In this episode of Startups For The Rest Of Us, Rob and Mike talk about calculating lifetime value. They discuss how its done with one time versus recurring revenue and funded versus bootstrapped payback time.
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Rob: In this episode of the Startups For The Rest Of Us, Mike and I dive deep into the riveting conversation topic of calculating lifetime value. Seriously, it’s pretty interesting. This is Startups For The Rest Of Us Episode 362.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. I want to kick today’s episode off with a question, Mike. What movie would be greatly improved if it was made into a musical?
Mike: If it was made into a musical. Hmm, that’s a tough one. My guess would be the old, black and white Frankenstein.
Rob: Okay. Yeah, I guess it wasn’t a musical but it was turned into a comedy by, what is his name?
Mike: Mel Brooks.
Rob: Yes! Young Frankenstein, is that what it’s called? But yeah, I could see them doing a musical as well.
Mike: Yep, definitely. Mel Brooks is on a couple of others that I think he turned into musicals as well.
Rob: I agree. There’s a lot of completely random questions that catch you off guard right at the start of the show.
Mike: I know. You come up with these things that are just totally off the wall and you don’t even run by me first.
Rob: It’s your new favorite thing.
Mike: My new favorite thing.
Rob: Other than answering ridiculous questions at the top of the show, what’s going on with you?
Mike: I wanted to give a quick shout out here to Tyler Tringas. We’ll link this up in the show notes, but he has a blog article that he posted talking about how he sold his bootstrap SaaS business from somebody that he met at MicroConf. Just wanted to say great job to Tyler and mention it so that people can go over and read the whole story. It’s a really lengthy article on it and where the product started, it’s called Store Mapper. It allows people to embed a map of their stores on their websites, sound like a pretty straight forward thing but he couldn’t find anything out there that did something for his customers so he built it. Fast forward a couple of years and he was able to sell it. I just want to say congratulations.
Rob: Yeah, congrats, man. I read the post, it was really in depth and really interesting and it’s posted over there on indiehackers.com.
Mike: I also wanted to read a quick listener email to us. This is from Zoren, he says, “Love the show, great tips. We’re busting our ass trying to grow [00:02:28] right now, and your show’s been great insight. Keep up the good work and maybe one day we’ll be on your show to tell everyone our story.” Really appreciate that, Zoren.
Rob: Yeah, thanks. For me this week, we actually launched a pretty big feature that took a while. It actually didn’t take that too long to build, it’s a long time to get approved and it’s an integration with Facebook custom audiences in Drip. It means that you can, in essence, have a native action right there in Drip, so that if someone’s at a certain point in the workflow or you can even just have a global automation rule that says when this happens, when anything happens, if it a tag’s applied to this person or if the lead’s core goes above something or they start checking out and they never complete their purchase, then you can just put them into a Facebook custom audience and you can then assess and retarget them when they’re on Facebook and then if they do buy, then you can pull them out of that audience.
It’s a pretty sophisticated, powerful feature, even though it was not that hard to build, but there’s a lot of possibilities to this and there are some use cases that are going live on drip.com right now. It’s a really impactful feature that took a month from the time we were code complete, about a month in order to actually get approval from Facebook because they want you to really have tested it out and you have to jump through some hoops and everything, which are warranted, I will admit. That’s been the habub this week.
Mike: That’s interesting. I’m on the other side of the spectrum with Google where I talked last week about how I was finishing up the [OWAF 00:03:59] authentication for Google to get mailboxes integrated into Bluetick. Because of the level of access that I’m asking for inside of people’s mailboxes, they have to basically fill out this form and they’re like you have to justify why you want this or why you need this level of access, I’m like, oh great. I went through and they’re like oh, it will take a minimum of three to seven days in order to get it approved, and of course I went through the process and I was like, oh, this is going to suck. Three hours after I submitted it, they said, sure, you’re good to go.
Rob: Oh, that’s cool. Good for them then, for keeping that queue short. You totally understand why they do that, right?
Mike: Oh, totally, definitely. That wasn’t the issue. The issue is I didn’t look to see that that was what I was going to need to do. I don’t know, I think the part of it might have just been the stuff that I was asking for and why and the documentation that I had to send in. I was pretty detailed in what I was requesting and why it needed to be done. Though I suppose it paid off.
Rob: Yeah, that makes sense. The other thing for me is the iTunes reviews, we now have 544 worldwide reviews in iTunes. Our most recent one that comes from Honey Mora from Canada and his subject line is: Ton of practical tips and lessons. He says, “I’ve been a listener for about four years now. I love what Rob and Mike share each week, I’m hooked. I’ve been following Rob’s Stewardship Approach since launching several premium WordPress plugins first and a few months back launching my first SaaS. Thank you for all you guys do.” He’s at repurpose.io.
Thanks for that review, Honey. We would appreciate if you’ve never given us a review, hop into Stitcher, Downcast, Overcast, whatever it is you use, or iTunes and click that five star button. You don’t even need an entire review or shout out or anything like that. Just clicking that five star helps keep us motivated, it helps us rise to the top of the rankings, helps us get more listeners, and the more listeners we have, the more we can do at the show, frankly, and it motivates us to keep putting out episodes.
Mike: The only other thing I have is I am speaking at the Cold Email Success Summit next week. We’ll link that up in the show notes but it’s not really quite an online conference but it’s an online summit where you can go and there are 20 different speakers that they’ve pulled from the world of email marketing to talk about various topics and give their insights and discuss what’s working and what’s not and give you actionable tips and things that you can do to help with your email marketing reference.
Rob: That’s cool. We’ll include a link in the show notes to that.
Mike: Awesome. What are we talking about this week?
Rob: This week, I outlined an entire episode around a single listener question from Andrea [00:06:28]. If you have a question that you think could make an interesting or even just a topic suggestion that you think could make an interesting episode for us, you can email that to us at email@example.com or feel free to call it into our voicemail line at 888-801-9690.
Andrea says, “Hey there, thanks for an amazing podcast. I have a question for you. A few times in the show, you’ve talked about customer lifetime value and how important it is for knowing how much to spend on user acquisition. That makes a lot of sense, but how do you calculate your CLV (Customer Lifetime Value)? I’ve seen some examples on how other people calculate it, it would be interesting to hear your perspective on how to do it for SaaS. Thanks.”
And just one quick note, I am going to use LTV for lifetime value. He calls it CLV, some people call it CLV, some people call it LTV, it doesn’t matter what you call it, it is the total amount of revenue that you are going to get on average from each of your customers. The reason that this is helpful to know is it can dictate the whole slew of things. The higher it gets in general, the healthier your business is, the more you can spend to acquire customers, and even the more you can spend to support them, to create educational material for them, more you can spend on feature development. This value grows and your customer count grows, those are the two things that multiply by each other.
If you make about having 500 customers with a total lifetime value of $100, that’s only $50,000. That’s the lifetime value of all those customers that they’re going to pay you the entire time that they are customers of yours. Now if they are a one time customer, you get that all upfront, meaning one time purchase. If it’s a recurring purchase, you will get that overtime but that’s not a ton of money to hire people, pay for server hosting, pay for whatever other – there are a ton of expenses; pay yourself, run ads, do all the stuff you need to do. Whereas if you take the same $500 customers and you just multiply that by 10, let’s say a reasonable lifetime value of $1,000, now we’re talking about $500,000. It’s a whole different ball game of how you can treat your customers.
We’re going to dive in today, we’re going to talk quickly about how to calculate it, and I have just a very simple and very streamlined way to do it. There are different ways to do it, there is more specific, in detail, and advance ways to do it, but especially for a podcast, we don’t want us just reading off a bunch of equations. We can link out to some more advanced stuff, there are some great stuff from Tom Tungus, there’s someone who dives into this really deep and they have five different formulas and it’s the simple one and then they add another thing and then you have the cost of goods sold and then you add this, and the that. It gets super complicated by the end, but for now, we will just dive at a more of an entry level but then I really want to talk, we are going to get in deep into some rules of thumb that I have for payback time on advertising and then run through a couple of examples that are very close to real world apps just so you can get a better sense of why all this matters.
To kick us off, if you think about having a one time purchase business, like a WordPress plugin, or even DotNetInvoice, which is an old product of mine versus a recurring business, there’s a big difference on how you calculate lifetime value. We aren’t going to spend a ton of time on one time purchases, it’s obvious if you are going to do a really simplified version of calculating it, you’re just going to look at your purchase price. To be honest, if you have multiple purchase prices, let’s say you have a $50, $100, $150, and again, these are one time sales, you should know at this point what you breakdown has been historically. You should be able to go back pretty easily, do an export out of Stripe and just basically, you want the average of all the purchases that people have made and that’s what I would start with.
As you get more advanced, you might have upsells, you might have cross sells, maybe there’s an annual payment that comes once a year, there’s all that stuff that you can add in later but this is a five second estimate of what people will pay you on a one time basis. An example, DotNetInvoice is a one time sale downloadable invoicing software, the purchase price was $329, and then we had a bunch of different add ons and we could do the math, it was 20% of people who bought DotNetInvoice bought one of the add ons and the average price of the add ons was $99, you can do that math and then 20% times the 99 is another $29, so it actually raises the lifetime value up to $349, give or take. What you’ll notice with that example is if I had just said DotNetInvoice is $329, and that’s the number I’m going to go with right off the cuff just so I would have it, it’s actually pretty close to the ultimate value.
That’s something I want you to think about is, ultimately, you’ll want to get down to the dollar because once you’re paying for ads and you’re running big time marketing spend, it does matter. But in the early days, when you’re just trying to get a sanity check on things or just trying to get an idea of how much someone is worth starting with one time sale, starting with the purchase price, that’s a fine way to do it especially if you’re prelaunch because you’re not going to have all the numbers that I just threw out right of who’s going to purchase what of which tier, just make a judgment call. If you’re one purchase price, use that. If you have three tiers, I would take the average of the bottom two. An example of the $50, $100, $150, I would take the average of the $50 and $100 and I would obviously say I have $75. That’s the lifetime value I would have going into a one time purchase business. Next we’ll dive into how to calculate it for recurring.
Mike: I think the analogy I might try to draw between calculating the lifetime value and how it relates to your business is that when you’re looking at this, you would think that calculating lifetime value is really straight forward and easy as okay, how much money you’re going to make per customer, but once you start digging into the details as Rob illustrated, if you get into things like cross sells and upsells, those things start to change what your lifetime value actually looks like. It’s very easy when it’s just a flat number and it’s one time payment but anything else, let’s say that you’re paying affiliates, that eats into whatever that margin is. If you’re doing cross sells, or upsells, maybe it adds 20% to the revenue but only for 50% of the customers, then it starts to get complicated.
It’s almost like the very simplistic analogy is okay, this is how you calculate gravity but depending on how close you are to center of gravity or how far away you are, there’s all these other little things that come into play. Then there’s air friction and lots of other stuff. It starts to get more complicated, and there are other things that you can add in that may make a difference or you may decide to gloss over them just based on what it is that you’re trying to get at and why you’re trying to get at that number. If it’s try to maintain profitability or optimize your profitability, you might dig in and say yes, these things actually matter to the calculation. In other cases you may just say, I don’t care, I just need a back of the envelope number so that I know kind of what I’m shooting for. It really depends on where you are in the process of trying to figure out how much money each customer is making you.
