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Subscription marketing: 3 ways to build the engine to drive new acquisition

By Ken Harding

FTI Consulting

Washington, DC, USA

By Justin Eisenband

FTI Consulting

Washington, DC, USA

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We previously outlined our three-step approach to digital audience management. By identifying the audience segment upon arrival, defining the goal by segment for the next user interaction, and delivering the segmented user experience (UX) that guides the audience toward the goal, media organisations will navigate customers through a journey to maximum monetisation.

Now, we turn our focus to the marketing engine. The consumer marketing function is critical to efficiently capturing and maximising reader revenue through both organic and paid channels. We will focus on three key questions:

  1. What are the key performance indicators your marketing engine should be tracking?
  2. Which marketing channels should your organisation be focusing on?
  3. What are the best practices to ensure your organisation is effectively and efficiently utilising marketing resources?
The media organisations with best-in-class paid marketing engines are highly focused on driving a strong lifetime value to customer acquisition cost per customer ratio (LTV to CAC ratio).
The media organisations with best-in-class paid marketing engines are highly focused on driving a strong lifetime value to customer acquisition cost per customer ratio (LTV to CAC ratio).

1. Key performance indicators (KPIs)

The media organisations with best-in-class paid marketing engines are highly focused on driving a strong lifetime value to customer acquisition cost per customer ratio (LTV to CAC ratio). The LTV to CAC ratio will inform whether an organisation has established the proper balance of marketing spend with the value generated from each subscriber.

Customer acquisition cost per customer

Customer acquisition cost (CAC) is the sum of resources that must be dedicated to gain one new paying subscriber or customer. The metric is calculated by adding acquisition-driven sales and marketing expense and dividing by the number of new subscribers in the same period.

On average, we tend to see CACs range from US$40 to US$60 for news publishers; however, finding the right CAC for your publisher takes a level of sophistication and finesse. CAC is directly linked to the level of marketing spend within your organisation and how well your organisation is optimising its marketing channels.

While it may seem that a lower CAC would always be the goal for most publishers, this is not always the case. A lower CAC could mean that your organisation is utilising its most effective marketing channels to obtain new customers. But at the same time, it could indicate your organisation is playing it too safe and not injecting enough resources into your marketing channels.

If the marginal CAC is still relatively low compared to the lifetime value generated by each customer, by not spending more on marketing, you could be losing out on the revenue generation potential of additional subscribers.

Lifetime value

Lifetime value (LTV) is a calculation derived from the discounted gross profit that is generated by a customer over the time of subscription. Customer LTV is highly sensitive to pricing and retention curves. It can be meaningfully impacted but strategic decisions around discounting, subscriber term, pricing increases, and renewal rates, and should even consider margin/profitability over time.

Most publishers with at least average retention and monthly average revenue per user (ARPU) of US$10+ can generate a LTV of between US$175 and US$225. But, as indicated by the example, LTV can vary greatly by a publisher’s ability to maximise subscriber ARPU and manage churn. Publishers who can effectively manage to increase price while minimising subscription stops are able to create higher LTVs.

LTV to CAC ratio

In terms of marketing effectiveness, LTV to CAC ratio is the most critical metric for consumer marketing functions. LTV to CAC shows how efficiently a market is spending resources to monetise a customer. Typically, publishers should aim for an LTV to CAC ratio of over 3x.

While overall LTV to CAC is an indicative metric, consumer marketing should not just be focused on the average but also on how channel and product performance varies. Certain channels may yield a lot of new subscribers, which could be a low CAC channel. However, if those new starts are low quality, either because of heavily discounted pricing and/or high churn, then a lower customer LTV may completely offset the lower CAC.

Additionally, the marginal LTV to CAC ratio, rather than the average, will indicate whether a publisher can continue to spend to achieve strong returns on marketing investment. For example, a publisher can underspend in marketing by focusing only on the best channels. While that may yield a higher overall LTV to CAC ratio, that publisher may be leaving new subscriber additions not realised by not spending where their incremental opportunities remain, albeit at good but not great LTV to CAC ratios.

2. Key marketing channels

The marketing engine should constantly be evaluated against various acquisition channels to determine effectiveness and properly allocate resources. Different publishers will see different results from different marketing channels. Therefore, it is important to continuously evaluate the performance of various marketing channels to determine the most cost-effective way to reach customers.

If marketing professionals focus on channels that do not successfully generate new paying subscribers or decrease current subscriber churn, it can lead to higher CACs and lower LTVs, thus decreasing the LTV to CAC ratio.

We can categorise typical publisher marketing spend into six primary channels: e-mail, search, social media, display advertising, affiliate advertising, and video. While we have often seen that certain channels like paid search will have higher CACs than other channels, a balanced strategy is required, and publishers should test and learn to see what optimises spend mix over time.

3. Effectively utilising marketing resources

To ensure your organisation is utilising its marketing resources efficiently and effectively in order to maximise LTV to CAC, publishers should consider a few best practice strategies:

Use LTV to CAC to guide marketing spend

Testing various marketing channels to determine LTV and CAC is imperative to determining the best allocation of resources. Spend marketing dollars on those channels that have the highest LTV to CAC ratio and deprioritise those channels that are not generating significant returns on investment.

Prioritise e-mail capture

Capturing e-mail addresses of those who visit your site is one of the most impactful marketing tools that a publisher can utilise. Having an e-mail address for a given visitor enables a publisher’s marketing department to build e-mail offers to free newsletter subscribers who have shown interest in content, retarget potential customers who have shown subscription intent but abandoned the checkout cart, and win back former customers who have recently churned.

Therefore, publishers should make every effort to capture e-mail addresses by using tactics such as onsite display assets (inline widgets, toasters, modals), incentivised registration walls, and checkout flow e-mail capture.

Retarget visitors with purchase intent

Visitors frequently abandon the cart once they reach the checkout page. These visitors have already shown interest in a subscription but may need a nudge to complete the purchase. Therefore, publishers should utilise exit intent modals and social media retargeting to reengage those potential subscribers.

For exit intent modals, create a two-pronged approach to retaining customers upon attempted exit: a newsletter offer for those who are less engaged and an acquisition offer for those who are more engaged. For social media retargeting, leverage platforms such as Facebook and Instagram to target customers who have abandoned the checkout flow with straight-to-checkout offers.

Winning back recently churned subscribers

It is cheapest to retain current subscribers. But if they do churn, it costs less to win back former subscribers than to acquire new subscribers who have not yet shown purchase intent. Marketers should build a strategy for winning back subscribers who have stopped their subscription by determining the reason for stopping and sending immediate short-term offers via e-mail while simultaneously addressing the reason that caused the former subscriber to churn.

Building a sustainable marketing engine

For a variety of reasons, marketing effectiveness can ebb and flow over time. News publishers saw a wave of new subscribers in 2020 from a flood of high public interest news that drove demand. Whether it is macroeconomic conditions, content or product, or even social media algorithms, extraneous factors will impact marketing effectiveness significantly.

However, publishers can best prepare for those extraneous factors by building a strong analytics engine that can help them test, learn, and refine strategic plans to maximise return on marketing dollars and new subscriber growth in the long run.

About the Authors

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