How to define your growth start point

A case study walk through



At any point in your business’ lifecycle, you can decide to work on developing a growth spurt. A series of boosts that take your business to the desired next level.

What if you could double your social impact by increasing your sales? What if you could lower your costs of acquiring new customers, leaving you with more funding for needed investments? What if you could finally reach that target group you want to impact with your products? All questions that growth hacking addresses.

New to growth hacking? Let’s cover some basics.

Growth hacking is not a quick fix or a fad that requires heaps of investment. It is simply a methodology that uses rapid experimentation to identify successful growth methods and takes data to measure effectiveness and come up with new experiments. Instead of just getting leads to visit your website, you take them through a full-funnel so they end up as loyal customers. Using this growth approach helps you optimise sales, marketing, product development and social impact success. There are many support tools out there that help you automate experimentation and gather and process data. There’s no need to spend months and a large budget to create campaigns. Experiments can be as inexpensive as you want and already run as short as a week - all depending on your business and goals.
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Before you start any experiments, it is important to establish your baseline - to understand where your business is at this current moment. This assessment defines your growth start point and will set the touchstone to which growth is measured. It also clarifies your business sales, marketing and product development processes, detects successes and gaps.

In this case study walk-through, we let you step into the shoes of a business owner and take you through 5 steps that help identify your current growth start point.

  1. Draw your supply chain and current marketing & sales funnel
  2. Establish your growth start point in numbers
    1. Calculate your customer acquisition cost
    2. Identify your customer lifetime value
    3. Measure your conversion rate
  3. Make a first wave of iterations

Draw your supply chain and current marketing & sales funnel

To get started hands-on get your worksheet here:

Depending on the type of business, a supply chain can be as short as you coming up with services and selling them, to complex import structures. Understanding this flow simply requires picking up a piece of paper and drawing a diagram of all the steps.

For this case study walk-through, let’s imagine you are the business owner of FOODIE, a fictitious organic vegetable producer selling to other businesses (B2B).

Let’s draw FOODIE’s supply chain activities:

  1. Contact raw commodity supplier to set up a new delivery
  2. Receive delivery confirmation
  3. Receive product delivery
  4. Contact packaging supplier to arrange new delivery
  5. Receive packaging delivery
  6. Process and package product
  7. Stock + separate scheduled deliveries
  8. Contact clients about new delivery
  9. Realise delivery
  10. Receive and track feedback from customers, using metrics such as
    1. Amount sold
    2. Product quality consistency
    3. Quality of order and delivery experience
  11. Add customer feedback to a database and analyse improvement points
  12. Decide on improvements to make, execute them and communicate changes to customers

Now, take a look at FOODIE’s marketing & sales funnel activities. Here, we differentiate between outbound: a personal approach; and, inbound: an automated, scalable method.

Awareness

Get leads to learn about your business

Outbound: Attend industry events and gather leads contacts
Inbound: Produce and publish online content that reaches leads

Acquisition

Get leads to interact with your product in a way that you can contact them again

Outbound: Send/deliver in-person samples to leads
Inbound: Let leads order samples from FOODIE’s website

Activation

Get leads to say “Wow, I need to have this product” (your WOW-factor)

Outbound: Follow up on the samples in-person, via phone or email
Inbound: Follow up on samples via automated mailings

Revenue

Get leads to purchase your product (turning them into customers)

Outbound: Visit customers to take purchase orders
Inbound: Let customers order their desired quantity from FOODIE’s website

Retention

Get customers to purchase again or buy other products you sell

Outbound: Visit customers to sell more products and/or different ones
Inbound: Send automated emails to customers that recommend placing a new order and/or other products

Referral

Get customers to recommend your products to their network

Outbound: Visit, call or email customers with offline/online materials that customers can share with their network
Inbound: Send automated emails and post with offline/online materials that customers can share with their network

Track success

Now that you have an overview of the steps, FOODIE will begin to see successful sales and marketing methods and gaps that need to be filled or optimised. Getting lead or customer feedback on the product helps detect product improvements. Measure conversion at each step of the funnel and analyse factors that contributed to that conversion. Collect this information in a database.

Iterate

Make adjustments to your funnel based on the gathered data.

Your growth start point in numbers

Now that we have got your current supply chain and marketing and sales funnel on paper, we move on to the quantitative growth starting point of your business. How will you be able to tell over time which experiments are working for your overall business and which ones aren’t? There are more metrics to take into account than revenue. Measuring success in growth hacking activities requires you to work in rounds of iterations. In scrum language, these are called sprints of time. The key action here is to separate each iteration round and compare them to each other, making sure to keep an eye on the right metrics.

Image about iteration waves

Key metrics for successful growth hacking


Social Impact

How do you measure success when you wish to impact people’s lives and/or promote and increase sustainability actions? Impact measurement methods vary across industries. For example, a meat replacer product might want to measure impact by the reduction of CO2 caused by people eating less meat. A fairtrade clothing brand might add up the number of people they’ve provided with a decent income. Social impact can be tricky to measure, so start setting up social measure points as early as you can. Track them and assess how your business activities are positively contributing to your social impact.

Profit is not the end game of a social enterprise, and yet, to run a sustainable business, you cannot go without it. That takes us to the next essential metrics.

