Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

What are customer acquisition costs for highly viral SaaS?

Running through my numbers in my financial model, we have planned for a lower marketing spend due to the highly viral nature of our product (pre launch estimation phase). I am just taking a look at the potential that we may need to spend significantly more on marketing then we have planned so I can validate the model still works and to run through possible scenarios in anticipation of being asked this question by investors. So the fundamental question I have is what is the existing data or estimates on new user acquisition costs? Is there any precedent that puts the cost at or under $1 per user (besides Angry Birds and Candy Crush and the like). What would your estimate be for a collaboration SaaS play?

Finally, I am running the numbers against all new registrations not just active users - so this includes people who sign up and abandon the service in the first few days. That seems to be the simplest fairest way of approaching it, but wondering if there are other approaches you might have used.

10 Replies

Tim Kilroy
0
0
Tim Kilroy Entrepreneur • Advisor
Analytics - LTV - Boosting Profits - Digital Marketing
What kind of SaaS? $1 seems pretty low - the general SaaS model has relatively high acquisition costs, but high lifetime value, and acquisition costs are amortized over the life of the customer. Even if really viral, something like www.doodle.com, $1 is REALLY low. Their CPA for the first 4 or 5 years was much, much, much higher than $1. It did drop over time, but I suspect it is still over $1....
Shobhit Verma
0
0
Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
The right way to do this is setup a landing page with clear value proposition and ask for free/paid email signups. Then spend some $ on google adwords and facebook ads to get some traffic.
You can get the estimate for getting users to the top of the funnel this way. Then you can use standard heuristics like "2% conversion rate" .
I have seen CPA to be as high as $200 in the beginning.
Also remember that virality might be your enemy. If single user utility is not as strong as the network utility.
C. Michael (Mike) Moehle
0
0
Seeking opportunity to deliver Sales | Marketing | Biz Dev | Channel Mgmt | for early/mid stage Company
It really depends on the vertical and can it sold 'over' the Internet or in person? My last venture--selling SaaS to financial industry was $5.000 per customer--but in-person, 5 appointments, $25,000 package and 6 month sales cycle. Besides government and maybe hospitals--this may be one of the most expensive markets! After 5 start-ups over the last 20 years, I would say triple what you think and then be prepared to pay more.
David Rekuc
1
0
David Rekuc Entrepreneur
Marketing Director at Ripen eCommerce
I think it would be better to break this into two different assumptions. The paid cost of an acquisition and the viral coefficient of your users. If you're looking for a hybrid growth model (part paid acquisition and part viral acquisition), you should track and optimize each independently.

That said, your paid acquisition costs are going to be way higher. If your viral growth is your primary growth vehicle, that might not be such a bad thing.
John Sechrest
2
0
John Sechrest Entrepreneur • Advisor
Mentor at Startup Mentor
I am skeptical about estimations of sales estimates. This is one of the places that Lean Startup really is helpful. What are the experiments that you can do that will demonstrate the specific conversion rates? What specific metrics do you have in place now that measure them. Do financial projections off of measured conversion rates and measured responses. Every other path to projections is a dream.
David Hauser
0
0
David Hauser Entrepreneur
Young Entrepreneur, Speaker, Founder of Grasshopper and Angel Investor.
$1 seems crazy low. We run at very good CPAs for a SaaS that has consumer like patterns and pricing and we are 100x+ that after many years of testing, tweaking and optimization. You need to look at different channels and then back into a all in CPA. For example you may need to maintain at $350 CPA for PPC but then have branding and other channels that drive that down.
Hugh Bryant Plautz
0
0
Hugh Bryant Plautz Entrepreneur
Gee Ricky I'm real sorry your mom blew up.
I agree with everyone here that $1 is crazy low. A few specific points from your site and Angel profile:

1. Your Angel tagline is "

I dunno maybe you're in stealth mode and purposely being vague so you can ignore that last comment if so. But without answers to the above questions it would be impossible to remotely forecast your business.

