As our proverbial plates continue to overflow, it’s more important than ever that we marketers put every minute of our days to good use—brushing up on the latest B2B marketing trends, evaluating and fine-tuning metrics, plotting a path forward for our companies and ourselves.
For many, this might mean looking long and hard at account-based marketing, or ABM, a go-to-market strategy requiring marketers to think more about accounts and contacts and less about leads.
It’s an about-face for all of us that invested in inbound marketing previously, where we lived and died by our numbers of leads, but it’s not exactly a new paradigm. ABM was historically limited to larger, enterprise-level companies because it often proved a more time- and labor-intensive route than most.
In recent years, however, technologies like marketing automation have helped to bring ABM downstream, making it less expensive, more efficient, and more accessible to B2B companies targeting mid-market and small business customers. As an old wine served in an attractive new bottle, it’s no wonder the concept caught eyes in 2016. But is it ultimately a program that bears out the hype? Or is it just that: all hype and no substance?
It’s here that the right measurements prove crucial, as is often the case with any new marketing strategy, specifically the ratio of lifetime customer value, or LTV, to customer acquisition costs, or CAC (CLV/CAC). This figure is often used to justify the investments in marketing and sales in acquiring customers, but there’s much more to it.
CLV, the revenue customers generate within their lifetimes as clients, typically spans a three- to five-year period and should dramatically increase with an account-based approach. CAC, the amount expended to acquire customers, combining what marketing and sales each spend, should also decrease with ABM. Execute ABM effectively, and you’re bound to see these totals improve in tandem, as you develop a clearer picture of your ideal customer profile and your customer acquisition processes are streamlined accordingly. A good ratio is a whole number like three or higher.
How exactly might ABM factor into this calculation, you wonder? Simple, really:
• ABM makes for more efficient and cost-effective marketing in the long run: An account-based approach allows you to structure your outreach around ideal customer profiles—buyer personas you base on common pain points, behaviors, and attributes you’ve observed over time in your most loyal and profitable customers. As a result, you’re able to target a much narrower segment of the market than you might reach normally. You eliminate a lot of costly guesswork, essentially, and you save yourself a small fortune in the process (money you might’ve thrown away otherwise on ad words, search, content marketing). You also streamline your inbound marketing efforts in the long run, cutting costs there as well, as you get to know who exactly you’re writing to and how best to tailor your content.
• ABM also makes for a more efficient and cost-effective sales process and higher win rates overall: It ensures your sales team spends its time wisely, with businesses in a real position to make a purchase, versus the bad leads in your barrel that are bound to waste money and energy. It also helps to limit the variety you’d see if you were to cold call names on a list at random—a technology provider here, a tire shop there, a private medical practice in between—so that over time, you have the means to make your sales reps bona fide domain experts. They become specialists in the various kinds of accounts they manage by industry, by title, by pain point, and so on.
• ABM results in higher retention rates on average: Focus on target accounts for long enough, and you’re likely to see greater consistency in all areas of your business—in the buyers you attract, in the interactions you have with them, and perhaps most crucially, in the product you ultimately develop for them. You’ll find yourself answering to a customer base comprised largely of similar businesses, with needs and attributes in common, and this, in turn, can help you build a product or service that contours closely to a specific and discrete set of pain points, playing to your customers’ strengths. You’ll offer, essentially, the service your customers most need and want because, of course, you know them well, and they’ll thank you for it with their renewals. Better still, you standardize vital business processes along the way—customer onboarding for one, sales enablement for another.
• ABM guarantees more revenues per individual customer: The closer you are to your customers, the easier it becomes to build on and respond directly to the behaviors you observe in them—the quirks that define them as prospects, the traits that distinguish them as customers, the habits that are typical of their industry and background. It’s knowledge that can pave the way for richer upsell and cross-sell opportunities down the line, wherein the rewards you offer your most loyal customers are tailored to their specific needs and constraints. Consider, as an example of this, the Dollar Shave Club model of business, in which subscribers are given their choice of blades and asked to indicate how often they shave so that later they can purchase supplementary items (aftershave, shaving gel, moisturizer) as premiums on top of their existing subscriptions; it’s behavior-based upsell, and it’s a direct consequence of an account-based mindset.
What Should A Business Do If The CLV/CAC Lowers?
Nothing right away. It’s important to give the process time to ensure that there isn’t an anomaly that skews your numbers. ABM has value to offer, to be sure, and can serve your business well as a marketing tactic, but it may not be the only marketing tactic your business needs, or deserves, for that matter. It’s crucial that you strike just the right balance between ABM, inbound, and other marketing efforts. It may even turn out that an improved CLV/CAC ratio is more about bringing balance to your marketing profile and less about chasing the next big thing.