Phil Carter
speaker
228 appearances
1 recordings
1 series
first heard Sep 2024
last heard Sep 2024
Phil Carter’s voice in public audio — every appearance, attributed to the second.
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And that's why CACs for most companies tend to go up over time.
Yeah. Well, this goes back a little bit to... You asked me earlier, should you be focusing on big swings or should you be focusing on smaller optimizations as a growth team? And when you're an early stage startup, what I said was focus on the big swings because at that stage, nothing else matters. I think it's sort of similar when you're thinking about your acquisition strategy.
And so what I mean by that is, number one, see if you can grow organically for as long as possible. It's fine to run some paid ad experiments on the margins just to sort of test the waters and figure out, okay, is Facebook, Instagram, TikTok... Are these channels going to work for us from a paid acquisition standpoint?"
But ideally, you're able to find an organic growth loop to sustain you early on. It's like... So I live in Colorado. It's like training at altitude. Force yourself to try to get strong enough product market fit and product channel fit
you can grow organically through some combination of word of mouth or content, which drives SEO, before you start sinking a lot of dollars into paid acquisition spend. And then even once you do invest in paid acquisition, you want to run a bunch of tests to see what works.
But then once you find the channel that works best, more often than not, there's this power law of distribution that Peter Thiel talks about in Zero to One and Brian Balfour has written about this. 70% or more of user acquisition for most fast-growing tech companies is going to come through a single channel early on. And so don't spread yourself too thin.
Really try to maximize your efficiency on one channel, rather than taking this spray and pray approach.
Yeah, it's a tough question to answer. But philosophically, I think the way to think about it is test early to figure out what your dominant channel is. Go all in on maximizing the efficiency of that channel. But then very closely watch your input metrics, not your output metrics. Don't get fooled by the outputs. Focus on what is the efficiency of this channel every step of the way.
If it's a paid channel, from ad impressions all the way through to subscriber conversion and retention, if it's an organic channel... There's a similar set of metrics that you can track through the funnel.
And as you start to see bottlenecks spring up in that conversion funnel, you either need to be very confident that those bottlenecks are solvable, and that with tweaks in your product or in your ad creative, you can unlock the next step function of growth within that channel. Or you need to be very quickly starting to diversify to your second or third channel.
And ideally, you're not waiting until the 11th hour to do that. Ideally, once you start to see the early signs that, okay, we're not at saturation yet, but I can connect the dots to six to 12 months from now, we're probably going to start to hit saturation. You should be investing heavily at that point and figure out what your next channel or two is going to be.
There are some rare exceptions where I think that has happened. Typically in marketplace businesses where the network effects are so strong once you get to the tipping point that you can have upside down unit economics for months or even years. And then once you flip that tipping point, you pay it all back.
And I think there was a period over the last decade where the funding environment, VC preferences for massive user growth rates over profitability were such that a model like that could work. And with the right business model and with the right network effects, it might be able to justify itself. But more often than not, certainly in the case of consumer subscription, that's just not the case.
Six months is good. One month is great. First session is exceptional, which is significantly lower than B2B, right? In B2B, 12 months can be considered a good payback or even 18 months for an enterprise SaaS business. But we talked before about how consumer subscriptions don't have the benefit of low churn rates, high net revenue retention, sometimes over 100% net revenue retention over time.
There's also the fact that Revenue Cat recently had their state of subscriptions report for 2024. And they reported that over 75% of trial starts actually happen in the first 24 hours after a user installs an app, in many cases on the first session.
So when you look at both the shortness of consumer attention spans and how quickly most trials need to happen if they're ever going to happen, combined with the high churn rates and low NRR dynamics of these businesses, it's really, really important to try to convert users quickly and to pay off that initial paid CAC as quickly as possible.
So generally, with the clients I'm advising, I'm saying, look, ideally, we want payback within the first 3 months, and ideally within the first month if we can get there.
First of all, I like to break out retention rates on monthly versus annual subscribers because they look very different. For monthly subscribers, I think any company that is retaining more than 50% of its subscribers for six months or more is doing a very, very good job. Because monthly subscribers just tend to turn at much higher rates.
For annual subscribers, typically look at the first 2 years of subscriber retention. Because there's a lot of data that shows that after the second renewal period, the subscribers that you've retained for 2 consecutive years as annual subscribers are often going to retain for many years after that. And they become the foundation that you're building your business on long term.
Because those are your highest intent users who are going to stick with you for the long haul. So generally, I'm looking at 2 to 3 years on annual subscriber retention, the first 6 months on monthly subscriber retention and trying to get those retention rates as high as I can. And then there's the obvious thing you want to look at, which is just does the curve flatten out?
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