The problem with most of the advice out there about how to grow a startup is that it’s a funnel. It’s an easy shape to draw because we intuitively get it. If you put more in the top, more will come out the bottom. The end.
In reality, it’s a lousy metaphor. Customers don’t always enter at the top. The stages aren’t distinct and separate. You don’t keep your customers by preventing them from leaking out the side. You don’t even need a leaky bucket. A leaky bucket is a productive bucket that you can pour more customers into. It’s a growth engine, not one where you’re constantly replacing lost users.
Most importantly, in a funnel, your efforts and costs are constant. You have to pay for every new customer at every new time. Modeling the stages of growth as a funnel, one disconnected step after the next does not work. It’s a single path. It’s not a real system, and it’s not sustainable. It does have a virtue or two, simplicity being the primary one.
A real growth engine makes loops. It’s a system, not a series. Benefits at the end of your growth pipeline come back to the top as increased pressure. Referrals and reviews are the examples everyone uses. One user recruits another. Then, as an old user, she also continues to harvest the kudos of her gifted recruit. User X begets user Y who begets user X.
The Ratio That Determines If You’re Building Or Burning
Before you can think about scaling any of this, one number has to work hard for you: your lifetime value to customer acquisition cost ratio. Lifetime value is the total revenue a customer brings in throughout their relationship with you. Customer acquisition cost is how much you spent to acquire them in the first place.
The magic threshold is lifetime value being at least three times higher than the acquisition cost. If it’s less, you’re not exactly growing. You’re paying for new customers out of your cash flow.
This ratio will also make your leaky bucket problems apparent fairly quickly. If customers don’t stick around, lifetime value goes down with time and even a low CAC channel doesn’t work in your favor. But improving your product and making more customers stick around isn’t an anti-growth hack – it’s the most essential step to take towards growth. No marketing budget will survive a product that customers don’t want to keep using.
You should know what CAC is for each channel starting from day one, not as an average across everything you’ve ever done. Social might seem cheap on the surface but perhaps the money is on search – you’ll never know if you’re not tracking it in detail.
Also Read : Understanding Sales Funnels vs. Marketing Funnels: A Complete Guide
Diversify Traffic Before You Need To
Many new businesses get stuck due to being too dependent on a specific platform. Typically, this is because they stumble upon one channel that performs well (often paid social) and double down on it. Then the platform shifts its algorithm, the CPM increases, or you get outbid by a competitor, and your entire growth strategy falls apart.
Customer acquisition costs have risen by more than 60% in the past five years, and the steepest increases are associated with the platforms that attract the most competition. Most budgets are funneled into Meta and Google, so these are also the places where auction prices and audience competition are the most intense.
The most successful startups grow in a diversified way, mixing long-term channels like SEO with quick-return paid acquisition off the major platforms. Working with a performance-based ad network, can provide you with new audiences for a significantly lower cost-per-click, under far less competition, and with much more granular targeting. Plus, performance models mean you only start paying for results.
Build Measurement Before You Build Campaigns
A/B testing is often discussed as if it’s a creative gimmick – does this headline grab more eyeballs, does that image increase clicks. That’s fine, but the real power of a testing approach is that it requires you to make a clear statement of what success looks like before you ever start writing a check. If you don’t know what you’re optimizing, there’s nothing to be gleaned from the results.
This is impossible to pull off with vanity metrics. They’re easy metrics to track, they’re fun to report in the monthly marketing meeting, and they’re meaningless. You should have one key metric to act as your North Star that directly impacts revenue or retention; ie. active users who are paid, repeat rate, or payback in months. Every other number is just marketing junk.
Of course we know it’s not that simple. If someone sees a display ad, three days later Googles your product, and eventually buys via email, how do you split the credit? First-touch and last-touch attribution models are both wrong. Multi-touch is more nuanced and more correct, although the nuanced part often doesn’t make it into startup advice blog posts. First party data and multi-touch tracking take the time to implement, but if you install one thing on day one it should be these.
Also Read : Pardot vs. Marketing Cloud: Which Solution is Right for You?
Scalability Is A Channel Property, Not A Budget Property
A good question to ask about any channel before you put money into it: does it get more expensive as you put more money into it? Some do. Some don’t. Paid social gets more expensive because you quickly work your way through your best audiences. Google search stays about the same.
Those based on broader display inventory, content-driven demand gen, or programmatic performance networks tend to slightly improve because you’re exposing your advertisement to less-frequent ad-targets. The larger the pool of potential targets, the less likelihood that best targets are burning out.
A scalable CAC channel is a gift and you should double down on it as fast as you can do so profitably. That’s how growth loops work – the revenue and profitability from acquired customers is recycled into acquiring the next group of customers at a more efficient rate.
Sustainable growth doesn’t mean slow growth. It means you should aim to grow efficiently and grow more efficient as you grow. The right channels, the right mix, and the right metrics are the “engine” part of your marketing funnel. Everything else is kind of decoration.
