Gappy customer economics

Description

  • A startling amount of people are simply delighted when they acquire a user at all, or do so for 5% cheaper than they did last month (at least they’re trying)

Disproof

  • A positive cashflow or a path to it

Consequences

  • Problem 0: ROAS not being considered at all
    • You definitely will spend more money than you need, possibly more than you can afford
    • It is very possible to start acquiring customers for more than their gross revenue
  • Problem 1: Calculations are woefully incomplete
    • You probably forgot it costs money to operate customers, approved an acquisition strategy with hair-thin CAC-LTV and now can’t get rid of them whilst they rack up support or server costs
    • This is often the way that scaling companies are killed

Causes

  • Very likely because acquisition costs and operation costs are distributed across multiple reporting lines (which already reduces opportunities to consolidate and optimise costs)
  • Further exacerbated by poor alignment in departmental objectives
  • Co-morbid with poor organisational information discipline

Approaches

  • If nobody is doing joined-up thinking, start there
  • If nobody is directly responsible after the thinking has been done, continue there
  • You will probably have to tackle the failures in organisational design and incentives for any lasting improvements