How NPS Factors Into Cost-of-Acquisition (COA)

How NPS factors Into Cost-of-Acquisition

As the number of service providers in the SMB space grows, the available space for paid customer acquisition becomes even more crowded. When I was at Constant Contact, there was little to no SMB competitors on the airwaves when we first started doing radio advertising on NPR. Today, every radio segment seems to be sponsored by one SMB provider or another. As the number of channels to reach SMBs becomes more cluttered, the cost of acquisition (COA) increases as well. The only natural counter-move to rising costs of acquisition is instead increasing the likelihood that existing customers will recommend you to others, and promote your business for you.

Understanding and influencing the referral nature of customers is best accomplished by collecting a broad based Net Promoter Score (NPS), following SMB discussions about your brand (and your competitors) to understand what is most admired (and hated), and building on those positive attributes with your advocates in ways that facilitate the sharing of those attributes with others.

image source: http://tomtunguz.com/nps-benchmarks/

Do Your Customers Like You? Do You Know if All of Them Do?

Let's assume you average 30,000 customers over five years, a trial-to-pay conversion rate of 30%, and monthly churn rate of 4%

• The total number of SMBs with a relevant, actual perspective on your business is 110,000 (30,000 customers + 24,000 churned customers + 56,000 trial customer who never converted).
• Your internal NPS covers roughly 30% of that base.
• By contrast, Alignable's SMB Trust Index℠ covers all three segments and provides SMB executives with a broader, alternative perspective as well as detailed reviews that provide rich insights into how these SMBs are positioning your company when speaking with their peers.
• The magnitude of the differences between internal NPS and broad-based NPS can vary significantly in cases with high churn and low conversion rates. (For example, the CEO of OnDeck reported an internal NPS of 73, while Alignable's SMB Trust Index℠ reports a -50)

The Devil is In The Details

Over the past decade, we have seen many companies create huge businesses from user-generated ratings and reviews: Yelp, TripAdvisor, Bazaarvoice, and Glassdoor, for starters. There is tremendous value in user-generated content (UGC), specifically ratings and reviews, because it allows the brand to understand customer sentiment about a particular product or service. In addition, ratings and reviews help raise awareness about a company and also enables them to take intelligent action from a customer service standpoint.

For small business owners, there was no single trusted place for them to go to understand sentiment about products and services they are interested in using. Most information they gathered was either from disparate sources online or from their peers through word-of-mouth. They often didn't view the online sources as particularly trustworthy, because many ratings and reviews sites have "stacked the deck" to monetize leads they generate for brands. Word-of-mouth is their best source of information, but there are still inefficiencies that can be

Ratings and reviews give insight into sentiment about a particular product or service and how it compares to others in its industry efficiently.

• Reviews provide a great understanding of what's most and least admired about a business and industry.
• Alignable's recent website industry report highlights how GoDaddy leads all other website providers based not on the ease of use of their product, but rather based on great customer support.

Fish Where The Fish Are

Most companies that are selling to the SMB market have an outdated approach to marketing and selling to small businesses. Hiring recent college graduates and interns to sit at their desk and cold call all day long or to pound the pavement and go door-to-door talking to small business owners are the two strategies that are typically implemented by these vendors to acquire customers. These sales tactics, in addition to the archaic marketing strategies utilized by these companies, drive up COA to sometimes outlandish levels.

Struggles with COA and Lifetime Value (LTV) are not limited to the laggards selling to the SMB market - although they usually feel the most pain. Many best-of-breed software platforms have high COA, but are able to offset it with a sticky platform that is at a higher price point because of its perceived value.

The most efficient and least expensive way to acquire a customer for a company is by leveraging local brand advocates to generate word-of-mouth for its offering. Small business owners view a company's brand advocates as trustworthy peers because they are small business owners, as well.

The result of these strategies:

• SMBs require a trusted place where they can voice their opinion about products and services they use to help their business and provide an efficient way to access sentiment about a particular vendor.
• Sharing industry insights with advocates on Alignable's social network aids in their success while providing a simple way for your insights to be shared across communities full of prospects.

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Be sure to check our latest report here: SMB Trust Index℠.