It’s easy to get caught up in growth marketing circles, talking about things such as the latest changes in the market, recommended tools, and strategies worth trying. As you can imagine (assuming you’re one of the regular readers of our blog AHEM! 😉) here at Voyantis, we are big on talking about topics such as the growing need for companies to put profitability first in growth strategies.
Interestingly enough, it was brought to our attention that there are many marketers out there, who are under the impression that profitability is the opposite of growth. 😲 Well, let’s just say that was when we knew that we had to address this right away, and set the record straight!
In our previous Mythbusters post, we talked about how high CTR is good, but not necessarily good enough to be the primary goal for ad campaigns. Instead, the goal should be to attract the most valuable users for your brand. Why? You guessed it… for greater scalability and sustainable profitability!
So in a similar fashion, I figured it would make sense to dedicate our latest Mythbusters installment on the topic of how profitability is NOT the opposite of growth.
Skeptics feel that focusing on profitability is counterproductive for growth teams, because that means you’re acquiring less users. I could see how that makes sense, especially if the quarterly success of your department is based on those active users numbers. However, there are a few elements here that often go unnoticed.
Focusing on profitability doesn’t refer to solely focusing on acquiring high value users. It also doesn’t mean you should only focus on users that will convert. (But I totally get why that might be the impression initially.) Instead, focusing on profitability revolves around thinking more strategically, and building your budget to match your goals. In doing so, you would pay more for high value users and/or users that convert, while paying less for users that are less likely to convert. I’ll further explain how this works in the next paragraph.
In many ways, the role of a growth marketer (who puts profitability first) has strong parallels to that of a stock portfolio manager. Yes really. That’s because paid campaigns are like a bundle of investments that include risk factors, ROI (or rather, ROAS), and a payback/maturity period. By extension, much like stock portfolio managers, growth teams need to adopt diversification strategies in paid marketing, due to high- and low-risk campaigns. This is why ad budgets need to be spread across different campaigns with adequate user segmentation, for a more balanced, and comprehensive risk profile, as well as optimal ROAS.
When you are only focused on driving growth, many of those users will end up churning too soon. Balancing your new customers/ existing customers' trend is important for long-term success, especially when you’re targeting what we refer to as “late bloomers.” Late bloomers are users that demand a fair bit of patience. Revenue can take some time to unveil, but they are typically worth the wait. This is due to the fact that they retain higher levels of interest in the brand and have stronger retention.
For quick comparison—when focused on growth, you’ll find yourself spending too much time, money and resources later on, trying to convert them to paying and high-value customers. And that would have to be done using a variety of approaches, such as email marketing, and collaborating with the customer success, sales or retention teams in your company. And who really has time these days to add more to their plate, especially when predictive marketing and automation can step in to do the heavy-lifting in a more efficient manner?
Now when you’re focused on profitability, it is worth noting that you’re not only focused on your profit, you’re also focused on your customers’ gain. That is because you’re targeting users who will enjoy your products for years to come. (How’s that for perspective?!) If you have growth loops set in place that approach users who already are, or are inclined to be engaged, you are placing special attention on people who will prove to be more loyal, and profitable in the long run.
Even NFX states that the focus should be on getting to profitability in your unit economics. This is especially the case if you want to focus on getting to a strong CAC/LTV ratio with a short payback period of less than 3-6 months.
Regardless of the state of the market, there must always be a balance that is maintained between growth and profitability, and this is because the two aren’t mutually exclusive.
So when is it okay (these days at least) to focus on growth over profitability? Well, when you have all your other ducks in a row! NFX goes on to state that if you have good cohort profitability, scalable acquisition channels, and strong network effects, then aggressive growth is exactly the right approach.
At the end of the day, growth teams are better off NOT putting all their eggs in one basket, and adding some diversification into the mix, much like stock portfolio managers. And if you add predictive modeling into the mix, it’s all rainbows and butterflies from there. That’s because the result is more accurate LTV and user-based models that help keep CAC and CPA on the lower side while your target customer base continues to grow.