Growing a Startup? What if you could add fuel to the fire? That’s where Paid Acquisition comes in!
Startups don’t have money. Most of them therefore rely on free channels to get the wheel going. However, at one point, free channels show their limit…
At this point, you should have validated your Business Model and get a steady flow of new Customers every month. Nevertheless, you still need to progress, to grow.
Free Channels may show their limit. You’ve been paying for customers with your own time. It’s now time to pay dollars for each new customer you get…
Acquisition is the very first step in getting customers. Without Acquisition, you would have no lead to enter you funnel, and therefore, no customer at the end of your funnel.
It’s also part of the AARRR Framework. In Acquisition, your goal is to attract visitors and to convert them into leads. You take their email or anything that allows you to keep in touch with them and convert them over time.
What is Paid Acquisition?
Paid Acquisition may be one of the top channels depending on the business you’re in. However, don’t forget that there are plenty of ways to communicate for free.
Many networks allow you to advertise online and to put your words out there. They can help you to reach new audiences, or to reach out to people that already came on your website (retargeting).
Relying only on free channels can be dangerous. It means that others are in charge and that you can’t control them. If we take SEO as an example, Google could change the rule overnight – destroying all your efforts, and your business.
Although we call them “free channels”, they aren’t totally free. You generally have to invest a massive amount of time in order to see the first results. As an example, with Content Marketing you would need to write & publish very often if you want to see any kind of results.
Paying Acquisition allows you to see results very fast. You could start a campaign, and see the first customers coming in a few hours…
Good or Bad?
Like every Channel, Paid Acquisition has both upsides and downsides. Before getting started, you need to know both of them in order to choose if it’s right for your business.
Tracking Cost & Revenue is very easy. Software like KISSmetrics or Mixpanel can help you to calculate Revenue from a specific campaign in a snap.
You know which campaign your customer clicked on, and how much they paid. You can then calculate the CAC / LTV relative to each campaigns and invest where it’s most cost-effective.
Optimization is key to your success. Along with your various experiments, you’ll get better everyday at advertising online. Therefore reducing costs and increasing revenue.
The more you do it; the more you learn; the more you become effective. You’ll see that your results after one year, will have nothing to envy your first results.
It requires money; a lot of it. It’s very easy to start too early, but you shouldn’t. When you start, you should be willing to waste money in experimentation that won’t work.
Time is our most precious ressource. You’ll need plenty of it if you want to take advantage of paid acquisition. You may even consider hiring an agency or a consultant if you’re too busy.
When to start?
Before going to Paid Acquisition, you need to understand that there is stages inside startups. You don’t want to burn out all of your cash before you validated your Product / Market Fit.
The PMF and The Startup Pyramid can help you to uncover when you should really start to pay for customers.
Really investing in Paid Acquisition is part of the Transition to Growth & Growth stage. You shouldn’t invest massively before as your Value Proposition could change overnight.
You can start before if you want to validate your hypothesis. You could run several Ads for each Value Proposition you want to test and then measure CTR & Conversion.
Many startups are bootstraped – evolving with their own investment. You could start paid acquisition when you feel you growth is slowing down and that free channels are showing their limits.
Be very careful with paid acquisition; if you start too early you’re wasting money, whereas if you start too late you competitors may already be there (higher competition = higher costs).
Before starting, you should spend a fair amount of time tweaking & optimizing your sales funnel. If you don’t optimize your funnel, you’ll make money by acquiring customers at a higher cost.
Execution is the most important thing in every businesses. Going into Paid Acquisition is one step forward to building your company. However, you need to be aware that paid acquisition is not for everyone.
What about money?
Paid Acquisition requires money. Plenty of it. You need enough budget to experiment, learn and run your ads before you can even think about getting your investment back.
If we look at this graph, we can see that this company is getting profitable on the 14th month. Before this, you’re only offsetting your investment (CAC). You need to understand that you’ll get your investment back after a while.
Don’t get me wrong, you don’t need $10k if you want to start, but you better be ready to spend money. Your first ads probably won’t be successful, so be ready to loose money in the first place.
If you still want to start, ì guess you can start with at least $200. Don’t spend it in one day, run ads with only a few dollars and you’ll rapidly start to see what’s working or not.
Let’s look at the following metrics (CR = Conversion Rate; you can find the sheet here):
We can see that we need to invest $116 to get 167 visitors. We’ll then get one customer, with a profitability of $483. You start with a negative cashflow before getting back your money.
