Are you prepared to answer the 3 questions your CFO will likely ask you?

If you’ve been following along with our Digital Economist blog series, you will have learned a lot about the ins and outs of building a successful digital customer acquisition strategy for your business. Here’s a refresher of the basics.)

From building customer segments, made up of only your most profitable customers to developing persuasive value propositions to architecting segment-specific conversion journeys that drive action — it should be clear by now that digital customer acquisition isn’t something that just comes into fruition overnight. It requires testing, measuring, and constant refining. As market dynamics continue to ebb and flow, so will your digital customer acquisition strategy.

Remember, though, that at the end of the day, the entire purpose of digital customer acquisition is to grow your business. And while everything we’ve discussed thus far is important, how you — and your CFO— will ultimately measure success will come down to the revenue and profit generated by your digital customer acquisition program. In fact, a whopping 94 percent of CFOs have said they would increase digital marketing budgets if there were clear evidence it led to sales. This is proof that approaching digital marketing as a Digital Economist has its perks.

So, to wrap up this first wave of the Digital Economist blog series, we’re going to take a quick look at the important role that unit economics plays in assessing the overall economic impact your acquisition efforts can have on your business.

The goal of any digital customer acquisition program is to devise a plan that will pay off once you’re able to get only your most profitable customers into the top of the funnel. You might even ask yourself, “For every dollar I invest, what am I going to get out of that dollar invested?” Putting unit economics into action will help answer this question. It will uncover exactly what tactics you’ve deployed are working to generate the highest return on investment (across both channels and customer segments), what’s directly affecting CAC (customer acquisition cost), why LTV (lifetime value) might be greater for certain customer segments and channels than others, and, most importantly, how you will ultimately invest your next customer acquisition dollar. Measuring economic outcomes in this way will allow you to test all the work you’ve already done around customer segmentation, value propositions, and conversion journeys.

Here’s why this matters: your CFO will want to know that the budget you’ve allocated to digital customer acquisition is actually working. So, to help you shine in those conversations, let’s take a look at the three questions you’ll most likely be asked — and how you can come to the table prepared to tackle them with confidence.

1. When are you going to spend money?

If you’ve been through any budgeting cycle, you know that money doesn’t just appear out of thin air. The dollars you get for your digital customer acquisition efforts won’t either. For starters, your CFO will ultimately want to know exactly when you plan to spend the money allocated in order to determine when and where to make strategic trade-offs between different investments across the company.   

This is where unit economics comes in handy. As marketers, we’re accustomed to reporting the success of our campaigns via vanity metrics like impressions and CTR. However, to help forecast budgets for the future, you’ll need to provide your CFO with line of sight into the sales and revenue pipeline, clearly articulating what value — and profit — can be achieved by continuing to dedicate budget to your digital customer acquisition efforts. Identifying both past and future success via CAC and LTV (which we’ll dive into more detail below) allows you to speak in terms your CFO understands. He or she will want to know — and have quantifiable proof — that your tactics are driving profitable growth. That’s really the key to locking in future budget.   

2. Will you make more than you spend?

No CFO will ever expect the fruits of your labor to be in the black immediately. However, at some point, you will need to prove that your digital acquisition plan will eventually make you more money than you spend. To do this, your unit economics need to be buttoned up on two fronts: 1) spend per customer (CAC) and 2) revenue per customer (LTV).

For example, one of our clients is a health-conscious meal kit delivery subscription service. Over the last couple of years, this vertical has become increasingly popular — and with that popularity has come increased competition. This has driven up CAC considerably. To optimize for these highly competitive market dynamics, our strategy out the gate was to keep CAC low in order to learn the LTV of those customers. And based on the cost of a weekly subscription, we knew that newly acquired customers would need to subscribe for at several weeks to break even on that target CAC. Understanding this “break even” delta helped inform the client’s messaging and offer strategy and allowed us to identify, build, and execute campaigns that brought in customers most likely to subscribe for a longer period of time. This gave us the data we needed to fully understand their LTV.