Werner Krebs
0
0
Werner Krebs Entrepreneur • Advisor
Financial & Marketing Software Developer
Hi Chris, Traditional non-viral marketing (and PR/sales) lifts for new software apps are well known by marketing experts. Due to the highly-competitive nature of advertising and related services, for a completely unknown, non-viral product/brand the answer is basically "no" unless someone 'gifts' you marketing (such as Apple deciding to feature you app in their store due to its high quality). The reason you want to model with traditional, non-viral lifts is that, for your 'highly viral' product you presumably do not care much about customer acquisition cost once you've reached a certain critical mass where the viral nature of your marketing takes over in a sort of chain reaction. You just need to reach that critical mass first, and you need traditional marketing to achieve that. As already stated, unless you're already known player/product or someone is dramatically underpricing the value of their sales, marketing, SEO or PR services, the answer is "no." Customer acquisition for a previously unknown, non-viral, non-featured app is generally above $1 per install. I've just built a simple spreadsheet model using my own knowledge of the iOS app market to confirm this. (My firm currently has an app live in the US app store.) I'm assuming you already know the viral coefficients from your product through field tests that were below the critical mass. If not, we can suggest some trials you can run to help you estimate these numbers for your app. (If you product is not truly 'highly viral' but only a little viral, you will still need to relay mainly on traditional outreach efforts, with the virality acting only as a 'assist' to reduce those costs. In other words, if there is no realistic user base that will achieve a self-sustaining chain reaction of adequate viral spread for your app, then traditional marketing considerations remains important. This is the case for most 'viral' apps, although the virality still helps. It's not too difficult to revise your viral spread marketing models to add in traditional marketing affects.) I've come off a stint helping advise CMOs of Fortune 100 companies on marketing models across all touchpoints. We'd be happy to help you refine your marketing models. We can also discuss overall strategy, as the ideal set of touchpoints you'd use during an app launch can be very different from a post-launch scenario. If you'd like to discuss further, feel free to schedule a call with me: https://clarity.fm/wernerkrebs/ If you don't need urgent answers, you can also email us your non-confidential questions. Time permitting, we may eventually answer them on our corporate blog, http://www.acculation.com/blog/ in our "Ask Acculation" column.
Chris Heuer
0
0
Chris Heuer Advisor
Futurist, serial entrepreneur and change agent
to be clear I didn't say it was under $1, I was asking for any precedents where it was under $1 as that would be an ideal to strive for from a spending perspective as a percentage of overall budget, especially since this isn't some silly vitamin play. the general numbers we have been able to find put the cost at around $2-$3 per user accounting for direct CPA (driving registrations/trials), the viral coefficient and all other marketing, branding, advertising, content marketing and relationship based activities. this is fairly reasonable when you consider a CLTV of about $500 per converted paying user. That said, I think the effective use of content marketing in our dynamic customer journey deflects a lot of CPA investment and does ultimately keep down the acquisition costs. assuming a low 1% conversion rate (though our offering and product dynamic should make that higher), this would mean spending about $250 for $500 in revenue, which seems reasonable. then again its all hypothetical modeling until you get to actuals, so I am ultimately looking at 3 versions of the model, super conservative, reasonable and best case scenario. truly fascinated with the different perspectives on this issue and glad it is something I have been paying attention to over the last several years. amazed at how much information is out there on this topic, but hard to truly separate the signal from the noise as many of the different approaches have a solid logical foundation upon which to base the model. thanks for all the great feedback and insights thus far!
Werner Krebs
0
0
Werner Krebs Entrepreneur • Advisor
Financial & Marketing Software Developer
Hi Chris, Yes, this is a well-studied area, so with a little of spreadsheet modeling I'm able to rule out precedents for the specific situation described. We have our own marketing models for our iOS app, but also my knowledge of marketing (from just having helped advise Fortune 100 CMOs, including some very well known brands). This lets me make generalizations for entire product categories based on the type of product (previously unknown product/brand for non-viral app). This is true even for highly innovative but unknown apps with extremely creative ad campaigns, as software in general already has some of the most effective marketing & PR spend. These generalizations hold because of the Law of One Price and the fact there is an efficient market for advertising, PR, and other outreach efforts. Unless someone is 'gifting' you outreach by not charging for their services (e.g., Apple likes it), a completely new, unknown, non-featured, and non-viral app generally won't have CA below $1. And we can't (much) factor in your viral yet because, by definition, it hasn't yet reached critical mass. You _can_ get customer acquisition costs below $1 for a better-known non-viral brand or app. However, since you have highly-viral but unknown app you presumably don't care about that situation (yet). I'm also assuming (apparently correctly) that you're talking about a relatively small campaign, so you wouldn't be able to take advantage effective from scale effects as your app becomes better known through your previous marketing efforts. As I mentioned, we'd be happy to help you tweak your models to take advantage of academic marketing models specific to software, for example, as well as add in traditional marketing effects to your viral models to help you better estimate your launch needs. Feel free to set up a time to chat: https://clarity.fm/wernerkrebs/
Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?