The Scenario
A late-stage SaaS startup had great early success in acquiring customers using digital media but the internally-run program had stalled out. There did not seem to be a way to increase volume without increasing Customer Acquisition Cost (CAC). How could the 40-person startup reach the next level of growth?
Our Approach
When analyzing the customer data, we realized their customer base could best be described in two dimensions: value and churn. The client had not considered either of these in their pricing of the media. Instead they were looking at a sole cost-per-lead target where the price was based on the rate at which all these leads made it to the first monthly payment.
Their pricing methodology created two severe limitations on the program: First, they were limiting high value customer audiences and over-paying for low-value customers. Secondly, they falsely assumed that churn was a separate issue that couldn’t be addressed in customer acquisition.
Working Planet created a four-tier customer segmentation that was based on projected Lifetime Value (LTV) rather than first-month payment. We started paying much more for high-value clients that our models indicated would not churn out, but also, we would only pay very little (close to nothing) for clients our models predicted to be low value and high churn.
The Results
Our clients’ Monthly Recurring Revenue (MRR) began to spike upwards as retained MRR dramatically increased and MRR lost to churn dramatically decreased. Customer value, as measured in projected LTV, increased which meant we could pay more in the ad networks while maintaining their CAC/LTV ratios. This drove huge increases in volume and a 10x increase in the size of the customer acquisition program. Over 100% annual growth over multiple years meant our 40-person client quickly became a 400-person client with massive strength in their MRR and ARR. The company was ultimately acquired by a competitor for over half a billion dollars.