Every time we look at a B2C company, traditionally the critical ratio is LTV/CAC, otherwise known as Life Time Value of the Customer / Customer Acquisition Cost. It’s generally understood that this number needs to be at least 3x+ in order for a B2C business to really grow successfully and efficiently. We recently met with a company that bucked the trend however: they don’t focus on the ratio and spent only a few thousand acquiring customers in 2015, but doubled in size generating millions of annual net revenue. That’s truly phenomenal for a B2C business.
That said, their future growth is not predicated on more marketing spend. In fact it’s the total opposite: as opposed to spending lots of money on customer acquisition via ads and promotions, this company uses a small marketing team of 4 that focuses on content marketing, SEO optimization, email, and in-house PR. They have no intention of increasing marketing spend. Instead, they’ll take the money and use it on improving the product and releasing new features which are things the 4 person marketing team can continue to talk about via blogs, email to customers, and PR.
The performance of this company is in stark contrast to its competitor, who has raised $70mm+, spending the majority of that money to advertise its way to the customer as opposed to optimizing the product. The competitor’s propensity to spend has made them a household name, but their weak content marketing and lite product makes them no. 2 in the space as a thought leader, behind the company we met.
As opposed to spending money to discover the customer, create content and do great PR so that the customer discovers you. There are some B2C businesses that will have to spend their way to the customer no matter what, but if you can pull off the above, you’ll be able to grow organically and profitably.