Every week, 50 new Shopify apps join the existing 8,000 on the Shopify app store. Some are funded startups with deep pockets. Others are developed by experienced multi-app agencies. A few are established SaaS brands entering the Shopify market.

They are all after one thing: Growth.

Just like you.

Growing your app under this constantly intensifying competition is hard, but possible. It requires mastering several parts:

1. Know your customers
2. Scale traffic acquisition with paid ads
3. Unleash growth through your funnel
4. Optimize your app store page
5. Use smart pricing
6. Optimize your post-install funnel

1. Know your customers

To grow your app, you must know which potential customers to target and what to offer them. Are you catering mostly to small, medium, or large shops? New shops or established ones? Who are your best customers? How do they use your product? What value do they get from it? What do they see as your product’s key features? Do they tend to cluster around certain industries or niches?

Don’t just rely on your intuition and biases. Use your CRM to get a list of your customers and check out their shops. Focus on the past year if your app has a long history. See which industries your customers are from. Use product data to check usage patterns. Look for segments with similar characteristics.

Collect qualitative insights from your customer-facing resources, including sales and support. Try talking directly to some of your customers to understand how they use the product. Find out what problem your product solves for them and the value they get from it. Listen carefully to the words your customers use. This is your future marketing copy.

2. Scale traffic acquisition with paid ads

If you’re just starting with ads, test your top 5–10 keywords in Shopify and Google ads. Over time, expand your keywords and fine-tune your bids based on your cost per click vs the value you get per visitor. You can use Prys to get suggestions on paid keywords to focus on, including the value you get per app store visitor for each keyword.

Once your Shopify and Google ads are in a stable place, copy your Google campaign to Bing. After Bing, you can test other performance marketing platforms such as LinkedIn, Facebook, Reddit, Pinterest, Youtube, Instagram, Tiktok, and Twitter.

3. Unleash growth through your funnel

While growing inbound traffic gets most of the attention, the funnel is usually where you can unleash the most growth. Funnel optimization is your best growth hack.

The funnel starts on the Shopify app store page, continues through the “add app” click on the page, goes through install in Shopify, subscription, which may be the start or end of the free trial period, and finally, payment.

Shopify apps often have complex post-install funnels covering setup, onboarding, trial, and monetization. Such funnels can easily exceed 20 steps. To convert, users must go through all the steps successfully.

In taking a funnel perspective, three truths become evident.

1. Improving your funnel’s conversion rate by 20% has the same impact on your revenues as growing every single source of traffic by 20%, without the traffic acquisition cost.
2. Improving your funnel’s conversion rate by 20% means that you are 20% better at converting leads, which means you can afford to pay 20% more for them. This opens up more aggressive bidding in performance marketing platforms and the prospect of adding new keywords to fuel your growth.
3. Because a funnel is a series of steps that a user must pass through, it works as a series of multiplications. An improvement in any step affects the whole funnel by the same percentage. Improving 20% in step 2 has the same effect as improving 20% in step 7. In both cases, the funnel as a whole improves by 20%.

Almost every app’s funnel can be improved. As long as you can improve yours, it should be at the top of your growth efforts. 

If you need help with your funnel, check out convert2x, a consultancy specializing in funnel optimization and scaling for Shopify apps.

4. Optimize your Shopify app store page

Optimize your Shopify app store page for SEO

While Shopify doesn’t disclose how its app store search and placement algorithms work, you can easily boost your organic traffic for relevant keywords by placing keywords in your app store page listing. The more prominently you place a keyword, the higher you’ll rank for that keyword in Shopify’s organic app store search results, and the more traffic you’ll get for it.

There are only so many prominent places to insert keywords in your app store listing. It’s critical to prioritize. You want keywords that have enough volume and that convert for your app.

You can use Prys to find the high-volume best-converting keywords to focus on.

Optimize your app store page for conversion

Your Shopify app store listing is the first step of your funnel. Aside from organic traffic capture, the main goal is to convert visitors to installers. The best apps convert around 50% of their app store visitors to “add app” clicks. Most apps hover below 20%.

The elements that drive conversion on the app store listings are:

Compelling value proposition

You should assume that your potential customers open your app store page in a tab alongside several of your competitors. Your page will be scanned. Only the most compelling scans will get a deeper dive. To make the cut, you must captivate interest with your value proposition. In very few words, including strategically placed keywords for SEO, you need to explain what your product does, the value it provides, and why it’s special.

Number and quality of reviews

Reviews are a good proxy of your product’s quality, popularity, and maturity. You should do whatever you can, within ethical limits, to grow your review count while maintaining a good rating. If you’re just starting out, make sure your product is stable enough to get good reviews. Offer easily accessible support, especially in the early days. Consider dropping your pricing for a while, even to zero, to quickly build up positive reviews.

Supporting image or video

Make sure your image or video looks professional, is tailored to Shopify shops, and correctly communicates your value proposition, key features, and uniqueness. If you post a video, use the thumbnail to convey your value proposition, key features, and social proof.

Read more on how to optimize your Shopify app store page for conversion and SEO.

5. Use smart pricing

Pricing affects the conversion rate in two places. First, on the app store page, where users decide whether to proceed with your free trial. Then, at the end of the trial, where users ask themselves if they get enough value for what you’re asking them to pay.

Pricing can be used to grow revenues. Sometimes, you can get away with a large pricing increase that leads to a minor decrease in conversion. Other times, you can move a significant feature up a plan and many customers will move up with it. In some cases, switching to a usage-based pricing scheme can lead to explosive growth in revenues.

Your pricing should fit your typical customers, the way they use your app, and the value they get from it. Pricing tiers should ideally represent segments, with features and usage limits matching each segment’s use case and value. Keep things simple so that your customers clearly understand what they’ll be paying. Make sure your pricing compares well with the competition.

