Acquisition: laying the groundwork for a strong user database

The second – or third – phase of the funnel. First things first, acquisition does not necessarily come after activation, its position in the funnel depends on your business model and your customer journey, either way acquisition of users is the core phase.

Whether you are collecting leads, email addresses, phone numbers and forms or you are generating money, acquisition can make or break your product very quickly.

“Get closer than ever to your customers. So close, in fact, that you will tell them what they need well before they realize it themselves.” S. Jobs

1. Why is good acquisition so important?

Without a good acquisition strategy it is almost impossible to build a good user database. That is why this phase is so closely linked to activation. In order to help you in the practice, we will cover as little theory as possible, focusing on case studies and methods you can use yourself.Β 

Let’s start with a brief introduction to the most common types of acquisition, and then we will continue some practical applications. In this phase you are going to use some metrics to map the costs per acquisition at the very start, you can recalculate them after a few campaigns in order to keep an overview of your progress.Β 

  • CAC (Customer Acquisition Cost): it calculates the costs of acquiring a new user
  • CPA (Cost per Acquisition): it does not calculate the acquisition of a new user, but the costs of a demo, registration or lead.

Acquisition metrics applied:

Dropbox is a freemium product, so the CAC will be the cost of hooking up a paying user. In this case CPA could represent the cost per registration.Β 

CAC is often miscalculated because not all costs are properly estimated and certain factors are not taken into account. For example, the leadtime is often estimated to be shorter, resulting in returning users counted as new users and in this scenario there are costs to support non-paying users in features of the free plan.Β The correct formula to calculate CAC is as follows, and in terms of marketing expenses it does not include personnel, overhead or tool costs.

CAC = (Marketing expenses (n-60) + Β½ upsell costs (n-30) + Β½ upsell costs (n)) / new users (n)

Where n is the current month.

In order to make a correct calculation of your user acquisition (CAC), it is therefore necessary to take a good look at the duration of your sale cycle, how many new users are actually new and the total costs of resources to acquire new users via marketing purposes.

2. Types of acquisition

Acquisition is a collective name for all kinds of different (creative) ways to collect as many leads as possible. In his book The Lean Startup, Eric Ries describes that growth can consist of three different ‘engines’. These are the three most common paths you can take with your company. The trick is to find what works best for your specific product.

2.1 Virality: Think of the ways to grow as quickly as possible through references from friends, family, connections and colleagues

One of the most difficult ways to generate traction is to make your product become viral. Going viral doesn’t mean just targeting everyone in your target audiences, but looking for that system with a particular user base that will help you appeal to the majority of the market. Doing this, you are hoping for a snowball effect to be created through, for example, a referral action. You still target your ideal user, but on a platform where the majority are located.Β 

Gold standard for acquisition campaigns: Dropbox

By offering extra storage space, Dropbox managed to get users to share many more documents and introduced new users to the platform. Inviting friends to the platform meant easily getting as much as 16GB of extra space.Β It’s safe to say that this action belongs to a later stage of the funnel as well, the referral phase. It certainly does, but this Dropbox promotion generated no less than 60% new registrations, therefore we are now placing it under the acquisition phase. Before this successful campaign, Dropbox considered several attempts to find out what could work including a paid (social) strategy.

Other classic examples include:

  • Hotmail: Where recipients of a hotmail email were shown in the footer β€œGet your free email at Hotmail” with a link to set up an account.
  • WordPress: 30% of all websites are hosted on a wordpress website. By using the standard url wordpress.yourwebsite.com they get a lot of exposure by default.
  • Airbnb: integrations on other websites have allowed many startups to hitch a ride on someone else’s network. In this case, Airbnb put all its listings on Craigslist (USA’s marketplace) in the initial phase, so that they could benefit from the large network of this platform.

It’s extremely hard to come up with virality ideas, which is why it’s tempting to copy examples like the ones above. However, we want you to see these examples as inspiration, since these types of hacks quickly stop working as more and more companies use them. So make sure you get the right mindset and look for opportunities to get to a huge part of your market with the same strategy.

2.2 Stickyness: think of www.crazyegg.com and www.launcaco.com examples mentioned in the activation phase, they created an experience that will keep users on the platform for so long that you will continue to use it and most likely pay for it

Stickiness is all about keeping a user coming back to the platform. A good example is our much appreciated social media. Channels like Facebook & Instagram are so well adapted to the items that you consider important as a user, that it is almost impossible not to scroll through the content. After all, you have viewed, liked, shared or perhaps even uploaded some content yourself. Once you find what represents value for the user, it is easier to acquire new ones.

An important metric that we can relate to what just said is the churn rate,Β  or the ratio with which users / subscribers leave your platform on, for example, a yearly base. A rule of thumb for a rising acquisition rate is that your growth’s highest point is determined by your churn’s lowest. Once you have achieved this, you can apply the ideal formula to your company:

high retention + low churn + (social) network effect

Stickiness can also be generated by a negative churn. The aim is to obtain more profit from the staying users in order to make up for, and exceed, the loss of abandoned (churned) users.Β 

As usage increases, increase product prices. Email automation platforms such as Drip use a system where you pay more as the number of active users of your platform increases.Β 

Upselling existing users to more features is also an increasingly common trend. A while ago, for example, Hubspot made its starter product completely free to get as many users as possible on the platform.Β  However, the more often you use the platform, you cannot avoid becoming a paying customer since the features of the free version are so limited.

