StartUp : Turn a Profit in Some Simple Steps!


 

In order for your startup to be successful, you had to learn from scratch the way sales and marketing work.

This post is simply about choosing the right sales strategy and channels for your startup from the start.

 

1. Figure out the customer lifetime value (LTV)

To choose sales channels, you need to know your startup’s LTV. LTV is how much money you can make from an average customer during his or her purchasing lifetime with you. LTV is calculated once you start having paying customers, but, during the early days when you don’t have any sales, you need to guess your LTV based on industry standards, competitor earnings, and just similar companies.

Once you have guessed your LTV, you can guess what you can afford to spend on acquiring each paying customer. Customer Acquisition Cost (CAC) is how much money you can spend to get someone to become a customer. Simply put, the return on investment (ROI) on your product or service is LTV minus CAC.

LTV ­ CAC = ROI

CAC is tricky. It depends on what you do and can usually fall anywhere between 25-80% of your LTV. There is logic behind your thinking of how to determine which CAC is right for your business model.

If your CAC is 80% of your LTV, that means you’re going to be investing a lot of money upfront to acquire customers. After that, you’ll get just 20% of profit over a course of the customer lifetime, which could be a few years.

If your CAC is more than 50% of your LTV, get ready to start fundraising. You need money to acquire customers, so you’ll need a pretty special product or service to convince everyone.

If your CAC is 10% of your LTV, your business is less risky, but at the same time you may not be moving as fast as you could, by not spending enough to get more customers.

Remember, it’s important to find the right balance for your company!

 

2: Choose your sales channels

Once you know your CAC, you can outline the sales channels you can afford.

2.1 Direct sales: Selling one-to-one

Direct sales are common with B2B startups. It is the easiest sales channel to start with because all you need is you. You can be the sales guy or gal with all the tools you need at your fingertips ­ email, phone, social networks, etc. If this channel works, you can later hire other folks to join you.

Direct sales is also great because it brings you customer feedback right away, leads come faster ­ you just manually find them ­ and sales can be closed faster, too.

However, direct sales is the most expensive way to sell.

Your CAC minimum needs depending on where you plan to hire your sales team and what kind of traction you get through the channel. Good salespeople are expensive. Direct sales take a lot of their time, which will cost your budding business.

Direct sales are also very slow and expensive to scale since you’re dealing with hiring people and those new people fostering new relationships.

2.2 Resellers: Selling one-to-one-to-many

You can enlist a team of resellers to sell your product for you. Usually there is a handful of companies reselling other folks’ products for a cut. This is pretty much how all the value­added resellers (VAR) programs work.

In most cases, selling via resellers works with a lower CAC compared with direct sales.

E.g: if an average direct sale costs you a grand, a similar sale with a reseller might be two to five times cheaper. However, you’ll still need to support your resellers and you’ll be losing 20-60% of your LTV in commission.

But, that’s not such a big deal. You’re a startup and you need to scale fast!

You can get in touch with an e-reseller with just a cold email. The resellers channel is cheaper and quicker to scale compared to direct sales, although it is still pretty expensive and slow overall.

2.3 Partnerships and marketplaces: Selling one-through-one-to-many

 “One­to­many” resellers already hold a significant audience.

They will unlikely to be selling your product individually. They may even be selling your competitors. They are not looking to benefit by partnering with your company. They’re looking to benefit by partnering with companies like yours.

Power resellers may be interested in selling your product for a commission or just to make their own products better.

A general tip would be to try to partner with as many “one­to-many” resellers as you feel make sense for your product.

2.4 Inbound marketing: Selling one-to-many

Thanks to the power of the Internet, you can build channels that are selling to many people without the need to communicate with them individually. Building those channels is more of a marketing activity; however, if your startup provides a product or service that could be purchased online, that opens up another inbound sales channel.

