How to acquire customers into any business
Finding your acquisition growth engine
A few notes on this post. This is a long read. This post aims to help you learn to grow your business no matter what market, vertical, or industry you’re in. It uses a simple methodology to identify what growth engine is most likely to work for you. It’s written to be read as one long post, but you can also skip down to the section relevant for your business. This is part of an ongoing ‘Fundamentals’ series, see also ‘What is Growth?’
"First time founders focus on product. Second time founders focus on distribution."
Getting your growth engine working is hard. But understanding which growth engine suits your business is a simple question of unit economics and business model.
As a founder of a startup or early stage brand, you have two phases: (1) find product market fit, (2) scale your business as fast as you want/can.
For me, proving out your growth engine is a core aspect of product market fit. In the traditional sense, PMF requires your product to make the market fall in love with it.
For the product, that means creating something that is orders of mangitude better than the current way your customers solve that problem. For the market, that means a market sufficiently large enough to allow your business to grow.
So for me, demonstrating that you can make the growth engine work is a part of that ‘market’ side of the equation.
For clarity, I’m not necessarily talking about the very first days1. In those first days when you are, as Paul Graham advises, ‘doing things that don’t scale’ you’re trying to brute force a handful of users in to test it. Instead I’m talking about the stage beyond that, you’ve got past the MVP and are now ready to properly test the PMF. This is when this article comes into its own.
The AirBnb-Craigslist hack is not a growth engine
A few things first, as per our earlier Foundations2 article, growth is not just a startup name for marketing. Instead, it’s a framework, a process, a mindset, and importantly an engine.
A growth engine is a repeatable and scalable way to grow.
That means the infamous AirBnb-Craigslist hack is not a growth engine. Nor was sending photographers to peoples houses. A big bang launch on ProductHunt isn’t a growth engine. And not is ‘adding a referal programme’ in hope that it creates a viral loop.
An engine is something which when you add fuel to it, it goes round and round. They are things where if you apply more pressure, they should be able to grow faster. They are by nature repeatable and scalable.
The vast majority of the time, your growth engine will follow a set of rules. There are exceptions. Often when new channels emerge the economics play out differently to how they will at scale.
Many businesses that grew over the last 20 years used channels that, if the business were launched today, would not be able to scale in the same way.
The advantage of being early to a channel or method is a great reason to keep one eye on whatever is that’s new. Be aware of the new social media, the new technology, the new way that people communicate. But do not bet the house on this. The businesses that grew by being early to technologies are the exception, not the rule.
Instead you should focus your attention on the engine that is most likely to work scalably for your business. Getting any growth engine to work is difficult. You’re more likely never to get this to work than you are to make it work. So focus instead on the highest likelihood to succeed approach.
"The kitchen sink approach doesn’t work. Most companies get zero distribution channels to work. If you get just one channel to work you have a great business. If you try for several but don’t nail one, you’re finished. Distribution follows the power law." – Peter Thiel
This is why second time founders focus on distribution.
I'd always recommend any aspiring entrepreneur with a business idea to work through this process to. Work out what is believable. Work out what is likely.
How do I grow?
The answer lies in your average revenue per user (ARPU) as measured over an annual basis. Why this?
First, customer acquisition costs (CAC) always have to be lower than the profit you’ll ultimately take from the customer. The timeframe this takes for the profit to exceed the CAC is known as the payback period. The margin you make is important here ultimately, but when thinking about acquisition, the cost has more impact. Why?
The cost of something will inform how much they consider the usage of that product. I’ll be flippant on a £25 purchase in the way I never would with £250. And I can count on one hand the number of items I’ve ever bought for £2,500.
These two points combined mean that the annual ARPU your product makes dictates how you will acquire users.
The final thing to consider is that this looks at the acquisition part of your growth engine. There are lots of other elements to your growth engine. How you activate customers and then keep them for example, or how you grow the revenue per customer. These ultimately increase your ARPU and thus give you greater scope.
