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Which CAC spike am I in?
Beyond early adopters, digital channels often get more expensive. The way beyond this is to improve marketing.
Customer acquisition costs (CAC) are things every founder, leadership team, marketer, investor wants to see under control.
But even removing the daily fluctuations, there’s a broad path I see in an early-stage startup’s journey. Consider this journey of how you might find acquisition costs on Meta.
CAC improves. You start spending your first real money, you land on a creative that works and acquisition costs go down. This is usually a super exciting moment as a startup begins to get early traction. This could go on for £10k of spend or £100k or £1m.
Happy days. You triple the spend and get ready ready to become unicorn billionaires. But then….
CAC increases sharply. If all things are held constant, increasing your marketing spend increases your CAC. That first batch was of acquisition was your early adopters, and all of a sudden you’re faced with a new challenge.
You learn to get better at marketing. And gradually bring that acquisition cost down as you scale. But there hits a point where you’re reaching the natural ceiling of the channel, and them….
CAC slowly starts increasing again. CAC always rises. And your job is to slow that growth down.
One question that plagues many when presented with this idea is “which spike am I in?”
I.e. was that spike of traction and low CPA the easiest it gets or do we have another windfall before we tap out the channel.
Answering that requires a reasonable amount of analysis (if you want to discuss, book a 15 min intro call).
But regardless of whether you’re in the first or second spike, there is one thing you can do to improve: start focusing on a marketing fundamental of availability.
Introducing mental & physical availability, and why Facebook ads falsely gets called addictive
Every day we’re exposed to hundreds or thousands of ads. For 99.99% of those, we are not in the right state of mind to purchase them.
Just think about your commute. When you see a tube ad, or hear a voiceover on the radio, or in the sponsorship note of your podcast, you’re not ready to buy.
It is advertising’s job therefore to compel an idea to memory. That memory it creates should be stored. So that when you are thinking about solving that problem in the future, you have can recall said brand. That's what's referred to as mental availability1.
Physical availability is ensuring that, when you synapses have drawn together your current problem with a product that solves it; you can purchase that item. Walk into almost any corner shop in the world, and you’ll be able to buy Coca-Cola. That’s physical availability. It’s about distribution.
And for generations, that’s what was going on when we were buying things.
But then the internet came along. Facebook’s access to data and machine learning meant that it could find the person who was ready to buy right now.
This works with early adopters.
When your product first goes to market, there will be a small selection of people for whom it is a godsend. These are the people who are experiencing deep pain with the problems they have, and are willing to try anything and quickly to solve that pain. Facebook can find those people quickly and serve them your ad. Your ad gets a cheap CPA. You get early growth.
But, as your startup grows beyond that very small group of people, it has to work harder to reach the next level. Facebook isn't the crack, it's just they're particularly good at finding your first customers.
How to build mental availability as an early-stage startup
A quick note on runway. Too cruelly is the case, that startups often see a CAC spike just as they’re about to go out to market and raise. Often marketing spend gets reduced. I know I did as reflected on in my Wine List postmortem2.
This is wrong. Marketing is the revenue-generating part of your business, not a cost. You cut marketing, you will stop growing.
But you do need to get radically better at marketing.
As a startup, you need to punch well above your weight in your ability to build mental availability.
Doing that is a job of playing to your strengths. You are not a massive brand with insanely large budgets. So what can you do?
The answer lies in the idea of memory structures.
For those systems or computer science type thinkers, think of these like IF statements. “IF I am thirsty on a hot day THEN…. I would love a diet coke.”
“IF I want to take my parents out for dinner when they’re visiting London, THEN…. I should take them to St. John.”
At Transferwise, theirs was 'send money abroad'3
Memory structures are the links we build with a brand. Those links are multi-facted. At the core is the way they solve a problem.
Remember no-one cares about your brand. People want problems solved. The brand is just the storytelling device for the memory structures.
Memory structures are the links we build with a brand.
That was a memory structure.
Simply put, their goal that united all of their marketing was to be associated with sending cheap money abroad.
