How to acquire users during user growth?

In the previous article "How to Estimate a Product's Daily Active Users (DAU)", we obtained a mathematical model for calculating DAU, as follows:

DAU(n)=A(n)+A(n-1)R(1)+A(n-2)R(2)+… …+A(1)R(n-1)

Among them, DAU(n) is the daily active users on the nth day, A(n) is the new users on the nth day, and R(n-1) is the retention rate of new users after the n-1th day.

If we assume that the number of new users per day is a fixed value A, the formula can be simplified as:

DAU(n)=A(1+R(1)+R(2)+… …+R(n-1))

In addition to estimating DAU in the future, the above model also shows that the two most important factors that determine DAU growth are new additions and retention. If we can map the new additions and retention in the model to our daily business, we can find the skeleton and handle of our business growth.

Let’s first try to analyze from a factor of the growth model, “New Additions (A)”: How to acquire users during the user growth process?

The essential constraint formula for user acquisition: LTV>CAC

Let’s first briefly introduce the definitions of LTV and CAC:

• LTV: The abbreviation of Life Time Value, the user's lifetime value, that is, the total value contributed by the user to the product.
• CAC: The abbreviation of Customer Acquisition Cost, which is the cost of acquiring users.

Simply put, when acquiring new users, we must ensure that the value (LTV) that a user brings to the product throughout their life cycle is greater than the cost (CAC) of acquiring this new user. Otherwise, the more users you acquire, the greater the loss—that is, LTV>CAC. The formula may seem simple, but it is an essential constraint on user acquisition.

Now that we know this constraint formula, let’s look at the general calculation method of LTV and CAC.

The general method for calculating CAC is:

CAC = total market spending / number of new users in the same period

Total market costs generally include promotion channel costs, total marketing and sales costs, and even the labor costs of all market and operation personnel. The average CAC here is generally calculated based on different channels in actual use, and each channel will calculate its own CAC. There is a lot of room for optimization here.

The calculation method of LTV is:

LTV=LT*ARPU

LT is the average life cycle of a user, and ARPU (Average Revenue Per User) is the average revenue of active users per day. The calculation methods for different types of products are different. More detailed calculation methods will not be repeated here, and there are many references.

Venture capital institutions generally believe that when LTV>CAC, a product or company has potential, when LTV<CAC, the model is meaningless, and when LTV/CAC=3, the company can develop most healthily (less than 3 means low conversion efficiency, and greater than 3 means that it is too conservative in market expansion).

User acquisition channels and optimization

At present, the general user acquisition channels are:

The above-mentioned user acquisition channels all have their own characteristics, and the types and scales of users they can reach are different. The channels chosen will vary for different products and at different stages of product selection. So the question now becomes how does a product choose the most suitable customer acquisition channel? The three steps are briefly summarized as follows.

Step 1: Understand the target users of the product

First of all, you need to know who the target users of the product are, what kind of people they are, whether there are obvious demographic characteristics, or clear user behavior characteristics.

Only when you fully understand who your target users are, can you know through what channels you are most likely to find them.

Here is an example of a particularly unsuccessful attempt:

We once promoted a voice chat and dating product. Because the product had a geographically-based concept of the same area, in order to better increase the user density in some areas, we chose to acquire users through ground promotion in specific communities.

We took it for granted that most young people would be in the community on weekends, so we chose a weekend to go to the community square and conduct ground promotion by attracting people through dance and other programs.

When we arrived at the scene, we were completely dumbfounded - on a weekend morning, the square was full of middle-aged women returning from shopping for groceries, or grandfathers taking their grandchildren out to play, and the young people were all sleeping in at home. The subsequent effects can be imagined.

Step 2: Understand the characteristics and stage of the product

The characteristics of the product directly determine whether certain channels are available. For example, many products hope to explode on social networks and spread virally. However, products that can cause dissemination generally have to be in demand by the general public and have a low threshold. When more friends get involved, the user experience will continue to improve, and it is possible to detonate the Internet. On the contrary, if you are a niche tool application, it is difficult to spread through viral means.

In addition to the characteristics of the product, the stage the product is in will also affect the choice of customer acquisition channels.

For example: in the early stages of a community product, when the overall community tone and target user group have not yet been formed, if a large number of users are directly purchased through paid channels, it will undoubtedly be a disaster for the formation of the community. Zhihu and many community products adopted an invitation-based entry system in the early days in order to avoid having too many users entering and thus destroying the community atmosphere.

For example: When a tool product has verified the demand and has a better charging model, and the LTV/CAC is much greater than 3, it is time to start large-scale paid purchases.

Some products have a special strategic position in the company's matrix, or already have strong external competitors, in order to achieve faster growth and cover more user base. They often adopt aggressive growth strategies in the early stages of a product, and then fill in the gaps during the growth process, holding an umbrella in the rain.

Step 3. Channel testing and optimization After completing Step 1 and Step 2, you can basically identify your own customer acquisition channels. Generally, there are not too many main channels for acquiring users, usually around 1 to 2. After selecting the customer acquisition channel, what needs to be done is channel testing and optimization.

The essence of channel testing is to verify the channel acquisition cost (CAC), and then the retention, LTV and other values ​​of users acquired by the channel, from which channels with room for optimization can be screened out. After finding the first few channels for user acquisition, the next thing to do is to optimize the channels. Testing and optimization are often carried out together.

The premise of optimization is to track and analyze the data of the channel acquisition path. The essence of the optimization method is to optimize the funnel of the user acquisition path.

For example: general paid advertising promotion channels. First of all, the selection of advertising materials is very important. If the selected advertising materials are very attractive to users. However, the product itself does not meet the expectations of users, which can easily lead to high efficiency in acquiring users and low acquisition costs, but poor retention and activity after users come in, and extremely poor LTV.

Previously, when we were doing a paid promotion for a content community product, the overall retention was very poor because the chosen advertising material was very different from the content tone of the product.

The subsequent optimization method was to directly select high-quality content from the community as advertising materials. There is a significant improvement in LTV. In order to better meet user expectations, a deeplink approach is also adopted to recommend specific similar content to users who enter the product through specific advertisements, which greatly improves the retention of new users.

postscript

The previous section summarizes some basic principles of user acquisition and steps such as selecting and optimizing user acquisition channels. There are many classic examples of user acquisition at home and abroad. Specific cases will be summarized separately later.

In addition, this article only analyzes one factor of the user growth model, “new addition”. In the next article, we will continue to analyze how to increase user growth from the perspective of "retention".

Related reading:

1. User operation: new funnel model for conversion analysis!

2. User operation: How to use B-side operation thinking to increase user growth?

3. Product operation: How to use data analysis to drive product user growth?

4. APP user growth: One model solves 90% of growth problems!

5.How to increase users? Take Pinduoduo and Xiaohongshu as examples

6. Triggering user growth: Is user operation just about attracting new users?

7. User operation: What else can you do to attract new users without fission users?

8. User operation: how can financial products awaken dormant users?

9. User operation: How to make use of private domain traffic?

Author: Nancun Xiaofu

Source: Nancun Xiaofu