Sorry about the confusion. When I say I will pay $60 for a warm lead, that's assuming a number of them will not convert. Our LTV is in the 1000s, but another part of the cost of acquisition is the time on the phone to close the deal.
It's more like this:
- We'll pay $300 bucks for 5 warm leads to hand off to sales.
- Sales will work the leads to close, spending another $200 of time. One of them will close.
- We'll get a customer with a LTV of greater than $2000, for $500. LTV >= 4x total CAC.
In valuing the leads from TechCrunch, it's a mistake to assume they'll all close (in which case their value is beyond $5520), we have to value what they actually are: potential. We have to discount the risk. That value, is about $60, so all 22 are worth $1320.
I like the optimism though. :)
And you're right it's not a great payoff overall. ~$3000 isn't a great ROI for the effort that went into the launch. There were other channels as well beyond HN and TC, but I wanted to keep the story focused on these two.
We've been testing more channels since and there's lot of data there as well and so, so much more to learn. Looking forward to your post!
I figured your LTV was probably much higher given what you're doing. That 4x CAC thing is really intended for consumer companies I think.
The reason this methodology matters is that when you have a marketer trying to figure out how to deploy a substantial amount of capital against business goals they've got to break it down by channel. And this common misconception is one of the most painful hurdles to get over with startup management teams who tend to be spending adverse even when the marketer finds a channel she wants to exploit the hell out of.
Marketing, as a function, deals in potential. If I can spend $1 to get you $10 of potential, and you (being sales or self-service conversion funnel) close 20% of that then we are a fucking awesome company :)
It's more like this: - We'll pay $300 bucks for 5 warm leads to hand off to sales. - Sales will work the leads to close, spending another $200 of time. One of them will close. - We'll get a customer with a LTV of greater than $2000, for $500. LTV >= 4x total CAC.
In valuing the leads from TechCrunch, it's a mistake to assume they'll all close (in which case their value is beyond $5520), we have to value what they actually are: potential. We have to discount the risk. That value, is about $60, so all 22 are worth $1320.
I like the optimism though. :)
And you're right it's not a great payoff overall. ~$3000 isn't a great ROI for the effort that went into the launch. There were other channels as well beyond HN and TC, but I wanted to keep the story focused on these two.
We've been testing more channels since and there's lot of data there as well and so, so much more to learn. Looking forward to your post!