Life of FBi | Non-Tech Start-up Founder

Looks like a Chinaman, Sounds like an Aussie, Utterly Confusing

Our Journey in Building a Customer Acquisition Model

with 6 comments

This is mostly an anecdotal account of how Blank Label got to 60k in monthly uniques and what I hope can learn from it. When I talk to most non-technical founders, we share the pains of not being a builder. It’s painful because no investors will take us seriously without a prototype, most engineers won’t talk to us because they know we initially bring very little to the table, and we just feel stuck and helpless. We think, once we can get the site we want built, we’re golden. It’s time for my idea to shine, then everyone will see how right I was from the start. Not exactly.

1. Before Marketing Comes Economics

You first need to understand the fundamental unit economics of your business. If you’re running any kind of commerce site (travel, jewelry, custom dress shirts), what’s the average order value, how much are people spending per visit. And how much of that do you actually keep as profit.

Then you make up a number (because it’s very hard to actually get the number right without the actual data) which is how many times you think that customer will shop with you again. Is it 3 times, 5 times, 10 times? All depends on your business. Good advisors can help here. This will help you ultimately determine 1 of the 2 most important numbers in your business. Most people call it the Life-time Value (LTV), essentially it’s how much a customer is worth to you.

The other-side of the equation is the Customer-Acquisition Cost (CAC), how much you want to pay for a customer. The CAC number is the marketing spend divided by the number of customers; e.g. if you spent $5,000 this month and had 100 customers on your site, the CAC is $50. If you’re a logically minded person, you’ve already figured out  that everything funnels back to

LTV > CAC

If you’re paying more to get the customer to buy something than the customer is going to give back to you in profit, you don’t a business.

2. How To Get Free Traffic

For us the first year of Blank Label, traffic was mainly driven by PR and word-of-mouth. Our Lead Evangelist Danny Wong was very determined in using PR as a pillar of traffic. We were featured in New York Times, MSNBC, BusinessWeek, Inc, Forbes, just to name a few. When starting out, PR is a great place to get traffic, mainly because its free and can often surprise you at how big it can be.

Invest time into it and you’ll see it as a funnel just like site usage. You’ll start tracking how many pitches you send out, how many replies you get, what pitches get more replies, whether in-person meetings with journalists are worth your time, that closing stories actually is very rare but if you pump that funnel with good leads, you will get write-ups.

3. Paid Traffic is Better than Free Traffic

We always thought as we grow our PR relationships, we’d get more PR traffic, times that by some viral word-of-mouth co-efficient and we’d be golden. Not quite the case. Here’s the best PR tip that no one has ever told us. Everyone wants to write about you when you’re starting out, when you’re “launching” but then you become old news. You’re most interesting when you’re the shinny new thing.

One of our advisors, David Hauser, told me pretty early that we should really be thinking about how to spend some of the money we were making from the free traffic on the paid traffic. Admittedly I wish I took this advice when he told me rather than four months later. The earlier you can budget paid traffic, the better. Ultimately if you can acquire customers for less than you’ll make back off them (LTV > CAC), that’s fairly scalable – you just poor more money on. Google, Microsoft and other ad exchange networks really don’t care whether you’re the shinny new thing.

If you’re in Boston and are looking to share notes on customer acquisition modelling (not social media marketing!) there’s a pretty cool group of people forming, drop your name in the comments and I’ll be in touch.

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Written by Fan Bi

January 21, 2011 at 3:56 pm

Posted in Uncategorized

6 Responses

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  1. […] This post was mentioned on Twitter by Brady, Greenhorn Connect and Jason Evanish, Fan Bi. Fan Bi said: Our Journey in Building a Customer Acquisition Model http://goo.gl/iOBxA […]

  2. I may be interested in the modeling group. We’re doing the same exercise (over again) for our startup. Please let me know if you’re still accepting participants. Thanks!

    Peter Alberti

    January 23, 2011 at 3:31 pm

    • Thanks for the interest Peter, what things that you’re doing that you find working for you? We’ve invested very heavily in trying to get write-ups but lately have started investing in CPC and CPMs across Adwords, Microsoft Adcenter, Reddit, and Stumble Upon.

      Fan Bi

      January 24, 2011 at 2:05 am

  3. Great post! A related point is that startups sometimes forget to include salespeople’s salaries in their CAC when searching for “free” traffic. Am very interested in chatting more about customer acquisition modeling, keep me in the loop.

    Jon Gilman

    January 23, 2011 at 6:24 pm

    • Thanks for the insight Jon, definitely agree. How is Tuck for digital marketing?

      Fan Bi

      January 24, 2011 at 2:08 am

  4. Great post and please sign me up for customer acquisition meetups!

    Bill Shander

    January 24, 2011 at 2:41 am


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