

To Pay Or Not To Pay To Acquire Users? - coglethorpe
http://startup-marketing.com/to-pay-or-not-to-pay-to-acquire-users/

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mixmax
If the acquisition cost of a customer is less than life-time value of the
customer you should pay. Otherwise not.

Generally the life-time value of a customer (how much money you make on an
average customer in the time you do business together) is an important metric
that you would want to estimate anyway.

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mediaman
Subject to liquidity constraints. If you have a product that has regular
payments from a customer, and customers stay customers for a long time,
creating a high lifetime value, then it is likely that there are many
marketing activities that exceed lifetime value but will take six months or
more to break even. Some marketing activities have the above characteristic
but require a sizable minimum investment, such as ad campaigns. This limits
your ability to implement them.

This constraint doesn't apply to public (or large) companies who can raise
whatever money they need if they have a high value marketing activity to
invest in.

I would also add that many people don't necessarily have the operating history
to know what lifetime value is, so they begin making assumptions, and the
assumptions are almost always too optimistic. This can lead to excessive
marketing.

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mixmax
Good point about the liquidity restraint.

I hear banks aren't that friendly nowadays.

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seanellis
I actually model allowable acquisition cost on expected first year average
revenue per user (less any marginal service costs like bandwidth or storage).
The key variables are % of users that have a transaction and the average
transaction size. If you have a monthly recurring fee, then you also have to
consider churn. I'd recommend a conservative estimate of an average of six
months of revenue in the first year for each paying customer on a monthy
recurring fee. Annual fee is obviously the entire transaction size. Hope this
makes sense.

Sean Ellis (startup-marketing.com, led early marketing at both Dropbox and
Xobni)

