Online advertisers tend to fall into several distinct business models. The first major classification involve the front-end offer. Is it a product, a service, or access to a web application. The other major classification is the length of the sales cycle. How much time and persuasion do your customers need before they make a purchase?
Businesses become successful by continually refining their offer and sales cycle to produce the maximum revenue. To this end, retailers can learn a lot from the marketing strategies and mindset employed by software as a service (SaaS) web application providers that operate on a subscription basis.
SaaS businesses are governed by metrics — there’s a lot of ‘em! Each data point is carefully monitored and analyzed to squeeze every out every last ounce of profit.
You’re probably handling your basic stats well: conversion rate and average order value. By digging deeper, however, you’ll discover there are additional profit levers at your command. Here are some SaaS strategies to steal:
1. Make repeat purchases predictable
Perhaps you’re not really sure of your customer lifetime value. This is a problem. Most SaaS businesses have customers on a repeat billing cycle every month. Their revenues are predictable and so is their monthly churn. You should know what percentage of your customers make repeat purchases, the average length of time between purchases, and the average order value of these follow-on purchases.
SaaS businesses are highly concerned with their new customer onboarding process. They know that the initial experience the customer has with the brand will be the most influential in determining their lifetime value. Retailers would do well to likewise focus on loyalty-inducing strategies for all new customers.
2. Factor lifetime value into your customer acquisition costs
SaaS businesses are typically willing to wait up to a year to recoup their advertising costs. How much is a customer worth to you? Too many retailers have an unrealistic requirement to make a substantial return on the very first sale. If giving up some profit on the front-end would help you expand your marketing reach to bring you 25% more customers, how much more lifetime value would those additional customers bring?
Don’t cripple your long-term profit by requiring all marketing to produce a 20% profit within 30 days. If cash-flow is available, put it to work!
3. Inspect lifetime value by advertising source & campaign
Regardless of your initial cost per acquisition, you’ll notice that some of your advertising campaigns tend to bring you customers with higher lifetime values. Do the long-term math. Then invest more heavily in channels that bring you better customers and more long-term profit.