by, Adam Bogobowicz, Sr. Director Product Marketing, Parallels
My previous blog on differentiation generated interesting feedback. Thank you so much for your questions and opinions. I would like to respond to one particular question that was pointed my way: “How do I know that I am doing the-right-marketing?”
The purpose of marketing is to make money. It is not window dressing function and it is not a “making customers happy” function. For hosters, marketing is the business of hosting.
At the SMB scale in which the vast majority of shared hosters operate, marketing needs to be laser focused on three goals:
- retaining existing customers
- convincing and enabling them to buy more
- bringing in new customers
This purpose-driven perspective on the marketing function has another advantage. It provides a clear measures of success. The most comprehensive measure for the first two goals is Customer Life Time Value. It connects two sub-measures routinely used in our business (Average Revenue Per User and Churn) in a way that allows for calculating marketing ROI on the third goal: attracting new customers.
Average revenue per user (ARPU) fails as a marketing measure because it ignores the fact that hosting is not a one-time purchase business. You can dramatically increase ARPU by overpromising and under-delivering on your service and go out of business when your frustrated customers leave.
Churn on the other hand focuses on customer retention but ignores customer profitability. You can drive customer churn down by offering great service and support at below cost and retain all your customers all the way to bankruptcy.
Customer Life Time Value (CLTV) connects these two measures and creates a new level of understanding for your business and your marketing. It is simple to calculate as a multiplication of ARPU and average time a customer stays with your service. For a customer on a services with ARPU of $10/month and expected life on a service of 18 months CLTV equals $180. CLTV also suggests two powerful levers for driving hosting business revenue: upsell to maximize ARPU and retention strategies to maximize lifetime.
With a CLTV in place you will also be equipped with a baseline for new customer acquisition costs. Looking at the example above, a $180 CLTV gives you an upper limit for a price to pay for bringing a new customer into your business. This combined with your marginal cost of maintaining and supporting a new customer, can now be used to calculate an ROI on the marketing spend for bringing new customers into the business.
Let me know if you find these blogs useful. You can always email me at adambo@parallels.com