Steve Jobs once said, “You’ve got to start with the customer experience and work backward towards the technology — not the other way around.” It’s every company's dream, whether a startup or an experienced business: attract and retain low risk, highly profitable customers — and do so at a low cost and retain them indefinitely. Do this right, and by default business metrics like customer acquisition costs are low, and customer lifetime values scores are high. But in reality, acquiring and retaining customers is hard in today’s hyper-competitive marketplace where switching costs are low, and immediacy of choice is king.
So how does an organization increase its ability to monetize customers over the long-term (customer lifetime value or CLTV) at a higher rate than the cost to acquire those customers (customer acquisition cost or CAC)? I would argue this occurs naturally by focusing on the customer experience — and what the path looks like from initial customer interaction to customer conversion. By scaling internal processes that support the customer experience, scaling how you measure the effectiveness of those processes, and scaling the organization’s product and service support quality, customer experience improves and the metrics that measure the customer experience fall nicely into line. Let’s look at each of these three items in more detail.
Scaling Internal Processes
Preventing high customer acquisition costs and ultimately protecting a strong customer lifetime value score requires an understanding of how your organization can scale and repeat every process related to the customer experience. If processes aren’t scalable and repeatable, the sub-costs of doing everything in a one-off fashion contributes to repeatably high customer acquisition cost. Acquiring customers at a low cost has often been a struggle, across multiple industries — especially where price tags are high.
A great example of this is the B2B software industry.
The B2B software industry's sales cycles are long (typically 18 to 24 months) and the number of demos, presentations, pilots, dinners, legal processes, and qualification questions can be mind-numbing. The customer acquisition costs in these cases quickly escalate into the thousands of dollars. However, new business models are continuing to emerge to combat these high customer acquisition costs. Many organizations — continuing to use software as an example — are now leveraging open source, SaaS, PaaS, and even Freemium models to speed time to conversion and lower CAC. These new business models have processes in place that allow for customer onboarding to be almost seamless, bringing a new customer into the fold in a matter of days, versus long multi-month custom consulting engagements. These new models value the lowering of CAC with the hopes that CLTV will be higher on the back-end.
When CAC becomes higher than CLTV, disaster ensues. Understanding and then mapping every process related to the customer experience — whether its onboarding, enablement or support — so that it operates in a scalable and repeatable manner is critical to creating exceptional interactions and experiences. If every customer onboarding, enablement, or support activity looks drastically different, this may be an area to pursue and improve.
Related Article: Customer Acquisition in 2020: Best Practices
Almost every customer purchase today — from groceries to insurance, to enterprise software — has a digital customer conversion (or purchase) process associated with it. The power of the web has made information sourcing and gathering during this process remarkably easier than it was just five years ago. However, many brands today still don’t have the correct consumable short-form, high-impact and interactive content at their buyer’s fingertips on digital channels. The result? Leads abandon and purchase elsewhere because they become frustrated when they can't find the information that they need.
With digital channels (primarily a brand’s website) playing such an important process in lead generation and conversion, it becomes critical for brands to provide the correct content for the customer experience and measure how effective that content is for any given step in the customer journey. If I am a lead that is well into the sales process, I want content that makes sense for where I am in the funnel: documents demonstrating value, stories of other customers just like me with similar challenges, and content that provides peace of mind for my purchase decision.
Brands have to know how effective their content is. Is it being consumed, is the message off-track for this stage in the funnel, is it not attaching to the buyer’s pain points? Using marketing analytics to measure content effectiveness throughout the customer journey will help to lower customer acquisition costs and increase customer lifetime value. And if the content is off, metrics will reveal that's the case so marketers can change the content or where it is placed in the customer journey to improve that customer experience.
Scaling Product and Service Support Quality
Scaling processes and measurements have more of an impact on the CAC side of the equation. But once you acquire a customer, retaining and increasing their customer lifetime value through cross-sell and upsell opportunities becomes a priority. This CLTV metric must surpass the CAC metric by a rate of at least three times to maintain a healthy business.
Scaling the way you support a customer in terms of providing them new pricing, information on additional upsell products or services, or even support material to keep them a happy and engaged customer at their current level is critical as businesses grow. Reducing this cost per touch on the post-sale side of the equation by scaling your product and service support quality financially benefits your organization. In many instances minimizing touch levels post-sale improves the customer experience as well. Consumers prefer low-touch and typically don’t want to be engaged by an organization and its sales or support staff unless a need exists.
Related Article: Do You Abandon Your Customers Post-Sale?
It's a Tricky Balance, But One Worth Finding
Striking the balance between customer acquisition costs and customer lifetime value can be challenging, with many variables to account for along the way. If you focus on the customer experience first, by optimizing and scaling processes and then measuring the effectiveness of those processes, lower CAC will come as a result. Likewise, optimizing and scaling post-sale support and the quality of your product or service support is going to improve the customer experience while increasing CLTV.
Start with the customer experience, work back to the technology, and see where it leads — your brand might just become the next Apple!