Motivated by profit and the need to keep shareholders and stakeholders satisfied, companies are constantly on the hunt for new customers. More customers equals more sales, which helps keep the aforementioned parties happy and the company in the black. And better customers mean even larger sales. Easy enough. Once you get a roster of great customers, you’re all set, right?
Not really. Of course, stuff happens. A portion of old customers move on, which results in less money flowing into the coffers. Therefore, there has to be a constant push to keep customers and potential customers coming in the front door; the entire lifeline of any company depends on customers who are willing to open their wallets. But the bigger questions are:
- How does a company find all these new customers?
- Which ones are the “good” ones, and which ones will result in a wild goose chase that will waste time, money, and energy?
That’s where user acquisition comes into play.
What Is User Acquisition?
User acquisition is exactly what it sounds like: the process of gaining new users, typically for an app, platform, or other type of service. The goal of a user acquisition campaign is to build an audience through marketing-driven activity. Unlike traditional strategies, most user acquisition approaches today focus on using data-driven ad campaigns. In addition, there are different types of growth strategies (paid as well as organic), which will be discussed later in this article.
The goal of user acquisition is to convert users into customers. A user becomes a customer upon the completion of their first transaction. That process brings up another term — customer acquisition — which is the user’s first transaction. Therefore, the endgame is to maximize customer acquisition, which of course depends on a successful user acquisition strategy.
Here are some examples of how a user can be converted into a customer, and the differences between mobile, desktop, and app user acquisition:
- An OTT (over-the-top) media streaming service acquires a user by offering a free trial; when a paid subscription is purchased, that user becomes a customer.
- A news app is downloaded by a user; when that user opts in for premium content, the leap is made from user to customer, which is known as mobile user acquisition.
- A gaming platform (it could be an app, online, or via a console) allows free play; when an in-app purchase occurs, the user is now a customer.
- When an account is created for an eCommerce site, that account owner is a user; when the first purchase is made, that is customer acquisition.
What Is the Importance of User Acquisition?
Naturally, the benefits of user acquisition are numerous. They include:
- Increased sales and profits. Of course, more customers help a company’s bottom line, and new ones drive the revenue line on that graph nowhere but up.
- Heightened brand awareness. It’s a crowded world out there, and your brand is just one of the millions jockeying for position. Whether it’s a competitor who offers basically the same product or service as you, or one after the same elusive disposable income, everybody out there wants all the user eyeballs and wallets they can grab. You want your brand to stand out from the others and be top of mind.
- Maintenance, growth, and expansion of the business. Nothing lasts forever, and this is especially true of today’s fickle customers. Customers move away, grow out of the demographic, or just plain move on, and somebody has to take their place. Despite the oft-repeated claim, “my company has no direct competitors,” all companies do. Landing new customers will do exactly what is stated here — maintain (worst-case scenario) or, optimally, grow, and expand the business.
How Is User Acquisition Measured?
How much user acquisition costs your company is a key figure to be aware of — as is whether that price is worth it. Two important figures, the customer acquisition cost (CAC) and the customer lifetime value (CLTV), are crucial KPIs to understanding how successful your marketing budget is and whether the investment you’re making is worth it.
There are three ways to understand the impact of user acquisition on your business:
This formula takes the total of your sales and marketing expenditures on user acquisition and divides that by the number of new customers you’ve acquired. If you spent $25,000 in the previous quarter and gained 33 new customers, your CAC is $25,000 (sales and marketing costs) ÷ 33 (number of new customers) = $757.58.
Total Sales & Marketing Expenses on User Acquisition / # of New Customers Acquired = CAC
This calculation allows you to figure out how much revenue you can expect from new customers over their association with your company. The formula is:
Average Sale x Number of Repeat Sales x Average Customer Life Span = CLTV.
The CLTV should be a bigger number than the CAC — at least three times (or more) larger. If your CLTV is lower than that, it means it isn’t worth it to bring these new customers on board. (Or that your pricing structure needs to be looked at.)
Your customer churn rate is an indication of how your company is handling customer retention. As mentioned earlier, there are always customers who jump ship for a number of reasons. A few of the most common are outlined below:
- Change in financial status
- Change in geography or living situation
- Unhappiness with the product
- Loss of interest in the product (or brand overall)
- Loss of interest in the brand overall
- Change in life status (i.e., a young family “outgrowing” a brand like Pampers as children age)
There are two formulas here you should pay attention to:
Customer churn rate. This gives a snapshot of how your company is doing in customer retention. For example, if you’re calculating the customer churn rate for Q2, the formula is:
Number of Customers Lost During Q2 ÷ Total Number of Customers at Start of Q2 = Customer Churn Rate.
Revenue churn rate. Knowing the financial impact of churn is vitally important, so you need a formula that calculates it. The revenue churn rate measures the impact of customer churn. Using our Q2 example, the formula is
Total of Recurring Revenue Lost in Q2 ÷ Original Total of Recurring for Q2 = Revenue Churn Rate.
Of course, you can make all sorts of calculations from churn, including whether the customers lost were ones who were worth focusing on, and if so, what can be changed to retain those types.
What All This Means
These numbers and metrics are designed to give you insight into many of the key aspects of the sales and marketing business: how successful the sales team is in landing new business, how the marketing department is handling pricing, how customer service is working with retaining customers and, in the big picture, and how current and potential customers perceive your company and its offerings overall.
To gain new customers for your platform, a user acquisition strategy is vital. Knowing the particulars of the user acquisition process will ensure that your business continues to grow both its customer base and revenue. Plus, having a grip on the financial side of the user acquisition process will help your brand welcome new customers — the right ones, who will help your company thrive.
Ready to take your user acquisition marketing to the next level? Reach out for your free consultation with Hawke Media’s digital marketing experts today.
Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer-products industries.
Customer Experience Insight – https://www.customerexperienceinsight.com/the-no-1-reason-why-customers-stay-or-leave/