In our latest resource, The Marketer’s Guide to Battling Growth Stagnation in 2022, we provide readers with five battle-ready strategies that can be used to survive slumps and escape growth plateaus.
These strategies are being shared in response to macroeconomic conditions that have created major growth challenges for many B2C startups, which historically have relied on a steady flow of funds from both consumers and investors to thrive.
One of the most tactical tips offered in the guide involves fighting off looming growth ruts by shifting your focus to the right KPIs. Here’s why this matters:
KPIs that limit your ability to see how campaign performance impacts the overall health of your business can hurt more than help.
For example, let’s say you’re only considering the cost of marketing when evaluating the effectiveness of a paid campaign. A campaign that achieves a ROAS of 100% (i.e. $100 worth of orders placed for $100 spent on ads) might look like you broke even, but it doesn’t take into account other business expenses, like product fulfillment, CoGS (cost of goods served), shipping costs, refunds, and labor. If you optimize to ROAS and set your goals without seeing the full picture, you may cost your business money in an already delicate time.
When you look at the right KPIs, you improve performance by getting a more complete picture of business health.
Here are three KPI-related tips from the guide that can help you steer the ship back in the right direction:
1. Track and Optimize Your Burn Multiple
The fintech platform Mosaic defines Burn Multiple in this way:
“Burn multiple is a capital efficiency metric that takes an all-encompassing view of your business, providing insight into how much revenue you’re generating per dollar burned. It goes beyond net burn to show how efficiently your company can generate revenue by deploying capital raised from funding rounds. Unlike other efficiency scores like LTV/CAC ratio that focus on just sales and marketing, actions you take across every business function will impact your burn multiple.”
Burn Multiple is becoming an increasingly popular KPI among investors because it makes it easier for them to evaluate the operational efficiency of a startup.
To find your Burn Multiple, all you need to do is divide your net burn by net new revenue for a given period.
As Mosaic explains, “A ‘good’ Burn Multiple looks different at different stages of growth.” They refer readers to benchmark data from a16z, which can help you evaluate how your burn rate compares to other companies in a similar stage of growth as yours.
There are a few things your marketing team can do to improve your Burn Multiple over time: work on lowering your CAC, improve your LTV (more on that in a second) with non-paid channels, cut costs to improve your gross margin, or perform revenue forecasting more often so you can make informed decisions sooner based on market conditions and data at hand.
2. Increase Customer Lifetime Value (LTV)
Andreessen Horowitz defines LTV in this way:
“Lifetime value is the present value of the future net profit from the customer throughout the relationship. It helps determine the long-term value of the customer and how much net value you generate per customer after accounting for customer acquisition costs (CAC).”
Baremetrics recommends two formulas to calculate LTV for subscription models:
Formula one: LTV = ARPU (average monthly recurring revenue per user) × Customer Lifetime
Formula two: LTV = ARPU / User Churn
If you’re not marketing for a business with a subscription model, a better formula to use is the LTV/CAC ratio, which measures a customer’s lifetime value over the cost of acquiring that customer.
Too many marketers focus on CAC without enough attention to how they’re maximizing the value of the customer after the first purchase. Tactics like email/SMS messaging to garner reviews, referral and loyalty programs, and post-purchase upsells can sharply increase a customer’s LTV without an extra dollar in ad spend.
Another way to leverage LTV as a metric is to integrate back-end CRM data. Segmenting customers by revenue allows marketers to bucket audiences into high-value, medium-value, and low-value customers. This allows marketers to study the behavior, acquisition sources, and customer profiles of each bucket, leading to strategies to improve the LTV of each bucket further.
Oftentimes you will find the 80/20 rule applies to your customer base, i.e. 80% of revenue comes from the top 20% of customers, but even more interesting is when the rule is applied again, to the top 20%. For many companies, 64% of their revenue comes from just the top 4% of customers. Focusing marketing efforts to acquire and nurture more customers like these can create huge efficiencies in your business.
3. Kill Last Click Attribution and Measure Incremental Impact of Your Marketing
Too many marketers still rely primarily on last click attribution when crediting conversions, which doesn’t tell the full story of which channels and campaigns are actually driving buyers to act.
This can ultimately lead you to make the wrong decisions about how to invest, reinvest, or scale your performance budget.
To battle this, you need to recognize that multiple touchpoints contribute to the purchase of your product. By leveraging lift testing, match market testing, and media mix modeling, you can see the full picture and gain a better understanding of the incremental impact of each channel.
Want Even More Tactical Advice? Download the Free Guide
Want more battle-ready strategies to help you survive the next few months of economic uncertainty? Download our free guide, The Marketer’s Guide to Battling Growth Stagnation in 2022.
This guide will give you five key strategies to shake off growth stagnation, optimize revenue, and surge ahead of the field by building a more resilient, efficient, and profit-driven B2C business.