The 4 only scalable customer-acquisition channels

There are many customer acquisition channels but only 4 are truly scalable. Unscalable channels have their place in customer-acquisition but if you want to build growth loops, you need scale.

To answer it right upfront, the only truly scalable channels are:

1. SEO
2. Online ads
3. Sales
4. Product-virality

All famous startups and companies scale through one of these channels.

Customer acquisition channel definition
The way customers buy your products or sign up for free trials.

Let's add a bit of color to these because we're dealing with some nuances.

The 4 scalable customer-acquisition channels

SEO

SEO, a.k.a. Search Engine Optimization is the art and science of getting organic traffic from Google (and other search engines). If you're reading this blog, you're probably very familiar with the topic(if not, check out the technical SEO and SEO archives).

Examples:

• Quora
• Yelp
• Youtube
• Spotify
• Netflix
• Amazon
• Nytimes
• Medium

Online ads

Ads in this context mean any online advertising, whether Google Ads, Facebook, Amazon, or other forms. There is a big reason I call it "online ads" and not just "ads": offline ads don't provide good targeting. Sure, you can advertise in a magazine that's read by your audience or run TV ads around shows your audience might watch but only Google, Facebook & Co allow you to target narrowly.

Examples:

• Amazon
• Expedia/Tripadvisor/Booking
• Casper
• Warby Parker
• Allbirds

Sales

Sales comes in many forms: outbound sales teams, business development, retail. At the end of the day, it's sales when a human sells a product to you through at least one touchpoint. Apple sells through retail stores, Salesforce has sales teams armies, and even Dropbox and Slack added enterprise sales teams, even though they started with (and still mostly grow through) Land & Expand.

Examples:

• Microsoft
• Apple
• Salesforce
• Tesla
• Palantir

Product-virality

Product-virality, also known as product growth-loops, is one of the holy grails of growth. The idea is that the product spreads because users invite users. This can be driven through referral programs in theory but in reality they are not "viral" enough. But products like Facebook, UBER, or Jira grew mostly by user inviting other users or building a side of a marketplace that attracts another side.

Examples:

• Facebook/Instagram/Twitter/Snapchat/Tiktok/Linkedin
• Atlassian products
• Slack
• Dropbox
• Figma
• Google

Scale, returns, targeting

Scalable customer-acquisition channels fulfill three criteria:

• They're scalable
• Yield good returns (ROI)
• Allow you to target the right audience

Channels really only carry a product across all growth stages if all three criteria are met. We can map all customer-acquisition channels on a 2x2 that measure scalability against time to ROI:

I included other channels as well to highlight how they stack up against the 4 true ones. While the time-to-ROI varies, all 4 are highly scalable. Product virality can ramp up quickly but needs some time to be figured out, salespeople need to be hired. SEO takes the longest, ads can bring customers in right away. But guess what scales with time-to-ROI at the same time? Right! Cost. SEO has 0 marginal cost besides human capital. Ads, on the other hand, disappear when the money stops flowing.

The only exception here is product virality or product growth. That's why it's the holy grail: it scales immediately without additional cost.

Targetability (I made this word up) describes the degree to which you can target users. Ads, as I mentioned in the beginning, only allow you to target user behavior and attributes online. Sales can reach out to very specific people and companies. Product virality, once again, is somewhat exempt because you'd expect only users to refer the product who love it or have a big benefit from doing so. And lastly, SEO can only target relevant keywords for an audience, which is intent-targeting as opposed to behavior-targeting.

Scalability is closely connected to repeatability. It's almost interchangeable. You might attract a lot of customers with a PR stunt but you can’t repeat it indefinitely. There are anecdotes of companies like Airbnb or Flixbus running guerrilla marketing campaigns in cities but you can only really do this once per city. Sometimes, such PR stunts are enough to get the ball going. They expose a critical mass to the product, which then carries it forward to other early adopters.

Why isn't {channel} scalable?

Word of Mouth isn't scalable because it cannot be controlled. WoW is an outcome, the result of a great product, but not something you can turn up or down.

Content Marketing can attract an audience but needs constant creation and promotion of content. Content used for SEO is different, it can scale. But when I describe content marketing, I mean content pieces going viral.

Podcasts are fun but they take a lot of time to reach a critical audience unless you already have one. And even then, the reach of a single episode can only be so high but not indefinite.

Youtube videos have a chance to become more scalable as Youtube is a hybrid of a search engine and a social network. Additionally, youtube videos can be found in Google Search but I yet count that as SEO. I do think that Youtube would have high potential to become truly scalable. The only factor holding it back is the effort needed to produce a video. It's very high.

Affiliate Marketing is a tricky one. It can technically achieve some sort of scale but in practice, you never really have enough affiliates to scale beyond a certain inflection point.

Social Media and PR, I would group them together, can make for nice viral campaigns, which are barely repeatable.

Referral traffic is close to SEO traffic but doesn't scale because you cannot control what sites link to you. You can only reach out or create link-worthy content.

Email stands and falls with the size of your list. It's not very targetable (you cannot control who signs up) and you cannot force people to sign up (without cutting your audience off).

How do you know which channel is right?

There are two ways to find the right customer-acquisition channel: you either try each of them out and see what works (not recommended) or you look at your customer and product.

The following tables are by no means perfect but should help you paint a general picture of which channels make the most sense for your company to go after.

First, we need to take into account what market your product is targeting.

Second, the price point decides whether you go after a small or large number of customers and how much you can charge each.

CLTV = customer lifetime value

Third, a small but mighty detail is your digital inventory. This applies only to digital products and marketplaces but public-facing inventory can be a customer acquisition channel in itself because it's findable on search engines (think: Airbnb, Amazon, Spotify, Netflix). It's a principle I picked up in the idea of inventory-driven vs. content-driven sites in the context of SEO and scaling organic traffic).

The impact of the right channel on CAC

Every customer acquisition channel has a cost and a benefit. Reality is that in their lifecycles, startups/companies start with one channel and then expand to others. Mature companies acquire customers through all 4 major channels.

But what makes a channel attractive is the relationship between CAC (customer acquisition cost) and CLTV (customer lifetime value). In plain terms, the cheaper it is to acquire a customer, the higher your margin.

But CLTV can also restrict the channel you can play on. If CLTV isn't high enough to afford a sales team, it doesn't make sense to hire one. CAC has to be lower than CLTV and in many cases, the optimum for CAC is between 1/3 and 2/3 of CLTV.

Many road leads to customer acquisition but only 4 make it scalable. Not every business needs scalable customer acquisition channels but some do. Startups by definition do. Small-medium businesses don't. But it never hurts to invest in scale.