2.3 Paid: the paid version of acquisition. Think for example of social campaigns for attracting leads where you may have a cost per acquisition of €40 and can earn this back through a user who eventually spends €400

Virality and stickiness acquisition strategies are easier to set up when you have an online or software company. However, the situation gets more complicated when you are a company that offers offline products. That is why we are introducing a third way: paid growth. Through commercials and online advertising, companies can ensure that an investment in ad spend can immediately lead to an increase in turnover. The metrics used to calculate your investment correctly are Customer Lifetime Value and CAC.Β 

Customer Lifetime Value is the average value that a user returns based on a specific period of time. So if a user returns you 50 euros every month, his CLV will be 600 euros in a year. Compare it with your cost per user (CAC) and it will give you insight on the point where a user only adds value.

pirate-funnel

3. Implement acquisition

Now that you know which metrics you can apply in your acquisition phase and how to give a direction to your strategy by matching your company to one of the three types of acquisition, in this chapter we will look at some practical applications that can work for your strategy. These applications are, again, intended for inspiration, the real growth hack comes from your own interpretation of the strategy.

3.1 Side Project Marketing

An example you could think of is one of the last mentioned cases about Hubspot, where they gave away a minimal product for free and the expansion to other features cost money.Β  This may be considered Side Project Marketing, but actually with Side Project Marketing you will look for a niche that fits in the bigger picture. So you actually put on the market a small, new product, but it’s the next phase that contains the actual one.

“Develop something of value that solves a small problem of your target group so that they become, in a later phase, paying customers of the product you initially wanted to sell”

3.2 Lead Nurturing

Marketo defines it as the process of developing relationships with buyers at every stage of the sales funnel, and through every step of the buyer’s journey. It focuses marketing and communication efforts on listening to the needs of prospects, and providing the information and answers they need.

This process is important because your first leads are unlikely to convert immediately, in fact, research has shown that 50% of your leads are not ready for purchasing (marketo.com). They need more information, and they probably have questions and concerns that need to be addressed before making a purchase. An example of lead nurturing is setting up automatic email campaigns that are meant to be sent according to an event or a time period. This way you can guide your lead from interest to purchase. Programs like Activecampaign or Drip even allow you to give tags to the users when they open your website, so that your target group can receive specific emails.

3.3 Growth Engines

Ideally, we would generate a continuous flow of leads with as little effort as possible, with those being automatically transferred into the sales process. We do get close enough, because with a fully automated Growth Engine all you have to do is monitor. Setting it up takes time, but as soon as the engine will be running the actions you will have to actually perform yourself will be less each day. An example of a Growth Engine is automating relevant connection requests on LinkedIn to expand your network or sales. The first step to take is to find the right audience. You can do this by using Phantombuster to locate APIs on a channel of your choice and then analyzing this channel. You can also do this through email collection tools like Hunter or through the paid LinkedIn Sales Navigator. Find your ideal target group here and save the list. Once you have the list in your hands, you can use a Phantombuster API or a similar tool to set up an automatic sending of connection requests. Once the request has been accepted you can set up a follow-up message. Using an API link from LinkedIn, you can transfer the lead to a sales CRM as a pipe drive to properly qualify each lead.

Extra note: since the introduction of the new AVG law, it may be that the channel you want to analyze contains sensitive or personal information. In this case, it is then prohibited by law to use the data for commercial purposes. Always check whether the data you want to use is AVG proof!

4. Tips for a successful acquisition strategy

The above lead campaigns are examples of bite-sized strategies that any entrepreneur can apply to his or her business. Below are some tips that you can take with you through your acquisition process.

  • Database:Β 

Building an extensive database is important for your acquisition, nurturing and retention. Make sure that users can log in easily and quickly, for example by using an existing account (FB, Linkedin), that will also give you richer data and make data collection easier. Look at the overall UX / UI of login flows. Constantly checking whether something really “works” is important also after the activation phase. Airbnb’s team optimized its acquisition flow creating 1% more revenue. You can guess that 1%, for a billion dollar company, is still quite a lot of money.

  • Soft conversions

Perhaps a registration flow in the first phase of your acquisition is a step too big for a new user. It may be better for your target group to start with a soft conversion such as an email address, telephone number or brochure. A soft conversion can also be the start for entering data at a later stage. Think of the stickiness of the product. The further customers are in a user flow, the more likely they are to just fill in the data.

  • Exit popups

The use of exit pop-ups can ensure that there are as little “dead ends” as possible. For example, you can start introducing your social media, email popups, requesting newsletter or subscribing to notifications and events.Β 

  • Content backlinks

Platforms such as Snip.ly offer tools to make it possible to add links to pieces of content. This way you can easily be featured on another website and still be linked to your own website without intervention.

  • Podcasts

An emerging trend is the use of podcasts. People now attribute Podcasts a certain kind of authority because when listening to them, you can hear some serious talk about different aspects of a chosen topic. Since the success of a podcast is partly determined by the invited guests, by the topic per episode and by the questions that are asked, they constitute a great opportunity to use both app stores and music apps (iTunes, Spotify, Iybsin etc.) to present yourself and expand your sales. So think carefully about the core message that you want to give listeners.

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The above are proven growth hacks that have worked in the past for acquisition purposes. They are applicable to your company, but they do not constitute a guarantee of success. The most creative hacks come from countless tests and small experiments. So get started already and don’t be afraid to fail. That will be your first step as a Growth hacker.

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