Basics and Getting Started


Intro (How to Think About Customer Acquisition Section): 0:00-2:32

How to Choose the Strategies you put Into your Model: 2:33- 4:35

How Customer Acquisition Drives Revenue and Affects Runway: 4:36- 5:10

Adding In Customer Acquisition Strategies: 5:11- 5:34

Conceptual Differences & Definitions of Each Strategy Listed: 5:35-15:27

How to think of who your "Leads" are: 15:28-16:38

How Leads are Converted to Customers within the Drawer: 16:39- 20:11

How to Read the "Total New Customers Line" 20:12- 21:46

Customer "Types" (B2C vs B2B) / Customer Categories 21:47- 25:02

Using Real World Intuition to Approximate Performance: 25:03- 28:56

Key Takeaways from the Video:

Intro 0:00-2:32

  • Customer Acquisition is usually one of the first places founders feel nervous when working with their financial model because they don't know "what to put". It's okay not to know the future- no one does. The very plain answer is that, if you don't have data and analytics to support the the conversion rates and other numbers you're inputting- you are using educated guesses and intuition as the founder until you establish enough of a trend with tracked data to "dial in" your assumptions over time.

    • The industry averages and information we typically help you out with during onboarding will be made into a section of our brain dedicated to industry benchmark data that you can reference in the future until you establish your own trends- until then, feel free to reach out to us and we'll be happy to provide the answers for what we typically see in comparable businesses.

How to Choose the Strategies you put Into your Model: 2:33- 4:35

  • You should try to only show the top 3 strategies (if possible) you have for acquiring customers. These top 3 strategies should, from a narrative or story-telling standpoint, be the strategies you expect to be big "needle movers" for your company.

    • If you find that you have more than 3, you should then narrow down the remaining strategies to only include the ones you plan to track closely via analytics and data that you have access to. If you plan to track all remaining strategies closely then it's acceptable to represent them in the model because you'll have what you need to come in month to month to update the model and check your progress against your goals as well as define trends in your past performance and make adjustments based on those findings.

How Customer Acquisition Drives Revenue and Affects Runway 4:36- 5:10

  • Customer Acquisition controls how many new customers you bring in each month which directly affects how much revenue you earn month to month. Considering that the revenue you bring in each month is what you use to pay for expenses we can quickly see customer acquisition plays an important role with runway.

    • Setting goals in customer acquisition by setting up what is either data driven customer targets (for people who have established historical data to go off of) or customer targets based on expectations and founder intuition (if you don't have concrete data) is going to adjust revenue either up or down, which will put you in a position to need additional outside funds at a sooner date or a later date depending on how many expenses you need to cover.

Adding In Customer Acquisition Strategies: 5:11- 5:34

  • Just like with other sections of the model, to add an item to the page, we're going to click on the big purple action button in the top right corner. For customer acquisition this is labeled as "add funnel".

    • You would then select the strategy name from the list of "build types" and click next to start shaping out the strategy.

    • If the strategy you want to add isn't listed you'll actually just choose "simple" (our word for custom), rename the strategy in the "Funnel Name" field at the top and then click "Next".

Conceptual Differences & Definitions of Each Strategy Listed: 5:35- 15:28

  • Simple- Our word for "custom", this is what you select if you strategy isn't listed.

    • Commonly used for: Direct Sales, Website Traffic, Word of Mouth, etc.

  • Paid Advertising- Paid Ads of all types, Facebook, Google, Amazon, etc.

    • Rather than listing every paid ad campaign you have individually, this should average the performance and budget used across all paid ads.

  • Affiliates- This functions mathematically the same as "partnerships" but the way we "narratively" think of affiliates as being different from other strategies is that there is typically some % of revenue paid out to affiliate marketers as a kickback / commission on a sale whereas with a partnership there typically isn't.

    • This expense isn't created automatically, it'll need to be created by you in the expense section and our full expense walkthrough can show you how to add that depending on how you expect it to work.

  • Conferences- Any type of event that's attended which gets you exposure to a group of leads.

  • Influencers- Similar to affiliates where someone is being paid to market your product, but the expense associated with this is usually a flat-rate.