You pay more for one customer than you get back (in one month). Then, SaaS magic operates, and you get back your investment on the long-run with the LTV.
To clarify all this, you can have a look at the following table:
To help you understand:
- ARPU is key here because you need to know how how long it’ll take to get your investment back (Payback Period)
- Knowing your LTV is even more important because it’ll help you to calculate your target CAC
Use it as a framework to know when to start Paid Acquisition and the necessary resources to get started.
Where to start?
There are many platforms out there where you can start paying acquisition. It’s very hard to know where to start. You can’t be everywhere and you should start channels one at the time.
So, where should you start? Start where your users are. Simple answer. If you know that your users are looking for your software on Google, start AdWords; if they look at well-known websites, start Display.
I recently worked with a company called Agorapulse – a Facebook & Twitter Marketing Platform. It makes perfect sense for them to start on Facebook because their customers spend their lives on Facebook.
On the other hand, if you’re targeting corporations, you probably shouldn’t start on Facebook, unless you can find some smart targeting for decision makers…
Know your Metrics
Before you get started, it’s primary that you compute your metrics in order to know what’s acceptable and what’s not.
By knowing your LTV and Conversion Rates, you’ll be able to calculate your Target CPA.
To help you out in these calculations, I’ve prepared a sheet that you can download and modify to your own needs.
Here is a non-exhaustive list of the main channels / platforms you can use when you start Paid Acquisition.
AdWords: probably the most well-known channel where you can advertise on both Google Search & Display. Be aware that advertising on AdWords may be expensive (High CPC) depending on your industry.
Perfect Audience / AdRoll: both offer retargeting your visitors. Allowing you to reach the 90% of visitors who did not convert on their first visit.
Please note that Perfect Audience & AdRoll are very “set up and forget” networks. You won’t have to monitor results daily or anything. It can be a great way to get started.
Facebook: with more than 800 million of daily active users, Facebook can be extremely powerful when advertising online. Even in B2B…
Besides the Channels, what’s most important is how you advertise. You could find very hot prospect on Facebook even if you’re in a B2B market.
There are plenty of targeting possiblilities. This article is about giving you a small introduction into what you can do and where to start. Be sure to test the following, but don’t limit yourself.
Let’s say you have a Conversion Rate of about 10%. It means that you lost 90% of your trafic. Getting this trafic was hard-work and patience, why loose it now?
Retargeting allows you to get users back to your website by advertising where they are. You can retarget users on a Display network (AdWords, AdRoll…), or on Facebook.
When you retarget users, be sure to take into account their position in the Consumer Decision Journey. If they saw your blog, send them more information. If they saw your pricing, try to influence their decision…
Retargeting is one of the easiest way to get users back on your website. Don’t overlook it as it could help you to drive conversions at a very low cost.
Advertising Platforms own plenty of information about most internet’s users. They know if you like Baseball, or if you prefer Soccer.
Interests allows you to target people based on their Interests. Basically, you target people based on what they do online.
Interests can allow you to reach an important new audience that may be interested in your offerings.
Lookalikes are audiences that “look like” another audience. Let’s say you have 1000 customers, you could import them and reach people who have similar behaviors & interests.
What’s good about lookalike audience is that you can find new people based on your current lists. It’s all about leveraging what you currently have in order to bring more of the same segments.
You need to measure your whole funnel – from top, to bottom. You should be able to trace users from their first interaction, to their subscription (and their renewal). You’ll therefore be able to understand where to spend your money.
Experiment everything. Forget about best practices. Something that might work in one industry, might not work in yours. Try by yourself.
The narrower your targeting is, the better. You only want to reach people that might be interested in your service. So be very careful when you target your ads.
Be smart & think outside the box. You could retarget visitors who did not convert the first time, or make a retargeting funnel in which you only ask for an email after 3 visits. Everything is possible…
Keep in mind the Consumer Decision Journey. Talk only about things that are relevant to your targeted audience.
Paid Acquisition Madness
Plenty of startups only rely on free channels when they firstly start acquiring customers online. However, at one point, these free channels may show their limits.
PPC is all about monitoring and optimizing everything. Don’t forget about it after a while because you’ll waste money. It requires plenty of work even after a few months…
Don’t try to target everybody; target only the people who are relevant to your business. It’s even more important because you don’t want to spend millions to reach people that are not interested in your services.
Paid Acquisition may be one way to acquire a steady flow of customers for your business. It’s even more interesting since you can easily calculate the costs & revenue generated through this channel.