Driving 100mn users to adopt digital payments:
Growth is the fuel that energizes startups to defy heavy odds. It sustains and drives startups in their quest to create value and to build successful businesses. But how should one navigate the growth journey? What are the levers that startups can use to drive and sustain both the quantity and the quality of growth? And what are the indicators that are the most useful in this journey?
In the startup world, growth is often discussed in terms of CAC (Customer Acquisition Cost), LTV (Life Time Value of a customer), UE (Unit Economics), and NSM (North Star Metric).
At a high-level, these terms are defined easily:
- CAC is the cost of acquiring one additional customer, which can be calculated as (Sales Expense + Marketing Expense) / #new-customers.
- LTV is the total revenue the company can make from an individual customer over the life its association with the company.
- UE (Unit Economics) helps to calculate the “contribution margin” per customer; it corresponds to how much value each customer (“unit”) creates for the company. UE, therefore, helps to predict company’s revenue and profits. For the sake of simplicity, LTV to CAC ratio (i.e., LTV / CAC) is often used as a rough proxy for UE.
- NSM (North Star Metric): the metric that a startup uses to help it focus on growth.
However, the terms get complicated in reality.
For example:
- CAC: what is the definition of “acquiring one additional customer”? Is it when customers download the app? Or, when they register or signup to start using the service? Or, when they perform the “core action” (which can be doing a transaction; or, it can be consuming the content or sending a message)? Or, when they become repeat / retained customers?
- UE: should the UE be calculated at the aggregate level for the customers? Or, should UE be calculated at per-transaction level? Or, perhaps, per-product level? For example, if a customer uses company’s products for both payments and for buying gold, should one calculate UE for each transaction? Each product? Or, at the aggregate level for each customer?
In order to discuss how startups could work with these terms, I thought it would be good share some of the lessons from my double stint at Paytm. Paytm has been instrumental in shaping my career and I will be happy to share some of the best practices followed by them to drive this hypergrowth:
Follow this link below to understand how Paytm looked at growth and how it used all the right levers to reach the numero uno position in Payments & fintech in India: (in conversation with Ajay Sethi of Accel)
Do share your feedback with me at dabbot@gmail.com or tag me on Twitter at twitter.com/deepakabbot
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