While CAC calculations are great for understanding unit economics at the short-term individual customer level, oftentimes your CFO will also want you to paint a clear picture around what profitability could look like in the long-term. This is especially important knowing that a handful of customers will inevitably churn out over time. This is where calculating LTV comes in handy. Depending on the nature of your business, there are a couple primary ways to go about this:

• Perpetuity Model: This is best suited for businesses with a subscription model (as in the example noted above) where revenue per customer is more or less constant per month. The premise is that a certain percentage of customers will stay while another percentage will unfortunately leave. LTV in this instance is simply “monthly revenue” divided by “monthly churn.” Although this model can help estimate LTV on a forever-basis, it’s a great way to assess what LTV (cumulative revenue) for a set of customers could look like in shorter time frames (12-24 months) as well.
• Cohort Model: This is best suited for businesses where the amounts and timing of transactions are variable (think: e-tail). These businesses will typically use digital marketing tactics, like email, to promote discounts or other offers that incentivize customers to come back for more. The goal here is to understand, from among an average of all those new and repeat customers, what LTV might look like. However, as opposed to the purely future-looking perpetuity model, you need at least 8-12 months of customer purchase data to make an accurate prediction here. To run this calculation, group customers at the start of the any given day or month and then count cumulative transactions for that group of customers over time. Do this for multiple start times — and then layer that data on top of each other to create a curve that shows how, on average, revenue could grow and eventually plateau over time.

Another client of ours works in the insurance, loan, and mortgage business. At one point, we were asked to help them forecast the long-term value of all mortgage leads generated on a monthly basis. Why? Because mortgage leads take an average of 45 days before they actually become revenue for a bank. So, given this long lead-to-purchase lead time, our client wanted to know when they could feasibly expect to make a profit on their marketing efforts. The cohort model proved to be a good solution for addressing this question. By grouping all past customer acquisition efforts by month over the course of 12+ month period of time — and then identifying all future revenue attributed to it on a month-by-month basis — we were able to spot a clear trend that helped us predict, with confidence, how much our client should spend moving forward (per month) in order to achieve their specified growth goals, all without overloading their team.

3. When will you get make that money back?

Finally, in an effort to manage cash flow and, more importantly, temper investor expectations, your CFO will likely want to know when your digital customer acquisition efforts will finally turn a profit. This is where all the LTV measurements from above will become a true game changer.

With standard quarterly (or monthly) financial reporting, costs and revenues are reported purely on an accrual basis. The problem here is that by only looking at revenues vs. spend in-quarter, for example, you fail to paint the entire LTV picture. Within a given quarter, your CAC spend may have outpaced revenues, which can be extrapolated in this very narrow time frame as contributing to a loss in profits. Looking at the bigger picture, however, might tell you a different story: that cumulative revenue actually surpasses CAC spend over time. Therefore, you’ve successfully managed to turn a profit on your digital customer acquisition efforts (just not necessarily if you look at the numbers within the confines of a single quarter).

Here’s why this distinction is so important. By boiling your digital customer acquisition efforts down to unit economics around LTV, you can add value to traditional financial reporting that helps business leaders make a direct connection between performance marketing to future business growth and profitability in an entirely new light — and earning you a seat at the proverbial revenue table.

Are you ready to become a Digital Economist?

This now officially brings a close to the first wave of our Digital Economist blog series. Throughout the series, we’ve given you an in-depth look at the four key pillars of a successful digital customer acquisition program to help you understand the importance of approaching digital marketing through the lens of a Digital Economist. Now, it’s your turn to put everything you’ve learned into action. Are you up for the challenge?

To learn more, be sure to download our whitepaper, “The Rise of the Digital Economist.”

Your value proposition is your ticket to creating a connection with potential customers

In part one of our Digital Economist blog series, we laid out a four-step game plan for building and executing on digital customer acquisition strategies that ultimately drive revenue and profitability. Now, it’s time to move onto the second step of the process and learn about the ins and outs of creating a value proposition that persuades people to buy from your business.

Creating a strong value proposition is just as much about telling a story as it is about making a convincing argument. As a starting point, you have to equip people with all the reasons why your products and services are better than the competition’s. But then you need to go one step further by creating a sense of urgency that incentivizes people to buy what you offer in real-time while equally giving them a good reason to be loyal to your brand for the long-term.