As for things like conversion rate optimisation (CRO), brand power, and PR: these apply to every growth engine. They help them by improving the efficiency of acquisition. They are important, but it is rare you’ll make a non-performing engine kick into gear by using these.
‘The social networks’
£0-15 ARPU
A very slim number of businesses can make this ARPU work. Put it this way: acquiring customers is expensive, and at just £15 of revenue per user per year, you need a lot of them to make the business work.
(To hit £1bn valuation, you’d need 6.6m users at £15 ARPU to hit the unicorn valuation).
There’s one major difference between this ARPU level and the ones that follow. In this instance, you often don’t sell anything to your customer at all. Why? To achieve scale of millions or billions of users, that product almost certainly needs to be free. And as they say ‘if you don’t pay, then you’re the product.’
Over the last three decades some of the biggest breakout tech has fallen into this bracket: Google, Facebook, X. But they weren’t the first, before that you had media companies playing in the same ballpark.
So what unites these companies? For one, the total addressable markets that encompass the entire world. Another is that the way you make money from customers is usually a combination of ads plus subscriptions. And usually it’s start with one and grow the second.
Meta, despite sitting in this ARPU range with its 3bn users 5-10 years ago, is now 3-4x higher. One of the many reasons its stock price is so high.
So if you want to build a business at this ARPU level, how do you go about growing it?
Network effects
The best / purest way to grow this type of business is network effects. This engine is demonstrated by a user joining a network, and then bringing in other users by default
Network effects at their most fundamental mean: this network is greater if other people use it. The telephone system has network effects and so too does Meta. Both fall apart if no-one else uses them. Building network effects into the business means planning that during the thesis of the product from day one.
It’s almost impossible to ‘just add in’ network effects to a business.
Word of mouth
Related but not the same as network effects is word of mouth. A lot of consumer tech businesses like Spotify have ARPU hovering around the £10 mark and rely on strong word of mouth. Again, this is incredibly rare and difficult to model for. The thing powering this word of mouth is often inventory depth that produces product superiority. Amazon had this too.
Word of mouth has a far smaller ceiling than most expect. If your product is 'entertainment' then almost everyone you know likes it. But if you're selling running shoes, the numbers you can introduce are far slimmer. I’m into running and perhaps know half a dozen serious runners, the number I’d recommend a pair to? No more than two.
User-generated content / SEO
This is where by the nature of using the product, a user creates content that goes on to creates something searchable or shareable to another network.
Over the last decade, TikTok exploded owing to its user generated content. Every time someone created content and then shared it across to other networks, it grew TikTok.
Review websites like TripAdvisor fall into this camp too: users write reviews which generate content. That content creates searchable data, which people find online. Repeated exposure means people eventually start contributing, and the cycle continues.
The speed at which the content is created will determine how big this loop can grow. TikTok generated this loop daily or evenly hourly. TripAdvisor only generates it weekly or monthly.
Inventory-driven SEO
If you run a retailer or marketplace or similar business that sells third party products, then while your gross merchandise volume (GMV) will be much higher than £15 per year, your take rate might be far closer to the £10 level.
At this stage unit economics and product mix become essential in working out channels available to you. As with inventory choice driving WOM, it will also drive SEO. Here you can get big through inventory. Build the biggest inventory (and therefore biggest SEO footprint) and you dominate long tail search.
‘The DTCs, the apps, the consumer tech’
£15-250 ARPU
This category is one of the most common areas for most physical consumer goods, as well as some consumer tech. The wave of consumer DTC that grew over the last 15 years all falls under this bracket. Most 'subscription' businesses fall under this bracket. Lots of consumer apps fall under this bracket too.
(To hit £1bn valuation, you’d need 0.88m users at £125 ARPU to hit the unicorn valuation – 7.5x fewer than in the first category).
Essentially if your AOV is £15-200, and you expect a few purchases per year, then this is the category for you. Cheaper AOV can work but you'll need incredibly strong retention (95%+) to really make it work. Netflix and Peloton? They've nailed that level of retention.
