business.

All in all, understanding and properly projecting customer Lifetime Value makes it possible for an organization to manage sales, budget expenses, and determine future growth. In addition, understanding the variables that affect average customer lifetime and average revenue per customer can enable a business to shift its products, services, and even its marketing (find value add) to increase potential returns.