6. Optimize your post-Install funnel

The post-install funnel is the series of steps that the user goes through between installing on Shopify and making payments to your app.

Post-install funnels need to take users through setup and onboarding, communicate with them during the free trial, and nudge them toward conversion at the end of it. For most apps, this funnel is long, complex, and converts poorly.

As mentioned before, a 20% improvement in any step is a 20% improvement in the whole funnel-which, in turn, is comparable to a 20% increase in traffic from every source, without the acquisition cost.

With many steps in the funnel, there are many opportunities to improve your conversion rate. Several steps with significant improvements can have a dramatic effect on your unit economics, and allow you to get super aggressive with traffic acquisition.

Embedded apps

Shopify’s embedded apps capability allows apps to mimic Shopify’s look and feel, and interact with merchants from within Shopify’s admin panel. Merchants manage their shops through the admin panel, so they are already there. Interacting with apps you use to manage your shop from the place you manage your shop anyway is convenient and natural.

Appearing in the admin panel and looking like an extension to Shopify has the potential to significantly increase your app’s conversion rate. In addition, being inside the admin panel allows you to control problematic steps in your flow such as needing to change a Shopify setting in your setup flow or preempting the merchant before the payment page.

Realizing these advantages, many leading apps have already gone embedded. Since going fully embedded may require significant development resources, many apps opt to start with embedding onboarding, dashboard and subscription flows only. The heavier setup and tweaking steps are done on the app’s interface.

A word of caution — going embedded is not enough in itself to significantly raise your post-install conversion rate. It does give you the capability to dramatically improve your numbers. But to reap the benefits you must use it optimally for your flow.

Onboarding

The objective of onboarding is to quickly and easily get trialists to the point where they experience your app’s value for their business.

Usually, the first few steps are required in order to set up the proper app environment for the user. Automate whatever you can and minimize steps and requirements. Do not ask your users to sign up. Get the details from Shopify. Make sure that throughout these setup steps you keep your users motivated by reminding them of the value they’ll soon be getting.

Once users finish the initial setup successfully and start working with the app itself, the objective is to get them to the point where it is delivering value. The a-ha moment. Start by mapping out common use cases and decide on the point of value you’re aiming for. Then plot the series of steps that will get the user there. Think of how to make each step as clear and effortless as possible. Use preventative actions to address problem areas.

In-trial

The trial period is when you must prove your app’s value. Use your app’s dashboard to show graphs and stats valuable to the user. Checking data can be very addictive, especially in the beginning when it is accumulating. Use that to keep trialists interacting with your app. Interaction increases perceived value and helps conversion.

When users start a trial with your app, they are receptive to communications coming from you. Emails can be very effective. The first email you send should welcome users, reminding them of the value they will soon get, and pointing them towards help, should they need it. The next batch should highlight valuable features and link to the dashboard, where trialists can see the value they’re getting from your app.

Subscription flow

Towards the end of the trial, the focus in your communication should shift to subscription. In your email cadence, send an email warning that the trial is ending soon, with a link to pricing a couple of days before the trial is over. Then on the last day, send an email with a more urgent tone. Continue emailing users that didn’t subscribe after the trial is finished, possibly with special offers.

Your app can also help with subscriptions. Show a countdown of trial days in the user’s dashboard. Use the notification bar and pop-ups to warn the user that the trial ends soon, with a link to your pricing plans.

Conclusion and summary

You can scale your Shopify app despite the intensifying competition if you fine-tune your funnel from traffic acquisition through to monetization.

To scale your traffic acquisition profitably, you need to know who your customers are, how they use your product, the traffic sources they come through, and the search terms they use. With this knowledge, you can optimize your app store page for SEO and paid search for profitable scaling.

Improving your funnel can fuel growth by better monetizing traffic you’re already getting, and by using the improved efficiency to fuel aggressive traffic acquisition. Funnel optimization is more effective for growth than traffic acquisition. It should be your top priority for scaling.

There is a general belief that optimizing a funnel is a thing for b2c startups only. But the truth is that fleshing out your funnel is as crucial to b2b startup success as it is for b2c. ARX (Algorithmic Research Ltd) is a great example.

 

The company: an unusual journey

ARX had an unusual journey. It was founded in 1987 by students of cryptography pioneer Adi Shamir, the “S” in the RSA algorithm. Ten years later, the company was acquired by Cylink for nearly $100M. The acquisition failed. In 2001, Cylink’s management was about to write it off.

To save the company, ARX’s management, headed by Gadi Aharoni, bought it back for a symbolic amount -  and a mountain of debt. ARX’s team worked hard. They took no pay for a while. Two years later, the company paid off most of its debt and stood on its feet again.

By this time, the markets for the company’s products were shrinking. New technologies were replacing old ones. It was time to develop a new product. Digital signatures were chosen. CoSign was created.

The starting point: 150 leads, 1% conversion rate

I joined as Head of Marketing in 2009, four years after CoSign was launched. At the time, CoSign was one of the pioneers in the developing digital signature space. It was an enterprise digital signature solution that allowed for signature-based digital workflows to remain paperless, compliant, and secure.

CoSign sales were around $150K/month. There were 70 CoSign customers, paying an average of $25K each. The company’s website had 15K visitors a month - not bad for a developing space with limited online searches. It managed to capture 1% of them- mostly through the contact form. These 150 leads fed 4 sales managers and a VP.

After a few months, I developed CoSign’s go-to-market strategy. It had two components: conquering the market one niche at a time and perfecting a lead generation machine.

Step 1: Crossing the chasm-focus  on one niche

Our niche-based go-to-market strategy was greatly inspired by Geoffrey Moore’s Crossing the Chasm and the follow up Inside the Tornado. The books provide a market penetration framework for innovative b2b startups.

The main idea is to target one niche at a time - a niche with a critical common use case that is underserved. To win the niche, startups need to concentrate their resources on it and provide a full solution for the use case. Once you conquer the first niche, the beachhead, you expand to adjacent or similar niches.