Rob: Let’s flip over to recurring which is what we’ll focus on for the rest of the episode. Obviously this works with SaaS, but also works for membership sites, something where someone pays you on a recurring basis. This can be used for quarterly or annual or whatever. We’re going to look at monthly because it makes the most sense for what we’re talking about.
To calculate lifetime value, the simplest formula is to take your average monthly revenue per user, per customer and you divide it by your churn percentage. If your average revenue per customer per month is $30 and you have a 10% monthly churn rate, then you’d have $30 over 0.1 and that means your lifetime value is $300. It’s not complicated, it’s just hard to explain on a podcast but basically your average customer lifetime, how many months they stick with you is one divided by churn. Again, it would be 1 over 0.1, so that would give you 10, and then your lifetime value is your average monthly revenue per user which is also called ARPU (Average Revenue Per User). ARPU times the amount of moths they stick around times the lifetime. The amount of months they stick around is 10 and the ARPU in this case is 30. 30 times 10 is 300.
Again, the simple way to do it, we don’t really need to derive it here like I’ve just done but it’s basically your average monthly revenue per user divided by your churn percentage. There is a more advanced way to do it, we’ll link over to profit wealth. We want to get down to the penny and how all these things come into it. But what’s interesting is you think about HitTail where an earlier SaaS app I had, had pricing tiers that were 10, 20, 40 and 80 and then it went up from there if you got really big. If I would to look at a SaaS app that had pricing tiers of 10, 20, 40 and 80, this is actually similar to what HitTail had. Those were the pricing tiers for that. You could take a reasonable guess. Typically, when I’m looking at a SaaS app, if I’m going to guess what the average revenue per user is, it tends to be one from the bottom. In this case 10, 20, 40, 80, I would from an outside perspective say it’s probably around $20. Maybe it’s $22, maybe it’s $25, something without expansion revenue specifically.
Expansion revenue is like what Drip or people as the ad subscribers goes up quickly, the costs. But in an app like HitTail or app where people choose a tier and stay on it, it’s going to tend to be somewhere on the lower end. If your average monthly revenue per user is $20, you can see how driving churn down drives this lifetime value up. If your churn is 10%, which is quite high, you only have $200 total from the lifetime. But if you cut that in half down to 5%, then you’re looking at to having $400 that you’re essentially grossing from that customer over their lifetime.
Mike: The thing to keep in mind with that churn rate is that as that churn rate goes up, it dramatically starts to affect the lifetime value. If you think about it strictly from a percentage, I think it was 5% churn is the example that I’ve used in a MicroConf talk in the past where if you have 5% churn, then on a year over year basis, you’re churning over 60% of your customer base and it actually gets a lot worse than that because it is 5% per month, not necessarily the total of the entire time because you have to calculate it at each point where somebody could potentially churn out of the application. That 5%, great number to have but you really want it over 5% over the course of the year, not 5% per month. You can get in trouble if your churn rate starts to climb and you end up churning over most of your customers on a yearly basis. That’s a really bad position to be in.
Rob: And I’ll just throw in this little tid bit here, this isn’t even in the outline but it’s interesting, you can get to the point where you have net negative churn, your churn is actually negative because your existing customers are expanding. It’s called expansion revenue like I just talked about. In a business where it is based on something that is constantly growing, let’s say imagine Amazon EC2, Amazon S3.
Mike: I think Stripe would be a good example.
Rob: Stripe’s a good example. Yup.
Mike: Stripe takes a percentage of the purchase price for their customers but as those customers grow and they sell more, Stripe grows their own revenue because of that.
Rob: Right. If they have a bunch of people signing up and some are churning but the ones who are there are growing 10% per month each, just as an example, you can imagine that their churn is negative and that’s crazy multiplier, crazy multiplier on lifetime value.
Why are we even thinking about lifetime value, why do you care? The big deal is lifetime value gives you an idea of what you can spend to support and to build the product and they acquire, but there’s even more interesting aspect that we can drill into and it’s not directly lifetime value but it’s based around payback time, payback duration.
Let’s say that there’s this common mistake of beginning startup founders, thinking that they can take their entire lifetime value and they can spend that to acquire a customer. If you had $500 LTV, I could go out and spend $500 to acquire that customer. That is far from the truth. There are three major reasons why that is, first one is that you’re going to have expenses, you’re going to be paying employees, you’re going to be paying yourself, you’re going to have hosting, you’re going to have Stripe cost, payment processing, there are a ton of expenses that are out there. When you are small you can get those small, but especially as you get big, your expenses will become a larger and larger percentage of that lifetime value. That’s the first thing to keep in mind. That’s where if you want to do the exhaustive LTV calculation where it’s net LTV, you can start deducting out expenses on a per customer basis, just takes a lot longer. When you’re small, it isn’t such a big factor, I wouldn’t necessarily do that earlier on.
Second thing is you don’t want to spend $500 to acquire a customer who’s going to bring you $500 because you want to make some type of profit, you want to have a business that actually generates some type of money that you put in your pocket. The third one is that you are likely to run out of cash. Imagine if you have a really long customer lifetime, people just stick around forever. Let’s say they stick around for 50 months and you get $10 a month from them. The lifetime value would be $500. But if you spend $500 to acquire them, or even if you spend $300 or $400, you don’t get payback for 30-40 months and unless you have a massive pile of cash, you are going to get killed. Frankly, you’re going to go out of business, it’s what’s going to happen, you’re going to run out of cash.
There is this whole concept of payback duration or payback time that doesn’t go all the way up to the LTV, it only goes for certain number of months to the point where you have enough cash to cover it and basically enough comfort to cover it. So Mike, you want to talk a little bit about these rules of thumb that I’ve used over the years for a funded company’s payback time and bootstrapped company payback time.
Mike: Yeah. The difference between them is striking because with a funded company, they have money to burn because they’ve gotten money from their investors and the whole purpose of that money is to not just find the customer but to also leverage the channels that are going to get them more customers. Not necessarily as concerned about profit. They can burn through the money that they are getting and it doesn’t matter as much to them, they’re really trying to spend that money in order to identify the channel that’s going to get them the most customers as quick as possible and then they’re going to use that to start optimizing what the revenue is. Sometimes they don’t even do that, sometimes they don’t care about revenue at that stage at all, they’re really just looking to get users.
If they are looking for a return on their investment though, they’re typically looking at something less than a year because they have the money to burn and they have the money to invest in those channels and the purpose is to get that money in the door overtime so that when the year comes up, then they have the money back in the bank. As Rob had given the example, $10 a month over the course of 50 months, let’s say that it’s $100 a month over the course of 12 months. They want to get that return within a year.
With a bootstrap company, you really can’t do that. Most people do not have the runway in order to be able to make that happen. This is where people are really looking to get that payback within two, three, four months at the most. If you have more cash in the bank, you can stretch it out to six or seven but if you don’t, you really need that payback very quickly, maybe one or two months at the most. This is an area where if you’re selling annual plans, it can make a huge difference in your ability to leverage channels that are going to cost you a lot of money to acquire those customers because if you can sell an annual plan, you get all the money up front, you don’t have to wait for it to come in. Maybe not everybody signs up for an annual plan but if you can get a certain percentage of them to sign up for an annual plan, then that calculates into what your upfront revenue is and what your payback time is on average. It’s not going to say everybody’s going to pay back within this period of time, whether it’s three months or upfront. But you also want to make sure that you have the money in the bank to be able to reinvest in wherever the channel is that you’re finding that’s working.
Rob: Yup. I remember when I first started running ads with HitTail was Facebook ads and my payback time that I was looking for was I think two months or three months because I didn’t have a lot of cash and then I did some deals. I did an AppSumo deal and I got $11,000 in cash from that and then I upped it to a four-month payback. And then I got even better at it, and I realized I wanted to spend more and grow faster so I went to five months and eventually I was at six months payback because I was comfortable with it and I had enough cash coming in from existing customer to cover that. It’s a really interesting thing to see how comfortable you are and how much cash you have in the bank. I would say as a bootstrapped founder like you said, somewhere between two and four months is where most people typically start.
One other thing I wanted to point out is there is there’s this rule of thumb with lifetime value to CAC ratio. CAC is Cost to Acquire the Customer. LTV to CAC ratio, in general is in funded circles but they say it should be about 3:1. Meaning if your LTV is $1,200 that your cost to acquire them should be right about $400. If you go over $400, let’s say you’re at $800, it means you’re spending too much to acquire customers and actually there are funded companies that do this because they’re trying to go after growth and they’re nowhere near profitable. These are the kinds of the companies that I think that a lot of us roll our eyes at because it’s like yes, you’re growing and yes you’re bragging about how you’re killing it but you’re never going to make money until you prove that you could acquire customers for less.
And then in the funded circles, if they say you’re acquiring customer’s, lifetime value is $400 and you’re only spending $100 or $200, then you’re actually missing out on growth. They’re not saying it should be below 3:1, they’re saying it should be at 3:1 or as close as you can get there. Personally, when I’ve done this, I have often not spent 3:1, I have often done below that like 4:1 or 5:1 because the rest is profit. If you are a bootstrap founder, you have to think about that. The less you spend, the slower you will grow but the more profit you will have. You want to balance that, you want to grow really fast, you can obviously have that ratio be even higher.
For the last few minutes of today’s podcast, I wanted to run through a couple examples of some real numbers to wrap your head around what it actually looks like to run ads and to think about payback time. What I’m saying is, as reasonable clickthrough rates and reasonable ads cost at different times, you have to find the right ad network to be able to justify some of these but let’s go back to lower price SaaS, which is $10, $20, $40 and $80 a month with average earn per user at $20 point, churn is 10% a month just to make it simple. Obviously you’d want to get lower than that but it’s easy math, that makes your lifetime value of $200.
Interesting thing, we’re just going to look at two scenarios, back in the day, when I was running Facebook ads, this is 2012, I was getting clicks for $0.30, that is not impossible to do at this point but there are ad networks still today where you could find those. At the time, Facebook was a [00:24:50] ad network and when Google AdWords was [00:24:53], it was cheap clicks that Jason Cohen and talked about getting $0.05 clicks when he first started the SmartBear. You have to go outside these mainstream areas because they are overcrowded with highly funded. It’s where everyone’s playing and so the clicks are more expensive, but if you can find networks or other opportunities for getting inexpensive clicks, be creative with it, that’s where you can get these $0.30, $0.40, $0.50 clicks.
Let’s say we were getting ad clicks at $0.30 piece, let’s say 2% of the people who came to our website converted the trial, that number is high but for a lower priced SaaS app, that’s really curiosity based, it’s possible although we’ll look at the next example as I think is probably a little more realistic these days. 2% conversion to trial and then half of your folks, this is credit card upfront, 50% convert from trial to paid. With that, if you do the math, $0.30, 2%, 50%, it takes you out to $30 to acquire each customer and you would get a payback in 1 1/2 months. You would want to run that all day and all night and you would actually want to pay more per click to drive more traffic faster. I would consider doubling one of those numbers, if you literally were getting 2% conversion rate to trial, that is a pretty hefty rate.