Whatever your ARPU, the more margin you have to play with the better.
Search: paid and organic
Your very first check should be search. At this type of ARPU, you likely won't have the mechanics to grow for 'free' like you can in lower ARPU brackets. Nor can you afford expensive ways to grow like sales or brand marketing.
There's a clear way to work out if you’ve got search potential. Look at what volume of people search for your exact generic search term each month. If you're selling generic prescription medication there's likely a very high volume. If you're selling a challenger soda brand it's like miniscule. High volume means search should be your starting point. Low volume means social should be.
With search, use paid to test out how much investment it's worth putting into content & SEO. If you get good paid returns, put aside a few sprints to focus on the organic opportunity and continue to optimise.
With search there's a ceiling for most products in this category. Fortunately social can grow that ceiling.
Social: paid
The big fish though – even if you do have search opportunity – is to get paid social working. Organic social will be a nice 'booster' activity but is highly unlikely to be a scalable engine in itself.
If you can't get Meta or TikTok working and you sell a £15-£250 AOV product, then you've likely got a very big problem.
Aim as close to possible to be CM3 positive on every new customer sale. This means after all costs have been taken out, including marketing, you make money. The longer you can scale that the better.
If you can't hit first purchase CM3-profitable – maybe because of low category knowledge, smaller addressable market than expected, or heavy competition – then build solid retention data as soon as you can. Five years ago, VCs would invest in businesses with 6-18 month payback, that is unlikely to be the case today.
Paid social is for digital businesses what TV or radio are for physical retail. All have the broadest possible scale there is.
Influencers & sponsorships
With great case studies from the likes of Hexclad, Gymshark and Audible, this can seem like an appealing market. The logic is there too: people trust other people a lot more than a brand talking at you, right? This is true to a certain extent.
Your chances of success of this being your core growth engine will come down to competitiveness in your niche, scale of influencers, volume of engaged end customers, and a product that suits the channel. As with getting social or search to work, this will require significant investment and experimentation.
But, even if you can't make this work as the core engine, it's often worth pursuing. Done well and it's one of the best 'boosting' activities for a core growth engine. Not only that, you often have content produced that can help your other channels become more effective.
‘The SaaS or mid-upper consumer’
£250-1,000 ARPU
More expensive consumer products enter into this realm (think mattresses, or high value health tech). But the biggest share is SaaS and broader B2B.
(To hit £1bn valuation, you’d need 0.13m users at £750 ARPU to hit the unicorn valuation).
Consideration is starting to increase at this bracket. This isn't a sweater with a identity-defining slogan on it, this is stuff people truly umm and arr about.
In B2B, it'll likely take time to get something into an organisation, and in B2C, it'll take time to get something into the home. There will likely be multiple 'stakeholders' who make the decision.
As a result, some of the engines of the £15-£250 ARPU range are useful. But they are often modified and extended using the techniques of the £1,000 ARPU category. There's definitely circumstances when you can mirror the above tactics, but be prepared for a need to have a deeper engagement with your customers.
This also sits below the £1,000+ ARPU when you can afford to confidently invest in these channels to a greater degree and you also have sales available to you. As a result, this is a difficult ARPU level to work in. If you grow your £10-250 ARPU consumer product into this category, that's brilliant news, but starting here is often tricky.
Content marketing
The biggest difference between the Social Networks and Consumer DTCs above is the introduction of content marketing.
Content comes in many forms from podcasts, live broadcasts, and events, to whitepapers, research, and books. Content itself requires its own distribution channel. Organic social is now a content strategy, it is a way of distributing content. Create an event and people don't just turn up. Content is often a whole macro product in itself.
Start with your customer. Understand their journey back to front. Understand what type of content is important for them. How can you build habit, provide value, and entertain. You will need to capture this audience and over a long period of time convince them that you are the company for them.