For CoSign, this niche was clinical trials. Several of our customers were using CoSign for clinical site visit reporting. In this use case, a representative of the company monitoring the clinical trials visits a site where they are conducted, writes a report, signs it, and sends it to the manager in the main office. The manager in the main office countersigns the report and sends it to the pharmaceutical company. The report bearing both signatures must arrive within 10 days of the site visit.

Meeting the 10-day deadline requires two express couriers for $30/report. A compliant digital signature solution can save a lot of money. We focused on that niche and use case. Around half of our budget and effort was placed on it.

Step 2: Perfect the lead generation machine - start with the funnel and assets

The other half of our marketing budget and effort went on optimizing our customer acquisition machine.

Since all potential prospects had to pass through our site, improving the conversion funnel was our top priority. If we could double our conversion rate, we would double the efficiency of all our digital marketing efforts with a single stroke.

The site didn’t have a clear funnel at the time. There were many navigation options, but no clear hierarchy and path. It was hard for users to figure out where to go.

ARX’s homepage when we started:

As a result, we got very few leads other than contact forms. Contact form leads are the highest quality, but we didn’t want all the relevant visitors who weren’t ready to talk with sales to simply disappear. So we created appealing ebooks and white papers as lead capture assets.

Step 3: Define the personas - and build the site for them

To build an optimal funnel, we needed to deeply understand our users. We ran surveys, interviewed customers, collected insights from the sales managers, and analyzed our CRM for job functions and company types of the users most likely to convert.

We started by defining and prioritizing our personas. Then we organized our homepage to act as a gateway for each persona, based on priority.

We learned that there were two main types of job functions we had to cater to. First, line managers, who wanted to extend paperless workflow efficiency to processes requiring signatures. Line managers came in two states: beginner and advanced. The beginner was just starting to learn about digital signatures. The advanced was sold on the benefits and looking for the right solution.

The second type of job function we needed to cater to were IT professionals. They were called in to make sure the solution plays nicely with other technologies they had in place.

In terms of our priorities, advanced line managers were the top target, followed by beginner line managers, and IT pros. We wanted the homepage to reflect this prioritization and for all personas to quickly find and enter the section catered exactly to their interests.

An early version of the new homepage illustrates this:

• The top strip is focused on advanced line managers. All the “learn more” calls to action send the user to a section in which we present our best pitch and lead to a contact form.
  Below the top strip, on the left, is the “Learning Center”, an area designed for beginners: we provide information about digital signatures - and offer a white paper in return for the user’s details.
• The bottom center shows numbers and logos for credibility.
• On the right is the entrance to the technology section for the IT manager.
• Beneath that, we placed an ebook requiring registration as bait for quick capture of user details.
• At the very bottom, we placed the free trial feature we just developed.

Early Results: 3 months - tripled conversion rate

Once we went live with the new funnel, our conversion rate immediately doubled to 2%. Most of the growth came from premium content downloads.

During the first months after going live, we were obsessed with finding what wasn’t working well and fixing it. We collected and analyzed all the data we could get - where people click, what pages they view, where they exit. In addition to data, we spent many hours watching user videos trying to understand what didn’t work well.

After three months our conversion rate climbed to 3%.

Step 4: Continuous optimization

After the encouraging start, we experimented with changing the texts, calls to action, offers, even steps.

We noticed that the free trial, though hidden away at the very bottom of the homepage, was doing surprisingly well. We made it more prominent. Users flocked to it.

We changed the homepage again, making the trial the main call to action. It became our top lead capture mechanism. We fine-tuned the free trial funnel - the trial registration page, pricing plans, activation, and onboarding. The success of the free trial drove the company to adopt a SaaS model.

Step 5: Landing page-based funnels and a surprise

We analyzed our site’s traffic sources and landing pages. Each landing page that received significant incoming traffic was optimized to feed into a relevant funnel.

We were surprised to discover that much of our traffic was coming from Microsoft Office. It took some time to figure out why. Apparently, there’s a digital signature capability in Office. To complete the digital signature you need a certificate. You can only get a certificate from a third party, such as ARX.

We traced the steps a user that wishes to sign an Office document goes through before reaching our site. This understanding helped us make the right offer in the right way. Our lead capture rate for these users jumped from 20% to 50%.

Step 6: 7-digit deals and new niches

Concentrating our efforts on clinical trial reporting paid off. Within a couple of years, we were closing multi-year seven-figure deals with the biggest players in the space. CoSign was the standard. No one could dislodge us.

We branched out to adjacent niches, like healthcare, and to similar use cases, such as drawing approval workflows in engineering design. We created landing pages for each niche. From the landing pages, users were led to industry-specific content and offers.

Results: 4x traffic, 16x conversion rate, 10k leads

The increase in conversion rate slashed our customer acquisition cost. Our marketing campaigns became very efficient. Our budget multiplied.

Traffic grew 4x. The conversion rate grew 16x. Leads grew from 150 a month to 10,000.

Most of the 10,000 were just contacts of people registered to get something. They were not ready for sales. We needed a way to handle them.

We introduced a marketing automation platform for lead scoring and email marketing. Registrants were scored based on their job title, company size, and industry. Email flows were created and optimized for each persona and industry. User engagement was measured and scored. Once the combined demographic and engagement score passed a certain threshold, the lead was transferred to sales.

This was not good enough. Our sales managers got swamped with leads that they were expected to chase down. These leads had the right job function in the right company and were engaged with our content, but weren’t ready to talk to us. We needed another layer of qualification before sales. We hired an inside sales rep. Eventually, we had a whole team.

Endgame

CoSign became the clear leader in several niches. Sales grew by almost 10X. In 2015, ten years after CoSign was launched, DocuSign acquired ARX for nearly $100M.

