Analysing the marketing spends of the new age tech companies with a focus on customer lifetime social value

Abstract

Mature tech start-ups/ SaaS companies spend ~15-25% of their revenue on marketing spend alone. The % is even higher for early-stage companies. However, higher marketing spends do not necessarily imply top-line growth. A few important metrices to consider before fixing a marketing budget for such companies are CAC and LTV. CAC: Customer Acquisition Cost | LTV/CLV: Customer Lifetime Value The LTV/CAC ratio is one of the crucial indicators of profitability and as a rule of thumb, this should be ~3x. To calculate CAC, one needs to be aware of the Promotional spends for a particular period (say, month) excluding the portion allocated towards retaining existing customer relationships (in the tech world, the term “hunters” refers to salespeople who bring in new accounts and “farmers” refer to the ones to maintain existing relationships – hence, we are referring to the first category for this instance, in addition to any advertisement spends). Next, we need to count the number of new customers added to arrive at the CAC per customer. The lifetime value of a customer, on the other hand, is the total revenue generated by the customer over its lifetime. Correlation with marketing A more accurate view of the company's health and development may be obtained from the LTV/CAC ratio. But why is it significant? For the fact that businesses can utilize LTV and CAC to make better informed judgments as they place a greater emphasis on strategic datadriven decision-making. Spending on marketing for SaaS firms must go beyond raising awareness. Recurring income is a requirement. The majority of SaaS businesses under significant pressure to increase recurring income in order to reduce acquisition expenses. They will quickly be lagging behind their competitors and the customer exits will ramp up if they aren't investing enough. 15–25% of SaaS firms' yearly earnings should go into marketing. Based on a 2016 poll, this is what happened. In contrast to the majority of SaaS businesses, a firm will be disadvantaged if it spends below 15% of its yearly sales on marketing. Although spending less on promotional activities might turn out to be successful, it can't guarantee outcomes. The 80/20 rule In many businesses, the 80/20 rule applies, meaning that 20% of consumers account for 80% of revenue. Most buyers belong to the "Quiet Majority." They don't put out much cash themselves or encourage others to do so. Those who have a lot of money but don't use it to influence others are called "Wealthy Snobs". Even while they are still vital, most businesses have come to terms with their importance and are treating customers fairly. High Spend Influencers are the "super consumers," or those who not only spend heavily but also sway the opinions of others. They should be treated like gold regardless of whether they receive special care because of their large spending. 'Everyday Influencers' are the customers most often overlooked by businesses that rely solely on CLV initiatives. They don't spend much money on their own but have a significant impact on the places others shop, the products they buy, and the services they employ. If businesses want to reap the full benefits of the client lifetime value strategy, they will need to revise how they now calculate customer value. A customer's value is no longer determined purely by their own purchases, but must now account for the amount each customer's recommendations raise the total and that’s how the concept of CLSV arrives. Customer Lifetime Social Value (CLSV) The concept of the socially connected client is a product of the digital revolution. Businesses now have far better tools for analyzing and influencing customer communications on social media. In light of this, it's no more sufficient to determine a customer's worth to a business just through DCF that the client generates through direct payments; it is now also crucial to take into account the indirect value given by the customer's social impact. It is crucial to develop a system for determining a Customer Social Value (CSV), and to show how it may be used in conjunction with Customer Lifetime Value (CLV).