The second example is pretty much the same example, but I doubled the cost from $0.30 to $0.60 and then I cut the conversion to trial in half from 2% to 1%, which I’ll admit is a bit realistic. It’s $0.60 per click and 1% converting to trial and half converting to paid, that gives us a cost to acquire of $120 and that’s a 6 month payback. Realize that if you’re driving 100 customers new customers a month from this ad approach, that’s going to be $12,000 in cash that you’re going to need to do it. It puts into perspective, those are just loose numbers, if you add a higher average revenue per user, not uncommon to have $80 or $100 average revenue per user, then these numbers become very different. You can pay a lot more per click. If you pay a lot more per click, your conversion trial’s probably also going to be lower with a higher price point thing. These things will have to shake out.
But this is the analysis that I have done many times when I’m thinking about are we ready to start running ads and is there a scenario under which this is feasible and then we can reasonably grow a business using ads because every business is not cut out to do pay acquisition.
Mike: I think the most important piece to keep in mind when you’re looking at the numbers and try to figure out whether or not it makes sense to go after a particular advertising network is how quickly you’re going to get that return on your investment back. Because if it is six months, and if it’s costing you $10,000 to pump into that, you’re not going to see that $10,000 that you paid this month until six months out. In order to get yourself to that six month period or get yourself through it, it’s going to cost you $50,000, $60,000 and yes it decreases as you go on because you’re getting more money from the customers in the third month than you were in the first month, but the reality is you need a lot of money to make something like that work. That’s why funded companies can do it and bootstrapped companies really don’t have the ability to. Again, that’s also why the annual plans and getting the money upfront helps so much with being able to grow the business in an advertising space because you get that money and you can spend it, and in fact, almost gives you negative churn as a result of that.
Jason Cohen has talked about that at MicroConf. I think there’s a talk that you can find on the MicroConf website under the videos section from 2013 or so where he talks about exactly that.
Rob: Yeah. To be honest, even though we’ve been talking for more than half an hour, this really is high level introductory. I say introductory and I hope it was easy to understand but I will say that the kind of rules of thumb that I’ve thrown out here are from years and years of experience running this across multiple SaaS apps, many, many small businesses and this is the way that I think about paid acquisition as I’m diving into it. I was trying to think of any networks these days, like ad networks in particular, that would probably have tripleclicks, I think Twitter is one, and I think Instagram is another. I don’t know if Instagram’s up to Facebook cost yet, I know Instagram’s a pain, it’s not necessarily B2B, it’s got to be visual and all that stuff. Those are the two networks I think have a decent reach that could potentially have cheap clicks. I don’t think Facebook does it these days anymore, last time I ran ads, the cheapest I was getting was the $0.60 clicks but a lot of them were mostly between $0.60 and $1, I think it’s even higher than that now.
That is why these businesses like Facebook and Google mint money and why they’re worth so much, why the stock market values them so high because they know that overtime, if they’re successful and if they figure out their ad tech, which is pretty hard to build, if they figure that out, it’s just going to grow overtime and that’s good for them. It’s not necessarily good for the advertisers in the sense of it becomes more and more expensive to run ads.
Mike: I think the one wrench to throw in this entire thing is that even if you’re paying money to get those people to your site, there is the chance that they may not convert right away and they may just end up on your email list and you may need to figure out, okay, it cost me this much to get somebody onto my email list, but later on did they convert into a customer and that’s where you start getting into a really advanced analysis of what your sales funnel looks like. Maybe some people convert, maybe some people never convert or just unsubscribe and they will never become a customer but those are the places where it becomes very difficult to start making some of these calculations because then it’s not as straightforward as I paid $1 for this ad and 1% of the people converted. It’s probably a little bit more than 1% but it’s hard to know overtime, then you end up with problems trying to figure out what your attribution looks like. Attribution is an entirely different world, we could probably spend an entire episode on trying to figure out attribution but it’s complicated to say the least. I’ve talked to a lot of people who said trying to figure out what your attribution looks like is very, very difficult.
Rob: Yup. This is all good points. It’s not necessarily a purchase right off the bat from an ad, especially not from Facebook. They’ve tweaked their algorithms so actually they made that harder. If you look at someone like Brennan Dunn with Double Your Freelancing, he talks about every email subscriber he gets is worth x dollars and I forget what the number is. I imagine he’s been public with it, but it’s something like $10 or $11. He knows that if he runs Facebook ads and can just get someone to opt in, that down the line, if he does all the math, on average, it’s about $10 or $11 based on how much a bunch of people don’t buy and the ones that do buy these many things from him.
It’s interesting, if you can run ads and getting someone on the email list is not that hard, depends on the list, depends on the time and clicks and all the stuff but I’ve done it pretty consistently for between around $1 at the low end up to maybe $5, $6 on the high end. What I was just talking about, it’d be pretty interesting, you could see how you could mint money with the business model that makes money based on people being on an email list.
Mike: I think that sounds like a good place to wrap it up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you could email it to us at firstname.lastname@example.org. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 288 | How to Choose and Test a Paid Marketing Channel
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to choose and test a paid marketing channel. They give you some criteria and discuss the mindset you need for choosing the channel that’s best for your business.
Items mentioned in this episode:
Rob [0:00]: In this episode of “Startups For the Rest of Us” Mike and I discuss how to choose and test a paid marketing channel. This is “Startups For the Rest of Us” episode 288… Welcome to “Startups For the Rest of Us,” the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products. Whether you have built your first product, or you’re just thinking about it, I’m Rob.
Mike [0:29]: And I’m Mike.
Rob [0:30]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike [0:33]: You changed up the intro a little bit.
Rob [0:34]: I know, I added in some more stuff. Because we always talk about launching in the intro, but really, now often times we’ll talk about the building, and the growing, and the scaling and all that. Maybe I’ll update that actually in the doc. That was, kind of, off the top of my head.
Mike [0:48]: Well, of course, you know, there was the little flub there, which will thankfully be edited out.
Rob [0:53]: Indeed. So what’s going on?
Mike [0:54]: Last week, I had talked a little bit about how I had started onboarding people into Bluetick, and I recently just uploaded a spreadsheet into Bluetick so that I can have it automatically send out the emails to people to get them scheduled, so I don’t have to individually email each person. And of course the nice thing is that it will gradually email them out over time instead of all at once. So that’ll be helpful in terms of putting a little bit of spacing in between some of those. Obviously, they can choose anytime on my calendar, but it will be nice to not just use it in kind of production environment, but to also let people who are coming on to it see the app in action and what it will look like on their side of things.
Rob [1:31]: Yeah. That’s pretty cool. So, you’re at the point where you’re able to dogfood it, and use it for your own use.
Mike [1:36]: Yes.
Rob [1:37]: Yeah. You know, I remember when we first hit that moment where we could do it with Drip, and we started really using it for a lot of our email marketing. At that point it was like something flips, and you’ll suddenly — you already look at your product a certain way, because you have been building it. But something, kind of, shifts once you start using it, because you’re going to notice everything that’s clunky about it, everything that you need to fix. Even more so than you did before you started using it. So I think it’s really a plus to be able to use your own product, and to catch bugs before the people – or even to catch usability issues before the rest of your customers do.
Mike [2:11]: Yeah. I mean, I started trying to do this a couple of weeks ago, and as you said, it was clunky, and there were things where I ran into where I could do those functions and perform those actions, but it was a little painful. There was a few too many clicks, and there’s still a few places where we could optimize what we’re doing in the user workflow, and how they get to different places in the app. But we basically redesigned the entire navigation, and merged a couple of pages so that people don’t have to click around as many places. It’s a lot better today than it was even just a week or two ago. We just pushed out a new version of it this morning. It’s nice to be able to do that now, and as I said, it was working a few weeks ago, but it was a little painful. I think we are starting to turn that corner where the app – it’s not just inherently useful but – it’s nice to be able to dogfood it in a way that is not as painful.
Rob [2:59]: Yeah, for sure. I think there’s that quote that’s kind of over-quoted at this point about how, “If you’re not embarrassed by the first version of your app then you waited too long to launch.” I think that there’s two sides to that embarrassment. One, it can either be that you just don’t quite have the usability right yet. I think that’s one reason to be embarrassed. I think another one is, maybe it is really useable, but you just don’t have enough features to do what you want to do, and you feel like it’s sorely lacking. I think those two axes can either be off on one or both of them. But identifying which one, and kind of moving up market, or even just improving upon those axes, I think, is a big thing in the early days.
Mike [3:33]: What about you, what’s going on this week?
Rob [3:34]: Well, we had a pretty good response to a recent blog post on the Drip blog. It’s probably the post that’s gotten the most uptake in that last several months, and it was called, “Email Marketing Tips: 33 Industry Experts Share their best Strategies and Tactics.” It was an expert roundup, basically where really Zach on my team headed it up and did most of the legwork, although I contacted some of the people who I had contact with. But we got some really solid tactics from people like Devesh Khanal from Grow and Convert. We got Josh Pigford at Baremetrics, Joanna Wiebe at Copy Hackers, Dan [Norestelli?], Alex Turnbull, Brendan Dunne, Patrick Mackenzie, Noah Kagan – just this big expert roundup, and there’s some really interesting tips in here that people are using to improve open rates, and click through rates, and just overall just improve stuff. So it went to the top of GrowthHackers for a while. I think it went up to one or two on inbound.org, and at this point it’s got 300 social shares. If you haven’t checked it out, it’s a really good post, and I’m not just saying that because we put it out. There’s a lot of cool tips and tricks in here. We’ll obviously include that link in the show notes, but if you go to the Drip blog, or if you just search “33 Industry Experts Best Strategies and Tactics” you’ll find that.
Mike [4:44]: Awesome. So what are we talking about this week?
Rob [4:46]: Well, we periodically get questions from listeners about getting started with paid acquisition, and today we are going to be talking about how to choose and test a paid marketing channel. Most recently we received this question from Ryan Frank, and he said, “I’m sure this had been requested multiple times but I’d love to get some insights on the show regarding setting up and running marketing campaigns. What platforms do you choose to advertise on, and why? How much is a reasonably initial investment? How do you brand the campaign? How do you target? How many do you run at a time, etcetera?” He goes on to ask some more questions that we’re going to cover today. The interesting thing is we don’t tend to cover this topic specifically because—well, there’s a few reasons. One, this stuff changes so frequently. Even the ad networks that are going to work for bootstrappers will completely roll over in, let’s say, 12 to 24 months, and anything we say here about specific ad networks will be different then. In fact, with Facebook – for a while there – it was like every 90 days things were changing in the ad interface itself, and different ad types started performing better than other ones. You just had to be right at the cusp of it, and either in touch with someone who really knows what they’re doing and are constantly testing, or you have to listen to some really detailed, recent information. That’s why we don’t often dive into specifics. However, today we are going to talk more about like the mindset, and the approach, of testing and choosing a paid marketing channel. Another reason we haven’t talked about this a lot is it can get often to the weeds, and it can get a little too detailed and boring. We’re going to try to avoid that today. Then, finally there’s really this, kind of, factor of competition. And this has become more of an issue of late, with competitors kind of, I’ll say, borrowing heavily from some approaches, which has been a bummer, and it comes with a little but higher stakes now that I have ten people working for me, and we’re paying mortgages and doing that kind of stuff. So, kind of, giving away exact detailed information of exactly the wins that we’re having, and why, isn’t necessarily as feasible as it used to be when I was selling eBooks and beach towels. With all that said though, there is a really specific path that I take when I’m thinking about testing and choosing paid marketing channels, and picking out new networks, and how to test. And we really are going to dig in. There’s a lot of meat in today’s episode.
Mike [6:53]: Awesome. So, let’s dive right in.
