The Advocacy-Centered Company: A deeper look at CAC and LTV

The Advocacy-Centered Company:A deeper look at CAC and LTV

Bowery Capital CFO SummitAugust 6, 2013

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About Influitive 2013 Cool Vendor in Social Marketing

Influitive helps B2B marketers recruit, mobilize and recognize an army of advocates that outsell their best sales reps.

WHO WE ARE:• Founded in 2010 • Toronto, Bay Area and Boston• >$11M raised from top tier

investors

SELECT CUSTOMERS:

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Double-Entry Daddy? Lady of the Ledgers?No thanks!

Bookkeeping Boss ManBig Chief BeancounterHistorical Cost Head Honcho

Trial Balance Top Dog

Lady of the LedgerKing of the Counters

Double-Entry Daddy

Numerate Nobleman

Penny President

Bookkeeping Big Cheese

Sir of the Spreadsheets

Ruler of ResultsCFO

Nicknames

Source: Zazzle.com & the-alternative-accountant.com

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A monster of a company – 20X sales – at scale

Source: Yahoo! Finance

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A roadmap for a 20X sales (!) valuationSustainable com-

petitive advantage

Network effects

Predictability

Switching costs

Gross margin

Marginal profitability

Customer concentration

Partner dependence

Customer acqui-sition efficiency

Growth!

Source: Bill Gurley’s Above The Crowd Blog, 2011 (bit.ly/jX4nB0)

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A partner for maximizing big picture ROA

Cash

Talent

CustomersReputation

*

** Highly leveraged!

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CAC and LTV: Customer Profitability

What we want to see!

Source: David Skok’s ForEntrepreneurs Blog, 2010 (http://bit.ly/bZpMfB)

LTV = ARPU x Average Lifetime of a Customer – the Cost to Serve them (COGS)

CAC = Total cost of Sales & Marketing / No of Deals closed

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Advocates drive customer profitability

Source: David Skok’s ForEntrepreneurs Blog, 2010 (http://bit.ly/bZpMfB)

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CAC: Customer advocates generate better leads & drive the most efficient buying process

Source: Eloqua data, Sirius Decisions

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LTV: Second order revenue effects are huge and should be modeled explicitly

Source: Jason Lemkin’s SaaStr Blog, 2013 (http://bit.ly/14fYjiF)

Total revenue from customer

Year

1Ye

ar 2

Year

3

Total

First

order

Champio

n_x00

0d_C

hang

e

Word-of

-_x00

0d_M

outh

Total

secon

d orde

r $-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Base

Base

BaseUpsell

Upsell

Series5

Series5

Series5

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LTV

CAC

LTV

EV

EV

2X

Business Model - Today Business Model – with Advocates

A high ratio of LTV to CAC drives profitability – and enterprise value

CAC

LTV4X

12

13

Week 1 Month 1 Year 1 Subsequent years $0

$10

$20

$30

$40

$50

$60

$70

Customer Onboarding

First experience First month First year Subsequen

t years

How to build advocates? Create a massive customer value surplus

Customer value surplus

Value to customer

Cost to customer ≈ cust. expectations

Critically important that early interactions offer a very high degree of surplus

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Product Management should forecast value, and backtest to ensure value is delivered

Source: Influitive data

 SUM

Close New Revenue/Pilots

Retain customers, convert pilots

Competitive Differen-tiation

Strategic Investment

Platform Improve-ments

Improves Advocate Experience

Embeds 11 2 2 3 2   2Community 9 3 2   3   1Maven 9 2 1 2 3   1Referrals 11 2 3 2 1   3Employee Advocates 7 3 2 2      Reviews 9 3 2 2     2AdvocateHub API 6       2 3 1

Event Streaming 3         3  Admin Stuff 2   2        

• 4% conversion of embedded display to completion• 40% of completes join the advocate program• 80% would recommend process to a colleague

Assumptions:Backtest

everyquarter

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CS analytics to focus time on renewal saves and upsells in creating customer value surplus

Value received by customer*

Annu

al S

ubsc

ript

ion

Reve

nue

($)

Source: Scout Analytics

Categorization Explanation

Retention riskThese customers pay significant $ but fail to receive much value today

Up-SellThese customers receive significant value in excess of payment

Cross-Sell These customers receive good value for the money

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Advocate mobilization capability allows more investment in customer value surplus

Source: Influitive data

Marginal cost

Marginal benefit

Total investment in customer experience

Marginal cost/valu

e

Status Quo:Invest in CX so that marginal benefit =

marginal cost …raising the optimal level of spending on CX

Advocate mobilization increases marginal benefit

to investing in CX....

