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- Paying people to be your customer to cut acquisition costs
Paying people to be your customer to cut acquisition costs
Incentives are a great way to acquire new customers at scale without having to overspend on advertising.
Brad Michelson
January 12, 2022
This week I’m trying a new newsletter service called Beehiiv. I’m an awful designer so the aesthetic here is a work in progress.
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It sounds counter-intuitive, but paying people to be your customer can be a great way to decrease customer acquisition costs.
But how can this be?
Think about it this way – let’s assume that your average click-through rate on an ad is… say… 0.1%. Out of the theoretical 1 million impressions that ad receives, you’re getting 1,000 clicks. Of those thousand clicks, you’re getting a 5% conversion rate from click to registered customer, translating to 50 new accounts.
Okay, great. But we’re talking fintech here. The goal is to get revenue-generating customers. So for, say, a trading app, you need to get that user to complete a trade. If your conversion rate from registration to trade is 20%, you’re left with only 10 users who converted into a paying customer.
That’s 0.001% of people who saw your ad in the first place. Nothing to be excited about here, really.
But what if we were able to increase your click-through rate to, say, 0.5%? All of a sudden you’re now looking at a projected 250 paying customers. At 1% CTR? 500.
And so on. You get where this is going.
Incentives do two great things:
Provides a boost to the click-through rates of your ads
Provides additional reasons (beyond your value propositions) for a user to join your platform and become a revenue-generating customer
But as marketers, we also need to remember that our work has to always be serving the best interests of the business. When you’re working on an incentive campaign, you always need to overlay the financial costs of incentives with the projected revenue generated by the campaign. The most common way to do this is by overlaying a projected CPA (cost per acquisition) with your business’ average user’s LTV (lifetime value). Maybe I’ll dig into this a bit more in another issue.
Anyway.
Incentives are a mainstay in D2C marketing. Whether you’re talking ecommerce, gaming, or fintech, providing an offer for someone to become or stay a customer can save you a ton of money. This past December had basically every major crypto brand running some sort of promotion. I’m going to run through some examples as inspo before we wrap up.
1. Digital Asset Gifting
The biggest trend I saw this past December was gifting for digital assets. Crypto Twitter has joked for years about giving the gift of Bitcoin. But now the market has actually grown to the phase of adoption where people do actually want to receive crypto as a gift. There are even companies providing ways for their users to gift NFTs.
Not only is this a cool way to get new customers but it’s also an awesome way for you to “red pill” your hold-out friends into the ecosystem.
2. Trade X to Win Percent of Prize Pool
This was very commonplace in Q4. The basic strategy here is that a brand will say that they’re giving away a large amount of cash (say, $250,000). All the user has to do to enter is, for example, trade $100. Then, that marque cash prize will be split among the entrants. I even saw some companies basing this on trade volume, so you’d win a higher percentage of the pool the more you trade. Not sure my compliance department would love that but here we are.
3. Trade X, Get Y
Tried and true, a “trade x, get y” incentive is a great way to drive activity on your platform. It can be a great solve for hitting your new account goals, increasing your platform’s AUM, and even increasing the LTV of your user on average. Simple but effective.
It’s important to remember that incentives do cost money, but they can also help you save money in the long run. Just remember, like with any marketing activation, that whatever you’re offering to your users serves your marketing goals.