What A Steaming Pile of CAC
“Our focus in on revenue growth”
“Profit?”
“We don’t really care about profit at this stage”
“Because?”
“If we can hit £8.5m in 3 years the company will be valued at over £120m and our investors can exit for the number they want”
“I see. May I ask a couple of tough questions?”
“Sure, fire away”
“What’s your cost of customer acquisition?”
“About £375”
“Does that take into account all the hidden costs and all the sales cycles you have to start to get one over the line?”
“Er, what do you mean?”
“On average it takes 33–46 dial attempts at 15 manual dials per hour to secure an effective conversation, and 14 effectives to get one meeting booked. So per meeting you are looking at 28–42 hours of dial time to secure 1 first meeting. The average rate of advancement from 1st to 2nd meeting is 1:8 so 224–336 man hours to get 1 suspect to 2nd meeting”
“Well I suppose not if you put it like that”
“Out of curiosity, how many touches go into your typical sales cycle & over what time period?”
“About 5–7 over 6 months”
“No internal meetings discussing each one, engineering, presales, management, forecasting meetings, planning and rehearsal”
“We don’t have time for planning and rehearsal if I’m honest”
“Oh, OK. And your customer churn rate is …?
“Over 15%”
“So you’re letting 1:7 out of the back door each year?”
“Which you have to replace at the front end just to stand still?”
“Yes”
“Do you lose chunks of customers at seasonal points like quarter end and around Christmas?”
“We do”
“So you’re discounting at the end of sales periods to buy business; when you fail to deliver the outcome the customer expected, they march time until they can get out of your contracts?”
“That’s a little unfair”
“Only a little? But you do discount? You do put pressure on your salespeople to offer discounts to capture business within your current quarter to hit the revenue number?”
“Yes”
“Your customers don’t see this as being self-serving?”
“They get a good deal”
“So good that over 3 years you lose 49% of them?”
“I don’t like your tone”
“Forgive me. You keep 51% after 3 years. You must be delighted?”
“It’s in line with the industry standards”
“Because you set out to sit slap bang in the midst of the mediocre middle?”
“You are a bit of a shit, aren’t you?”
“Would you prefer I lie to you?”
“Yes”
“You’re doing a great job. Your customers are probably saying wonderful things about you behind your back to their peers. You don’t burn out your managers or churn your salespeople. Your business is on rock solid foundations. You’ll go to Heaven. Your cost of customer acquisition is £375 because you’re measuring all the hidden costs, and your shareholders are getting a great deal”
“There’s no need to be facetious!”
“I’m sorry, I thought you wanted me to lie to you”
—
My mentor Charles H. Green says “Long term thinking and long term behaviour produce short term results, with long term gain”. Think about that for a while. What does short term thinking produce?