Now, this isn’t an article about the merits of performance vs brand marketing. But on average, brand marketing often aims at ideas that help build memory structures, more so than performance marketing does. But – and it’s a big one – it doesn’t actually have to be.
So what do you actually do?
Three things to do to build mental availability
1. Talk to your customers
The first thing to do is understand your customers deeply. Why do they use you? What were they doing to solve their problems before? If you disappeared, how would they solve this problem?
More often than not startups (and bigger brands too) disproportionately can't answer these questions well. The only way to get the answers is to speak to your customers all of the time. Not as a piece of one-off research, but as an ongoing regular part of building your business.
Customer interviews are key to this.
Consider this, that by asking the following you can gain these insights:
When they first experienced the problem that they've hired you for: shows structures they already have in place
How were they solving the problem then: shows the habits you need to be considerate of and try to rewrite
Who else in their life is impacted by the product buying: shows the emotive response that plays a part
Talking to your customers will help you understand how your product works for your customers. And then you can turn that insight into understanding the memory structures. And that understanding can be used in your ads.
2. Make sure your advertising is always building mental availability
I remember a conversation in one of my first jobs, where our adverts had a checklist. Have we mentioned x, y, and z? And if I submitted a piece of copy or design that hadn't, that was the first thing to take note.
Many companies have that checklist, but they often focus on the wrong thing. Your offer and your Ts&Cs aren't the right thing.
The one thing to get right is those memory structures. If you're a DTC healthy crisp company, that could be "for when you want crisp but wanting to be healthy." That should be the one thing that anyone can take away from your ads, your socials, your copy, whatever.
3. Test your ads against those criteria
Your ads have to convert. That’s a given. And if you’re early-stage, it can’t just be “in the long term” but the short term too.
But, you should also start scoring your ads against that criteria. Surveys, and research can prompt people who have seen the ads what their takeaways were. If you want to be known as the pork pie to eat on a Friday lunch time. Prompt those associations.
Four ways to build physical availability
Physical availability for early-stage startups means a few tactical things.
Classically, if you sold baked beans, your physical availability strategy was to expand distribution. Online, that's all shifted.
1. PPC is predominantly a physical availability channel
I get asked by a lot of disruptor brands how PPC should factor into their growth strategy. The answer is most PPC is about physical availability. It's a function of your top of funnel marketing. Turn off top of funnel (likely Facebook) and your PPC will drop down. Increase TOF, and your ppc will increase proportionately.
Turn it on. Increase spend as a % of your marketing budget. It can make your marketing spend more efficient by increasing physical availability.
In other words, treat it like email.
2. Email: your physical store of attention
When I see a brand I love on Instagram, I follow them and sign up to their newsletter. The best brands email me multiple times a week. Building physical availability AND mental availability. Physical because it's there in my inbox. But mental because those messages are an opportunity to continue to build memory connections. "Oh this company that I saw as a great linen brand for summer also has great jackets for winter."
The worst brands are the ones who don't email you at all. It's not saving your inbox, it's making you forgettable.
If you don’t have a touch point for a fortnight, you might as well be reaching out to them cold.
3. Meta Ads are physical availability too
In long sales cycles, awareness, consideration and decision may all need different forms of message to answer. For most consumer products, that all needs to have in one ad.
And by that token, Meta ads are going to be core for building your mental availability because the creative has the ability to land different messaging. Because digital means you can purchase then and there, it also means Meta ads are necessary for physical availability too.
In short, if you spent hundreds of thousands building the mental availability, and you then turn those ads off and have not captured that intent elsewhere, then you've probably lost the sale you've already paid for.
Summary: apply a new lens to your marketing strategy
If your CACs are too high, especially after having had some early wins, now is the time to refocus more strategically.
What are the memory structures customers already have with your brand? What are the one or two structures you want every person in the world to know about your brand? Are your ads talking through those things properly?
Then, make sure you're really doubling down on capturing that intent when it's there waiting. Build digital physical availability (PPC, email, app, and Meta too).
If you're at the inflection point when this thinking might be useful to discuss – then get in touch. We'd love to have a call with you and see how we can help.
Seven lessons learnt from failing my first startup. Notes from Amphora