Acquisition Channels

Acquisition channels are how people hear about you.

There are tons of acquisition channels you could test. Here’s an incomplete list — skim it to get a feel. (Don’t worry about the columns on the right, we’ll cover them in a bit.)

Note: We mentor you in the nuts-and-bolts of how to run channels properly if you work with us.

Which acquisition channels should I test?

We used to have strong opinions about how to pick acquisition channels, but we’ve seen too many startups grow from weird channels we didn’t expect. Growing is not as straightforward as saying, “Let’s find the channel from this list that works.”

We can give you a few guidelines about how to think about channels, but the most important things are to keep an open mind and build on what you’re learning from users.

Why? There are hidden acquisition channels you only uncover by talking with users and learning how they buy things.

For example, if you’re targeting people looking for housing in San Francisco, you might discover that there are really two main private facebook groups people post in, and you need to get in those groups.

If you’re selling to enterprise (i.e., big companies), you may find that your customers only buy software when one of their consultants recommends it, and you have to meet these consultants at conferences.

What does this mean for you? Talk with users, don’t write off a channel just because it feels small, and be disciplined about which channels you try first.

That said, there are still some concepts to keep in the back of your head:

• Acceptable CAC
• Intent
• Scale

Acceptable CAC

CAC stands for customer acquisition cost: how much you pay to get a customer. For example, if you spend $100 on TikTok ads and get 5 customers, your CAC is $20. ($100 divided by 5.)

At the end of the day, there’s a certain amount you can spend. If you run TikTok ads and it costs $20 per customer…but your customers only pay you $10…you’re going to go out of business.

So, how do you figure out how much you’re willing to pay?

1. Take the lifetime value (LTV) of your customer
• This is how much the average customer pays you over the entire time they use your product. For example, if your product costs $12/month and the average user stays with you for 10 months, your lifetime value is $120.
• If your company doesn’t keep good data on this, make some reasonable guesses.
2. Subtract out variable costs
• These are costs you pay every time you deliver the product. For example, when you buy a $2 Coke, Coke may pay $0.20 for the ingredients, and $0.05 for the can, so they’re really making a profit margin of $1.75 per soda.
• If you’re an app/software company, your variable costs may be close to zero.
3. Subtract out profits to keep.
• If you work for a bootstrapped business, you may not want to break even; you may want to…actually make money. Using the example above, Coke could pay $1.50 per customer so they can make $0.25 per can. (Ignoring repeat purchases.)
• If you work for a startup that wants to grow at all costs, you might be willing to lose money to get users for a while. There are many reasons to do this. For example, you might want feedback to improve the product, or you believe there’s a tipping point that makes getting future customers cheaper. For example, Uber famously lost money on every ride for a long time, but when they got more riders, more drivers wanted to join, which attracted more riders…etc.

What’s left is your acceptable CAC: how much you’re willing to pay per customer.

How much you can pay affects the channels you test. For example, if you can afford to spend $10 million per customer, you might invite potential customers to an all-expenses-paid retreat in Hawaii and fly them out on private jets. If you can only pay $5 per customer, you might have to rely on referrals, word-of-mouth, and going viral on social media.

Here’s a graphic that puts it well.

Newer channels — for example, a new hot social media company starting to offer ads (such as TikTok in 2019) — feel more like the Wild West, and you can sometimes find much cheaper CACs. Say, in the $5-10 range.

Other notes on CAC

You may have heard of the rule of thumb “CAC should be one-third of LTV”. This is because many marketers/founders don’t know how to calculate it. Do the math instead. It’s possible to pay more and still hit your goals.

You can stomach a higher CAC if some customers naturally refer you to other customers. For example, if your acceptable CAC is $100, and the average customer refers you to one other customer, you’re actually getting two customers for the price of one. That means you can spend twice as much as you think ($200) to get a customer.

Lastly, keep the payback period in mind: how long it takes for your money to come back to you. For example, if your product costs $10/month and your CAC is $50, your payback period is…five months. (Assuming people instantly sign up.) That’s five months you still have to pay salaries, rent, variable costs, etc., before the money comes back.

The longer your payback period, the more conservative your acceptable CAC should be.

Intent

We covered this in the personas reading; people have different levels of intent depending on the acquisition channel.

Google and Amazon have high-intent users: someone is actively searching for a solution to a their problem. This shows up as higher conversion rates: compared to other channels, a higher percentage of people who see an ad or result actually click through and buy.

