Understanding the metrics that matter
Metrics are to startups what constellations were to Renaissance navigators: If you know where to look, they’ll help you understand where you are and where you’re headed. Growth marketing is an especially data-driven part of your business, but if you use the wrong information you can end up well off your intended path.
Knowing how to profitably acquire customers is the crux of growth marketing. To do this effectively, you should break the data down by the channel through which each customer arrived at your product and analyze each channel independently. Without this, there is no way to know where you should focus your attention or deploy more resources. Aggregated growth marketing effectiveness can change due to many different factors, and this ambiguous causation makes it impossible to clearly interpret what a change in average marketing effectiveness really means for your company.
Properly measure acquisition costs
Customers may behave differently depending on the channel through which they arrive at your product. Some consumer companies find that organic customers spend more money and stay around longer than those who arrived via paid advertising. But this is not always the case: you may find a paid channel uniquely suited to your product that delivers you customers who have a far greater affinity for what you’re making. Costs can also vary significantly by channel: While SEM costs can fluctuate based on advertising supply and demand, a $20 referral that is only paid out when someone uses your product will only ever cost you $20 per active customer. And just because a channel is cheap does not necessarily mean it is a better way to acquire customers: you may find a rather expensive channel that delivers you customers that are highly profitable. It is essential to measure your growth channels independently because you cannot prescriptively tell how channel profitability will vary.
Prioritize what works
The mix between paid and organic growth is also illuminating in understanding a company’s expansion playbook. If 90 percent of your customers have come to you organically and only 10 percent are paid, but those 10 percent are highly unprofitable, then you will likely have to focus on expanding your organic growth and finding new paid channels that have better economics. Alternatively, your company may be growing 90 percent via paid channels with all channels paying back in six months. Both companies may have the same average cost of customer acquisition and even the same aggregate payback period, but their growth strategies will be wildly different: If both companies eliminate their paid marketing spend, the first company will perform far better than the second company. Blended analysis will mask this crucial insight.
Growth marketing is fundamentally about paying less to acquire customers than you earn back from them in profit. But this does not mean that you can treat your customers as one homogenous group. Too often, startups measure their customer acquisition success by dividing the total amount they spent in a month on marketing by the total number of new customers acquired, and then compare that number to the profits earned over time to measure marketing payback. This is misleading at best, and breaks a cardinal rule of analysis by obscuring, rather than clarifying, what is really going on. If you measure channels individually, you can clearly see which ones work and which don’t and double down on the winners. Your resources at a startup are scarce, so knowing how to allocate them is critical to success. Don’t be led astray by blended marketing analysis.