NSF I-CorpsThe Lean LaunchPad

Lecture 5 Customer Relationships

Version 6/13/12

How Do You Get/Keep/Grow Customers?

Customer Relationships

How do you Get, Keep and Grow Customers?

© 2012 Steve Blank

Customer Relationships Physical & Web Mobile Are Different

© 2012 Steve Blank

Customer Relationships Physical Products – Get Customers

© 2012 Steve Blank

Customer Archetypes Drive Get/Keep/Grow

• What’s their role?– How this person is evaluated / promoted /

compensated?

• Who are they?– Buyer’s name– Position / title / age / sex

• How do they buy?– Discretionary budget (name of budget and

amount)

• What matters to them?– What motivates them?

• Who influences them?– What do they read/who do they listen to?

Lab Manager: Brian

Paid Demand Creation Activities“Paid” Media

• Public Relations• Advertising• Trade Shows• Webinars• Email marketing• On-line SEM • Biz Dev

Demand Creatio

n

Free Demand Creation Activities“Earned” Media

• Publications in journals• Conference speeches/papers• Educational seminars• Public relations• Blogging / Sharable content• Social Media• Communities

Demand Creation

Customer Relationships Physical Products – Get Customers

© 2012 Steve Blank

Customer Relationships Physical Products – Get Customers

© 2012 Steve Blank

CAC = Customer Acquisition Cost

Customer Acquisition Cost versus Sales Complexity

Rough Estimates of Cost of Customer Acquisition (CAC)

Source: David Skok Matrix Partners

Customer Relationships Physical Products – Keep Customers

© 2012 Steve Blank

Customer Relationships Physical Products – Keep Customers

© 2012 Steve Blank

Attrition/Churn

Customer Relationships Physical Products – Grow Customers

© 2012 Steve Blank

Customer Relationships Physical Products – Get/Keep/Grow

© 2012 Steve Blank

LTV = Customer Lifetime Value

Customer Relationships Web/Mobile Products– Get Customers

© 2012 Steve Blank

Web/Mobile Products– Get Customers

© 2012 Steve Blank

CPM = cost per thousand hits

Web/Mobile Products– Get Customers

© 2012 Steve Blank

CPA = Cost per Action

SaaS Products– Get Customers

© 2012 Steve Blank

Organic Traffic, SEM, Other Paid

Sources

Raw Leads

Registered Visitors

Qualified Leads

Inside SalesClosed Deal

Web/Mobile Products– Keep Customers

Our Example Marketing Funnel

Quick Marketing Calculation 50% amount of traffic that is organic versus paid

$1.50 cost per paid visitor (Google AdWords, etc.) $ 0.75 Cost per visitor (both paid and unpaid)

3% visitors convert to raw leads 20% number of raw leads that turn into qualified leads

1 qualified lead 5 raw leads required

167 visitors required $125 Cost of visitors (also = Cost per qualified lead)

Source: David Skok Matrix Partners

Our Example Marketing Funnel

Quick Marketing Calculation 50% amount of traffic that is organic versus paid

$1.50 cost per paid visitor (Google AdWords, etc.) $ 0.75 Cost per visitor (both paid and unpaid)

3% visitors convert to raw leads 20% number of raw leads that turn into qualified leads

1 qualified lead 5 raw leads required

167 Visitors required $125 Cost per qualified lead

Source: David Skok Matrix Partners

Our Example Marketing Funnel

Cost per Qualified Lead $125 Leads to closed deal 10Marketing Costs per closed deal $1,250

Source: David Skok Matrix Partners

We Can Compute CAC and LTV

Lead Gen costs per deal $ 1,250 Excludes people costs (Cost per qualified lead x no of leads required per closed deal)

Selling costs per deal $ 1,620 Excludes cost of sales management

Total CAC $ 2,870 Excludes people costs in marketing, and sales management. (CAC= Cost to Acquire a Customer)

Total LTV $ 16,000 Calculated by dividing average monthly gross profit per customer (ARPU x Gross Margin ) by the churn rate

This excludes people costs in marketing, and sales management costs

Source: David Skok Matrix Partners

Balancing CAC/LTV in a SaaS model

LTV CAC> 3x

Months to recover CAC < 12 months

Required for Capital Efficiency

Source: David Skok Matrix Partners

What Investors are Looking For

Monetization(LTV)

Cost toAcquire aCustomer

(CAC)

A well balanced business model

Source: David Skok Matrix Partners

The Balancing Act

Monetization(LifeTime Value LTV)

Cost to Acquire a Customer (CAC)

• Viral effects• Inbound Marketing• Free or Freemium• Open Source• Free Trials• Touchless conversion• Inside Sales• Channels• Strategic partnerships

