The Danger of Cheap Acquisition
Some founders think the ability to acquire users inexpensively can make up for lackluster retention. Why this is a huge trap to avoid.
I had breakfast last week with a founder working on a mobile app. Unlike many founders who, when asked about their marketing plans, mumble something about TechCrunch and word of mouth, this guy had done a great job laying the ground work. He had focused like a laser on figuring out Facebook ads, and was driving installs for less than $1 per.
His retention numbers weren’t great. He had no referral loop. He was deferring monetization. But based on the great results he was getting with acquisition, he was inferring some level of product-market fit and was planning to go raise.
Cheap acquisition can be intoxicating. After testing dozens of targeting options and hundreds of creative approaches, it’s not unusual to stumble upon a combination that drives clicks, users, or downloads inexpensively.
Cheap acquisition can be amazing if you have a freemium product or engage in ecommerce. But if you’re deferring monetization or have an app with low ARPU, the rules are drastically different.
Success requires more than users or downloads. It requires engaged users, over an extended period of time, who tell all their friends, and who eventually engage in some sort of revenue generating activity. Even if a startup is operating on an ad model, they need enough impressions to have sufficient ad inventory, which still means users who stick around.
But solving retention and referral are hard. Much harder than solving acquisition.
You have to identify bottlenecks in your analytics that can sometimes be hard to spot. You have to ask your customers why they did or didn’t engage in certain behavior, which can be difficult to get concrete answers out of. And you have to test approaches to addressing those issues, which take considerably longer than simply spinning up some new creative.
And so the temptation is always there. Why waste the time fixing a leaky funnel when you can get installs for less than a dollar? You know your retention curve is terrible, but you figure you’ll make up for it in volume.
A few reasons why that logic is unwise.
Scaling Channels is Hard
When you find a winning approach in a channel, you can ride it for a while. There’s usually plenty of low hanging fruit, and you can acquire users inexpensively for some time — sometimes weeks, sometimes months.
But it always ends. Eventually users become blind to your approach, your acquisition costs balloon up, your growth curve stalls out.
This is less of an issue with paid search, since it is intent-based. You’re not peppering them with ads until they’re looking for you. But (partially for that reason) paid search is generally a more expensive channel. For display and paid channels like Facebook, banner blindness is legitimate.
Channels Change or Become Saturated
Users don’t just become blind to your creative. They become blind to the ad format in general. It’s why you can buy thousands of banner ads for pennies — because nobody clicks on them.
When Facebook app install ads first came out, it was trivial to acquire users for $0.50. The almost frictionless download experience, coupled with the novelty of the format, meant users embraced the ad format as a way to discover new apps.
But as more competitors started advertising, and as users become more used to the ad units, they started to ignore them. It’s much less common (from what I’ve seen) for people to consistently drive sub $1 installs from FB — a trend that’s unlikely to change.
To combat blindness, companies will often experiment with changes to ad formats. Some are beneficial, some aren’t. But all of them can mess with the effectiveness of your campaign. If you have a great single image creative, but the format moves in favor of carousel, multiple image units, your campaign has to change or be abandoned. This pace of change continues to accelerate, which makes milking a great campaign harder to do.
You’re not Building a Sustainable Asset
Having a great acquisition playbook can certainly be valuable. If the relationship between acquisition cost and lifetime value makes sense, you can and should pump as much money into paid acquisition as you can. But smart acquirers look for more than cheap acquisition strategies that dump everyone out on the other end.
Products that can supplement paid acquisition with a repeatable, self priming approach to acquisition have a greater chance of success long term. This usually means some combination of organic search (a valuable tactic for user generated content sites and marketplace businesses) and virality (meaning the product is compelling enough for people to tell their friends).
Focusing on strategies to improve each of those areas, along with aggressively working to minimize customer churn will usually be more important for your long term success than getting a bunch of cheap users in the door.
Cracking the code on cheap acquisition is fantastic. But it’s not enough.