Rob [6:54]: Yeah, so we’re going to, kind of, break it up into two sections. The first is the criteria for choosing, and the second one is really how to run a test on a paid marketing channel. The interesting thing is, it’s only getting more complex these days choosing a platform to test on. There are more choices, and within those choices there are more choices. There weren’t YouTube ads at all, and then there were YouTube ads. And now there’s YouTube Instream, and there’s YouTub- in-display, and there’s another type that I forget the name of it. And with AdWords, it used to just be the little text ads, and then there’s the display network, and then there’s the text display network, and the visual display network, and Gmail ads, and on and on and on. It’s just getting more and more ubiquitous. The nice part is that does give you more choices and more opportunities, but the negative is it makes it hard to choose. I think the kind of first thing I’ll throw out is that, these ad platforms, there the cheapest when they first launch. That’s also when they’re hardest to use, because the management tools are not very good, and there’s not a lot of insider info on how to, kind, of use them for optimum results. So you really are pioneering, and you’re going to just do trial and error. But as these ad platforms get more advanced, and they get more matur – like AdWords is an example – they become so expensive that there’s just no chance that you’re going to make them work. Whereas a platform like Facebook is probably in the middle right now, it used to be cheap. It’s not totally out of the range of being affordable, but it’s in the middle. Then somethings that’s really new – maybe Pinterest for example, or Instagram’s pretty new in terms of ad networks – those will be the cheapest clicks, but there are also maybe the hardest to use, hardest to target, and you don’t have a ton of information on how to do that.
Mike [8:29]: I talked to somebody – probably a year and a half, two years ago – about some strategies that they were using on Instagram for paid acquisition, and they showed me a graph and I looked at it. It was insane. They basically doubled their revenue almost overnight by doing Instagram marketing and just paid acquisition through that channel, and there was no mechanism for doing it. They basically built an entire system themselves. They had all these spreadsheets and data, and they were calculating all these different metrics on their own. And for themselves, they pioneered it. They didn’t really talk about it publically, but I looked at what they were doing and it was absolutely incredibly and insane. The results that they were getting, it was really, really hard to argue with the results, just because there was a point and time where they weren’t doing any of this type of advertising, and then they started, and immediately you could see the graph. It just doubled the revenue almost overnight. You are right, I think, about getting in when those platforms are new. I think the downside of that is that when these new platforms come out you can spend a lot of time and effort trying to get something working and running, and it may just not work. Because that’s one of the risks that you’re taking with those, because you are pioneering something completely new, there’s no benchmarks to go off of, there’s no guidelines, there’s really not very many people you can talk to, or ask about, in terms of being able to work on those channels. But if you can find something and make it work, it can be really, really cost effective.
Rob [9:51]: Yeah, that’s pretty cool. I remember that guy’s story, assuming it’s the same person that I’m thinking of. He basically went in before there were even official ads. There was no ad platform, and he was paying the more popular Instagram users X dollars to post the thing. It was in essence, ads, but he was so early that he got in when it was really cheap. I heard Noah Kagan talk about this – before advertising in email marketing newsletters was getting really big – he would just approach big email marketing newsletters and make them an offer. That’s a kind of way to get around the ad networks, because the ad networks are marketplaces, right? And eventually they kind of even out, especially once your competition is there, then your cost per click is just going to go up and up because there is competition for those clicks, and your cost required is going to be similar across competitors. So it is going to even out eventually at some type of norm, but if you get in way early then that competition doesn’t exist yet, and you can get the cheapest clicks early. There’s obviously a lot more danger there. That’s really the balance.
Mike [10:46]: Right. I guess one of the takeaways from that, that I just thought of off the top of my head, was that if you are getting in that early, and there isn’t a marketplace for ads on a particular channel then you could probably negotiate for some sort of exclusivity when you’re working with those people. And if you can get it, then you can, sort of, lock your competitors out of that as a channel. That’s something that also worked extremely well in that particular case. That’s something you might be able to take away from that.
Rob [11:14]: I think another question you want to ask yourself is, are you going to do this yourself? Like, are you going to test the channel yourself, or are you going to hire someone? This depends a lot on whether you want to learn it or not, whether you have time to learn it or not, and whether you have budget to hire someone. The nice part is, three or four years ago, hiring someone to do it was very, very expensive. These days there are knowledgeable folks who are managing AdWords, or Facebook ads, or Twitter ads, or I’m sure Pinterest ads – I haven’t used anybody for that – but that are not these big agencies that charge enormous sums of money – or a percentage of ads spanned – but that may charge per lead, or that just charge a lower monthly fee. There was someone that was going to manage Facebook ads and I didn’t wind up using them, but it was a few hundred dollars a month rather than several thousand like a lot of the old agencies. I think, keep in mind that running a test is not terribly hard, but it is time consuming to actually get this to work and then scale it up. So be realistic about how much time you actually are going to have to run these ads. To take a step back, I’m realizing we didn’t really cover when you should try to do this. Like, when should you think about running paid ads. I think that the two points are: really early on when you are maybe testing a value proposition on landing page, and you want to send someone, and you want to test that value proposition and get email signups. I think it’s very valuable then. I think in the interim – kind of between that launch and product market fit – when you are just trying to get more people to use it so you can do customer development, I think that’s a good time to run it. You don’t want to scale that one up. You just want to get enough people in there to get enough feedback to improve your product. That’s the second time. The third point, I think, is once you’ve built a product and you have a value proposition and things are really starting to scale up, that’s when you want to hit this really hard, and I would recommend actually getting the budget together and hiring someone. I think in the first two instances you only need such a trickle of traffic when you’re testing stuff, that I would guess unless you do have money at your disposal – like you’ve raised funding – that it’s not going to be worth going out and hiring someone for the small amount of clicks that you’re actually going to be buying.
Mike [13:10]: This is one of those situations where, as a bootstrapper, you’re kind of caught between a rock and a hard place, because in order to spend the time and effort to get the results that you want, it’s going to be time consuming, and you either have time or you have money; you typically you don’t have both when you’re doing this. It makes it painful to go in and start running some of these experiments. You have to pick and choose your battles a little bit in terms of where you’re going to try and optimize things inside of your ad campaigns, because it’s going to either cost time or money, and you typically don’t have both available to you. So often times you are trying to implement things, or run some tests, and they’re going to be less than optimal. I think that that’s an important thing to keep in mind, is that you’re not necessarily looking to optimize each and every single test. You’re looking to learn from the early ones so that you can scale things up and make them better in the long run. You don’t want to spend a lot of time and effort trying to figure out, “Okay. What is the single best ad that I can come up with?” Take three to five of them, throw them against the wall, see what happens and then measure the results and iterate from there. It’s not about getting things right on the first time. It’s about iterating over time and then enhancing your results.
Rob [14:20]: Another criteria to think about when you’re choosing an ad platform is, is it B to B, or B to C, or is it a mix? I’ve found that there’s a lot more B to C inventory than there is B to B. The B to C inventory tends to be really low quality, and so it can work, the clicks are really cheap, but if you’re not targeting something like weight loss, or online dating, or these really broad consumer interests, it can be hard to make money with those more B to C networks. And those are things like Chitika and Clicksor, and I think Infolinks is like that. I tested 10 to 15 ad networks back in the day when I was really trying to scale HitTail, and I found that most of the ones that I hadn’t heard of were just kind of junk traffic. They were super cheap clicks – five cent, ten cent clicks – but average time on site was two seconds or three seconds or something. So it was pretty noticeable that either the clicks genuinely were just bots or not real people, or they were accidental things, or they really were just looking for more stumble-upon content to hang around and be enticed with info market stuff, rather than actually trying to sell a product. You definitely want to think more. We’ill talk through a few networks here. My next bullet spells out several networks, and there still are a lot of B to B and mix networks that do have quality traffic, but you’ll want to think about this in terms of the product you are selling, and the type of scale that you’re trying to get to.
[15:43] The next criteria to think about is, does the ad network have enough volume to scale traffic? Early on, like I said, when I was running ads for HitTail, I actually ran ads on Bing and Yahoo and other search engines, and those were examples of things that converted for me, but I couldn’t get enough clicks that it was even worth managing the ad platforms. So, while you can look at all these kind of peripheral ad platforms, it often will be a waste of time even if you can get it to work. The majors are things that you’ve heard about. There’s Facebook, there’s Twitter, there’s Google AdWords. Then there’s the AdWords display network, which is basically what AdSense runs on. Then there’s YouTube with multiple different types. There’s a LinkedIn ads. Pinterest now has an app and network. AdWords has a Gmail ad section that can advertise on Reddit, and I got those to work for a short time. BuySellAds.com is a nice display network, and then we start moving in to the consumer stuff. I think there may be one or two more that are at scale and you can do B to B, but the ones that I have already listed are pretty much what I know about. Then there’s like Outbrand, and Chitika, and Clicksor, and Infolinks. There’s a good article summarizing these. It’s on monitizepros.com and we’ll include that in the show notes. The idea here is, if you can find an outlier ad network and you can make it work, the clicks are going to be super cheap and it’s going to be very, very lucrative for you. The trick is, I’ve never been able to do that, and I spent quite a bit of time and money trying to do that at one point, and I found that the ad networks today that people are talking about, there’s a reason they are talking about them. It’s because that’s where the real people who actually spend money are. So when you think of the Facebook, Twitter, the Google, the LinkedIn, and the BuySellAds, and maybe Pinterest and Instagram if that’s kind of your thing, those are going to be the mains that you’re going to have to evaluate and think – based on what I am selling – is someone going to buy email marketing software on Pinterest or Instagram? The odds are probably not. That’s not going to be at the top of your list if you are going to advertise. You’re going to want to stick more to an ad network where you feel like you at least have a chance of someone being interested in your product.
Mike [17:47]: You know, the fact that you had an ad budget for Yahoo means you probably could have spent enough money to just buy Yahoo outright of what they were worth.
Rob [17:55]: I know. Interesting. For real. This is back in the day. They were still worth something a few years ago.
Mike [17:59]: Are they negative now?
Rob [18:00]: Oh, it’s so sad to see a giant like that just go down the tank.
Mike [18:08]: Oh, well. So, what’s next?
Rob [18:09]: So, the next thing to think about is to take into account what the cost per click is going to be, verses your budget, and the lifetime value of your users. You’re just going to have to ask around, or do Google searches or whatever, but these days we know that Google AdWords is very expensive because it’s such a mature platform and Google’s really smart. Whereas Pinterest and Instagram – since there are early – the ad clicks are going to be a lot cheaper. You can get some cheap clicks on BuySellAds, and I have heard there’s cheap clicks on YouTube these days. Whereas Facebook, like I said, is kind of in the middle. Twitter, I think, is in the middle as well. They are both starting to mature, and they are getting a little more expensive. So this is one where I think that the most value can be had probably in the early to the middle section there, and I think a lot of the older – or the larger – enterprises are doing the more advanced, or the more mature, platforms because they are easy and more qualified clicks, but they are definitely a lot more expensive.
