Optimizing LTV to CAC at Unbounce
With Alex Nazarevich, VP of Growth, Unbounce
About Alex Nazarevich
Alex Nazarevich, Vice President of Growth at Unbounce, discusses his role and the significant changes he’s seen over the past year. With a background in e-commerce and digital marketing, Alex bridges the gap between these interrelated disciplines. At Unbounce, he leads two main teams: The acquisition team, which focuses on maximizing customer inflow through inbound channels, and the customer marketing team, responsible for customer engagement and rolling out tailored marketing strategies.
Alex has been overseeing the entire customer journey since starting at Unbounce a little over a year ago. Despite recent macroeconomic challenges, Alex emphasizes the importance of focusing on customer acquisition and efficiency, highlighting that the core objectives of his role remain constant even amidst change.
The Importance of LTV to CAC in Unbounce's Strategy
Alex Nazarevich emphasizes the key role that Lifetime Value to Customer Acquisition Cost (LTV to CAC) ratio plays in the company's strategy. He explains that LTV, the lifetime value, represents the average revenue generated by a customer over their association with the company. LTV is calculated by multiplying the average number of months a customer stays with the business by their average monthly payment. CAC, the customer acquisition cost, is determined by dividing the total sales and marketing expenditure by the number of customers acquired during a specific period.
Alex highlights the value of this metric in assessing the profitability of marketing efforts. In the context of a SaaS company, achieving an LTV to CAC ratio of 3 to 1, meaning $3 of lifetime value for every dollar spent on customer acquisition, indicates a profitable and scalable marketing strategy.
However, the importance of this metric extends beyond marketing. It serves as a North Star for various teams within Unbounce, fostering a common understanding and aligning goals across departments. By focusing on LTV, teams can demonstrate cost-effectiveness, which aligns well with how the finance team evaluates marketing strategies. Lessons learned from the LTV metric can also aid in discussions with the product team, ensuring upcoming features improve customer engagement and acquisition.
Alex points out that this metric is a part of his daily and weekly conversations with other leaders in the organization, emphasizing its role in driving strategic decisions and ensuring a unified approach.
Optimizing CAC at Unbounce
Alex reports a 35% to 40% year-over-year reduction in Unbounce's CAC. His team achieved this by focusing on areas they couldcontrol directly, leading to rapid, impactful changes without extensive stakeholder involvement.
Alex and his team thoroughly analyze spending, evaluating each customer acquisition channel's efficiency. They scrutinize SEO, paid search, social media advertising, and affiliate marketing. This approach helps them understand each channel's volume, conversion rate, and lead quality, focusing on their potential to become paying customers.
In calculating CAC for the LTV to CAC ratio, Alex includes all sales and marketing costs and divides them by the total number of customers acquired. His method puts value on organic channels, something marketers don’t always do. It also accounts for salaries, software costs, and SEO improvement efforts. This comprehensive analysis allows Alex's team to strategically target the acquisition of high-value customers.
Tackling Organic Channel Volatility
Alex speaks candidly about tackling the ups and downs in Unbounce's organic and paid channels over the last year and a half. When Alex joined Unbounce, he immediately zeroed in on the organic channel. He put the best people and tools on the job, determined to master this tricky channel.
Advancements in AI, like ChatGPT, level the playing field for everyone in SEO. But, Alex believes in the power of quality content. He's sure that genuinely helpful content wins in the long run, even if it doesn't seem so immediately. Unbounce, known for its top-notch conversion rate optimization (CRO) content and landing page services, doubles down on this belief. They focus on what they're known for and see steady, albeit small, gains in organic search.
But, it's in paid search where Alex and his team find more significant opportunities. They dive deep, analyzing every keyword and pattern. This approach helps them fine-tune their spending, especially when it comes to branded versus unbranded keywords. They're strategic, asking how they can be more efficient and uncover new conversion opportunities. It's a continuous journey of discovery that leads to improvements in their biggest channels.
Key Strategies for Reducing CAC
Alex recommends starting at the point of conversion and working backwards. For Unbounce, this means focusing on the free trial sign-up process, where customers provide their credit card information. Alex's goal is to maximize the number of sign-ups, knowing a portion will convert to paying customers.
They quickly realized investigating the checkout process was a more complicated project than they thought. So, they decided to shift focus to the pricing page and landing pages for paid search and affiliate marketing campaigns. Working backwards from the checkout button, they identified which changes could have the most impact. They evaluated each potential improvement based on its effect and the effort required. This approach allowed him to strategically choose initiatives based on his team's capabilities, a method that has consistently proven effective.