The level of investment into types of content will likely be tied to addressable market size and where they enjoy content. Is it podcasts? Or is it whitepapers? Is there enough you can say in an email? Or are in-person events going to be required?
Social & Search
As we enter this bracket, social & search take on two forms.
Acquiring leads into content marketing funnels
This is the most common way of using social and search in moderate-to-high ARPU businesses. Lead cost is often very low and the model lives and dies based on how these users convert through your content marketing.
If users actively search for the thing you offer, lean into search. If they don't, then lean into social. With search, you have two routes: paid or organic. Organic relies on having better SEO than your competitors. Paid relies on better paid search chops, and most likely, a higher budget.
Acquiring customers directly
In rare circumstances, it is also possible to acquire customers directly to your product. This is difficult to get right. Your CPA will probably be in the hundreds of thousands of pounds. Say it takes you 50 rounds of experimentation to get your paid channel working, you're looking at tens if not hundreds of thousands of pounds to get this acquisition method right.
Some businesses can make this work direct: especially if there’s a freemium model available.
‘Upper consumer’ & ‘enterprise tech’
£1,000+ ARPU
(To hit £1bn valuation, you need just 80,000 customers each parting ways with £1,250 per year)
First of all, there are far fewer customers in this bracket. So even though you only need 80k to hit unicorn status, your addressable market is much smaller.
That’s the downside, the upside? You’ve got a far broader range of engines available to play with – especially more than your midsize SaaS.
If you sell a product that earns over £1,000 of ARPU, then you're in a very high consideration bracket.
In consumer, this puts you into a rare purchase category. Things which you will likely only do a handful of times in your life. Mortgages, cars, furniture, houses. These are infrequent purchases.
In b2b, this will be expensive software or services that are often core to running your business. They have high risk to them, often high switching costs, and most businesses will avoid buying these very often.
Sales
The single biggest difference at this category compared to any other: the (likely) need for sales.
If you’re spending thousands of pounds, you want to talk to a human. That’s true whether you’re buying a car or a services retainer for TV advertising. Even Tesla have show rooms.
In some circumstances, sales can be the entire engine. But often it is the last step in a funnel that begins higher up.
Content marketing
As with the £250-£1k ARPU, content marketing is important. Except at this range, you’ve got far more freedom to invest and experiment.
Before someone is ready to be sold to, or to come buy from you, content is often a regular part of how you communicate with that audience. This can be deep industry expertise, or it can be something passive but entertaining.
Think of UK brand The Modern House3. This estate agent is just as much a media company as it is a way to buy houses. They invest across their podcast, website, print magazine, and organic social.
Or take a company like Hubspot who similarly produce content across a variety of formats, to keep them constantly in mind long before you might buy from them.
Content marketing, therefore, is incredibly expensive. The last decade has seen many advancements to improve things.
Marketing automation tools help improve the economics of distribution. AI has improved the economics of production.
The problem with both of those is, it's a constant arms race. If AI makes everyone great, then no-one stands out. And so even better production must come along. Automation makes every great, but then no-one stands out. And so even better distribution must come along.
Social & Search
This follows a similar path as with the £250-£1k category. In very rare examples you’ll get direct acquisition working, but the majority of the time you’ll need to use it as a hook into your content marketing.
Stop wasting time on the wrong engine
You do not choose your growth engine, it chooses you. The unit economics determine which way you turn. So if you find yourself trying to explore content marketing for a product that currently makes you £40 per year, then it’s time to hit pause.
Likewise if you’re trying to use ads into a £2k/year product alone, you need to switch it up. Follow the unit economics and you’ll shortcut a huge number of mistakes.
Finally – Ballpoint help companies across all ARPU brackets from £15 and upwards. Below that and ‘growth’ will mean engineers and product managers before it needs marketers. If you are stuck with your engine and want a free audit, then get in touch.
It’s also sometimes advisable to do this earlier. I know a handful of founders who start with Meta Ads to test properly and don’t build until they prove that side out.
https://www.themodernhouse.com/