Thursday, January 24, 2013

Eating your own beats getting eaten.


I had a bit of a brain jolt this morning when I saw Apple CEO Tim Cook's comments on cannibalisation as part of the Q113 earnings call today. 

“I see cannibalisation as a huge opportunity for us,” Cook said. “Our core philosophy is to never fear cannibalisation. If we don’t do it, someone else will. We know that iPhone has cannibalised some of our iPod business. That doesn’t worry us."

Why waste resource protecting territory that your competitor has under full attack and customers don't want? Keep going and take new ground with more advanced products as the technology and user preference develops.

It's so damn obvious I can't believe the years I've sat in meetings nodding along to 'evils of cannibalisation' pep talks. 

My first job was in FMCG sales and I remember we had to sell a new Weight Watchers branded product into the supermarkets. It was a fantastic product. Dripping chocolaty goodness with sexy packaging and hardly any calories. The issue was, we already had a plain old 'Lite' product that was doing quite well and we weren't allowed to cannibalise it.  Our instruction was to create new shelf space and not take any facings off the existing diet product. 

When presented with the Weight Watchers sample, buyers would always point at the 'Lite' product on the shelf and say: "so we don't need that one?"

All the 'anti-cannibalisation' tactic did was create confusion and slow down the adoption of the new shiny product. In the meantime. competitors could refine their their own 'Lite' offers by copying ours and gain more market share by picking off our older, weaker incumbent. 

Eating your own might sound primitive but it does keep you at the top of the food chain. Something Apple is very good at. 


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Tuesday, January 22, 2013

The Six Marketing Metrics Your CEO Wants to See via Hubspot

I've just seen this handy little post from Hubspot and thought I'd post it up for reference.

1) Customer Acquisition Cost (CAC)

This is your total Sales and Marketing cost -- add up all the program or advertising spend, plus salaries, plus commissions and bonuses, plus overhead -- in a time period, divided by the number of new customers in that time period. That time period, by the way, could be a month, a quarter, or a year. For instance, if you spent $300,000 on Sales and Marketing in a month and added 30 customers that month, then your CAC is $10,000.

2) Marketing % of Customer Acquisition Cost (M%-CAC)

I like to compute the marketing portion of CAC and call it M-CAC, and then compute that as a % of overall CAC. The M%-CAC is interesting to watch over time, and any change signals that something has changed in either your strategy, or your effectiveness.

For instance, an increase either means that 1) you are spending too much on marketing, 2) that sales costs are lower because they missed quota, or 3) that you are trying to raise sales productivity by spending more on marketing and providing more and higher quality leads to Sales.

For a company that does mostly outside sales with a long and complicated sales cycle, M%-CAC might be only 10-20%. For companies that have an inside sales team and a less complicated sales process, M%-CAC might be more like 20-50%. And for companies that have a low cost and simpler sales cycle where sales are somewhat humanless, the M%-CAC might be more like 60-90%.

3) Ratio of Customer Lifetime Value to CAC (LTV:CAC)

For companies that have a recurring revenue stream from their customers -- or even any way for customers to make a repeat purchase -- you need to estimate the current value of a customer and compare that to what you spent to acquire that new customer.

To compute the LTV, you need to take the revenue the customer pays you in a period, subtract out the gross margin, and then divide by the estimated churn % (cancellation rate) for that customer. So, for a type of customer who pays you $100,000 per year where your gross margin on the revenue is 70%, and that customer type is predicted to cancel at 16% per year, then the LTV is $437,500.

Now, once you have the LTV and the CAC, you compute the ratio of the two. If it cost you $100,000 to acquire this customer with an LTV of $437,500, then your LTV:CAC is 4.4 to 1. For growing SaaS companies, most investors and board members want this ratio to be greater than 3X; a higher ratio means your Sales and Marketing have a higher ROI. Higher is not always better though; when the ratio is too high, you might want to spend more on Sales and Marketing to grow faster, because you are restraining your growth by under-spending, and making life easy for your competition.

4) Time to Payback CAC

This is the number of months it takes you to earn back the CAC you spent to get a new customer. You take the CAC and divide by margin-adjusted revenue per month for the average new customer you just signed up, and the resulting number is the number of months to payback. In industries where customers pay one time upfront, this metric is less relevant because the upfront payment should be greater than the CAC, otherwise you are losing money on every customer. On the other hand, in industries where customers pay a monthly or annual fee, you usually want the Payback Time to be under 12 months, meaning that you become “profitable” on a new customer in under a year, and then after that you start making money.