Mike [19:00]: I think one of the things we might want to touch on here is talking about the cost per click, or the cost per lead, that you are getting verses your budget, and that kind of ties back into what the lifetime value for your customer is as well. So obviously, if you have a one-time sale for a product, then your lifetime value is going to be whatever the sale price of that product is. So, if it’s 50 dollars to buy a WordPress plugin, it’s going to be 50 dollars. But if you have a SAS product, or anything where there’s recurring revenue – and it’s let’s say 100 dollars a month, and people are going to stick around for 10 months – you’ve got a lifetime value of about a thousand dollars. I think that the general rule of thumb that I’ve heard from most people is that you don’t typically want to spend, on a long term basis, more than about a third of what you’re lifetime value is to acquire a given customer. Now, that’s not to say that you can’t spend upwards of break even for the first set of them, but you’re going to drive your business into the ground very, very quickly if you do that for too long. The primary reason for that is because you’re going to be spending a lot of your ad budget now, and let’s say that you spend a thousand dollars to get a customer now. But the problem is that you’re not going to make up that revenue for any given customer until they are there for the entire time period. So you’re not going to get all of that money back until 10 months into it, so that makes it very difficult to do that. When you’re trying to go through and budget for this, make sure that you are very aware of how much money it is that you are spending, and keep in mind that the tests that you are running early on, you may very well run way above and beyond that, and it’s primarily just to go through and do the testing on those different channels and iterate and try and make your ads better. You’re not going to get them right the first time. You’re going to spend a heck of a lot more money the first time through, but as you iterate, if you can get that under about one third of your lifetime value then you’ve got, essentially, a sustainable channel that you can start pumping money into. Now, that’s not to say that you can do it on an unlimited fashion, because even if you are doing that, then you’re still not getting that money for at least three months. So you can’t just pump every dollar that you have into it. You do have to be careful. You do have to budget for those types of things. I certainly wouldn’t run the bank account down to almost zero with the anticipation that you’re going to be able to make it up within 30 days.
Rob [21:12]: That’s a really good point. I think the one third LTV is a good reminder, and then – typically if you are bootstrapped – I see most people not going more than about three month payback. I see some people edging up to like a four month payback window on your trial or sale cost. So that’s not a click cost, but that’s someone coming in and actually becoming a customer, and you want to get paid back within four months. In your example, if you were doing a hundred bucks a month then you could pay up to 400 hundred dollars to acquire a customer. But, then like you said, you need the cash to be able to do that. Funded startups, the rule I’ve heard is, no more than a third of lifetime value, and no more than a one year payback. They tend to raise enough money that they can cover out, but when you’re bootstrapped — I remember first starting out it was like I had like two month payback with HitTail. Then as I got more cash it was three month, then it was four month. Then once I really optimized it, and I widened the reach, and I knew that not only were the folks signing up and becoming customers, but I was watching them remain customers, I actually kicked it up a little higher than that. That’s kind of the range that I would think about. I think the last criteria for choosing a network is, are you going to need banners or fancy images? And do you have a way to do that? I know Bannerarchitect.com is a pretty good way to do that, and there are certainly people on Upwork these days that can create banners. But keep in mind, there are some text networks that work really well, and you don’t have to spend the time and money to develop banners, and banners burn out as well, so you are not going to have them made once and have then last forever.
Mike [22:31]: That’s actually a really good point about the fact that those banner ads will burn out, and the same images that you use today will not necessarily work the same even a week from now. I mean, sometimes they burn out very, very quickly. Other times they will last for a while. Again, every image I’ve ever used – or ever seen – in any of my ad campaigns, they inevitably burn out after a while. And what will happen is you will notice that the effectiveness of that campaign will start to decrease even after you’ve optimized it. So you will have to refresh those images, and use different ones, and play around with it. And the thing that sucks about that is that it screws with your stats, because even week to week you can’t necessarily guarantee, or look ahead and say that, “Oh, this advertisement is going to have this effectiveness.” because it will change over time as people see it, and they basically become blind to it.
Rob [23:22]: So moving into how to actually test a network. As a rule, the higher your budget the faster you can test. But you can test cheaper channels with a budget of, say, $10 a day. You’re not going to be able to test AdWords at that budget, but you could start running let’s, say, a Facebook test, or even maybe there’s some cheap clicks – like I said – on YouTube, or Instgram, or Pintrest. I’m sure you could do those for 10 bucks a day. I personally like to start with about 20 bucks a day so we can move a little faster. And I commit maybe around a couple thousand bucks to a full test, unless it’s either doing really well at the start, or it’s really tanking at the start, we’ll go in one to two thousand bucks; that’s just the scale we’re at right now. But you could probably make a call after a few hundred dollars. I recall doing that. I mean, some of these are just going to be so obvious that they’re not working that you don’t need to invest a huge amount of money in order to figure it out.
Mike [24:10]: I think one of the things you have to be careful about when you are doing these tests is that you have to be aware that the way that the advertising channel shows you those advertisements is not going to be identical to what is displayed to the user. So sometimes their interface is just blatantly wrong. I can think back to a scenario where I was starting to do some paid advertising for Bluetick through Twitter, and I was using their lead cards. And everything showed up in the Twitter advertisement interface just fine, and I put it out there, and I forget how long it was, but people started sending tweets back to me with screenshots that showed me that they were displaying just a link to the Twitter card, as opposed to the Twitter card itself. And people had to click through it. And at the time I was looking at my stats saying, “Well, these are abysmal, but they’re not costing me very much, so I’ll just let them run.” Because I was still getting email addresses, gnd going back and looking at the screenshots that people were sending me, my ads were just fundamentally broken. So I ended up stopping them at the time just because I was clearly spending a heck of a lot more money, and I didn’t want those images to burn out, and quite frankly it was kind of a distraction at the time. So just that said, you need to be aware that just because your advertisements are tanking doesn’t necessarily indicate that, “Oh, this entire channel is junk.” It could also mean that you’re doing something wrong. So you want to be careful to at least do some spot checks to identify whether or not, “Is it my advertisement that is wrong? Or is it just this channel?” And it’s sometimes difficult to tell the difference.
Rob [25:37]: Yeah, that’s tough. I haven’t seen that happen with AdWords or with Facebook; where the ad showed up different than the preview. But I have to imagine that happens. Especially with Twitter where all the clients are— not all the clients – but the third party clients tend to display stuff differently than the native Twitter things that they own. So I could imagine that there would be differences in display. It’s something you need to watch out for. The next step in how to test is that if you’re going to do this yourself is to educate yourself online. I would just start doing Google searches of “how to run Twitter ads”. And I would try to find like Growth Hackers links from growthhackers.com, or people who are actually doing it, kind of, in your space, because you’re going to find a lot of stuff of people running ads on this network, and they’re doing it for, again, like diet pills, or “make money online”, or just stuff that doesn’t apply to you, and it isn’t necessarily going to be that helpful. But I personally try to buy a course if I can. I try to find a podcast on the topic, and then I try to buy that person’s course – assuming that the podcast is reasonable. And obviously you’ll pay something for that course, but it can save you dozens of hours of trial and error. And maybe it’ll even convince you it’s not a good channel and it’ll save you the time all together.
Mike [26:44]: In terms of courses, there’s a lot of great resources out there that are free. And as Rob indicated you can also go out and look specifically for paid courses from people who are actively working in that particular industry. But there’s a couple of different resources you might want to check out. You can take a look over at Udemy, or Udacity, or at Coursera. And all three of them have courses that are available, either for free or for reasonably low cost, that you can just pop in, learn what it is that you need to learn and get out. And I think the one thing to keep in mind when you’re looking at these courses is that you don’t need to consume every single piece of information that’s there. Skip through, find the things that are relevant to exactly what it is that you’re doing, and then get out and start practicing with that stuff. Because if you spend too much time getting into the weeds, then you can spend forever there and not actually get your ads done. And I think that setting up your ads, and getting the images, and the text, and all that stuff all set up can be very time consuming. And if you’re spending more time learning – and we actually talked about this in a previous episode a little bit; how to balance your time in learning mode versus execution. So if you haven’t listened to that, go back and take a listen to it. I think it was episode 286 where we talked about that. It was “Five guidelines for balancing learning and doing”. So if you think that that’s an issue that you might need to contend with, go take a listen to that episode. But again, you just want to make sure that you’re getting in, getting the information that you need, and getting out as quickly as possible, so that you can start learning how that particular channel applies directly to the product that you’re selling.
Rob [28:09]: Yeah. That’s a good point. There’s a lot more resources on these topics – on ad networks and how to run them – than there were a few years ago. And those course web sites that you mentioned, I’ve actually had good luck finding decent courses on them, and have bought several for my own edification. So the approach I take when I’m testing is that I tend to try to go immediately from an ad to a sale, or a trial, or a demo, to see how that pans out. And then judge is my ad click through rate too low? Or is it the landing page that I’m sending them to that’s too low? Which should I optimize? And typically it’s going to be the ad at first, because your ads aren’t going to be very good. Then I split test images, headlines, and the audience, until I get to the point where I’m paying a reasonably small amount and getting a decent amount of traffic. By that time you’re going to find out that your landing page sucks. And then I’m going to use Optimizely to improve that. If I then spend several weeks trying to improve the landing page, and trying to get them to buy or to try, and that’s still not working, then my guess is that either the traffic is not qualified enough, or I’m just asking for the sale too quickly. So then I shift into this “Plan B mode”, where instead of asking for a sale or trial I ask for email opt-ins – either to a webinar or to an email course. Then nurture those leads, see how many convert, and this is where a tool like Kissmetrics or a Drip – because that’s what we use it for – where you have tags, and you can actually report on everyone who’s coming through those ads – because their tagged as their source is that ad. Then you can see, “Boy! Did they sign up for a trial? How many of them did? Did they sign up as customers? How many of them did? How much have they paid us?” It’s very, very big, because it’s hard to do that without a tool where you can actually see individuals and not just aggregate data. That’s a quick run through; the philosophy of actually running a test is to first try to ask for the sale trial, figure out what’s not working, fix the ad, then fix the landing page, and then – if you get that working – then it’s awesome and you can scale it up. And if that doesn’t work, then you switch into this plan B mode of getting the email opt-in and nurturing. So it sets you sale cycle out longer, it means there’s more steps between them initially clicking the ads. And, not only steps, but more time in them signing up and buying from you. But that’s what this is about. It’s about finding and reducing friction during this process.
Mike [30:23]: And I think something that that process kind of highlights is the fact that you’re going to have to go through this several times in order to find out whether or not a given channel even works at all. Because one of the first things we talked about was making sure that you had enough budget to go through and run these tests. And when you’re testing them, make sure that you’re taking a look at the statistics, and identifying your conversion rates, and how much you’re paying for the incoming leads, and whether or not those people convert to trial. And it’s time consuming to gather that information, and analyze it, and figure out where the leaks are in that particular sales funnel. Again, it’s just a matter of going through, gathering as much of that data as you possibly can, and then iterating through it multiple times in order to find where those leak points are. Because you’re not always going to find them the first time. Sometimes it’s misleading it best. I mean, you’re going to look at those things and say, “Well, this particular channel isn’t working.” And I think that that’s where a lot of the fear, uncertainty, and doubt comes about from some of these different ad channels. Because somebody will try them out and say, “Oh, well, I tried that and it didn’t work.” And your response to that should be, “Well, what did you exactly do? And why did it not work out?” And if somebody can’t explain why something didn’t work then they may not understand all the subtle nuances about it, or they just didn’t dedicate the time to it. A lot of these ad channels will work if you spend the time and effort to optimize them. Now that said, there are some that are not going to based on the type of product that you have. But if other people are advertising on those ad platforms, chances are good that it’s working for some of them, because if it didn’t work for anyone then nobody would do it. So nobody’s going to spend money to make nothing. That’s obviously a losing strategy.
