How Sales Can Impact CAC:LTV Ratio, Fast
Customer Acquisition Cost : Customer Lifetime Value
March 12, 2019
Before joining LinkedIn, I was the 70th employee at a marketing tech start-up on the sales team.
While the sales department was quick to change in structure, size and strategy, the leadership team remained laser focused on the “CAC:LTV ratio,” which helps start-ups, scale-ups and even enterprise companies assess growth efficiency. There are several business intelligence tools out there that allow management to dig deep into this type of data. Thankfully, for reps, tools like LinkedIn Sales Navigator arm both hunters and farmers to positively impact the CAC:LTV ratio in measurable ways on the ground.
CAC stands for Customer Acquisition Cost and is defined as the average dollar value spent to gain a single customer in a given period of time. It is typically measured using the following equation:
[(Total Sales Expenses) + (Total Marketing Expenses)] / [# of New Customers Acquired] = $CAC
LTV stands for Lifetime Value, which is defined as the dollar value a customer will spend throughout their engagement with a vendor. It is typically measured using the following equation, which accounts for potential upsell over time:
[Average Monthly Revenue per Customer] x [Number of Months Under Contract] + [(Upsell Win Rate) x (Average Upsell Amount)] = $LTV
The intention is to always reduce CAC while secure and grow LTV. Simply put, the goal is to land new customers and get more out of current customers.
There are several ways to decrease CAC while filling a healthy sales funnel. It all starts with sales and marketing targeting the right people at the right accounts, with the right message at the right time.
Let’s assume you and your company have a reasonable understanding of your ICP (ideal customer profile). Let’s also assume you have the tools needed to identify and engage these leads and accounts. The remaining challenge is generating the right message at the right time. Doing this incorrectly can inadvertently increase – rather then decrease – CAC as time, energy and resources can sink into strategy sessions, building collateral, attending conferences, pitching tents outside your customer’s home, etc. Instead, companies could be decreasing CAC by strategically targeting leads that previously worked for a happy customer they already landed, who now hold roles at new companies that match their ICP criteria.
Here’s a hypothetical:
BI Tech lands a new deal with Pipecast CRM for $150,000 after a four-month deal cycle with several meetings, trips and expenses. The rep from BI Tech thinks,“There must be people who once worked at Pipecast CRM who left to similar companies we want to work with.”
Using LinkedIn Sales Navigator, the BI Tech rep runs a “Past not Current” search for Pipecast CRM employees who are now Managers, Directors, or VPs at software companies in the same geographic region.
BOOM! The search yields 20 leads that now work at companies such as HubSpot, Marketo, Zoho, and Insightly. Talk about the right message at the right time, how does this fictionalized message to “Jordanna” at, say, HubSpot sound?
Congrats on the new gig at HubSpot - great way to start off 2019!
Looks like you spent time working at Pipecast CRM recently. Not sure we met, but I worked with your old CEO and COO to implement our business intelligence platform so your sales and marketing teams could drive better insights and key learnings from your sales funnel.
The impact/ROI in the first six months has been X, Y and Z. Given the similar target market and product, HubSpot could be generating the same value with our solution.
Are you free for 20 minutes next Tuesday?
This type of outreach positions reps in a consultative light and allows them to establish better credibility with target leads at key accounts. This approach is shown to drastically increase response rates while expediting deal cycles. All together, it took the BI Tech rep 90 seconds to a) run a highly refined and strategic search, b) identify a pre-qualified lead and c) draft a message no other rep could send their way.
If this approach successfully resulted in a company like HubSpot entering the top of funnel for BI Tech, you can believe their CAC drops measurably.
We can see the impact on LTV using the same fictionalized example:
No longer is Pipecast’s LTV with BI Tech just the $150,000 annual contract, or even potential upside in growth. Pipecast’s LTV now also consists of the value of their alumni network of employees — like Jordanna, who moved into a new role at HubSpot, which is now on the funnel to evaluate BI Tech’s platform.
Whether you are a start-up, scale-up or enterprise business with a full throttle sales machine, your reps can implement collaborative efforts to drive efficiency and strengthen the CAC:LTV ratio.
Imagine your farmers (account managers, customer success) create a monthly feedback loop with your hunters on long-standing customers and the impact/ROI your product is delivering. The hunters then run “Past not Current” searches on those customer accounts to identify “alumni employees” working at new companies with the right ICP and send them a unique and effective message to fill the top of funnel.
This technique is how innovative sales organizations leverage open access to LinkedIn’s network with Sales Navigator to drive down customer acquisition cost while driving up the life time value of current customers.
If you happen to be a Sales Navigator customer and want to see how this works, check out this PointDrive presentation.
Take a closer look at Sales Navigator today!