Social media ads and posts are lower-intent. We call channels like Facebook, Twitter, Instagram, etc., “Discovery-based channels” because people discover you when they’re bored and casually scrolling through their feed. They’re not actively trying to solve a problem. That means the burden is on you to pitch problems you think they have, based on the targeting the channel gives you.

Higher-intent channels work more often, but they can be more expensive (which means they may exceed your acceptable CAC) — depending on your competition.

Scale

As you may remember from the personas reading, scale means “If this works, can I get tons and tons of people through it?”

You may also remember that scale matters less than you think. Cracking any channel (profitably getting customers) helps you come up with ideas for new personas and channels that might work.

But you should still keep scale in the back of your head.

For example, a client of ours once wanted to test Nextdoor ads. They started out great; our CAC was around $100 dollars and our acceptable CAC was tens of thousands. But, the next week, our CAC ballooned. No new customers came in, and people saw our ads an average of 13 times!

Why?

Few people go on Nextdoor, and only a fraction of them are in the cities we targeted. There wasn’t enough scale, so the same people saw our ads over and over. Not worth pursuing.

You can ballpark the potential scale for most channels. A few examples:

If you’re writing a blog post on how to get a marketing job, you can see how many people search it using the Google keyword planner.

If you want to send salespeople in person to pitch independent bakeries, you can google how many there are.

If you want to write viral LinkedIn posts targeting VPs of Sales in tech, you can find the total audience size using the LinkedIn ads manager.

If you’re running Facebook ads to dog owners, Facebook will tell you how many people buy dog products.

Buyer’s Journeys

The buyer’s journey is the steps that lead someone to buy your product. Here’s an example:

You don’t get married on a first date. You don’t buy products right when you hear about them.

Each step of the buyer’s journey should handle an objection to using you. Objections tend to come in this order:

1. I don’t have this problem. (My alternative is better.)
2. The problem isn’t urgent.
3. Your product doesn’t solve my problem.
4. I don’t trust it will work.
5. I can’t afford your product.
6. I don’t have the authority to buy this. (Someone else needs to approve it.)

As a marketer, your job is to handle the objections as they come up — by showcasing your value props, explaining your product clearly, and offering clear next steps.

Here’s how you might handle these objections. Click to open each arrow.

All these little techniques unstick users and make them more likely to become customers.

Success Story: Educational Curriculum Company

We once worked with a company that sold curriculum to schools. They had an easy time getting teachers to use their product, but a hard time getting schools to pay.

That’s because teachers don’t pay for stuff. School administrators do.

When they talked with their users, they learned school administrators are very particular about how they approve new purchases. Most have a literal inbox and outbox tray for physical pieces of paper that they review and sign.

So they offered a free trial to teachers. The trial got them using the curriculum and raving about it. Then, when the trial was about to run out, they would tell teachers:

“Hey, if you want to keep using this product, you’ll have to get your administrator to buy it. Here’s a PDF with all the information they need. Print it, walk down the hall, and drop in their inbox tray so you can keep using us! (It takes 2 minutes.)”

This drastically improved conversion and got them paying customers.

The lesson? Talk with your users, offer the right sample, and sell people how they want to be sold.

Samples

Samples are the most powerful way to speed users through their buyer’s journey.

With samples, users invest a small amount of time or money in exchange for a small amount of your product — so they can see the value and sell themselves on buying more.

Some examples:

• Rithm School makes their curriculum available for free and offers free code tutoring so you can see exactly what it’s like to learn from them.
• Showtime lets you watch 30 days for free before subscribing.
• Ours lets you try your first two sessions for $99.
• The New York Times lets you view a few articles before you have to subscribe.
• Credit cards, banks, and car dealers offer teaser rates for your first year.
• Airtable gives you credit towards future months the more you use it.
• Lawyers, accountants, financial planners, etc., offer free consultations before you ever pay for their services.
• Large companies do “paid pilots” with vendors for thousands of dollars before they commit millions on a larger contract.

If you don’t offer a sample, you’re probably asking for too much. That means you’re losing customers.

Make sure you offer a compelling sample.

Growth loops

Cracking an acquisition channel can be enough to grow your company to billions of dollars, but channels have a habit of tapping out.

The most successful companies figure out how to feed acquisition channels into a growth loop.

Read on to learn how.