• Scalable Pricing• Cross Sell/Upsell• Product line expansion• Lead Gen for 3rd

parties

Source: David Skok Matrix Partners

The Balancing Act

Monetization(LifeTime Value LTV)

Cost to Acquire a Customer (CAC)

• Viral effects• Inbound Marketing• Free or Freemium• Open Source• Free Trials• Touchless conversion• Inside Sales• Channels• Strategic partnerships

• Field Sales• Outbound

Marketing

• Scalable Pricing• Cross Sell/Upsell• Product line expansion• Lead Gen for 3rd parties

• High Churn Rates• Low customer

satisfaction

Source: David Skok Matrix Partners

Customer Relationships Web/Mobile Products– Keep Customers

© 2012 Steve Blank

How Churn affects LTV

• Average customer lifetime in months =

1 / Monthly Churn

Source: David Skok Matrix Partners

How Churn affects Lifetime

1% 2% 5%0

20

40

60

80

100

120

100

50

20

Lifetime vs Churn RateMonths

Monthly Churn

Source: David Skok Matrix Partners

How Churn affects LTV

Lifetime Value

Monthly Churn

Source: David Skok Matrix Partners

Impact of lowering Churn

Month 1

Month 3

Month 5

Month 7

Month 9

Month 11

Month 13

Month 15

Month 17

Month 19

Month 21

Month 23

Month 25

Month 27

Month 29

Month 31

Month 33

Month 35

$(400,000)

$(200,000)

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

Net Profit

Churn 1.25% Churn 2.5%

Month 1

Month 3

Month 5

Month 7

Month 9

Month 11

Month 13

Month 15

Month 17

Month 19

Month 21

Month 23

Month 25

Month 27

Month 29

Month 31

Month 33

Month 35

$(4,000,000)

$(2,000,000)

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

Cumulative Net Profit

Churn 1.25% Churn 2.5%

• Impact of lowering the churn rate is felt more heavily in the later years, as expected• It has a significant impact on the long term profitability of the business

Source: David Skok Matrix Partners

Churn

• 1% to 2.5% churn per month is acceptable • Higher than that, you are filling a leaky bucket

– Need to understand why you have low customer satisfaction and address the problem

Source: David Skok Matrix Partners

Customer Relationships Web/Mobile Products– Grow Customers

© 2012 Steve Blank

Customer Relationships Web/Mobile Products Get/Keep/Grow

© 2012 Steve Blank

Ag Robot Customer Relationships Example

Demand generation plan and budget

• Word of mouth generation – 2 systems for “Demo day events”– 2 systems for customer demos– 4 x 30K each = $120,000

• World Ag Expo Booth – 1 x 40x40 corner booth with demo – Hold press event breakfast – $ 15 K (booth, banners, hotels)

• Magazine campaign – 3 ads in 2 magazines – Goal – get 2 articles on us– 2 x $ 10K + Ad agency = 30K

• Total $165 K“You prove that it works and everything else is easy. Distribution is not that complicated in farming.” – Wyatt Duncan, Integrated Crop Pest Control

Medical Device Customer Relationships Example

MammOpticsMarketing

Access to ACOG by former member

Strong influence on doctors via ACOG Standard of Care

Strongly influenced by

KOLs

MammOpticsMarketing

Researchers conducting

important clinical trials

Researchers with numerous

publications

Outsourced survey research

Researchers with strong peer

recommendations

MammOpticsMarketing

Focus on prominent journals Need two big

publications

Choose KOL as Principal Investigators

(PI)

MammOpticsMarketing

Effective method for educating

doctors

Doctors required to attend

workshops

Workshop must be approved by ACOG

Taught by objective medical

experts

MammOpticsMarketing

ACOG Annual Clinical

Meeting

Miami Breast Cancer Conference

Opportunity for feedback from

doctors

MammOpticsMarketing

Trusted information source for patients

Critical opinion leader for

technology adoption

Access to media outlets

MammOpticsMarketing

MammOpticsCustomer Acquisition Cost

Direct sales

Marketing

Device

Head sales5 reps

BonusesExpenses

MarketeerCoordinator

2 conferences

Processing unitRF Circuitry

LasersPackaging

$120,000

$60,000/e

$30,000$20,000$100,000$60,000

$25,000/e

$200$500

$1,500$2,000

Assume 200 sales per year at a $25,000 giving a profit of $3.2M

CAC $4,500

COGS $4,200

Housing AppCustomer Relationship Example

49

• We ran a Facebook ad to test actual willingness to pay for this service

2

50

• To test willingness to pay we used threeidentical ads with three different landing pages

2

51

• To test willingness to pay we used threeidentical ads with three different landing pages

2

Ad Sign-ups Clicks Ad spend

Free 0 23 $25

$1/household 0 25 $25

$1/user 0 24 $25

• Unfortunately, test results only proved users did not trust our site for payments

• Facebook traffic on this campaign was on our page for 4 seconds on average

• Roommate campaign had a 1:37 site time average• Outstanding question: can we win trust in other ways and then

engage users to pay rent through us?

