Drawing from her journey with Tally Workspace, Laura Beales offers invaluable insights for tech founders looking to optimise their customer acquisition cost (CAC). Here are the top lessons she shared on our recent Seed to Success podcast on Building a two-sided marketplace:
1. Consider CAC and LTV (lifetime value) together
Laura stressed the importance of evaluating customer acquisition costs relative to customer lifetime value: "The obvious one is kind of like CAC versus lifetime value...it's super important to kind of look at those together." Smart CAC optimisation requires balancing those acquisition costs against the revenue and longevity of your customers. Viewing the metrics in isolation can be misleading.
2. The LTV estimation challenge
Laura acknowledged the difficulty of accurately estimating lifetime value, especially early on: "It's really hard to get lifetime value right at the beginning…you're extrapolating or guessing." In fast-moving start-ups, customer behaviours and models can shift rapidly. Accurately projecting customer lifespan and future revenues takes substantial time and data accumulation.
3. B2B pivot impacts metrics
Tally's shift to a B2B model completely overhauled their CAC and LTV calculations, as Laura explained: "Very, very quickly we became B2B...so they kind of turned into different types of customers, which made lifetime values all very complicated." Pivoting from B2C to B2B changed every aspect of their calculations as deal sizes, customer types, and pricing models evolved. Profound model changes heavily impact CAC and LTV.
4. Calculate fully-loaded CAC
Laura advocated for taking a comprehensive view of customer acquisition costs: "It's important to do fully loaded CACs...all that stuff that might not be a directly attributable cost, but actually does feed into the overall cost of acquiring a customer." Don't just look at simplistic CAC numbers. Full burden rates that account for all sales, marketing, and other indirect costs funnelling into acquisition are critical for accurate budgeting.
5. Differentiate customer segments
Laura explained how different customer segments required separating out the CAC and LTV calculations: "Ours is very difficult because the on-demand side, our churn, is incredibly low, but our frequency can be quite low as well...whereas for the full time office side, it's relatively straightforward." As businesses evolve and segment their customer base, the CAC and LTV metrics may need to be calculated distinctly for different segments based on their purchasing behaviour.
6. Embrace pragmatic modelling
While striving for precise CAC/LTV modelling, Laura advocated pragmatism over paralysis: "The best is the enemy of the good with this stuff...having a sensible proxy that takes all costs into account [is enough]." Well-reasoned, fully-loaded approximations allow startups to make forward progress rather than getting bogged down in pursuit of perfection, especially when evolving rapidly.
7. Complexities of B2B sales cycles
The conversation highlighted the inherent challenges in calculating CAC over lengthy B2B sales cycles with multiple touchpoints. "CAC in a B2B business can actually span multiple months…your BDM might have a conversation in month one, a little bit of a conversation in month two, and then come to an event, and then month three is when they convert.” There are no simple answers, but start-ups must still find a reasonable operational approach to attribute costs across prolonged opportunity timelines.
Mastering customer acquisition cost strategies, and measurement, is an iterative process for start-ups, but one that's vital to sustainable growth. While perfect calculations may elude, evolving practical models that capture key cost and revenue drivers is invaluable. Thanks to Laura for sharing her insights.
You can listen to the full podcast episode here.