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To mobilize advocates, you need an advocate marketing program

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1. Part of the Team

What motivates advocates?

1

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2. Measurable Impact

What motivates advocates?

2

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3. Social Currency

What motivates advocates?

3

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500% increasein award

submissions

26 customer videos captured

in 2 days

17 positiveproduct reviews

on Quora

#1 search

result in Google!

Integrated advocate marketing at

Source: Influitive data

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>150 super high quality new referral leadsper month from integrated referral program

100X higher survey response from advocates

Advocate marketing at

Source: Influitive data

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Influitive advocate engagement metrics

Source: Influitive data

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Influitive advocate retention metrics

Cohort Analysis measuring engagement over months.

Source: Influitive data

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Advocacy impact on CAC

231 referrals

4.1 activities per visit

13 visits to VIP per month

90% Cust. Advocacy

rate*

Sales Conversion

Marketing program costs

High Cost Sales Touches

Personnel costs

33%

10%

47%

Advocacy Metrics

CAC Metrics CAC

CAC

27%

* Percentage of total customers who have engaged in advocacy for Influitive during a quarter

Source: Influitive data

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Advocacy impact on LTV

26% Advocate Conversion

73% Advocate Monthly

Retention Rate*

2108 Total Activities

Advocacy Metrics

LTV Metrics LTV

LTV

48%

MRR Churn Rate

ARPU

Cost to Serve

(13%)

11%

4%

* Cohort Analysis for June 2013

Source: Influitive data

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Integrated advocate marketing to drive lower CAC

OutboundInbound

Advocate WOM

1. Expanded referral program

yields targets

4. Use advocate testimonials, case

studies and references to rapidly close.

3. Add to nurture track.

Tele-prospect to targets that show interest in content

2. Sponsored content appears in prospects’ social

media feeds

Example integrated campaign

v

v

v

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Integrate advocates into account management process to drive higher LTV

Demand / Value received

Annu

al S

ubsc

ript

ion

Reve

nue

By asking your happy customer to do a

reference call with your unsatisfied

customer…

…you can often get the unsatisfied customer to

understand how to drive more value from

your product…

…and you might even get your satisfied

customer to upsell into a more appropriately- priced product offering

Source: Scout Analytics

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QUESTIONS?

@markorgan@influitive

APPENDIX

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Marketers are no longer in control of the buying process

2006 2010 2014F0%

10%20%30%40%50%60%70%

3.5X increase

Dependence on knowledgeable peers in the buying process (B2B software buyers)

Initiates process

Initiates contact

Purchase

complete

75% of buying process complete before B2B buying interacts with company!75% 25%

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Experience is poor for advocates today

What advocates seek:StatusRecognitionCareer valueConnectionsPart of the teamReputationPerksFeedback

What advocates get:

Neglect+

Abuse=

Annoyed

Leads to Advocatedisengagement

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Experience is also poor for B2B companies today

No self service solution

Weak integration and analytics

Data is all over the place

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Our current paying customers include many leading software and technology companies

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AdvocateHub has truly changed the way some of the best B2B companies run their businesses

“Without hyperbole, I literally could not do my job without Influitive.”

–Fred Bals, Customer Relations Manager, Ektron

“Whether in a presentation, as a reference, or through a referral, no voice is more powerful than that of a satisfied customer, and our Influitive AdvocateHub, O-Zone, helps us amplify that voice.”

–Frederick Kerrest, COO & Co-Founder, Okta

“After Act-on launched our Influitive AdvocateHub, our motto became: I have a marketing initiative, how can Influitive help?"”

–Jeff Linton, Sr. Product & Field Marketing Mgr., ActOn

“Mobilizing 1,000 advocates with a few simple key strokes is pure genius.”

–Deena Zenyk, Marketing Mgr., SMART Technologies