Rob [31:57]: I think a final thought is that if this sounds complicated and scary, it’s not. But it does take work and it does take time. And just the dream of plunking an ad on to AdWords and paying five or ten cents a click, and then just having this amazing cost per acquisition is not—I’ve never seen that happen. It does take work, and it does take refreshing of the ads. So if you have the time to do it, invest, but consider it another marketing channel. It’s not anything that’s going to be easier than other marketing channels, or particularly less time. The nice part about it is if you get it to work then it tends to scale really well, and you can drive a lot of trial pretty quickly. I think the last thing I’ll throw in is if you’re not already doing retargeting, that is actually where I would start before I got into all this stuff that we’ve said here. I would consider using a tool like Perfect Audience, or going directly to Google AdWords, or to Facebook, and they have retargeting images build into them where you can get a pixel, and then essentially cookie people, and then retarget them with ads as they travel around the Internet or on Facebook. Those are going to be your cheapest clicks and your highest converting clicks. And so that’s actually pretty easy, and there’s not too much magic to it; maybe some testing of the ads and such. But you don’t have to get into all the targeting, which is nice, because you just have this audience. And that would be, I think, the low hanging fruit in terms of paid acquisition. But if you’re trying to get new visitors, that’s really more of what this episode was focused on. Because to do retargeting you need to have a nice bulk of existing visitors already. You can’t just start from zero, because there’s no one to retarget.
Mike [33:25]: I think that about wraps this up. If you have a question for us you can call it in to our voicemail number at 888-801-9690. Or you can email it to us at: email@example.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us in iTunes by searching for startups, and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, and we’ll see you next time.
Episode 239 | Email List Building From Zero to 1,000: Part II
In this episode of Startups For The Rest Of Us, Rob and Mike continue their discussion on e-mail list building zero to 1,000. They talk about the best approaches that they see working today for people trying to build a product list or launch list.
Items mentioned in this episode:
- Pre-Launch Email List Building With Directories
- Episode 199: Traction: A Startup Guide to Getting Customers (with Gabriel Weinberg)
- Product Hunt
- Microconf Europe
Rob [00:00]: In this episode of “Startups For The Rest Of Us,” Mike and I discuss Email List Building: From 0 to 1,000. This is part two in the series. This is “Startups For The Rest Of Us” episode 239.
Welcome to “Startups For The Rest Of Us,” the podcast that helps developers, designers and entrepreneurs, be awesome at launching software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike [00:28]: And I’m Mike.
Rob [00:29]: And we’re here to share our experiences to help people avoid the same mistakes we’ve made. What’s the word this week sir?
Mike [00:34]: Well, today I’m coming to you with a little bit of Star Wars trivia. What is the internal temperature of a tauntaun?
Rob [00:40]: Um…
Mike [00:42]: Lukewarm.
Rob [00:43]: Boom. We need a rim shot right there.
Mike [00:46]: If you want to hear that or any other terrible MicroConf jokes, you are going to have to go to MicroConfEurope.com, sign up for the mailing list. We are going to be sending out e-mails pretty shortly about MicroConf Europe, how you can get tickets for that and hear more of our terrible jokes and hopefully learn some stuff to help further your bootstrap entrepreneurial endeavors. How about you this week?
Rob [01:04]: Well, this week, I have some good news and some bad news. The good news is that Drip was featured in a VentureBeat report on marketing automation and with a few hundred different marketing automation tools, they chose around 20 or 25 and Drip is one, and then actually recommended Drip as the go-to for small and medium size businesses. So, that was, I think about, a week, a week and half ago that went live, so that feels good.
Mike [01:27]: That’s really cool.
Rob [01:28]: That was the good news. The bad news is it HitTail interfaces with Google using a certain type of API log and I’m not going to the details here because it’s kind of all arcane stuff. But, since they deprecated it and I didn’t know it was deprecated, and so this morning we wake up and HitTail’s struggling to connect to Google and import keywords, which is its core function, so we are scrambling now to integrate the newer form and try to get that live as soon as possible.
Mike [01:57]: Do you think that Google would send out an e-mail about something like that to the people who are using it?
Rob [02:01]: Well, that’s the problem because I don’t know if they know who is using it because it’s not like we had to set up and account to do this. It was just kind of this programmatic way of integrating. So, it’s a bummer. It feels like every, let’s say two to four months with one of my apps runs into some type of issue like this, whether it’s an issue with an API that stops working or it’s a scaling issue or it’s someone misusing your service or just some kind of semi random thing that kind of takes you off your game, stops you from developing new features, takes your eye off the ball, and yet, everybody has to scramble to kind of make up for it.
Mike [02:37]: If it’s not one thing, it’s another.
Rob [02:38]: Indeed.
Mike [02:39]: Well, I think today we are going to be diving into part two of our series on Email List Building. And today, we are going to start off by talking about how to get from 101 to 1000 and there’s a lot of different techniques that we are going to be talking about. Some of them will be applicable to what you’re doing, some of them won’t, and I think the key here is to really take a hard look at each of these and try to identify whether or not it’s a strategy that is going to meet your needs to take your mailing lists to that level. And like I said, some of them are not going to work for you just based on the type of mailing list that you’re using. So for example, there is certain social networks that are probably not going to work very well for enterprise software and then there is other types of techniques like video marketing or webinars and things like that, they would work really well for that. So, it’s really a matter of identifying what the type of mailing list you have, it is who the audience is and whether or not some of these different strategies fit into those paradigms for you.
Rob [03:30]: And if you haven’t listened to episode 238, that was the previous episode and it was part one of this discussion where we talked about how to get from 0 to 100 e-mail subscribers, give some techniques, building up in blocks of 10 or 20, and now we are going to take it to the next level and try to TEDx that. And as Mike said, this is essentially a big list of marketing tactics, its marketing approaches and it kind of kills me when I hear on Twitter, “Hey guys, I’ve set up a landing page I’m gonna collect e-mails, how should I build the list?” because that question is so huge. We could seriously sit here for a few hours and discuss every marketing approach that there is, because all of them are intended to drive traffic somewhere, right? and they are intended to drive traffic whether it’s to convert some into a [trial of your app or to get someone on your product list, if you already have a product, or to get someone on your launch list, almost all of them applied to all of those things. So asking, “How should I build my mailing list?” is a lot like asking, “How should I market my product?” which is an enormous, enormous topic that multiple books have been written on. So, what we’ve done is cherry picked what I consider the best approaches, these are, I think, all online approaches, there may be one or two offline. But it’s the best approaches that we see working today with folks who are trying to build either that product list, if you’ve already launched, and you want to get a notification list, to send blog post to, or product updates, actionable contents, good stuff for them but then also a few mentions of every product here and there. Or, if you are trying to build that launch list around a product that has yet to launch.
Mike [05:00]: So, to start off with, I think the first one that we came up with is leveraging existing startup list. And to do something like this, what you would do is you’d post links to your landing pages on relevant websites and that would include things like Reddit, Hacker News, Product Hunt, Launchlist, BetaList, etc. And there are hundreds of these, not just a couple or a couple dozen. There are literally hundreds of websites that you can post your website to or your landing pages to and do product announcements. Now, some of those are going to work better than others, so there is varying levels of activity. So for example, something like Reddit gets a lot of traffic, same with Hacker News or LifeHacker or Product Hunt and then, there’s also the other fact that you have to take into account, which is how targeted is that list going to be, like the traffic that’s coming in from that source, are they going to care about whatever it is that you’re offering. So, if you were to go to SecurityWeek.com, for example, and you are pitching a product that has something to do with e-mail marketing, is probably not going to convert very well. There is not going to be a lot of people who come over even though there is a lot of traffic on that site. But there are others that you can go to and you can start leveraging those to start driving traffic to your site. We’ll link this up in the show notes but, Robert Graham, from Whitetail software had previously put together a list of these prelaunch e-mail list building directories. As I said, we will link it up in the show notes and you can go over there, check it out. There are probably 60 or 70 of them on that list, something like that, but there is a lot of good information there and its serves as a good starting point for you to start doing those submissions.
Rob [06:30]: The nice part about the list that Robert put together is it’s broken up into beta, launched. beta or launched, and there are some [?] several categories here, and so you can choose the categories based on where you are with your app. The nice part about doing is you can either do-it-yourself one evening while you’re watching Game of Thrones or you can have a virtual assistant do it if you provide them with all the information. It’s not hard work and it will yield some sign ups. As you said, they may not ever convert to paying customers, but this is something that I do, this is all of my marketing plans, I’m going to launch a new app. There is really no reason not to do it because it is such low hanging fruit.
Mike [07:09]: The second strategy that you can try to leverage is content marketing, and content marketing by itself is just a huge topic but really, you have to start small. You start with a blog and you start posting content to that blog and into your auto-responders, and this helps with a couple of different things, and it’s a long term strategy. It’s not something that you’re going to do short term and you’re going to expect that you post one or two blog post and suddenly you’re going to go to a thousand people on your list. But, it can help you with long term SEO, it can increase the overall footprint of your website and your content marketing strategies and essentially helps you move the business forward. Now, again, this is a long term strategy. This isn’t just do it once and forget it. This is something that you’re going to want to invest in over time and make sure that you’re going to be able to put a process in place where this will carry forward even after you’re done building that initial list or hitting that initial goal, you’re probably going to want to take this and carry it forward and keep driving people to that e-mail list.
Rob [08:06]: So I haven’t done this one with a pre-launch product. So for example with Drip, we had a landing page before the product was built and ideally, it would’ve been nice to get a blog up around that, so you start building that SEO footprint, but I was never able to do that. I don’t think it’s something that will pay off early, like you said. It’s something that more of a long term process. I think it’s possible, I think Mint.com did this well actually. They had quite a bit of budget and they did get a blog up even before they launch and they got that flywheel going. I don’t know if many bootstrappers who have the funds or the bandwidth to be able to be building a product, planning for marketing, getting a prelaunch landing page up and have someone blogging or be blogging themselves. So I think that’s quite a bit to bite off, given how time intensive and/or cost intensive good content marketing is. Post-launch once you have revenue and customers and you know your customers and you know what they want, you have a lot more certainty in what you’re doing and this is where we’ve had a lot of luck with this. There is good examples like KISSmetrics, and Bidsketch, and Groove are all really good examples and Baremetrics is another good example of SaaS apps that do content marketing and its blog post for their audience and it drives traffic over time through a lot of social shares and then you can easily built up that e-mail list and then use that e-mail list to perpetuate itself the larger it gets. You can notify people when new post come out and then give mention infrequently of an awesome new feature that your product has. But, some people don’t like the term content marketing, they just want to blog about whatever interests them and that’s fine. You don’t have to call it content marketing, but it’s a short phrase for this idea of being able to write good stuff and draw people to your site and hopefully get a few more of them on your mailing list.
Mike [09:51]: The other thing that you can insert in there in addition to the occasional mention is something that people can use specifically in their startup or in their business and it is a problem that would be addressed by your product. I think there is a difference between doing a pitch for your product with this list and embed it into that content versus saying, “Hey, this is this problem that a lot of people have and here is how you can solve it and, by the way, our product also does this.” So, if there are ways to leverage those thoughts or ideas into those types of post, then the social shares alone should help with that especially when your list starts getting large.
