Discerning Your Context

All investment in email list growth is happening in your particular cashflow context. It is possible you need to spend more on growing your email list with paid advertising, and it is possible you should cut your spending back immediately. Here are the 5 most important things to consider when deciding what to spend on growing your list:

1. Cost per Acquisition
2. Customer Lifetime Value
3. Cashflow Sustainability
4. Short- and Long-term Business Goals
5. Timeliness, risk, and capacity for follow-through

Cost Per Acquisition (CPA)

(also abbreviated as CAC, “cost to acquire a customer”)

CAC=The average total amount of qualified expense over a certain time period that generated one customer

Or in other words, how much did your customer cost you to get? This metric is often more important to consider than cost per lead (unless you have a fixed goal of number of leads) because it indicates the cost to your business to begin to make a return on your investment in lead generation.

Remember: in the world of digital marketing, the one who spends the most to get a new customer wins because you can outdo your competition.

However, this number is not usually considered alone, except as a an absolute benchmark for how much you need to budget. In a healthy digital ecosystem, you should prefer to use relative benchmarks that can scale as you grow, which is why you should use this number in relationship to the next metric: LTV.

Customer Lifetime Value (LTV)

The lifetime value of any given customer is always increasing at some rate, as long as they are on your list and you continue to offer them things to buy. The average lifetime value across your list will also tend to increase (for the same reason) but can be brought down by adding a significant volume of low-value customers. (For example, you launch a new, low-cost program when you’ve been mostly selling high-ticket items and you suddenly have 50% more buyers at a much lower price-point.)

It is good to track your value per lead as well as your customer lifetime value as an indicator of the health of your email list. However, when considering when and how much to invest in list growth, this is the best indicator (when used with CAC above) of what you can afford.

Perhaps the most important figure on your marketing metrics dashboard is LTV/CAC. This indicates how much money you are likely to make from each dollar you spend on acquiring a new customer. If you are, for example, confident that if you invest $100,000 to get 50 customers now (CAC=$2000), then within 2 years they will have purchased $10,000 worth of products from you (LTV=$10,000), then the only question you need to answer is whether you can afford to wait those two years in order to realize a 5x return on your investment (LTV/CAC). Which brings us to the next criterion.

Cashflow Sustainability

“Can you float?” is the key question here. If you know your customers are valueable at a certain dollar amount, and you have an idea of how much it costs to acquire new ones, it usually becomes a question of time–how long does it take for your LTV to manifest?

This is a multifactorial issue that involves a) how much budget you have available to invest b) the velocity at which your investment is returned and c) what your expenses are in that timeframe. These figures vary widely from business to business.

A decision based on this information will naturally be imperfect since you can’t know for 100% certain that your future results will match your past performance. So it is good to build in some margin based on your business goals.

Short- and Long-term Business Goals

This should be obvious, but it often gets forgotten once you get into the special kind of mindset associated with thinking in numbers. So I advise you to forget everything written above and take a step back to consider: where is your business going in 3-5 years? And what needs to happen this month or quarter to further that goal along?

Your email list investment strategy should be aligned with both your short-term and long-term business goals. You might want to spend as much as you can now so you are full for the next 18 months, if that’s how your business works. Or it may be that you need to start very slowly and scale up by reinvesting the revenue you make from lead generation.

There is not a single strategy that will fit every business. What’s right for you will depend greatly on your assessment of all the metrics above, where your market is at today, what level of risk you are willing to accept, and whether you are prepared to earn back the money you spend.

Timeliness, Risk, and Capacity for Follow-through

These are last on this list because in some ways they matter the least, but are essential to keep in mind.

Timeliness has to do with the state of your business, the state of your market, the state of the world, and the time of year. Back in 2016, we ran a launch for a high-end couples therapy program in late October/early November…right as the Trump election happened. That is a good example of a terrible time to spend a lot of money on ads, because you are competing with much bigger players who have an effective monopoly on national and even global attention.

Comfort taking risks varies from person to person. There isn’t a wrong way to feel about this, but it’s important to know your tendency so you know how to calibrate.

Finally, if you have an amazing opportunity in front of you to get a lot of customers quickly, it is responsible to think about whether you can follow through with them and keep them as customers. If your business is not ready to scale, you are better off not scaling it than trying to drink from the firehose.

In summary, investing in email list growth is not a linear decision to make. It is a multidimensional puzzle that involves a lot of different data and kinds of decision-making. But it is worth thinking through because it is one of the fastest ways to grow your email list with qualified leads.