52

• Customer archetype: Sara

How she searches Wants to be efficient (will use a broker if doing a

search on her own is too painful) Asks friends for recommendations

What Matters to Sara Wants to live in a fun place that is safe Doesn’t want to overpay Doesn’t have much time to hunt for a place Live with someone she trusts (moving to DC)

Influences Where friends go out/live Work location

Online DatingCustomer Relationships Example

What We Did: Landing Page + Web App

4 day progress report

What We Found: High referral traffic

Overall Signup progress

31 filled 5-min survey

1258

136

10.8%

Hypothesis: Women-in-relationships are likelier to click through, irrespective of distance status

Tested for $30 Facebook click through & conversion from FB impressions

Demand generation testWhat we did: Targeted women, all couples

Ad-1

Ad-4

Ad-3

Ad-2

What we found: women click more ...................................but not clear who will pay!

IIWomen likelier to click through irrespective of distance status

Couples will pay subscription if they find more sharing during free trial valuable

Subscription model test

LDRs

SLRs 4

6

Good if free

1

Paid

1

Takeaway: “More sharing” without convenience will have to be free.

LOCATION Impressions Men Women Women-in-rel

87140

Click Through rates

Demand generation test

Funnel: “Couples” campaign

Demand generation testWhat we found: Clicks, no web app usage

$ 29.7 this week

304,286 impressions

122 uniques85 new

30 sign-up clicks

0.01 c

0.35 c/new

0.99 c24.6% conversion

but one used web app

Online SalesCustomer Relationships Example

Referenced to our web site

Fill out savings calculator

Send request to sales

Reconnection with viable customer

Visit to site

Close sale

50%

20%

30%

80%

10%

Year 1 Year 5

70%

30%

30%

80%

20%

Total Revenue

Total Revenue1.44 million 18.14 million

100 000 hits 300 000 hits

Web funnel

Mobile App Customer Relationships Example

Success Depends on Virality > Churn

Ratio of early stage virality rate to churn rate = 2.00x

Success Depends on Virality > Churn

Ratio of early stage virality rate to churn rate = 1.50x

Success Depends on Virality > Churn

Ratio of early stage virality rate to churn rate = 1.0x

Demand creation via website

“Not a landing page”No Indonesian version

1 32

Doesn’t show the product

Demand creation via website - results

1 2 30

20406080

22

68 74Clicks

1 2 30.00%0.50%1.00%1.50%2.00%

0.59%

1.25%1.56%

CTR

1 2 30

0.5

1

1.5 1.34

0.54 0.62

CPC

1 2 30.00%1.00%2.00%3.00%4.00%5.00%

0.00%

2.94%4.05%

Conversions per click

People need to use the product for us to maximize learning

Software Reference Tool Customer Relationships Example

AdWords Testing

AB Testing Results

0% conversion 42% conversion 75% conversion 32% conversion

• Original Peaya website has 66% conversion rate• Conversion defined as people clicking the download button on the landing page• Experiment still underway; too few data points for drawing conclusions

Google & Facebook campaigns

• Keywords: free endnote, reference manager, pdf manager, Itunes for digital content, I tunes, manage pdf, organize paper, paper manager, citation manager, paper citation, cite pdfs

• 24 impressions, 2 clicks on google adwords• Clicks on free endnote and organize paper• No Facebook response• 1 Post on ResearchGate drew 7 visitors

We’re “a little” viral

12% of sign-ups from referrals14 of 117 new registrations came from referrals by 3 people from Jan 1 to Feb 1.

Referral bonus promoted in tutorial

Collaboration doesn’t “pop”…. yet

“Rate & Discuss” is least interesting tutorial screen so far

However:1) we can test different messages

(ie “collaborate”) 2) experiment is slightly biased in

ordering, we need further testing

Customer Relationships Example

Search Keywords

Lesson Learned:Very little search traffic -> a “missionary” sales effort

Highly Competitive Keywords

Lesson Learned:AdWords (paid SEM) is not going to be an efficient channel with these keywords

Medical Device Customer Relationships Example

Channel Incentives

Hospitals

Pain Clinics

Per Diem Revenue Model

Per Service Revenue Model

In-patient care/ hospitalization

Out-patient care/ home setting

Private Hospitals, specialty clinics

HMO, ACO, Non-profit, University Hospitals

All Institutions

VP

High Value Therapies

Pharmacoeconomics

Dosing flexibility

Efficient patientmanagement

Demand Creation

Budget ~ $300 k/year