Has Your Business Revenue Hit The Proverbial Glass Ceiling?

Do you remember how amazing it felt the first time someone purchased your product or secured your services? That’s the stuff entrepreneurial highs are made of! Someone trusted all your marketing and branding efforts and bought from you. You wanted to duplicate this process and you did. You grew your business and now you find yourself capped at a certain revenue and despite your best efforts, can’t break past this glass ceiling. To push through and take your business to the next level is going to require a whole new strategy.

According to the author of The Personal MBA, Josh Kaufman there are four ways to increase revenue. They are:

  1. Increase Number of Customers.
  2. Increase the average transaction size.
  3. Increase the frequency of transactions per customer.
  4. Raise your prices.

Increasing Number of Customers As A Strategy

If it were that easy, there’d be no revenue ceiling cap, right?  It’s a known truth that acquiring new customers can be costly and selling to existing customers is far less expensive. If we’re going to break through the revenue ceiling and choose to increase the number of customers as a strategy we need to determine your company’s customer acquisition cost (CAC).

So let’s start with your last marketing campaign. Why? Because it had a start and end date and we can measure both return on investment (ROI) and CAC using all the costs associated with that campaign.

What you paid for social media ads, the cost of your trade show booth, the donuts your sales team took to a potential client are all the costs factored into your CAC. Include salaries, any work you might have outsourced, and related expenses and then divide it by the number of customers that you acquired during that time. That’s your CAC. Depending on the type of marketing campaign or sales effort employed, this number can get pretty high, pretty quickly.

David Skok, a successful serial entrepreneur writes that startups are optimistic and bet on viral growth for their new business. Viral growth, however, is rare for startups and is equivalent to capturing lightning in a bottle.

What’s more common Skok says, is the process of acquiring customers through a series of steps like search engine optimization (SEO), search engine marketing (SEM), PR, Social Marketing, and direct sales. These cost the company significant amounts of money. Skok says, “What shocks and surprises many first time entrepreneurs is just how high the numbers are for CAC using these kinds of techniques.”

After you spend the money to acquire these customers, you’ll need to monetize them. This is called your lifetime value of a customer or LVC. You’re making money when your CAC is low and your LVC is high. An out-of-balance CAC/LVC business model is the reason for revenue ceiling caps and the demise of many small businesses.

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An out of balance CAC/LVC business model is the reason for revenue ceiling caps and the demise of many small businesses.

 

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Desired CAC Model

Three Ways to Lower Your CAC

Avoid the Everything and The Kitchen Sink Approach to Marketing

Marketing requires focus and the ability to shift quickly. It requires knowing your target audience and creating messaging just for them and distributing that message in the spaces where they congregate. Nothing will bust a marketing budget faster than talking to the wrong people in the wrong spaces. Cutting your CAC requires that you truly understand your target audience. So following trends for the sake of following trends can be costly if your target audience could care less about those trends. Just because social media channels like Snapchat and Instagram are wildly popular, if your target audience is not there, you don’t want to waste time and resources creating videos and images for these platforms. They’ll be missed by the people paying your bills. The goal is to crash through the revenue ceiling so marketing smart is a must.

Find Your North Star Metric

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This concept emerged from Silicon Valley companies that experienced breakout growth. The concept helps business owners and their teams move beyond surface-level growth and instead focus on generating long-term retained customer growth. Your North Star Metric (NSM) is to increased revenue as dynamite is to that revenue-capped glass ceiling.

According to Sean Ellis, CEO/Founder of GrowthHackers, the North Star Metric “is the single metric that best captures the core value that your product delivers to customers.” So what does that look like? For Airbnb, it is the number of nights booked. For Facebook, it’s Daily Active Users. Ellis says to find your NSM, “you must understand the value your most loyal customers get from using your product and then you should try to quantify this value in a single metric.”

You may find that you have several metrics but the goal is to narrow it down to a single NSM. For you, it may be “number of widgets sold” or “number of engagements on social media” or “number of website visitors.”

Coupling a target-audience focused marketing strategy with your NSM is just one way you can crash through that revenue ceiling cap.

It’s Cheaper to Keep Her

That’s the song title of the 1970s hit by Johnnie Taylor and in marketing, it’s the absolute truth. Customer churn is real and an effective customer retention program is necessary to see sustainable growth. Because what’s worse than a high CAC is having to pay that amount again to get the same customer. It’s cheaper to implement a retention program, use automated marketing resources to keep your new customer than start the acquisition process all over again.

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