Rob [10:25]: And another tip is, within Drip, when we are sending this out, we actually have a liquid template “if” statement at the bottom of the e-mail that only shows up to folks who are not currently customers. And so it say, “If the person is not a customer, then say, “Hey, we noticed you haven’t used Drip. If you’re interested, sign up for a trial.” And so it is, typically, I put that in the P.S. instead of in the body of the e-mail. I like your approach to teaching and tying it in. I think that’s optimal and then having some maybe stuff specific for non-trial users and non-customers that does in fact pitch in link to your trial sign up page can be definitely useful on this type of context.
Mike [11:02]: Next on the list of strategies is leverage in the contest or giveaway. The interesting part about contest and giveaways is that typically, it’s tricky. And the reason it’s tricky is because if you have a contest that you’re running and let’s say that everybody who enters gets a chance to win. The problem is that there is no incentive for people to invite other people to come in and also enter into the contest. So essentially, there is a disincentive for people to share it because of the fact that if, let’s say that there is a hundred people in there and you’re one of them and the company ask you to share it, well, now by inviting your friends. Let’s say you invite two or three people, you’re less likely to win. But, there is a nice little trick that you can use to give them additional chances to win if they get other people signed up. So let’s say that for each person that they get signed up, they get an additional three chances to win or something like that. I believe that idea came from Noah Kagan of AppSumo. I think that they’ve got a plugin over on SumoMe that allows you to do something like that. And so that’s definitely something to look into when you’re trying to do something like this. But in terms of the giveaway itself, there is lots of things that you can giveaway. You can give away a free book bundle, you can give away gift cards, you can give away one on one consulting, you can give away licenses to your products or anything along those lines that you feel is going to be helpful for your customers or the people who are coming to your list. Now, again, it really depends on what type of products you have and what the people are interested in that are joining your mailing list but there are a lot of different things that you could come up with to essentially sweeten the deal for people to sign up.
Rob [12:32]: I personally have not run a contest like this. I am innately skeptical about it because if you’re going to give something away, let’s say a MacBook Air or an iPad or whatever it is, I know that you’re going to get a bunch of people who are signing up for that and don’t really want to hear from you and so it’s going to dramatically lessen the quality of your list. So I would certainly segment this out from my main list and allow the giveaway to happen and then start pruning that list quickly because you don’t want a list with a 10% open rate or 1% click through rate or high bounce rates and high unsubscribe rates. It just doesn’t do well for your deliverability, but with that said, I have talked to a few people who’ve run contest and have had success at it. The thing to think about is that it will spike your e-mail list really high and then if you wind up with even, let’s say half of those or third of those sticking around and being somewhat engaged, then you’re probably doing pretty well. So, I agree. I think this is something that’s worth doing, it’s been in the back of my mind that is something to try for a while. I just think you want to think through it and do it well and do more research on folks who’ve done this successfully and the steps they’ve taken to make it work.
Mike [13:43]: So, my inclination for something like this is that I agree with you on being a little bit skeptical about how well this would work. But, remember back to the beginning of this podcast episode where we talked about the type of list that you’re building and the type of product that you have is going to make a big difference here. And my inclination is that contest and giveaways are probably going to do much better in a B to C offering than a B to B offering. I don’t know for sure, but that’s my inclination, that’s my general impression about that.
Rob [14:09]: Yeah. I think they will do better in the more B to C or B to beginner, maybe it is B to B but it’s folks who are just getting into [?] just getting into becoming designers or entrepreneurs or photographers or whatever, so they are still more in of the consumer mindset. However, the two people I was thinking of who have run contests to a level of success both had, in essence, more B to B topics. And maybe that is why only a third of their folks stuck around afterwards, maybe bunch of folks came in just to enter for the MacBook and didn’t really want to hear about their B to B offering. But this one, like I said, I think it deserves a little more research and some time to think about.
Mike [14:47]: The next strategy in our list is leverage in social networks. When you talk about social networks, it almost come down to the big three, there is Twitter, Facebook, and LinkedIn, but there are tons and tons of other social networks that you can leverage, there is Tumblr, there is Pinterest, there is StumbleUpon. The list goes on and on. I think the key with social networks is that if you’re going to dabble in social networking, you really have to post content to it pretty regularly. You have to make sure that you’re staying on people’s radar and that you’re using special offers like lead magnets that almost require an e-mail sign up. So, you use those social networks to get in front of people and you really want to be driving people to an e-mail list. Because just getting in front of them is not necessarily going to help you a whole lot, but at the same time, you really want to make sure that you’re getting contact information from them. And doing so, in a way that it is not, I’ll say, over the top or not too much in people’s faces because you can burn out that audience. You don’t want to go to the point where you’re burning them out and you’re not going to be front of mind because they start tuning you out. I do know somebody who has used, I think it’s Instagram to gain some pretty massive followings through Instagram and they’ve been able to verifiably boost sales by huge percentage, and I was shocked when I heard the story and heard a lot of the details about it. But, it’s crazy the amount of things that you can do on these social networks and there are definitely ways that you can leverage them to drive people through to your site and start getting them on your mailing list.
Rob [16:12]: I have always thought of social networks as hub and spoke model, where my hub is my website that I own and my e-mail list that I own and then the social networks are all just traffic device, right. They are the spokes surrounding that and so, as you said, driving folks back to get them on your e-mail list is always my number one goal. And if you want to see some folks who are using Twitter well in this fashion and more of a B to B fashion, go to the folks that I showed earlier who are doing content marketing really well. Because content marketing and social networks go hand in hand, and so, look at the KISSmetrics, the Bidsketch, the Groove, and Drip is doing so so on Twitter right now. It’s not growing super fast but we definitely have a decent size of audience and are able to drive folks back and get some engagement with some of our post. The nice part is Google is once again using the Twitter fire hose and putting in search results and that tells me that they are probably else using this as a some type of ranking factor. So if you have a blog that ghost town and no one sharing it socially, then odds are good that it’s going to get a little bit of ding or it’s not going to get the plus of having, let’s say each of your blog post get tweeted even five times or ten times, that’s going to be a signal to Google that real people are using your account. And I think of social networks is being used in multiple different ways, the one idea is to send folks back to build your mailing list. It’s also a good way just to engage with folks who were talking about your products online, right, and you can get into conversation. Sometimes feature request or support request come through and that’s a little harder. It’s pretty hard to do support at 140 characters at a time. So, I tend to try to get into e-mail discussions with folks when they do that, but I think the conversations that can be had are often worthwhile. It’s hard to lead this back to some type of return on investment based on the amount of time that you might have to spend on it. And so, if you don’t have a ton of time to devote to something, this would not be at the top of my list for building your e-mail list. I think there are lot more effective ways that we are going to talk about today, but I do think that especially if you’re a B to B in a text space that being on Twitter at a minimum is probably par for the course.
Mike [18:18]: Yeah. I kind of relate in social networks back to the content marketing. It seems like it’s a much more of a long term strategy and there might be some quick wins that you can get to drive people over. But in some ways, it almost feels like this might be strategy similar to content marketing where it works better if you’re larger. It takes you from 1001 to 10,000 or 50,000 or something along those lines. Next on our list is video marketing. And I think with a video marketing, you essentially choose a platform of your choice and you can throw out all the different video platform providers, things like Wistia, Vimeo, and YouTube, and essentially leverage those to either make videos of yourself or do interviews or screencast or online webinars. There is lots of different ways to use video of something to put in front of your audience and then leverage those things to drive traffic to those videos and then put some sort of an e-mail capture in place or a sign up form that allows people to view the videos. I’m using this on a couple of different apps, I even went so far to create a video course. I think you’ve got a couple of video courses you’ve done as well. I think it’s hit and miss sometimes. There are certain things that will resonate really, really well and there are certain things that just for whatever reason, they just don’t.
Rob [19:28]: Yeah. I think video marketing works really well in the B to C space, that’s where all the YouTube stars come about. I’ve heard of some B to B players doing it, but it’s always the same examples, right, it’s the Will It Blend guys or Red Bull or some big corporation doing something. I know that there is room here for a smaller B to B player to have videos and I guess maybe like SEOmoz, not that they are that small, but they are not Fortune 500 size. Moz does the whiteboard Fridays that have been frankly just excellent and very consistent over the several years. And I kind of think a video marketing in that way, a bit just like a video podcast. It’s kind of a weekly thing that you release like clockwork and I think that if you’re providing value in entertaining way and you provide unique voice on something, then having the recurring nature of video marketing, I think can be powerful. I also agree with you on webinars. I guess you have to have some expertise or some credentials so that folks know to trust you. But once you have that, if you can stack your funnel through other means and get folks to come to a webinar, you do build a tremendous amount of trust if you make a good presentation and you make a good case for something and you offer a lot of value in that webinar, you can definitely build your list quickly by advertising a free webinar like that. Even just building the webinar list itself, you can build a list and then beyond that, it just creates more engagement and I bet you get more opens and clicks in your overall list after doing a webinar.
Mike [20:56]: That brings up an interesting point, do you ask for the e-mail before or after. And I think that it depends on whether or not you’re doing a video versus a webinar. Because when I’m running webinars, what I do is I will drive people to a landing page and then ask them for their contact information, so that I can let them know when and where the webinar will be and it’s usually like a live demo or presentation or something along those lines. In that way, I got their contact information and I can create a follow-up sequence. And I talked to a couple of other people about this as well in terms of what their e-mails to actual attendees and it seems like it’s about, somewhere between 30% and 50% is pretty average. You get over 50% for a webinar where people have signed up for it and then you’re e-mailing them about it the day before and then the day of an then maybe an hour before. The sign up percentage to people who actually is only about 30% to 40%. I’ve seen lower as well. I’ve seen as low as 20 but it does work. You can get people to sign up for those webinars. But once you’ve got their e-mail address, then you can continue to market additional stuff to them. And that’s really the point of this is getting their e-mail address first. I think if you go to the other direction and you put in like a turn style or something like that, either at the beginning of a video or the end of a video, there is varying levels of success with that. Wistia has some pretty good contextual information about whether or not it’s better to do with. But again, it’s all relative based on what it is that you’re doing, what the product is that you’re trying to sell. Some of the data is just a little, I don’t want to say is misleading, but it’s very sensitive. So I don’t know as there is any hard conclusions to draw from, you really have to test it based on what your market is and figure out which approach works whether it’s better to do it at the beginning or at the end.
Rob [22:38]: And this is also the time to ask yourself, “What is your unique gifting?” are you good at writing some blog post, are you good at interacting with people on Twitter, are you good at standing in front of a video camera and dong a whiteboard presentation like Rand Fishkin does, whatever. I’ve heard he just write off the cuff, write some things and then spits it out to the camera. Depending on your gifting, you’re going to lean towards that approach because all of these are things that you’re going to do over time. You either going to do them every week or you’re going to them on a quarterly basis or maybe a twice a year basis in terms of like maybe a contest or something that, but each of these you’re going to have to get good at. It’s going to be an acquired skill and so it’s something you’re going to do often. So don’t pick something that is a fad that is not going to be interesting or exciting for you or that you’re going to be really bad at because then it’s not going to be successful.