We recently discussed the building blocks of customer segmentation. The big takeaway there was that you must intimately know who your most profitable customers are in order to target, reach, engage, and eventually convert them into actual (and paying) customers. A byproduct of knowing, testing, and constantly redefining who your most profitable customers are is being able to articulate a clear and concise message that will resonate with each customer segment to maximize conversion. This is where building a persuasive value proposition comes into play.

You might be thinking to yourself that this is a bit of a no-brainer. The truth is, it should be; however, more often than you might expect, brands will pepper potential customers with a litany of facts and figures, only to fail at creating a real and meaningful connection with them.  So, let’s get back to basics and review the core components of a great value proposition, so you can avoid falling into this trap:

1. Core Values: You may know what your brand stands for better than anyone else. But how well do you know what your target customers value most? In the game of digital customer acquisition, you have to put yourself in your customers’ shoes. What do they care about? What do they need (from your brand)? What motivates their daily habits – and beyond? Creating a value proposition that resonates with your target customers means speaking in their language — and showing them that they are your top priority. By tapping into the core values of your most profitable customers, you can carve out a message — through your value proposition and other associated communications — that is both unique to your brand and to your customers wants, needs, and expectations, providing more of an emotional “hook” for them to latch onto. This is why you must pinpoint your customer segments first. Without knowing who your most profitable customers are, how can you tap into their core values? (Hint: you can’t!)
2. Differentiation: Every brand wants to stand out from the competition. By rooting your value proposition in your customers’ core values, you automatically achieve this. However, there’s always room to go one step further. Think about who your nearest competitors are. This can include: direct competitors (businesses with the same offering and business model), indirect competitors (businesses with a similar offering and core values but a different business model), and disruptive competitors (businesses with a similar offering but unique core values that solves a customer problem in an entirely new way).  Think about how they all communicate externally, closely examining what they do well — and also where they fall short (as that could be an opportunity for your brand). Then take a step back and think about your brand from their perspective. What do you do well? What do you do differently? Understanding what makes your brand unique – in the context of your competition – is an added layer that can bring your core values to life in a way that only your brand can truly own.
3. Proof Points: These are what persuade potential customers to believe in your core values and clearly see how your brand stacks up to the competition. These can come in the form of stats, product features, customer reviews and testimonials, and other claims that aim to push customers more quickly down the funnel, from consideration to purchase. The reality is, as wonderful of a story as the combination of your core values and your points of differentiation are, no one is going to believe what you say without a little proof to back it up.

As you go through this process, there are a few things to keep in mind. First, you have to stay laser-focused on who your most profitable customers are and what they care about. This will make it easier to create value propositions that directly address their wants, needs, and expectations — especially in the time and place where they see your marketing message. That’s why you can’t simply create a value proposition in a vacuum; you must tailor your value propositions — yes, plural — to each of your customer segments. Being thoughtful about how you map your messages to specific customer segments will ultimately increase your chances of getting potential customers to a take a desired action. And second, it’s important to remember that creating a value proposition isn’t a “one and done” process. Customer needs will change. Your competitor will launch a new offer. The possibilities for change are endless. That’s why you must constantly revisit your value propositions to make sure they still hold up to ever-changing market dynamics.

Depending on the purchase decision being made or the product or service being offered, brands can choose to pull a couple different levers of decision-making: rational or emotional. Developing a value proposition is a highly rational exercise; after all, your focus here is to create messages and proof points based in rational facts about why your products and services are the best fit for your target customers.

But simply spouting out a long list of facts isn’t all that persuasive. And that’s because, in spite of how rational we all like to think we are, humans by their very nature oftentimes make decisions based on emotional factors as well. In fact, persuasion itself is about creating a connection — or in this case, a reason to believe. So, knowing that creating your value proposition is equally an exercise in communicating rational factors in a persuasive way, your goal must be, above everything else, to tell a story around those facts, creating an emotional connection with your customers that helps them see and feel why your products and services will benefit their lives in more ways than the competition can.

