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Using customer-channel fit to lower your CAC
Hello friends, welcome to GrowthShot #55. Today’s theme is:
Using customer channel fit to lower your CAC - all in less than 250 words
Let’s dive in
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Your pricing tiers as a SaaS company usually correspond to different market segments. As an early-stage startup, it makes sense to test your offer to different market segments.
However, to make sure that your LTV:CAC is optimal, achieving customer-channel fit is a good idea.
For example, when Hubspot was early stage, they identified two main verticals - the SMB market and the VSB (very small business) market.
To acquire customers in the SMB market, they had a specific CAC. Likewise for the VSB market. They observed that they could optimize the LTV: CAC ratio for these 2 segments separately.
In the SMB market, they had the right sales process in place – but had an opportunity to improve LTV by improving the product to lower churn and increasing their average price in the segment.
While in the VSB market, there wasn’t as much upside left on the LTV. This was because VSB customers have less money and therefore higher churn. So they focused on lowering CAC by removing friction from their sales process.
There are 2 key takeaways from this idea:
Takeaway 1: Understand if some of the more expensive acquisition channels make financial sense. If they meet the KPIs you have set for your business, it makes sense to hit the accelerator on those sources.
Takeaway 2: Examine which market or customer segments show the quickest return or highest LTV: CAC ratio in order to understand which will be the most profitable to pursue.
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