Everything I learned about funnel optimization in this journey and beyond is available in How to create a conversion funnel you can scale with: A detailed guide for tech startups.

Getting to positive unit economics is a major milestone for startups. It allows you to outgrow your competition and makes you very attractive to investors. The earlier you get to positive unit economics, the faster you can scale your startup. 

I raised the biggest check for my startup through an elevator pitch. True story. A real elevator pitch. And, the whole ride was three floors up.

It was an evening function at the home of some foreign diplomat. A handful of entrepreneurs, I included, met a handful of investors. I had been bootstrapping my startup for nearly a year and a half then and getting to a point where I needed to get some funding soon. 

The diplomat lived on the third floor of the building. As I walked into the lobby, an older man walked in as well. We nodded at each other and hit the elevator button. “Investor or Entrepreneur?”, I asked. “Investor”, he said. “Can I tell you about my startup?”, I asked. Just then the elevator arrived and the door opened. He pointed inside, smiled, and said “Here’s the elevator. Pitch me. “

I gave my quick explainer of what we do, “and”, I said, “we’re nearly at positive unit economics”. 

That was enough for him to give me his card and ask me to set up a proper meeting. It turned out that he was a very prolific early-stage investor. We closed our seed round 3 months later, and he became my biggest, and, over time, favorite investor. 

Most startups begin with negative unit economics. They spend more on acquiring customers than what they make from them. Some well-funded startups go very far exchanging rapid growth for model profitability. Amazon is an obvious example. 

All startups, at one point, must reach positive unit economics. 

Sequoia Capital says:

For a product to succeed over a long period of time, several conditions must be present: product-market fit, positive unit economics, and the ability to scale and grow

 

Actually, reaching positive unit economics gives you the ability to scale and grow. Once you extract more value from your users than they cost, you reach a virtuous cycle of reinvesting ever-growing marketing budgets on acquiring more and more new customers. You may need funding to cover the payback period and your overheads. But investors love startups that are at positive unit economics. Funding your payback period should not be an issue. 

Reaching positive unit economics is a major milestone, but it doesn’t end there. Once you’re positive, you want your model to become more and more profitable. If your unit economics are better than your competitors’, you’re in a strong position to outgrow them and dominate your market. 

While much has been written on how to measure unit economics and why reaching positive unit economics is important, surprisingly little has been written about how to get there. 

This article lists and explains the drivers of unit economics. Each driver is broken down into tactics that you can use to drive your model into positive unit economics, and beyond, with links for further reading. 

All the tactics listed in this article are available in this Google doc. 

How to calculate unit economics

Unit economics and model profitability

The “unit” in unit economics can be the user, customer, or product/service. It’s similar formulas, rearranged to show the chosen metric. We will use the most common unit, the customer.

How to calculate unit economics:

Unit economics= LTV – CAC

Lifetime Value (LTV) measures how much money you make from your average customer. 

The Cost of Acquired Customer (CAC) measures how much it costs you to get a customer.

When LTV is bigger than CAC you’re making more from your customers than it costs you to get them. That means you’ve reached positive unit economics.

Positive Unit Economics: LTV>CAC

How to Calculate model profitability:

Model profitability is measured by ROI. 

ROI= LTV/CAC

The higher the LTV and the lower the CAC, the higher the ROI

A startup whose LTV is $300 and CAC is $200 has ROI=$300/$200= 150%. You get a $1.50 for every $1 spent.

How to calculate LTV:

LTV is composed of the Average Order Size (AOV), Gross Margin (GM), and the number of Transactions (T). 

LTV= AOV*GM*T

If we have a product that sells for $100 (AOV), has a 25% gross margin (GM), and the average customer makes 12 orders (T),  LTV=$100*0.25*12=$300

How to calculate CAC:

CAC=Total marketing & direct selling costs /# of customers 

Numeric example = $10,000 marketing spend, 50 sales

CAC= $10,000/50=$200

How to break down CAC:

It’s useful to break CAC into User Acquisition Cost (UAC) and Conversion Rate (CVR) because it allows you to assess and optimize each part separately.

CAC= user acquisition cost (UAC) / conversion rate (CVR)

UAC=Total marketing & direct selling costs /# of users

CVR=customers/#users

Numeric example (same as above): $10,000 marketing spend, 50 sales, 20,000 users

UAC=$10,000/20,000=$0.50.  It costs $0.50/user

CVR=50/20,000= 1/400= 0.25%. One in 400, or 0.25% of users become customers

CAC=$0.50/0.25%=$0.5*400=$200

How to maximize customer lifetime value (LTV)

The LTV formula is all multiplications: AOV*GM*T. This means that whichever part you improve, the LTV improves by the same factor. Since you want maximum results and have limited resources, it makes sense to target the parts that have the biggest improvement potential first. 

 

How to maximize Average Order Value (AOV)

High impact tactics: 

• A major price hike – This is possible if you change focus to higher-end services/products, or larger companies (enterprise instead of SME’s). Read more on how to increase your startup’s prices here and here (SaaS). 

Medium impact tactics:

• Moderate pricing increase – Do this if you can get away with a moderate price increase without losing too many potential customers. Usually, it means that within your competitive environment, your product provides enough value to justify higher pricing. One way to get there is to add valuable features to your product.
• Scalable pricing – If you provide an ongoing service, such as SaaS, much optimization is possible around setting your plans up so that as your customers grow and get more value from your product, you charge more. Read more here
• Upsell – Sell more of the same product/service to your customers. For example, an e-commerce site selling a chosen shirt can propose adding the same shirt in another color. 
• Cross-sell – Sell complementary products/services to your customers. For instance, the e-commerce site above can propose pants, ties, socks to go with the chosen shirts. 
• Bundle – Offer bundles to your customers. For instance, a shirt and tie.