The Power of Segmentation
Alex talks about how segmentation, specifically by company size and industry type, is an essential part of their strategy.
Unbounce is versatile, meeting the needs of both solo marketers and large teams. Their tools allow individuals to perform like a larger team, launching campaigns efficiently and independently. Alex's team targets both small and large companies by highlighting specific features for each segment.
Using platforms like LinkedIn, they experiment with and fine-tune their messaging as precise targeting reveals what resonates with each segment.
As they move down the marketing funnel, the focus shifts to messaging. The team crafts unique content according to the size of the organization.
Along with company size, another key factor is industry type. Alex and his team recognize that campaigns need to be adapted to suit different businesses. The requirements of a SaaS company are different from those of an e-commerce company. For example, they might tailor messages for e-commerce customers around Black Friday.
Reflecting on Triumphs and Trials in CRO
Tweaking the calls-to-action (CTAs) on the homepage and key landing pages was a significant yet simple breakthrough for Alex and his team. Despite being a fundamental aspect of CRO, revisiting these basics proved to be effective, especially when targeting new audience segments.
Alex believes that failure is a natural part of growth-driven experimentation. He recalls an experiment with their pricing page that had a surprising conclusion. Their changes initially seemed to reduce overall conversions, but, ultimately the customers they did attract were more valuable. This short-term setback led to a valuable long-term insight: These customers had a higher retention rate. This experience highlighted the importance of looking beyond immediate conversion metrics to understand customer loyalty over months.
Alex emphasizes the need to balance two perspectives in CRO. The first is immediate results – Did they convert? What plans did they choose? The second is a longer-term view, taking place over 3 - 6 months, where you assess customer retention over time.
Alex speaks to the challenges faced in data-driven marketing and encourages people not to feel daunted by the math aspect. You really only need to understand the basics of conversion rates and customer lifetime value. If you can’t find someone to help you understand these basics, you can learn them on your own with a bit of research and experimentation.
According to Alex, the more difficult challenge to overcome is the fear of tackling critical aspects of the business, the pricing page or customer targeting. Even if it results in tough conversations, you need to follow the data wherever it leads. Curiosity is deeply embedded in Unbounce's culture, creating an environment where exploring and figuring things out is encouraged. This open-minded approach is vital for Alex's team, facilitating innovative and effective strategies.
Alex expects his team members to become data literate. With his support and, for more complex questions, that of the revenue operations team, team members should be able to access and interpret data independently.
Just Get Started
In his closing remarks, Alex offers simple yet profound advice to those looking to make a difference in their key metrics: Just get started. He encourages picking one thing, setting up a test, and openly communicating its potential for optimization. Alex believes in the power of experimentation, especially in high-impact areas like landing pages, homepages, and pricing pages.
He emphasizes that even small changes can lead to surprising results. More importantly, Alex points out that what might be considered untouchable or 'sacred' in a business context might not actually have the significant impact everyone assumes. His message is clear: The key to progress is taking that first step and embracing the journey of discovery and experimentation.
In this podcast episode with Alex Nazarevich, Vice President of Growth at Unbounce, we dive into the marketing strategies and principles behind the company's success. Alex’s team uses the Lifetime Value to Customer Acquisition Cost (LTV to CAC) ratio, not just as a marketing metric, but as a unifying force across departments. This approach underscores the importance of collaboration and strategic alignment for sustainable growth and profitability.
Alex and his team significantly reduced Customer Acquisition Costs (CAC) at Unbounce. Their approach of starting at the conversion point and methodically working backwards was instrumental in achieving these reductions. This strategy, balancing impactful changes with the team's execution capabilities, epitomizes practical and efficient digital marketing.
By customizing the way they approach different company sizes and industry types, Unbounce creates impactful campaigns that resonate strongly with the targeted customer base.
Alex's journey at Unbounce is best described as continuous experimentation and learning from successes and failures. He suggests an adaptive strategy, revisiting fundamental marketing elements and balancing immediate results with long-term insights into customer retention.
Finally, he champions a culture of curiosity and data literacy, encouraging a mindset where challenging established norms and harnessing data-driven insights are essential to forging successful marketing pathways. His advice is clear and simple: Just start. This approach, embracing experimentation and taking the initiative, is key to uncovering new insights and making meaningful progress in marketing.