Hacker News Reader

Comment by fab1an | Hacker News Reader

The fundamental equation you need to get right in SaaS (esp in a bootstrapped business) is to have a customer lifetime value that's vastly higher than your customer acquisition costs. Lower prices than your competitors mean that you'll also need to be able to get customers at much lower customer acquisition costs. This is A LOT harder than one might think.

Worse, and contrary to popular opinion, lower pricing _does not_ necessarily mean lower customer acquisition costs in SaaS!

Are you a marketing/growth expert with a proven track record of doing just that? If no, prepare for years of learning a lot of fundamental basics the hard way. If yes, well, do get in touch with me! ;)

Another aspect to consider is that, assuming you're looking at B2B, lower pricing doesn't mean that your product will be more attractive to B2B buyers. If anything, you'll often find that the opposite is true.

View on HN

It's weird that people performing this analysis, including you, and many VC's, treat customer acquisition costs as though you had to write a check to someone, so determining your customer acquisition costs means looking at the size of that check.

That can certainly be true, but don't most successful startups have some kind of viral, or networking, aspect, or get unexpected free press due to being the news itself, or piggybag on goodwill generated in other aspects of their business?

Why do people consider that "customer acquisition costs" are some kind of given, or are easy to estimate?

It's not easy to estimate, but it's such a relevant number that you can't ignore it. Engineers often fall into the trap of "make a good product and customers will come". It's a trap. Customer acquisition is a real cost and must be factored in.

That's just what I'm saying. It's not a real dollar cost (as in, a certain number of dollars which you have an invoice for) because, for example, blogs are free, emailing reporters is free. If you have an iPhone even high-quality promotional photo shoots, and a YouTube channel is free.

So when you invest your time into getting the word out -- is it fair to say, "that is a real cost"? It's a time-cost. It's an effort-cost. It impacts your business. But is it a number?

I realize that for some people this number is easy -- how much are we spending on Ad Words? -- but for other businesses the effort that you mention is very hard to dollarize. It's kind of weird that some people assume you can.

You should dollarize your time. Maybe you're severely undervaluing it? Randy Pausch has a great argument why you should (in his time management talk).

VC: "Do you know your customer acquisition costs?"

You start to think. You started working on this full time 9 weeks ago. You've spent maybe 45 hours per week on the project total. You spent between 15 to 40% of your time managing the press, blogging, replying to email inquiries. Honestly, it's hard to estimate. You have not given your credit card out or made any bank transfers, it's been only just you. You are now closing a round at a valuation of 1.7 million. You have 745 users. Scenario A: your last day job was as a florist, working for someone else and netting $9.50 per hour after taxes. Scenario B: in your day job you make $165k as a senior engineer.

Question: what are your customer acquisition costs? If it's relevant, answer separately under scenario A and B. (A and B may also be red herrings,- a trick, irrelevant information.) if you need additional information to perform the calculation, ask and I'll give it to you.

What is your calculated response? Justify your calculation.

I can always make another dollar. I can't get back the minute that just passed.

> lower pricing doesn't mean that your product will be more attractive to B2B buyers.

This is true for consumers as well. Most people are familiar with the idea that you get what you pay for.

Exceptions are generally things that everyone needs, but not everyone can afford the fancy models. So, cars, phones, food, stuff like that. Very little SaaS is like that.

Reply on news.ycombinator.com