How to maximize gross margin

High impact tactics: 

• Vertically integrate up – move up a level in your market- for instance, from affiliate to merchant. Note though, that you don’t capture all the additional gross margin from one level up since you need to take over the costs too.  In the example above, as a merchant, you also need to cover costs such as credit cards and fulfillment.
• Vertically integrate down –  Develop your own traffic sources, cutting down on sources that drive traffic to your site in return for expensive commissions (eg. affiliates).  

Medium impact tactics:

• Automate processes – Develop your product to require less support, training, and set up resources. Optimize for self onboarding if possible. 
• Increase prices – If you can get away with it 
• Optimize sales and support resources –  Find ways to improve sales and support efficiency to reduce costs
• Reduce other direct costs – Breakdown your product/service costs and find which parts can be optimized  

How to maximize the number of transactions

High impact tactics: 

• Improve initial onboarding – If your product requires some interaction to master and receive value, and you see that you’re losing a lot of your users around the onboarding, improving it could be a good opportunity. Learn where the problems are by looking at the data and talking to your users. Develop improvements and test them. Read more about improving onboarding here and here. 
• Reduce churn –  If you have a SaaS product, churn is critical to your business. If your churn is above 10% you can dramatically improve your unit economics by focusing on reducing it. To reduce churn, try to understand the reasons for abandonment and fix them. Seek early warning signs such as falling usage, and put in place processes that preserve the customer before it’s too late. Read more about reducing churn for SaaS ventures here and here. 

Medium impact tactics:

• Improve your email marketing – Most startups do some kind of email marketing. Usually, there is much room for improvement. Here are some tips on optimizing your email marketing. 
• Offer incentives/loyalty schemes/gamification for returning users – Add reasons for your customers to return
• Build strong online communities – Engage your customers in your online communities 
• Provide great customer service – Let your customers know that they are in good hands

The high impact tactics for your LTV are a major price hike, vertical integration, improved onboarding, and reduced churn (for SaaS). These tactics are relevant in certain situations. In addition, there are many medium impact tactics you can deploy. Improving several medium-impact tactics adds up.

How to minimize CAC

CAC is composed of the user acquisition cost and conversion rate. By separating them, we can try to optimize each one. Note though that the two are very much intertwined. If you reduce your user acquisition cost by bringing in cheap junk traffic, you’ll have difficulties converting. It’s often worthwhile to increase your user acquisition cost by acquiring more expensive traffic that converts well.

How to minimize user acquisition cost 

High impact tactics: 

• Improve your targeting  – Deeply analyze your customers and understand who is your best buyer persona. Plot the buyer journey to optimize the messaging and offers in your ads. Here is a good guide on how to find your ideal buyer persona.
• Form traffic partnerships – Seek platforms that can send you large amounts of relevant traffic on a per-click or per conversion basis.  

Medium impact tactics:

• Cut channels that perform badly – Analyze the performance of each channel and cut the ones that don’t convert well.
• Test new channels/platforms – Experiment with new channels
• Optimize your campaigns – Optimize your ad text, visual, offer and bids to make your campaigns more efficient
• Add retargeting – Retargetting usually provides a very high ROI on your marketing spend. Users that return are much more likely to convert than first-time visitors. 

How to maximize conversion rate

High impact tactics: 

• Optimize your conversion funnel – Optimizing your funnel may be the fastest way to reach positive unit economics. If you create the optimal funnel, it’s possible to 2x, 3x, even 10x your conversion rate. That means cutting your CAC by 2x, 3x, maybe 10x. Startups that have the most to gain are those that have innovative products, multi-step funnels, funnels that have never been challenged, and those whose conversion rate is far from relevant benchmarks. Here is an article I wrote about how optimizing your funnel can lead to scaling and here is a detailed article on how to optimize your funnel. 

Medium impact tactics:

• Optimize landing pages – reduce bounce rate and maximize conversion. Learn more here.
• Optimize forms –  minimize form abandonment. Good list here
• Optimize checkout flow – minimize checkout abandonment. For e-Commerce see here. For SaaS free trial, including benchmarks, see here.

Summary

You can improve your unit economics by focusing on increasing your average order size, gross margin, the number of transactions from each customer, conversion rate, and by decreasing your user acquisition cost. 

To get the biggest gains in lifetime value, you need to hike your prices, vertically integrate, dramatically improve onboarding or slash your churn.

To get the biggest cuts in CAC, you need to establish new traffic partnerships, nail your targeting, or optimize your conversion funnel.

There are a bunch of other tactics that give you moderate gains that add up.

A summary of these tactics, and more, is available in this google doc. Mapping all the relevant tactics is best done collaboratively. If you’d like to share additional tactics or good links, please post in the comments and I will add them to the spreadsheet.

When the first coronavirus wave hit and the scale of economic carnage became clear, it was all about survival. Nimble founders reacted swiftly by cutting their burn rate, adapting their products, and doing whatever it takes to retain their customers.

If this is you, congrats! It’s important to survive.

But survival is not enough. Startups need to grow.

How can you grow when cash is tight, customers are afraid of spending, and some of the marketing tactics that worked for you before are now off-limits?

Whatever you did or didn’t do in digital, now it’s where most of the game is played. If you want to grow and can’t count on external funding, your best bet is to fine-tune your digital marketing until it’s profitable and grow from there.

Nail your funnel to grow your startup

A digital funnel is a series of pages, offers, buttons, and forms that users go through in the process of becoming customers. Funnels begin with the initial click that brings a user to the site, continue through the homepage or landing page, pass subsequent pages, and end when the sale is made or lead is captured. The effectiveness of a funnel is measured by its conversion rate.

Most startups launch their site with a reasonable funnel. Afterward, they rarely make major changes to it. The steps, value propositions, offers, calls to action and other content elements stay pretty much the same. Even when the site gets a redesign, only the skin changes.

Radically changing your funnel is very risky, especially if the funnel is working. Radical changes can soak up critical resources and the new funnel may end up worse than the old one. It’s safer to make incremental changes.