Mike [23:28]: The next strategy on our list is leverage in other people’s networks. And by other people, it doesn’t necessarily means just people, but it can also be other companies. So, if you want to do a guest blog post on, for example, KISSmetrics blog, you would talk to them. If you want to do something over on the Groove blog, you would talk to them about it and some people are going to be open to it and some people are not. But, the key is to recognize whether or not your audience is going to overlap with theirs and whether or not there is enough value that you can provide to them that is going to encourage them to essentially lets you come on and talk to their audience. Because the reality is they are giving you a certain amount of trust and regardless to the additional vetting process that they put in place to take a look at your content and make sure that whatever is going out to their audience is appropriate for it. The fact is that they want to make sure that you’re going to be delivering that value and they may say yes at front and then say no later on based on what they actually see. But hopefully you can find and identify those people and work with them to get through those types of issues and put your message in front of them and hopefully drive some traffic back to your website, and you really want to be able to capture those e-mail leads. And some of this is a little tricky because if you go and post something on, for example the KISSmetrics blog, they really want to keep people there, so it’s going to be a little bit difficult for you to drive traffic back to your website and capture leads because they want to be able to do that. But you can put in like a little byline that maybe gets a link back to your site and essentially helps to establish some authorities, then you can use it to say, “I’ve got this authority because I’ve been published over on the KISSmetrics blog for example. And I think that those are definitely things that you can use to help create additional trust on your site to help get people to sign up for the things on your landing pages. Another option is using joint ventures with people, so if you do a joint webinar series with people or a podcast episode or anything along those lines, there are lots of different ways to essentially get in front of other people’s audiences and then use those to essentially pump up your own audience.
Rob [25:22]: In terms of my concentric circle marketing approach, this is the second circle, so the outside of your own audience, but you can start with friends that you have, like colleagues in your network, right, and then branch out to then colleagues or folks who you don’t know, so they are not even warm leads but it’s kind of a cold pitch to Copyblogger or KISSmetrics or Unbounce blog, or whoever you do want to guest post for, and as long as you have some examples of your work, I found that it’s not that hard if you have high quality writing to go in with a cold pitch and get a decent guest post. Now, there is some kind of scare going on where Matt Cutts had made a comment, like guest posting was going to soon be seen as spam and that has not happened high quality guest post as far as I can see are still high quality guest post and they work really well. So, that’s not something that I have been too concerned about. I think spamming guest post like anything are being found out and Google is smarter than the spammers, in essence, and will eventually catch you. But if you’re actually doing high quality stuff, this is kind of a no-brainer, I’ve used this for a number of products and I’m quite a bit of guest posting as well as joint ventures and everything you mentioned, and I think this is a no-brainer. This is a little harder to do if you prelaunch but it’s not impossible to do, certainly the joint venture is something you’re going to want to do postlaunch.
Mike [26:44]: Next on our list, we have paid advertising. And I think paid advertising is one of those things you really want to stay away from until you get some idea of what your leads are worth to you, but it could be valuable to at least start experimenting with it early just to figure out and get a ballpark idea of how much some of those leads are going to cost you, so that you can reverse engineer what your sales going to looks like. But there is lots of different ways that you can go about paid advertising and there is numerous channels that you can go through. I think that I would almost pull in remarketing into paid advertising as well because you can leverage people who visit your site and then market to them later to try and drive them back to landing page or mailing list later on and get their contact information so that you can market to them directly later on. But, going back to just the concept of 101 to 1000, paid advertising can definitely work in that lower range. As you scale it up, obviously, it’s going to cost you heck of a lot more to start gaining those leads. But early on, it’s really not that hard to start using paid advertising to start gather e-mail address. It’s just a matter of your budget at that point and how much budget do you have to allocate to that. I think the last time I did some Twitter ads, it cost me around $4 a lead or something like that, and that was for my book launch. I probably spent around $1500 or so to get around 400 to 450 leads. So it’s definitely possible and it’s not terribly expensive to do it, but again, you have to have the time to do it and you have to have the money sitting around in order to be able to use that strategy.
Rob [28:12]: Yeah. I’m a fan of paid acquisition. This can work with both pre-launch and post-launch products. I drove a ton of prelaunch e-mail sign ups to Drip. I think it was somewhere between 500 and a thousand of the e-mails that were on the list came from Facebook ads and there are several networks out there that are worth exploring, Facebook, Twitter, LinkedIn, and AdWords are probably the top four that I would look at especially if you’re B to B, and yes, even B to B ads can work well on Facebook if you target the right audiences. Nice part about paid acquisition is you can turn it on and off very quickly, so it’s like a faucet, it doesn’t have to be a long term strategy, but it can become that if you can figure out your ROI and drive a lot of traffic. There is a lot to be set on each of those topics. What I do is, since this stuff changes every six months so dramatically, I don’t keep up on it when I’m not doing it. But if I decide I’m going to go back in and run a Twitter campaign or a Facebook campaign, then I try to find who is the expert today, who are the folks with the podcast and the blogs on this and try to buy one of their courses because they are going to have the most up-to-date information on exactly how to tweak the dials and the knobs in order to make a paid advertising campaign work for that specific network.
Mike [29:28]: So we are starting to wind down our list a little bit her, and the next one we have is offline or in-person events. And I think for offline or in-person events, you can use things like Meetup.com or you can use joint ventures with existing businesses. To me, this seems much more like a localize strategy than anything else. So if you have a retail store or physical presence some place? This is probably going to be a lot more effective than if you have just an online presence or your software company or marketing company where you’re selling something solely online, it is probably not nearly as effective for those types of things. But if you’re a consultant who works locally or freelancer and you’re trying to land local business clients, then it can be highly effective to offer a presentation or a free seminar or anything like that. You can also talk to local workshops or work groups. There are lots of small business associations throughout the country almost no matter what country you’re in. There is almost always small business association of some kind and you can talk to them and find out more about what their audience is and how they get in front of people and talk to them and say, “Hey, I’d like to do a free seminar on “X” and you just ask people for their contact information once you get there.
Rob [30:34]: I think this also includes conferences. We are at the MS build conference a few weeks ago, not something I would typically do to buy a booth at a conference, but we happen to get it included in it a partnership we are doing with Microsoft. And so, it was nice to be able to meet some folks and we did in fact add people to our mailing list based on this with their permission and we are not interfacing with them whether to get them to check Drip out or there are several partnerships that could potentially come out of that, folks wanting to offer Drip to their customer list which is obviously the more lucrative thing instead of trying to find one off to actually interface with their audiences. And so, offline events I think are so important for that networking site and getting that face to face contact that we have so little over these days with social media and webinars and all that stuff. I think there’s a real value to meeting someone in person.
Mike [31:23]: Next up, we have tweaking your website. And by this, we essentially mean, make sure that the call to actions the lead capture is on your website and that is available for everybody across the different browsers and make sure that you take a really hard look at the call to action to make sure that each page has a single function. And that function in most cases is to take them from one place to another, but in many cases, the function of that page is going to be to get somebody’s e-mail address, and it’s not necessarily to sell them something, it’s really because you want to be able to follow-up with them. I think, Rob, you did a really good talk at Business of Software a number years ago, where, I forgot the exact title, but I think it was the number one goal of your website is not to sell them something, I totally butchered it at this point, but the whole talk was about the number one goal of your sales website is not actually to sell somebody something, it’s to get their contact information so that you can follow-up on it later. Why don’t you talk a little bit more about that?
Rob [32:18]: Yeah. That talk was just based on the idea that you don’t sell very many things to first time visitors and you sell the majority of your sales are going to come to folks who have been to your website multiple times. And so getting folks back to your website is really the number one goal rather than trying to make the sale too soon and asking for the sale too soon is a real danger. It will drive people away for kind of up in their face asking for money with buy now buttons and you don’t get their e-mail or you don’t get away to connect with them later, then you’re going to leave a lot of money on the table, so building your e-mail list is really the whole point of this episode. In the last episode, I know we’ve talked about doing it as a prelaunch thing but frankly, it’s the same thing, it’s just getting permission to contact folks and get them to come back to your site when it launches or if you already launch, it’s to educate them and build a relation with them over time, provide them a ton of value and then as they come back and once they are really ready to move into your product’s market. S
So let’s say they are already using MailChimp and they are just thinking about switching to a different e-mail provider, but it might take them three months or six months to make that decision, and if you’ve been sending them any mail newsletter every week with some pretty valuable content, then you’re going to be top of mind when they do in fact decide to change. Because most of these decisions to buy a product or to switch from one product to another, don’t happen instantly. They don’t happen in the 10 seconds that someone has between launch and the first meeting after they get back from launch, they don’t decide it that quickly. And so getting their e-mail address and being able to reconnect with them is really where the value comes. And to round out our approaches for the day, I had added the invitation viral loop and the idea here is that if you’re prelaunch, you’ve probably seen some places where you put in your e-mail address and then it says, “Hey, you’re on our list, we love it if you’d tell other folks about it.” You can either just ask nicely which won’t result in a ton of shares, but if you have a really sought after product, you can run it almost like a contest where the more people who- this person signs up, the higher they move in the list, the higher the priority. So they get access to it first, and again, this only works on something that folks really want to get access to but I see a bunch of B to C or B to b company has used this to effect and it can help build your prelaunch list faster than if you were just trying to find folks [?].
Mike [34:35]: I think this is interesting concept. I know Kickofflabs has it, but they do it directly as part of the sign up. So when you first sign up for a mailing list, immediately ask you to share it with your friends and I think that works in certain scenarios and I think that there are other scenarios where you essentially have to provide the value before somebody is willing to essentially spend their social credit in order to invite their friends or talk to their social networks about whatever it is that you’re offering. For this particular thing, think about what it is that you’re offering and whether or not it makes sense to have them share it upfront or ask them down the road. I think that there are opportunities for both of those things, you just have to think about which one applies to your situation. And I think last on our list is we had an interview with Gabriel Weinberg a while back and we were talking to him about his book called Traction, and I think that virtually every approach in the Traction book is also something that you could use to try and help build your e-mail list. So we won’t recap that but we will link it up in the show notes, so that you can go take a look at that episode and find out more about it.
Rob [35:34]: As we said at the beginning of this episode, this episode could go on forever because it’s essentially a long list of different marketing approaches, it’s the, “How do I market my product? How do I build my e-mail list?” question. It’s a very large question and for me, I put together a marketing plan in a Google doc., so that I can capture all these ideas and figure out which ones are working and figure out what ideas I hear on a podcast or in an audiobook or somewhere else that I think, “I totally want to try that.” So typically, I will e-mail it to myself, so it’s in Trello board and then later on I will transfer that into a marketing plan that’s more of my long term vision of what I want to do over the next couple of years as I have time, and then as soon as I have bandwidth, as soon as I want to try that next marketing approach, then I pull it out of that marketing plan and I go after it. The short list, this is what we see as a low hanging fruit for building your e-mail list and basically, marketing your business and expanding it, but there are whole lot of other approaches available for your podcast, books, and the like.
Mike [36:29]: If you have any other ideas for building your e-mail list, make sure to go over to the Startups for the Rest of Us podcast website and add them in to the comments at the end of the post. If you have any others that you want to add to building your e-mail list from 0 to 1000, please feel free to go over to the Startups for the Rest of Us podcast website and add them in to the comments. If you have a question for us, you can call our voicemail number at 1-888-801-9690 or e-mail it to us at firstname.lastname@example.org. Our theme music is an excerpt from “We‘re Out of Control” by Moot, it’s used under Creative Commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, and we‘ll see you next time.