1. The Challenge: Treading Water

There's a particular challenge that I keep seeing with small businesses that are doing okay, but can't quite break into that next gear of growth. Usually they're going through something like this:

• Revenue is okay but not enough to truly scale
• So they spend more money on ads
• They get more leads
• But the cost of the ads cancels out the boost in sales.

Repeat.

2. The Solution:

In so many cases, these businesses are focusing all their attention on getting more leads. Which is fine, but they're rarely  doing enough to nurture and convert the leads that they already have in the pipeline.

Usually, they're pining over their top-of-funnel. Optimization of their Ad-spend and Cost per Lead. Again, fine, but I want to show you something that gets ignored way too often.

I want to show you what a huge opportunity there is sitting in the Middle of your Funnel. How optimizing your Conversion rates and Customer Lifetime Value can unlock the next level of growth for your business.

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TLDR:

You can unlock huge growth by boosting your Conversion Rates & Customer Lifetime Value.

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3. The Proof: A thought experiment

Imagine a business that sells $100 items. Choose any item. I’m choosing toys. I always try to link my thought experiments back to impacts on Christmas spirit. Each month, they spend $5000 on ads, directing the leads to a landing page, where they can buy on the spot or subscribe for updates. Subscribers get a basic email sequence encouraging them to make a purchase.

They generate about 1000 leads per month.

‍Here’s the breakdown of how the funnel performs:

• 1000 Leads per month with an Ad Spend of $5000
• 50 Leads convert right on the spot (5%)
• 500 choose to subscribe, and are sent a basic sequence of emails
• 10 convert from that email sequence. (2%)

Which means they have:

• Total Conversion rate = 6%
• Cost of acquiring Customer(CAC) = $83
• Lifetime Value of Customer(LTV) = $100
• CAC : LTV = 1.21 : 1
• Total revenue = $6000

Profit. Great. But is this how you scale? No. This is how you tread water. 

Let’s visualize it...

‍Booster #1: Points of Sale

First and foremost, if it seems like a waste to let 490 out of 1000 hard-earned leads walk away every month. It should. The simplest way to increase conversion rates is to increase the points of sale. Create more touchpoints that have an opportunity to convert a lead into a customer. Newsletters, promo offers, trigger-based messaging - sweet, sweet Lead Nurturing! 

We can also automate a targeted email sequence for the non-converted 6 months later to check up on them. We’ll stay extremely conservative, and say that we only convert an extra 1% from all these strategies. Half of the main sequence. The difference here is marginal, but it’s interesting to see how the benefits compound as we add layers.

Booster #2: Conversion Rates

Next up, the conversion rates on those email sequences leave a lot to be desired. So let’s really focus on tidying up our messaging, and Call-To-Actions. Turn that basic email sequence into a professionally-curated email journey, with high quality content, personalized messaging and targeted value props.

 With all this, imagine we boost conversion rates up to a modest 10%.

So what if we apply our improved email marketing to these new touchpoints AND boost our overall conversion rates?

Observe:

‍Booster #3: Lifetime Value (LTV)

To point out the obvious - the better your conversion rates, the more impact you’ll get out of the extra points of sale! But Ready? This is the best part. It’s where Middle Of Funnel Optimizers (MOFOs) are made!

If you don’t already know, your Lifetime Value (LTV) is the total amount that an average customer spends with your business. The Cost of Acquiring Customer (CAC) is (you guessed it) how much it costs on average for you to get one customer. We want higher LTV and lower CAC! 

That’s why a lot of people will talk about the LTV:CAC ratio.

Important: Top of the Funnel Marketing/Advertising is where you optimise your CAC. Middle of the Funnel is where you optimise your LTV

In order to improve our LTV, let’s introduce some ‘customer nurturing’ measures, such as:

• Recommending other products/services to our customers at opportune times
• Reminding customers to repeat their purchase/appointment where appropriate
• Prevent customers from going to competitors by showing them value and addressing their needs

Experts say that businesses should aim for a CAC : LTV of about 3:1.  You can of course calculate your own, based on what you think your potential LTV could be. Let’s imagine with none of the other boosters  in place, all we do is boost the ratio to 3:1 - That’s an LTV of $249.

Here’s the results:

And now lets add back in the other boosters:

$6k ---> $36k. Just doing more to nurture the leads you’re already getting! So now I ask you the question - How optimized is the middle of your funnel?

All of these numbers are obviously just examples. You might be able to get much higher conversion rates from your email sequences, or a much better LTV:CAC ratio.

Whether you’re new to the MOFO world, or a long-time MOFO. I hope this article was able to spark some ideas for you.

This type of funnel mapping exercise is one of the first things we do with all of our clients. If you’re interested to see how the numbers add up for your business, we’re always eager to chat!

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