Have you seen the movie Payback, starring Mel Gibson?
(Or, as I call him, “Cousin Mel.”)
In it, Cousin Mel plays a criminal who goes to war with a crime syndicate because one of their guys cheated him out of his half of a $140,000 heist.
The movie has a running joke where the syndicate bosses keep saying, “Why’s he doing all this for just $140,000?”
And he keeps reminding them it’s not $140k, it’s $70,000. So the payback is only half.
You’d think they’d go, “OK, here’s $70k,” but, no, a bunch of them have to die before he gets his money.
(Sorry for the spoiler, but the movie came out in 1999. If you haven’t seen it by now…)
Long payback periods = cashflow killers
To me – a SaaS marketer – the lesson of the movie is that, if you can halve your payback, grab the opportunity.
That’s because money tied up in customer acquisition cost is a cashflow killer for so many SaaS businesses.
Let’s look at an example…
Let’s say your cost per trialist is $100. And that 16% of trialists become paying customers. That gives you a customer acquisition cost of $625.
And let’s say they’re paying $50/month for an average of 25 months. And that’s all profit.
So, lifetime value is $1,250 – and you have a ROAS of 2:1.
Nothing too crazy about that.
And, to keep things simple, let’s assume churn is a steady 4% per month.
So, one month, you bring in 100 trialists. That’s an advertising cost of $10,000.
How long does it take for you to get that back?
We’ll ignore the free trial period, and treat the “pay or go” as month 1.
Well, with 16% becoming paying customers – and paying $50 – you get $800 in month 1.
In month 2, you keep 96% of those customers, so that’s $768
And so on…
And it’s not until month 17, when you finally get to $10,000. ($10,008.26, to be exact.)
So it’s almost a year and a half.
The 4 ways to halve it from 17 months to 8 months
So how do we get it to 8 months?
There are four ways:
#1: Cut customer acquisition cost
#2: Increase the average monthly payment
#3: Reduce churn
#4: Sell them other stuff
The first of these can be done a number of ways.
- If you’re using Google ads and improve your quality score, you’ll get cheaper clicks
- If you cut non-performing keywords
- If you optimise bids
- Landing page optimisation
- Sign up form optimisation
- Improved onboarding
Two and three – increasing average payment and reducing churn – you probably know a lot about.
Where most SaaS companies drop the ball
But the fourth one – selling related products and services – is an area where most SaaS businesses drop the ball.
But it’s an area of great opportunity because, not only can you do that with your paying customers, you can also do it with your non-converting trialists
So let’s say, in our example, we sell related products to our customers and trialists and this generates an average of $40 per name.
Well, that cuts our payback to $60 per trialist. That cuts eight months of our payback period. We’re down from 17 months to just 9.
And, if at the same time, we optimise the ad campaigns, landing pages, signup form, on-boarding…
It doesn’t take too long before the payback is just a few months – something that would make your CFO very happy.
All the best,
“Cousin” Steve Gibson
PS Do you want to get more trialists and customers from your PPC?
(And discover how to halve your payback period in a different way.)
Then download a free copy of The SaaS Multiplier Method.
Just click here.