This is exactly where your keys for growth are hiding.

If your product is innovative and your funnel has never been challenged, your current funnel is probably sub-optimal. It converts much worse than it could. There’s a better sequence of messages, offers, and steps possible.

Your funnel should be aligned with your customers’ solution journey: The problem they’re trying to solve, the steps they take, their objectives and actions at each step, their alternatives, and concerns. It should address their problem while demonstrating your product’s value and uniqueness. The flow should dispel your customers’ concerns, build trust, and move them smoothly towards conversion.

If you nail your funnel, you can multiply your conversion rate, slash the cost of acquiring new customers, reach a profitable digital model, and scale your startup.

I improved funnel conversion rates by over 10x twice. Once as VP marketing of a b2b startup. The other, as Co-Founder and CEO of a b2c venture. In both cases, this led to fast growth. One of them resulted in the sale of the company for nearly $100M.

Each time, it took less than 6 months to double our conversion rate.

If you double your conversion rate, you immediately double new sales on your existing traffic. All your user acquisition tactics become twice as effective. You can pump more money into existing and new marketing activities. You can scale.

How to nail your digital funnel in 6 months

An optimal funnel is one that potential customers find natural, clear, and compelling. They get exactly the information they want when they want it. The flow is effortless, and they are in control. They feel that someone deeply understands them. They’re eager to learn more about your product. They hope it’s as good as your site. They want to buy from you.
This is the funnel optimization framework we use at Convert2X, my agency. It consists of deep, holistic analysis, funnel design, materials creation, new funnel launch, and post-launch stabilization. It can be done in 6 months.

The convert2x 6-months funnel optimization framework:

1. Understand your current situation: It’s all about your potential customers and how they interact with your funnel. Who are the best users to target? What problem are they solving? How do they go about seeking a solution? How do they get to your site? What is their engagement like? How does your funnel perform? Where is it leaking? Why?

2. Create the Optimal funnel for your potential customers: Use everything you learned in the research to align your funnel to your customers and create the optimal funnel steps, content, and offers.

3. Stabilize your funnel: The more dramatic the changes, the more bugs and usability issues you’re going to have at first. Start lean and take a few weeks to fix the big problems. With many changes at once, some elements in your funnel will be off. Run new user tests and analyze your funnel data to develop and test improvements.

4. Optimize Continuously: Ok, this is beyond the six months it takes to create and stabilize a better funnel. Once your main funnel is in good shape, turn to other important pages of your site and optimize them too. Extend your funnel beyond your site to email, retargeting, and other touchpoints. Track everything, and never stop optimizing.

Step 1: Understand your current situation

This is the most time-consuming step. It requires learning all you can about your users, how they interact with your funnel, where, and why they drop off. If you want to nail your funnel, you have to be thorough. No shortcuts here.

Heuristic analysis

Heuristic analysis is a review of the user experience of your funnel, on each relevant platform. Does your homepage or landing page scream out what’s special about your solution and its value for your customers? Does your company look trustworthy? Is it easy to understand how your product works? Are the claims you make credible? Is it compelling to move forward? Does your funnel have a sensible sequence of steps? Is it the right amount of steps? Does each step showcase your value? Is it clear for users what to do next at each step? Is it the correct call to action? Is it easy for users to navigate and find what they’re looking for? What causes friction and distractions along the way?

It may be impossible for you to answer these questions objectively because everything on your site makes perfect sense to you. Turn to user tests, usage videos, heatmaps, and click maps to get some ideas of what’s off. It may also be a good idea to bring in a professional to audit your site.

Quantitative analysis

There is a lot more to be learned through quantitative analysis than I cover in this article. I’ll touch briefly on the two most important parts: your users and your funnel.

Who are your best users? Which traffic sources do they come through? Which of these sources is scalable? Where do they land on your site? How do these pages perform? Where do they leave from? What else can you find out about your users and their engagement with your site? If you’re using Google Analytics, create segments such as desktop vs mobile and new versus returning and look for interesting insights.

For your funnels, the key things to look into are the conversion rates for the entire funnel and each step. Find the weaker steps — the ones where you have the biggest drop off relative to the potential. Compare step by step performance by device, top traffic sources, top landing pages, and new vs. returning users.

Technical analysis

Look at two things when you conduct technical analysis: site speed and bugs. Site speed has a surprisingly big effect on conversion. Make sure your site’s speed is reasonable for all devices and relevant geographies. Pingdom is a great tool for speed checking and optimization tips. Google Analytics works well too.

Bugs are a clean win. When you find bugs that affect enough users, just fix them. No need to A/B test. Trace the sources leading to your error page. Check performance across devices, browsers, operating systems, and screen resolutions to find significant segments that underperform. Compare performance on metrics such as conversion rate, when you have enough data, and time on-site or bounce rate, when you don’t. In parallel, look for bugs using your QA, support team, and videos of users interacting with the site.

Competitive analysis

The funnels of your more optimized competitors are a good source of improvement ideas. Start with their homepage. Check out the value proposition, claims, promoted features, calls to action. From the homepage, click on the main call to action and follow the funnel through. Try to understand the logic behind the copy, hierarchy, and funnel steps. See which ideas are interesting.

Qualitative analysis

Nothing is more important than deeply understanding your potential customers. The more you understand who they are, the problem they’re trying to solve, the steps they take, their motivations, alternatives, and concerns, the easier it is to nail your funnel.

The coronavirus pandemic changed your customers’ perspective. When they spend now, it’s for things that are perceived as must-haves. Things that will help them survive. That’s where you want to be. You want to position your product as a must-have.

To say the right things on your site, it’s critical to get fresh customer insights. What makes customers convert now? How does your product help them with their challenges? Which features are most critical?

Use surveys together with quantitative usage data to identify interesting segments. Drill into each segment to understand the demographics, the value they get from your product, what they think is missing, their concerns, and objections.