5) Marketing Originated Customer %

This ratio shows what % of your new business is driven by Marketing. To compute it, take all of the new customers you signed up in a period, and look at what % of them started with a lead that Marketing generated. This is much, much easier to do when you have a closed-loop marketing analytics system, but you can do it manually -- just know it will be time consuming. 

What I like about this metric is that it directly shows what portion of the overall customer acquisition originated in Marketing, and it is often higher than Sales would lead you to believe. In my experience, this % varies widely from company to company. For companies with an outside sales team supported by an inside sales team with cold callers, this percentage might be pretty small, perhaps 20-40%; for a company with an inside sales team that is supported by a lot of lead generation from Marketing, it might be 40-80%; and for a company with somewhat humanless sales, it might be 70-95%.

Note: You can also compute this percentage using revenue, not customers, depending on how you prefer to look at your business.

6) Marketing Influenced Customer %

This is really similar to the Marketing Originated Customer %, but it adds in all the new customers where Marketing touched and nurtured the lead at any point during the sales process, not only by originating the lead. For instance, if a salesperson found a lead but then the lead attended a marketing event and then later closed, that new customer was influenced by Marketing. This % is obviously higher than the "Originated" percentage, and for most companies I think this should be between 50% and 99%.

Your Marketing Metrics Cheat Sheet

ceo metrics chart

Read more:


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Tuesday, January 15, 2013

Is paid-earned-owned media thinking still relevant?

A recent post by Richard Edelman, nudges us closer to what marketing practioners have seen coming for the last two or three years- a blurring of the lines between paid, earned, and owned media. 

I agree with Edelman that we need to start looking at media buying deals in a fresh way. Classical terms such as 'advertorial' may make editorial teams feel safe about boundaries but they also have a negative connotation and can close the door on the development of new media products and advertising products. It doesn't make sense that the media and publishing technologies would continue to change but the resourcing, budgets and deal structures would stay the same. 

I don't agree with Edelman that we need to 'take on the chance to make content the basis of advertising' in that I think it always has been.  What is changing is where the content is being created and client-side marketers need to take more responsibility for developing content engines inside their companies. 

Customers are smarter than we give them credit for and welcome information that is presented to them in an informative and engaging way. If it's sponsored- tell them it's sponsored. If a blogger is paid to review a product, again, tell people that and let them decide how they will manage the influencer relationship. How the deals are brokered behind the scenes shouldn't be hamstrung by media categories that are increasingly less relevant and assumptions that customers don't understand their consumer world. 

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Thursday, January 10, 2013

Is 2013 the year that internet overtakes print in global ad spend?


Is 2013 the year that internet overtakes print in global ad spend?

The ZenithOptimedia forecast seems to think so. 

We know the 'death of print' bells have been tolling for a few years now but changes in customer media mix and ad spend take a little longer to activate in reality so it's always useful to keep you eye on actual spend data. 

If you look at the chart, you can see TV and internet mediums staying strong as they continue to develop new products in mobile, web video and social. 

The internet, including mobile, is forecast to be the biggest contributor of new ad dollar growth at 59%, followed by TV (including online video and on-demand TV) adding around 40%. 

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Wednesday, January 2, 2013

I hope you don't mind if I give you a little bit of advice

"I hope you don't mind if I give you a little bit of advice. You don't have to take it, now, but I'm gonna give it to you anyhow.

Forget about this organizing business and do something that's gonna make you some money. Not greedy you understand. But enough. I'm telling you this 'cause I can see potential in you. Young man like you, got a nice voice-hell, you could be one of them announcers on the TV. Or a nephew about your age making some real money there. That's what you need, see. 

Not more folks running around here all rhymes and jive. You can't help folks that aint gonna make it nohow, and they won't appreciate you for trying. Folks that wanna make it, they gonna find a way to do it on their own. How old are you anyway?"


"See there. Don't waste your youth. Wake up one morning an old man like me, and all you gonna be is tired, with nothing to show for it." 

Who was that advice given to?


Barack Obama. President of the United States and first African American to hold office. Recipient of the Nobel Peace prize and now one of the most powerful people in the world. A young Barack was planning his first steps into community organising and politics.

Be careful who you take advice from. 

Image credit



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