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Customer Acquisition Strategiesfor Subscription Based Businesses:Risks & Rewards Albert Luk
Disclaimer
This presentation is provided for informational purposes only. This presentation shall not constitute legal advice. We do not guarantee the accuracy or currency of the information provided. Some of the information was obtained from third party sources and believed to be reliable but data may have changed as of the published date of this presentation. The opinions expressed are solely Albert Luk’s and do not express the view or opinions of Jumbleberry Interactive Group Ltd., or its affiliates, subsidiaries or parent corporation.
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1. Lifetime Value of Customer (LTV)
2. Monthly Recurring Revenue (MRR)
3. Churn/Retention Rate
The Business Model
Key Financial Metrics
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4.80%
33.50%
29.20%
19.60%
7.70% 5.20%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
$0.01 - $9.98 $9.99 - $19.99 $20.00 - $29.99 $30.00 - $40.00 $40.01 - $50.00 $50.01+
Distribution of Average Monthly Price per Subscription
The Business Model
Pricing
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Source: Cratejoy.com
The Business Model
Cash Flow
-$500.00
-$400.00
-$300.00
-$200.00
-$100.00
$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
Mon
th 1
Mon
th 2
Mon
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Mon
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Mon
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Mon
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Mon
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Mon
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Cumulative Cash Flow
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We have assumed CTR of 2%, a CPC of $0.31, a CTR to purchase rate of 3% based on Google Adwords industry benchmarks.
CPC vs CPA
Customer Acquisition Model: CPC
Price of Subscription Per Month $19.99 $29.99 $44.99
Total Number of Visitors 10,000 10,000 10,000
Cost per Click (CPC) $0.31 $0.31 $0.31
Click Through Rate (CTR) 2.00% 2.00% 2.00%
CTR to Purchase rate 3% 3% 3%
Spend (CTR * CPC) $62 $62 $62
# of customers acquired [(# of visitors * conversion rate) * conversion rate to purchase]
6 6 6
Revenue per annum $1,439.28 $2,159.28 $3,239.28
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CPC vs CPA
Customer Acquisition Model: CPA
Price of Subscription per Month $19.99 $19.99 $19.99
CPA Unit $10.00 $20.00 $30.00
Total #of Acquisitions (based on the same CTR and CTR to purchase ratios as CPC)
6 6 6
Cost of Acquisition (CPA Unit * Total # of Acquisitions)
$60 $120 $180
Revenue per Annum $1,439.28 $1,439.28 $1,439.28
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CPC vs CPA
Pros & Cons - CPC Advertiser Publisher/Affiliate PRO PRO
• Risk (cost of CPC) to reward (customer acquisition) can be relatively conservative
• If product appeals to wide demographic, keyword term costs can be spread out amongst modestly priced keyword terms
• MRR can, with expense control, overtake cost of acquisition quickly • CPC without an affiliate program removes need to maintain a sophisticated
attribution system
• Large selection of advertisers and networks who run subscription based affiliate programs
• Some affiliate programs pay for both a lead (e.g. registration on site) and a sale
CON CON
• Large keyword term budget may be required • Keyword term bidding increasingly trending upwards in price • Success in keyword term bidding generally also increases the price of the
keyword term – scale costs you • Conversion rate is generally low • Fraud is a concern • Publisher/affiliate compliance
• Risk (cost of media spend) to reward (advertiser payout) can be relatively modest
• Price point of many products/services does not support a large advertiser payout
• Industry still has many small players who have not scaled making it difficult to send a lot of sales to one advertiser
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CPC vs CPA
Pros & Cons - CPA Advertiser Publisher/Affiliate PRO PRO
• Pay for performance • Scalability at fixed cost/cost certainty • Cash flow friendly- first dollar of expense (CPA paid out)
has a corresponding revenue received from a sale • Download cost of increasing keyword term bidding to 3rd parties
• High risk to reward equation • Highly attractive payouts • Many larger players running sophisticated affiliate
programs • High LTV and MRR means offers can run longer than
“1 and done” offers
CON CON
• Affiliates want large payouts to reward their risk of buying media; makes it hard for smaller advertisers or advertisers with low MRR to pay by CPA
• Publishers/affiliates are attracted to higher priced products, which may influence pricing
• Attribution of sales can be time consuming • Fraud is a concern • Publisher/affiliate compliance
• High risk to reward equation • Less publishers/affiliates • Not something beginners should dabble in • Assuming the risk that the advertiser has a webpage
flow which is optimized for a purchase
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CPC vs CPA
Risks
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Types of Risk Fraud Compliance Regulatory
CPC • Bot traffic • Click fraud • Credit card fraud
• 3rd party trademarks and keyword terms
• Prohibited keyword terms • Google/Bing! Guidelines
• Deceptive advertising • Anti-competitive
behaviour for restricting bidding on keyword terms
CPA • Prohibited types of traffic (e.g. incentivized)
• Publisher/affiliate fraud • Credit card fraud
• 3rd party trademarks and keyword terms
• Prohibited keyword terms • Google/Bing! guidelines
• Deceptive advertising
CPC vs CPA
Managing Risks
• Do your due diligence • Inspect daily • Act quickly • Consider anti-fraud software • Scale slowly if you are conservative • Set out clear rules of engagement • Monitor
CPC vs CPA
Takeaways
Advertisers: • CPC is another method of customer acquisition • CPC and CPA are trade-offs of risk/reward and cash flow in/out • There is no “perfect” model; look at LTV, MRR, price points for guidance Publishers & Affiliates • CPC and CPA have same trade-off of risk/reward but first dollar spent is
the publishers’ or affiliates’ • Inspect the webpage flow for optimization best practices and/or concerns • Know your advertiser/inspect your network
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