June 24, 2020
Jacob Sussman
  •  
2 min

CAC as a Product of Funnels and Loops

A key metric of D2C profitability is customer acquisition cost, or CAC. Although CAC is influenced by a range of factors like the strength of one's product or brand, we've found our clients can improve CAC fastest by refining their marketing infrastructure. Effective marketing can be conceptualized as a series of funnels and loops, two complimentary frameworks for lead growth and attrition.

Funnels

Funnels are the art of lead preservation, and illuminate how an initial pool of prospects decreases over time. Mapped from left to right as an increasingly narrow triangle, these charts indicate when prospects defect from an intended purchase journey.

A funnel might proceed as such: 50% of those served an ad click on it. 30% of those who arrive at the landing page enter their email. The introductory email's open rate is 25%. 10% of those who click on the email make a purchase. And so on. Funnels often connect with other funnels, adding new prospects to pre-existing lists. This process is not dissimilar to Minard's famous data visualization of how Napoleon's army was segmented and unified over time.

Of course, some attrition is natural. After all, consumers may change their mind and lose interest in a product. But other sources of funnel shrinkage are the fault of the marketer. Buggy websites, confusing UX, and tone-deaf messaging are all culprits in driving would-be consumers away from your brand.

The goal of auditing a funnel is to identify and correct defective events that are losing you money. For example, a poorly designed landing page might fail to gather emails, wasting most of an ad campaign's inbound traffic. Once such flaws are corrected, a funnel can operate like a well-machined pipe, supporting the flow of commerce without needless leakage.

Loops

Loops can be thought of as events that branch off from the main funnel, and reinvigorate it by establishing new leads. While funnels map attrition, loops represent organic sources of growth. The beauty of loops is they only require implementation, but not ad spend. This makes them a pet-favorite of bootstrapped brands eager to maximize their existing audience.

The loop marketer has to be savvy to earn these "free" impressions. Pay attention for opportunities to turn customers into promoters, like the famous Refer-a-Friend bonus. Understanding that people will trust their friends more than an ad, many brands encourage their customers to hawk products in exchange for a small discount. The referred friend thus becomes a prospect, initiating a new funnel altogether.

This example also illuminates the virtuous cycle of loops - their self-perpetuating nature. Every lead can be offered the Refer-a-Friend bonus, with practically infinite upside. Those who are referred the product likewise may make referrals - and accordingly those they refer as well. Like so, one simple technique can extend your reach exponentially without a single media placement.

In the coming weeks we'll be writing more about specific executions of Funnels and Loops. To hear about these techniques, drop into Diamond Hook's funnel by entering your email below, or create a loop by sharing this article with a friend!

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