In today’s world, you can sell through blogs, podcasts, video, eBooks, newsletters, whitepapers, SEO, social media marketing, and other forms of content marketing. All those activities are part of “Inbound Marketing”. The formula is simple: inbound marketing drives traffic to your website, and those visitors convert into subscribers or buyers.

Meaningful content helps a startup establish itself as an expert in its field.

With inbound marketing, you build evergreen assets that work for you regardless of your further investments in them (blog, content, videos, etc). If the channel works, your CAC could be as low as a few bucks.

Inbound marketing is probably the cheapest channel to test out.

2.5 Ads: Selling one-to-many

Buying online ads drives interest toward your product and traffic to your website. Those visitors may then convert into customers. This channel works for startups with both low and high CAC.

Selling your product through online ads is an awesome channel if done right. This channel is also quite fast because it’s easy to test ­ just make sure you have someone who has experience dealing with online advertising platforms. You’ll have to go through a series of A/B tests both for your website and ads and do a whole bunch of other tricks. Once tuned to a decent level, it can be scaled really fast by pumping more money into it.

You can also merge this channel with inbound marketing as it is not that necessary to advertise your product ­ you can advertise the content that leads to using your product.

2.6 Viral

If you can’t afford to spend money to acquire users, you have to make your existing users acquire new users for you.

Based on the channels you use, your startup is usually placed in a certain category. Consumer companies usually have a low CAC, low LTV and make money in volume; therefore, they need to utilize ads, virality, and inbound marketing. Enterprise startups, on the other hand, have high LTV and high CAC and can afford to hire salespeople, allowing them to rely on direct sales and resellers.

You may have to reconsider your business model if it turns out none of the channels you’ve tried seem to be working.

 

3: Test your channels

Testing the channels isn’t that hard. You don’t need to hire an army as you can do the most of the work yourself. Getting an adviser ­ a fellow entrepreneur who was successful at the sales and marketing side of a similar business ­ is a huge asset. In the meantime, we’ve got some bits of advice on how to see which channel(s) is right for you and your company. Try to ask around which marketplaces and partnerships work best for your kind of startup.

In the startup community, it’s all about the network you’ve built.

In order to maximize the outcome of inbound marketing, try to start it before you even start your company. No one would stop you from having an audience around your blog prior to the launch of the actual product.

Ad campaigns can be run with a little help from the outside in case you don’t have a marketing person as a part of the team. Hire a consultant or an agency, preferably one that you’ve heard good things about in your network.

Product virality is an art. It’s usually built into the product, so it’s something to keep in mind when you’re designing your product. Some of the things to consider are the product gamification, perks and incentives to share your product with others. Normally really good products that solve a real problem are viral by nature.

You must be involved in testing the sales channels because it pushes you to interact with customers and receive feedback, which is extremely important in your early days and across the life of your brand.

 

4: Focus and grow

With a rare exception, successful startups have a few if not all channels working for them at the same time. However, when you’re early on, it’s important to start with only a few. Building and ramping up the channels takes time, money and effort. To be able to stay afloat, raise money, and pay salaries you need financial or numerical results to come as fast as possible.

Find out which channels are the best by testing the ones making sense from a CAC and LTV standpoint. Then, invest heavily to build them up!

Once you’ve found and verified the channels, hire the best sales and marketing people out there to ramp them up. You may find that the results the channels bring can be multiplied tenfold, if not more.

 

In the end, sales isn’t about numbers as much as it’s about people.

Great people make the biggest difference in a company’s overall success!

 

 

Sources: TNW Market

 

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Comments
2 Responses to “StartUp : Turn a Profit in Some Simple Steps!”
  1. Hendrik S says:

    waw good great knowledge you had shared with us thankk youuuuuuu

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  • Joan Arae


    "Art is my breath.. As long as I breathe, Art never dies.."

    A young energetic girl who realizes her existence in this world as a human learner and kept asking in her mind "Why I can't stop thinking & doing here?".

    Gonna be on top! ♥

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