Wearable World 2015

How to Evaluate a Marketing Opportunity

In this presentation, we’ll cover:

•“CLV” and “CAC”. • Setting an estimate for these on Day 1. • Calculating conversion rates from initial click or contact for different channels.

• Working backwards to determine if a marketing “opportunity” is worth it.

• Testing a new marketing channel: setting a time frame & a budget. • Splitting up an experiment into multiple iterations, so you have time to learn and optimize before making judgements.

Caffeinate

Caffeinate is a wristband that monitors your heart rate and automatically orders you a coffee when you’re tired. Caffeinate prevents you from being that guy (up top).

• Average cost of Caffeinate: $139

• Average number of purchases: 1.1

• Average retention time (in years): 1

Meet my fake wearable:

Customer Lifetime ValueC.L.V

• Customer Lifetime Value measures the profit your business makes from any customer.

• SaaS CLV Model: (Revenue per paying user per month) x (Gross Margin) x (Customer Lifetime)

• Commerce CLV Model: (Average Order Value) x (Number of Repeat Sales) x (Average Retention Time) x (Gross Margin)

• For wearables & IoT especially, factor in Gross Margin.

• Caffeinate:

• Average cost of Caffeinate: $139

• Average number of purchases: 1.1

• Average retention time (in years): 1

• Gross Margin: 65% (.65)

• E-commerce CLV Model: ($139) x (1.1) x (1) x (.65) = $99

C.A.C Customer Acquisition Cost

• C.A.C = Customer Acquisition Cost

• Traditionally, C.A.C is ALL of your marketing costs:

• (Sales + Marketing Costs, including People, Software, etc)/ (# of New Customers)

• Today, we’re going to use a simpler C.A.C.

• (Spend on a Marketing Channel) / (# of New Customers)

Good rule of thumb: CAC ≤ 1/3 LTV

• Caffeinate: LTV= $99

• With that LTV, you can have a CAC *up to* $20 - $33

Conversion Rates

• Ecommerce: Website Visitor -> Paying Customer.

• SaaS: Website visitors -> Signups. Or Leads - > Paying Customers.

• This will vary by channel! Properly tag all your campaigns so that you can clearly see who converted from where.

• Don’t know your conversion rates? Check out benchmarks in your industry. Some resources on the last slide.

• Caffeinate has a conversion rate of 2%

“Dear Caffeinate,

I’m writing to you from a Marketing Organization in a Related Field (MORF).

We’re creating a list of the “5 Top Mind-Bending Wearables for Busy People” and we would like to feature you!

Our Top 5 collections usually get 40,000 views. This is a sponsored listing to the tune of $3,000. ”

Best,Fred StaplesBusiness Development, MORF

We talked on the phone with Mr. Staples and he added that each listing gets a 5% CR on average.

• 40,000 views

• 5% click through rate

• = 2,000 people may visit your site

• x 2% conversion rate = 40 purchases

• At a CAC of $20, you could spent $800 to achieve that

• At a CAC of $33, you could spent $1320 to achieve that.

• Either way, both number are <3,000 and it’s not worth it.

Testing a Marketing Channel

• Adwords

• Facebook Ads

• LinkedIn Ads

• Marketplace Listings / Referrals

• Social Media Marketing

• “Organic” Channels: Blogging+SEO:

What’s the minimal amount you can spend with $40 CAC and a 2% conversion rate to test a channel?

…..It’s actually not that easy. The larger your experiment, both in time and budget, the more certain you can be of your results.

You’ll have to draw a line in the sand based on your resources, your market and what seems reasonable to you.

If you’re in B2C E-commerce, $100 is too little to test a channel, and $1000 may be too much. If you’re in B2B SaaS, $1000 is too little to test a channel, and $10,000 is too much.

But…when testing a channel:

• Split your budget up into at least 4 parts, over the course of at least 4 weeks.

• Take your learnings from the first week and apply them to the next weeks. It takes time to get something right.

• There are some great tools that will help you with this, such as AutomateAds: www.automateads.com and AdStage: www.adstage.io

•This will help you maximize your budget.

AutomateAds automatically optimizes your campaigns: it lets you create many different variations of just about anything you can think

of in your ad, and sends traffic to the top performers.

Wearable World 2015

Simona Marie Asinovskiwww.simonamarie.comme@simonamarie.com

CAC & LTV

http://blog.hubspot.com/ecommerce/calculating-ecommerce-cost-of-customer-acquisition http://customerlifetimevalue.co/ (Customer Lifetime Value) https://segment.com/blog/calculating-customer-acquisition-costs/http://www.evergage.com/blog/how-calculate-customer-churn-and-revenue-churn/http://www.forentrepreneurs.com/saas-metrics-2-definitions/

Conversion Rates

http://www.marketingsherpa.com/article/chart/conversion-rates-retail-categorieshttp://www.wordstream.com/blog/ws/2014/03/17/what-is-a-good-conversion-rate

Digging deeper into conversion rates:

http://www.ecommercefuel.com/average-conversion-http://www.smartinsights.com/ecommerce/ecommerce-analytics/ecommerce-conversion-rates/