Surveys and interviews can help you understand the perceived value of your product. “How would you describe <your product> to a friend?” Is a great open question to put on your survey. User tests can uncover usability issues. Interviews, surveys, and customer-facing resources in your team can reveal objections and prepare counters.

Solution journey mapping

Your customers’ solution journey is the process through which they seek a solution for their problem. Different problems have different solution journeys, but there are several common steps: research — shortlist interesting solutions, evaluation — compare and rank, decision — choose the best solution, execution — make it happen.

To map your customers’ solution journey, you need to interview relevant users, customers, and/or customer-facing resources. What triggered your potential customers to search for a solution? What problem are they trying to solve? Which steps do they take? What are their actions and objectives in each step?

Once the solution journey is clear, map it on a timeline. Break it down into steps. For each step, list your potential customers’ objectives and actions. Do this for each customer segment.

Step 2: Optimal funnel creation

Solution journey alignment

To maximize conversion, your funnel needs to be aligned with your customers’ solution journey. Your potential customers use their own funnel to find a solution for their problem. To maximize conversion, your funnel needs to fit their funnel.

Where along the solution journey do your potential customers encounter your product? What do they want to know when they come to your site at that stage of their journey? How should you welcome them? What are their objectives at that stage? What should be your offer? What are their alternatives? How do you stand out? What are their concerns? How do you diffuse them?

Optimal funnel creation

With all the inputs you collected, your optimal conversion funnel should become quite clear. It could be radically different or fairly close to your existing funnel. Maybe just changes to the messaging and offers. Perhaps a different sequence. Maybe a major change in one step and small improvements in the others.

Before you go live, do thorough QA and usability testing. Fix critical issues. Prioritize the rest and place it in your backlog. Make sure you have analytics set up properly and you’re collecting reliable data on everything imaginable. Prepare for going live as an A/B test. If the funnel change is dramatic, set up the test so that users branch out to different funnels. Start lean. You can add features later.

Step 3: Deploy & stabilize your funnel

Start by driving a proportion of your new users to the new funnel. If you did the right thing and went live with minimal features, you might be itching to add the fancy ones very quickly. Relax. Don’t do it. Give your new funnel time to breathe first. Focus on stabilizing it until it performs better than the old one AND you’ve fixed all the important issues.

The more dramatic the changes to your funnel, the more likely you’ll have issues when you go live. The cost of making radical changes is that you don’t know which elements are better and which are worse. It could be bugs, user experience issues, missing functionality, or unclear copy. You need time to find and fix the big issues.

During the stabilization period, you should be all over your new funnel. Focus first on the weakest steps, where the conversion rate is lower than expected. Expand QA to all team members. Spend time watching user videos. Run user tests. Collect inputs from customer-facing resources.

Best practices for A/B tests stipulate that you shouldn’t change versions during a test. Break this rule. During the stabilization period, you should continuously optimize the new conversion funnel while the experiment is running and you’re measuring the relative conversion rate.

As your new funnel improves, increase the proportion of traffic you send to it. When it’s clean of major issues, performs better than the old one, and seems stable, send all your traffic there.

Step 4: Continuous optimization

We focused on your main funnel so far. After it’s stabilized, performs better than what you had before, and you’re out of obvious things to improve, it’s time to move on to other pages.

Remember when I wrote that I got over 10X improvements twice? Well, each one took a bit over two years of obsessive optimization and countless A/B tests. You can more than double in the first six months, and you can more than double afterward too.

Start with pages that get a lot of traffic and are most problematic, and work your way down from there. Make allowance for low traffic but high importance pages such as your “about us” or deep product specs pages.

Extend your funnels beyond the site. Optimize emails, newsletters, remarketing, customer success, inside sales, sales reps. As you broaden your reach, make sure you collect data on everything and are continuously optimizing.

Conclusion and takeaway

If you nail your digital funnel, you’ll multiply your conversion rate, slash the cost of acquiring new customers, reach a profitable digital model, and scale.

The convert2x funnel optimization framework

1. Understand your current situation: Conduct heuristic, quantitative, qualitative, technical, and competitive analysis to learn all you can about your potential customers and how they interact with your funnel. Map your potential customers’ solution journey.
2. Create the Optimal funnel for your potential customers: Use everything you learned in the research to align your funnel to your customers’ solution journey, and create the optimal funnel steps, content, and offers.
3. Stabilize your funnel: The more dramatic the changes, the more bugs and usability issues you’re going to have at first. Start lean and take a few weeks to fix the big problems. With many changes at once, some elements in your funnel will be off. Run new user tests and analyze your funnel data to develop and test improvements.
4. Optimize Continuously: Once your main funnel is in good shape, turn to other important pages of your site and optimize them too. Extend your funnel beyond the site to email, retargeting, and other touchpoints. Track everything and never stop optimizing.

You can double your conversion rate in months. Now is the perfect time to start.

One of the most stressful points in a startup CEO’s journey is when you’re a few months into using up your previous round’s cash and you realize that your numbers are far from where they need to be.

Unfortunately, most founders go through this.

I sure did.

I was the Co-Founder & CEO of a B2C travel start-up, RoutePerfect. Our product was a multi-destination trip planning engine for independent travelers. When users booked their trips, we took a cut.

Five months passed since we raised our second funding round, and our numbers were not even close to our targets. Our growth target was at least 2X between rounds. Ideally, over 3X. If we could get that growth, our round size, valuation, and share price would all go up. Everyone will be happy.

If we wouldn’t hit at least 2X, raising our next round would be painful. Not so nice things may start happening to our valuation. Our startup would not be on the trajectory we wanted it to be on.

Piecing together the numbers that got us to the last round was a big scramble. Some parts could not scale. We needed to develop more growth engines.