The Principles of Persuasion

Perfect segue! It should be clear by now that creating a value proposition is really all about persuasion at its very core. The story that builds around that value proposition has the power to not only create a meaningful connection between your brand and potential customers but also can inspire more immediate action and long-term loyalty. You may have heard about the six principles of persuasion. These are the motivators that have been shown time and time again to drive action. Here’s a quick overview through the lens of digital customer acquisition:

1. Reciprocity: You incentivize customers to take a specific action by promising to give them something in return — whether a promotional discount, a two-for-one offer, or something that makes them feel as though they’re getting a good deal. It’s basically an upfront way of thanking prospects for taking a chance on your business.
2. Scarcity: This comes down to supply and demand. The less of something you have to offer — i.e. the potential for a product to sell out or a promotional offer to expire — gives you the opportunity to persuade with a message of urgency. It’s basically the notion of “first come, first served.” (And it works because people love a good deal!)
3. Authority: You can talk about how great your products and services are until you turn blue in the face. However, that’ll only get you so far. By inviting outside sources who are considered (or can be viewed as) experts in your industry to give your brand a thumbs up, you’re able to build more (perceived) credibility around your message.
4. Consistency: Past behaviors can help predict future behaviors. For example, you may launch an email campaign around a new promotion to re-inspire engagement among your customer database. Based on how those customers responded to past email campaigns with similar offers, you can almost guarantee similar or greater results this time around — because once you’ve been successful at driving a specific behavior, it becomes much easier to drive that same behavior once again.
5. Liking: This is about creating that personal connection with potential customers. People, generally speaking, tend to gravitate towards brands that speak like them, that act like them, and that resonates with them. When you build a value proposition through the lens of your customer segments, you can achieve this.
6. Consensus: People are easily persuaded by others, especially in large numbers. In other words, the concept of “when it doubt, follow the pack” rings true for many when making big purchase decisions. After all, if the vast majority of people surveyed love a specific product or service, why wouldn’t you as well? This can be a great way to give your message the added support it needs to push customers across the finish line.

So, why mention any of this at all? Because creating a strong value proposition — one that’s unique to your brand and relevant to your most profitable customers — is an exercise in persuasion. As Digital Economists, LQ helps you bring your value proposition to life through digital advertising campaigns that apply the six principles of persuasion. We also refine and test those value propositions regularly to see what drives the highest conversion of your most profitable customer segments over time. Marrying the two is your recipe for success.

NewHomeGuide.com is an industry leading resource for home buyers searching for new home developments. As the industry and consumer preferences shifted from print to digital, NHG knew they had to adapt in order to maintain their prominent position in the market. After investing in a strategic website launch to grow their digital presence in 2017, we were selected by NHG as the digital marketing partner to optimize their acquisition strategy via SEM and CRO.

“What has been most impressive is LQ Digital’s ability to be agile and drive changes at a speed that we weren’t driving internally. I have tapped into marketing experts that continuously strive for high performance to improve our digital acquisition and are aligned with our growth. I look forward to our next phase: which is driving even higher quality that results in even more impact for our clients.”

– Ashley Arnall, VP of New Homes

Download the case study and learn more about:

• How NHG doubled lead volume while reducing CPL by 68%
• The benefits of optimizing your marketing spend across channels to achieve your business KPI

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Sun Basket is the leading healthy meal delivery service focused on fresh, sustainable, and organic ingredients with recipes catered towards customers on specific diets. We are proud to partner with a brand like Sun Basket in an emerging subscription economy category to help them expand their business. Sun Basket’s data-centric culture when it comes to designing recipes aligns well with our data-oriented approach when we drive digital acquisition strategies for our clients. We are excited to continue this partnership to help Sun Basket dominate in their market!

“LQ Digital’s focus on customer profitability and lifetime value is second-to-none. They are a trusted partner and I recommend that anyone looking to drive aggressive growth, but with a mindful eye on the relationship of acquisition cost and customer value, should engage now with LQ.” – Amy Endemann, Head of Marketing at Sun Basket

Download the case study and learn more about:

• How Sun Basket drove significant subscriber growth while decreasing cost per acquisition (CAC) by 13%
• How to tap into customer insights to invest in acquisition strategies that attract your most profitable customers
• How subscription-based brands should consider affiliate marketing as a strategy to supercharge acquisition

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