Customer Acquisition Cost (CAC)

We start with a highly underrated, yet essential, business metric: your costs of acquiring new customers. This important metric helps you analyse business scalability. While extremely important for potential investors, this metric also gives you an insight on your return on investment (ROI). How is it measured? Accumulate your total business costs used to acquire customers and divide that by the number of new customers gained in a given amount of time. For example, if you spent €500 on acquiring customers in March, and you acquired 20 new customers in that time, your CAC was €25. Measuring CAC can help determine your pricing point.

Dive into Neil Patel’s detailed explanation about calculating CAC

Customer Lifetime Value (CLTV)

Do you retain your customers as long as you wish? Are you aware of how long you could keep them? Are you getting the most out of each customer throughout the entire customer lifespan? These are all questions that can be answered when combining your CLTV with CAC. There are a myriad of ways to calculate CLTV, depending on your industry. The main idea is to calculate how much each given customer has generated, and over what period of time. For example, if a group of customers started purchasing after you attended a certain industry event, spent a monthly average of €20 for 2 years, their combined CLTV is €240. With this data, you can run a regression model (assessing relationships among different variables) to create a predictive CLTV. The more data you feed to the regression model, the more accurate your predictive CLTV will be.

There are many benefits of calculating CLTV. Just like CAC, CLTV helps set your pricing point. Let say you have a subscription-based product. Products with a longer CLTV, set at a lower price, may yield as much revenue as products with a shorter CLTV, set at a higher price. Dive into your CLTV to discover the tru value of your customers.

Get further familiarised with CLTV using HubSpot’s guide.

Conversion rates

Looking back at your marketing and sales funnel, there are 6 steps you want your leads/customers to flow through (awareness, acquisition, activation, revenue, retention and referral). Just like a real-life funnel, wide at the top and narrow at the end, not all customers will end up at the last step. At each step of the funnel, you not only want your target customers to stick, they should also perform actions you set out for them to do. Conversion rates are measured by taking the total number of people who did what you wanted, in a given step, and divide it by the total number of people who reached that step.

Keep up with your imagination; you are FOODIE’s owner. Let’s take you through an example of an outbound funnel mentioned earlier and calculate your conversion rate at each step. You’re attending a food-related industry event with a company stand.

Let’s go down the funnel and answer a set of questions at each step.

Some questions to prepare yourself: Who is a qualified lead at this event? Think of restaurant chefs, catering buyers or small business owners.


Awareness: Attend industry events and gather leads contacts

What kind of brand exposure do you get that comes together with stand rental? Is it just the booth or are you featured in the event’s social media/website/ads? What is the approximate reach of the event and how many people fall under your target group?

Conversion rate: the number of people knowing FOODIE is present at the event divided by the number of people exposed to the event’s details


Acquisition: Send/deliver in-person samples to leads

How many leads have a personal interaction with your product? E.g. eat your samples. How much do the samples cost? What do you learn when giving out the samples? How many leads have your contact details? How do they receive it? How many leads give you their details? How do you receive it?

Conversion rate: the number of people interacting with your product divided by the number of people being aware of your product


Activation: Follow up on the samples in-person, via phone or email

How many leads did you interact with (in-person, phone or email) after the event for a follow up?

Conversion rate: the number of people you have a follow up interaction with after the event divided by the number of people interacting with your product at the event


Revenue: Visit customers to take purchase orders

How many leads continue to purchase a product from you after the event follow up? How did leads purchase products from you?

Conversion rate: the number of people purchasing FOODIE products divided by the number of people you had a follow up with after the event


Retention: Visit customers to sell more products and/or different ones

How many customers, originated from the event, bought more products after the initial order? What triggers these customers to purchase again? Do these customers purchase the same product or others?

Conversion rate: the number of customers purchasing again divided by the number of customers that made an initial purchase after the event’s follow up


Referral: Visit, call or email customers with offline/online materials that customers can share with their network

How many customers are satisfied with your product? How do you measure satisfaction rate? Which customers have a wide audience, either online or offline, that matches with your target audience? How can customers recommend FOODIE to their network?

Conversion rate: the number of customers recommending FOODIE to their network divided by the total number of customers purchasing after the event’s follow up (note: customers don’t necessarily need to be repeat customers to recommend your business)

Analysing the results

Answering all the above questions provides you with valuable data. For example, you may see that leads who took your contact info converted faster than the ones you gave your details to. There are many growth tools out there that help you track the right metrics at each step of the funnel. A major one being the free tool: Google Analytics.

Make a first wave of iterations

The goal of measuring these conversion rates is to detect possible optimisation opportunities at each step. Traditional sales, marketing and product development departments often work in silos. In growth hacking, these three teams work closely together, use data to identify improvements that can be made to the product for a better product-market fit, sales and marketing activities. Growth hacking lets you work in quick iteration rounds; setting up small experiments to optimise steps of the funnel.

By establishing your business start point through the above exercise, you will come to learn how you can convert your leads in the most effective and cost-efficient way and what type of customers are most profitable over time.

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Keep an eye on this channel, in the coming weeks, we’ll post more articles to increase your knowledge on growth hacking

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