  • Customer Referrals- This strategy will assume that some percentage of the total customers you acquired last month will rave about your business and recommend new clients.

    • This can be a difficult strategy to track although it's understood by founders and investors that you will have customer referrals. The best indicator of whether this should be included as its own strategy is how trackable it is. If your referrals must use a special code that allows you to attribute them specifically to being referred (like an invite link), then you have enough data to track the performance here so you can make later adjustments up or down on your assumptions, but if you don't then these customers should be assumed to come in through other, more trackable channels- like website traffic.

  • Partnerships- Very similar to affiliate marketing in how it works mathematically but a partnership differs from other strategies because it's typically not assumed to carry a cost. Think of these as synergies with other companies where the advertisement of your product naturally benefits the sales of their product- in other words, helping you helps them.

  • Email Marketing- Sending out emails monthly to customers (usually through a service like MailChimp that will generate analytics data for you). This works by having some mailing list size (collection of recipients) and sending some number of emails to them each month. Some % of them will open the emails (response rate / clickthrough rate) to become leads and then finally be converted to become customers.

  • Content Marketing- Internally generated posts to places like Linkedin, blog posts, etc. that don't cost you money but are meant to expand brand awareness

How to think of who your "Leads" are 15:28- 16:38

  • Only the customers who are "eligible" for your product offering or "interested in" your product should be considered leads if you're having trouble narrowing it down for strategies like "content marketing" where you may ask yourself, "are the total number of people that CAN see the post my "inbound leads per post" or are the people I expect to view the post my "inbound leads per post"?

    • Example: If you have 1 Million followers and you advertise sporting equipment to all of your followers but you only expect 1% of that 1 Million to be interested in sporting equipment, then your inbound leads per post isn't 1 Million, it's 1 Million * 1% which equals 10,000.

    • The model is just dealing with numbers, the "concepts" we assign to the numbers are open to how you want them to be interpreted. You decide "how high" you start on the funnel and "who" is a true lead.

How Leads are Converted to Customers within the Drawer: 16:39- 20:11

  • Once you're inside the drawer (you've chosen your strategy and hit "Next"), work your way from top to bottom of the drawer to set up your customer acquisition strategy. Here's what you'll find & what each item means:

    • Funnel Name: This is where you'll title your strategy. "Paid Ads", "Direct Sales", etc.

    • Funnel Categories: This is where you can either select from the drop-down a category you created earlier or type in a new category and click "enter" to create it. Funnel Categories work as a way to "separate" different customer components like B2B vs. B2C customers by making a "category" for each.

    • Starting Month- When does this strategy start?

    • Ending Month (Optional)- When does this strategy end?

    • Top of Funnel- if this is an input metric (white background and lets you type into it) then this is where you'll put in (and grow with assumptions) the leads you have per month. If this is greyed out and you can't type into it, you'll need to fill in the metrics above it and this will automatically calculate once you've filled in those values.

    • Conversion Rate- Adjusting this % determines how many of your "Top of Funnel" leads actually go on to become customers that interact with your revenue streams.

How to Read the "Total New Customers Line" 20:12- 21:46

  • Total New Customers is the sum of NEW customers across all strategies in each month.

  • If you have more than one customer type (B2B vs B2C), to see the total number of customers from ONLY that category, reference the white line to the right of the category name (B2B for example) and this total is the sum of all new customers from ONLY that customer type.

Customer "Types" (B2C vs B2B) / Customer Categories 21:47- 25:02

  • Customer Categories are used to seperate different "sides" of the business, rather than different "customer demographics". This is useful for assigning specific revenue streams to their matching customer type.

    • For example, you may sell individual subscriptions as well as enterprise subscriptions but these are totally different audiences. You'll want to set up an "Enterprise" customer category and a "B2C" customer category where you can have different assumptions for how often and how many customers of each type you acquire and connect them to their respective revenue streams.

    • I walk through linking revenue streams to specific revenue streams in our full revenue streams walkthrough.

  • To assign a customer acquisition strategy to a category you've already created, click the dropdown arrow in the white "Funnel Category" bar and select the category the strategy should belong to then hit "done" to save.

