[dmor]

There is one major flaw in this thinking. He says LTV should be at least 4x cost of customer acquisition (CAC) and that he would pay $60 for a warm lead. So let's assume he follows this and 4 x $60 is his LTV = $240. With 22 leads from TechCrunch the total potential value of those leads is 22 x $240, not 22 x $60

TC leads were potentially worth $5,520 if fully converted (not $1,320 - which is the cost he's willing to pay for equivalent leads)

Of course, very rarely do all conversions occur but I think when doing marketing it is important to know the fully converted value of each channel (in this case PR) so that you can figure out how much to spend. In general $5,000 of potential revenue (or TCV) is my minimum bar for a PR story, for example, so this story makes the cut just barely. I think the TC traffic they got was pretty abysmal, probably would be worth it to hire PR next time since they've got a B2B product that can afford $60 per warm lead

Conversion rates can change and constantly be improved on the product/sales side (public pricing, free trial, free + premium features for upsell, etc) but I've found that often growing the TCV (total converted value) of the channel is more worthwhile than trying to optimize in the early days when fixing conversion is harder than just finding attention opportunities. If you can find channels that consistently drive you leads worth 10-20x CAC and continue opening the channel more (getting more TC stories for example) you can figure out where its limit it.

This topic has been on my mind a lot, needs a whole blog post on DistributionHacks to dig into channel methodology and running multiple experiments to find the TCV of leads for each, stack rank, and implement system for scaling that as a business machine with predictable inputs and outputs --- but I haven't had time. Maybe this weekend.

[paulitex]

Sorry about the confusion. When I say I will pay $60 for a warm lead, that's assuming a number of them will not convert. Our LTV is in the 1000s, but another part of the cost of acquisition is the time on the phone to close the deal.

It's more like this: - We'll pay $300 bucks for 5 warm leads to hand off to sales. - Sales will work the leads to close, spending another $200 of time. One of them will close. - We'll get a customer with a LTV of greater than $2000, for $500. LTV >= 4x total CAC.

In valuing the leads from TechCrunch, it's a mistake to assume they'll all close (in which case their value is beyond $5520), we have to value what they actually are: potential. We have to discount the risk. That value, is about $60, so all 22 are worth $1320.

I like the optimism though. :)

And you're right it's not a great payoff overall. ~$3000 isn't a great ROI for the effort that went into the launch. There were other channels as well beyond HN and TC, but I wanted to keep the story focused on these two.

We've been testing more channels since and there's lot of data there as well and so, so much more to learn. Looking forward to your post!

[dmor]

I figured your LTV was probably much higher given what you're doing. That 4x CAC thing is really intended for consumer companies I think.

The reason this methodology matters is that when you have a marketer trying to figure out how to deploy a substantial amount of capital against business goals they've got to break it down by channel. And this common misconception is one of the most painful hurdles to get over with startup management teams who tend to be spending adverse even when the marketer finds a channel she wants to exploit the hell out of.

Marketing, as a function, deals in potential. If I can spend $1 to get you $10 of potential, and you (being sales or self-service conversion funnel) close 20% of that then we are a fucking awesome company :)