We took a few bets in parallel. Our team developed promising features, we pursued partnerships with scalable platforms, and we made a couple of key hires. I spent a lot of time reading up on growth hacking techniques, hoping to find some pragmatic growth ideas.

Growth hacking is about finding ways to grow fast, on a limited budget, using experiments, data, and a dose of creativity. It comprises two parts: Getting users into your funnel and converting them into customers.

We were very serious about the user acquisition side of growth hacking. Our team filled spreadsheets with ideas for testing. We executed many of them. Every once in a while, we found new user acquisition opportunities that moved the needle.

None of them scaled.

Our users came from many sources. But we could only count on performance marketing for reliable scaling.

At the time, the value we were able to extract from each user was 2.5 cents in gross profit. Our average traffic cost was around 20 cents/user.

Our model was not working.

Some startups may disregard model profitability to grow fast, at least at certain periods of their journeys. We couldn’t then. We had to fix our model first.

We had to reach a positive ROI and scale from there.

Doubling your funnel’s efficiency leads to 3x growth

We focused on improving our conversion funnel.

Many entrepreneurs only focus on the user acquisition part of growth hacking. They ignore the conversion part. That’s a mistake.

For startups, one of the most reliable ways to grow is to optimize the conversion funnel.

Conversion Funnels are the series of steps you take your users on, from your first contact with them, until they convert. The conversion rate measures funnel efficiency.

Doubling your funnel’s conversion rate means that you double your new customers.

If you have 10K visitors a month generating 100 new sales at a 1% conversion rate, doubling your conversion rate to 2% will get you 200 sales.

If you double your funnel’s conversion rate, you also double the efficiency of all your marketing activities.

Let’s say you spend $5K on a marketing activity that gets you 50 sales. If you double your funnel’s conversion rate, that $5K now gets you 100 sales. Each dollar spent on this campaign gives you back twice as much as before.

If that happens, it makes sense to pump more money into your existing marketing activities.

Not only your existing marketing activities become more efficient when you improve your funnel’s conversion rate. All potential activities do too. Some activities that did not make the cut before, now become viable.

By doubling your conversion funnel’s efficiency, you immediately double your new sales. In addition, you can increase the budget for your current activities and launch new ones that have become profitable.

Altogether, if you double your funnel’s efficiency or conversion rate, you can get the 3X growth you want.

I’ll write that again.

If you double your conversion rate, you can grow by 3x.

What improvement is possible?

Our conversion funnel at RoutePerfect was so dysfunctional, we had to reimagine it completely.

After deep research, we made radical changes to the flow of the site. Even to some parts of our model.

During the first few months, while we were making the biggest changes, we were all over our funnel. Pretty much the whole team focused on stabilizing it. We monitored all inputs from our site, spoke with customers, ran surveys, and conducted user tests.

After the new funnel was stable, we continued to optimize it.

A year later, we reached positive unit economics.

Our unit economics graph (it’s a seasonal business so down in Q4’s)

Read How to reach positive unit economics – actionable tactics for tech startups

After two years, we drove our customer value above 50 cents. That’s 21x higher than where we started.

During this time, we improved our conversion rate by 12X

It was not the only time I was involved in improving the funnel by over 10X.

Before founding RoutePerfect, I led the growth and marketing of a b2b SaaS startup, ARX. Over two years, my team and I improved the funnel’s conversion rate by 16x, fueling rapid scaling, and leading to the company’s acquisition by DocuSign for nearly $100M.

Read B2b SaaS: How we multiplied ARX’s conversion rate by 16x and scaled to a $100M exit

Doubling your conversion rate is a very reasonable target.

 

Transform your funnel into a conversion machine

Standard types of sites or products have standard funnels. For instance, the funnel of most simple e-commerce sites goes from homepage to category page to product page to checkout.

If you have a standard product, it’s best to stick to a standard funnel. That’s what users expect.

Tech startups create innovative products that help people or companies solve problems in a different and better way. Innovative products that offer a better way of doing things don’t have a standard funnel to follow.

Innovative products need innovative conversion funnels.

An optimal funnel is one that users find natural, clear, and compelling. They get exactly the information they want when they want. The flow is effortless, and they are in control. They feel that someone really understands them. They want to learn more about your product. They want to buy from you.

Most startups create a sensible funnel at the time they launch their first site. They then improve their website incrementally over time.

Startups usually do not make radical changes to their initial funnel. Doing so is very risky. Radical changes can soak up a lot of resources with nothing to show for it.

This is a very big problem. As a startup with an innovative product, your funnel is rarely optimal.

If you don’t challenge the funnel itself, you’re leaving a lot of growth potential on the table.

Most startups do some level of A/B testing and conversion funnel optimization. But without rethinking the funnel, optimization efforts have limited potential.

There’s a better sequence of steps, messages, and offers possible. If you find it, you’ll improve your conversion rate dramatically.

By sticking to your existing funnel, the best you can do is a local optimum.

To create the optimal conversion funnel for your innovative product, you must understand the users you can scale with. What triggered them to search for a solution? What problem are they trying to solve? What steps do they take to solve their problem? Where does your product fit their solution journey? What is their decision process and mindset at every step? What are their alternatives, and concerns?

To maximize conversions, your funnel needs to have exactly the right steps, messaging, calls to action, and trust elements to fit your users’ solution journey.

Often, the best way to get the biggest lifts, the 2x, 3x, 5x, is to reimagine the funnel.

Read How to create a conversion funnel you can scale with: A detailed guide for tech startups

Scale by optimizing your conversion funnel

Your funnel is sub-optimal. It prevents your startup from growing at its full potential. Nailing your funnel can be the difference between success and failure.

To optimize your funnel, you need to reimagine it. The best way to do that is to understand your potential customer’s solution journey — the steps they take, their goals, concerns, decision process, actions — and align your funnel to that.

If you optimize your funnel, you can multiply your conversion rate.

If you double your funnel’s conversion rate you can grow by 3x.