  • To assign a customer acquisition to a category you haven't yet created- click into the white "Funnel Category" bar and type in the name of the category (example: B2B) then hit "enter" to save the name followed by hitting "done" at the bottom-right corner to save the changes.

Using Real World Intuition to Approximate Performance: 25:03- 28:56

  • It's not practical to reasonably say that "increasing partnerships will give me 10% more customers" or any exercise where a real world event will, without a doubt yield X % increase or decrease. Instead, if you don't have the data needed to make a more accurate guess, you should gauge your assumptions surrounding the number of customers you're bringing in by feasibility. Simply put, "Do I see us having enough bandwidth, product, time, resources etc. to accommodate X customers? And for the later years, assuming I have more trained staff, better understanding, and more resources, is the next year's target attainable?

  • Look at the big picture by switching to the annual view and then running the numbers you see through the above questions.

  • From there, if the numbers you see feel too large, reduce them or the growth assumptions you're using- if the opposite is true and they feel too low, feel free to increase them or the growth assumptions you're using until it feels right.

  • In the series of our videos dedicated to actually SHAPING customer acquisition, we'll discuss how, once you've set things up to be reflective of what you think separate from revenue, we can use our next line of reasoning to examine how these adjustments impact our revenue projections and continue to adjust them from there.

Topics for Advanced Users In Customer Acquisition

Attribution In Customer Acquisition- What If My Customers Touch Several Places Before Converting?

  • For as much as you're able, you want to consider the strategies you're including in the model the "closing" strategies for your customers. An example where this can be seen best is with "direct sales". A sales team may leverage paid advertising, conferences, and content marketing to acquire leads that they ultimately close. Because the sales person is the one actually performing the conversion of lead to customer you won't need to list all the strategies they use to acquire leads- your main (and potentially only customer acquisition strategy in this case) is Direct Sales.

  • There isn't a silver bullet for definitively saying that the people who buy through your website didn't' see a poster somewhere or a paid advertisement they didn't' click on- but for your main strategies you should be able to definitively say through analytics or data gathering that X is where the customer came from. This is part of the reason why we recommend having so few "main strategies" as it gets more and more difficult to do this accurately and in a manageable way as your business grows and bandwidth is potentially thinned so this is a great starter approach to begin establishing good tracking habits for leads or reinforcing them if you already have them.

Non-Monthly Customer Acquisition Strategies: Conferences

  • To do this, you need to set the "Top of Funnel" metric in the conferences strategy to be a past value of itself and use the "Time Periods" line to determine how many months before each value repeats (In other words, how many months go by until each conference). Then fill out the "inbound leads per conference" metric as you normally would (growth assumptions included). Lastly, use manual overrides in the data table to determine which month these conferences "happen" and you'll see the effect repeat into the future at whichever interval you specified.

Creating "Phases" In Customer Acquisition To Simulate Stacking Assumptions / Conversion Rates

  • Use "categories" as a way to separate the "phases" your strategies go to. In effect you would be saying you have a "phase" that takes up, let's say years 1 and 2 with organic web traffic. You'll set the end date of organic web traffic to be the end of year 2 and create another "organic web traffic" strategy that starts the month after the first one ends. On the second "organic web traffic" that's just beginning, you'll have it's initial value pick up from where the other left off but from here you'll use a different (assumingly better) conversion rate and different, unique growth assumptions to this funnel.

  • Because the model can only stack "one-time change assumptions" by default, this simulates stacking growth assumptions of the other types in models where the absolute highest level of granularity may be needed.

Setting Up Customer Referrals For a Specific Customer Type / Category

  • By default customer referrals will look at the "Total New Customers" value from the previous month but this includes all customers. So, even if you intend for say B2C customers to only refer B2C customers, the model doesn't know that customer referrals should only be looking at a specific customer type.

  • To correct this, we simply edit the metric for "Previous Month's Total New Customers" that can be found in the "Customer Referral" strategy and use the "From Metric" line to link it to the desired customer type. See this article for building formulas and linking metric data.

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