Recycle your marketing dollars by thinking in loops
Back in 2017, we had just started monetizing Airtable, and while initial cohorts were looking good, we needed every edge we could get. As a result, I spent a lot of time signing up for B2B collaboration and project management software to get ideas.
There was one company that always seemed to be a few steps ahead of us. You probably know them as Monday.com, but I’ll forever think of them as dapulse…an upstart out of Tel Aviv that was blowing us, and every other collaboration tool, out of the water.
I won’t claim to have any insider knowledge on what Monday.com was doing back then. I’m just an outside observer (and admirer!). I remember one tactic, though, that changed the way I thought about growth.
Back when I first started working in growth, I always thought of my job as optimizing a funnel. You acquire users, you activate users, and you get those users to pay…ideally for less than you paid to acquire them in the first place.
But growth should not be thought of as a funnel. Growth, done well, is all about loops. And once you start looking for growth loops, you’ll see them everywhere.
The easiest ones to identify are the product growth loops. A user signs up, activates on your product, does something that helps acquire a new user (e.g. invites a colleague, shares a piece of content etc.), and then the new user starts the loop all over again. Product growth loops are so powerful because they are specific to your particular product (and thus can’t be copied) and are compounding (with each new user driving additional user acquisition).
But paid marketing loops can be just as powerful. And this is what the lovely folks at Monday.com had figured out.
Right before I had joined Airtable, the growth team at Monday.com had started experimenting with what I’ll call an “early bird” discount. Here’s the way it worked. One day after you signed up for an account, they’d offer you 33% off an annual plan if you upgraded immediately.
If you, like most paid marketing teams, were just myopically focused on reducing your CAC (customer acquisition cost), increasing your ARPU (average revenue per user) or optimizing the ratio of your LTV (lifetime value) to CAC, you might have missed the genius of this tactic. Offering such a hefty discount would either increase your CAC or decrease your ARPU (depending on how you account for the discount), and would thus move your LTV/CAC ratio in the wrong direction.
This is why you need to think in terms of loops. If product growth loops are about leveraging users to get more users, then paid marketing loops are about leveraging revenue to get more users. And that’s what this discount was all about. By significantly decreasing the time it took for paid marketing dollars to get paid back as revenue, Monday.com was supercharging its marketing team, enabling them to reinvest much more quickly.
To put a finer point on it, while every other marketing team out there was getting seduced by lifetime value (a.k.a. the most misleading metric of all time) to justify their burgeoning budgets, Monday.com was recycling dollars into an ever-growing marketing monster.
This thinking is especially important when cash is hard to come by (hello 2023!). Optimizing for payback period might not make sense when you can just go back to investors and raise more capital whenever you’d like. But what if this is the last $1M you’ll ever be able to spend on marketing? All of a sudden, payback velocity matters a whole lot. The quicker that $1M hits your bank account again, the quicker you can reinvest, and the quicker you can grow your customer base and drive more revenue…to reinvest again (it’s a loop, after all!).
So, if I could share one piece of advice, it’d be to throw out your lifetime value model and refocus on payback velocity. It made sense back in 2017 when Monday.com did it. And it makes even more sense now.