510: How to Use the CLTV Model to Identify the Key Levers in Your Business w/ Babak Azad

ABOUT THIS EPISODE

In this episode we talk to Babak Azad, Founder of Round Two Partners.

Looking for a guaranteed way to createcontent that resonates with your audience, start uponcast interview yourideal clients and let them choose the topic of the interview, because if yourideal clients care about the topic, there's a good chance, the rest of youraudience will care about. It too, learn more at sweetfish media, dtcom, you're, listening to the B Tob groteshow podjast dedicated to helping bee to be executives and she'd explosivegrown when you're looking for techniques and strategies, tools andresources, you've come to the right place, I'm Jonathan Green and I'm JamesCarnary. Let's get it into the show we'Llgo back to the be to be Gros showtoday we are joined by Babak Azad Babak is the founder of round two partnersand a performance marketing expert byback. Welcome to the show. Thank youglad to be here. It's great to have you here we're going to be talking todayabout how to use the customer lifetime...

...value model to identify the key leversin your business, but before we get into that, maybe you can tell ourlisteners a little about what you've been off to and what you and the roundtwo partners have been up too lately sure yeah. So just by way of contextand background and how I KINDAF got here. Just very briefly. I spent eightyears and really that's where I learned H: Performance Marketing, a directresponse was at beach body, so I spent I was there from o e hundred million toa billion, so beach body is PNIDX in sanity, all those informerial productsand cecology Um, oversaw finance and analetics, and then for the last fewyears, managed C media and coser acquisition. So I left a couple ofyears ago and ' e been working round two partners. Essentially we work withbrands that are trying to scale their performance, marketing campaigns and-and so it's customer acquisition, retension analytics, basically paying abit of a virtual CMO. Rule and Theu know work with folks. As big asStitchfik Um and inwantable in the...

...apparel subscription, pspace andwitcher box and and most recently taste mad, u SOEs are handful of the folksthat we work with M, really helping them scale, their performance,marketing, Campin, wellthat's fantastic, I mean I it you know, obviously sort ofbeach body. Rather I mean definitely big time. Everyone. Everyone has seenthe commercials. Everyone knows what what it is that you're talking about. Ido have to ask now in working with them. Did you ever? You know? How were youalso working on your beach body? Did you ever do the PNINDIAX? Did you evertake advantage of any of the products? Yeah? Absolutely I mean think that onething know. Certainly all the products are very legit. The biggest challengeeveryone has with any program is: Is Consistency is opening the box and orturning it on and then doing it and showing up every day Yo, but yeah Imean I I've always been trid to be fairly active and Um, and you know Iwrote crew in college i'v, biked, dontraffle and things like that. So Walie first. My first few months there I I did pndxcuse I needed to prove tomyself that the programs were in Backra,...

...so yeah, no they're, they're awesomejust gotg to follow them. Just got Ou jut s got to keep doing it. Well,that's great putting your puting your money where your mouth is. So todaywe're going to be talking, like I said about the the customer lifetime valuemodel, and so, let's, let's kind of start with what it is and what it isn't.What's? What is this model made up of right? The whole point of the model isto capture if some people call it customal acton value model uniteconomics, a margin model. The whole point is to capture what are the Reve,the lifetime revenues that you you get from a customer and what are all thecost associate with it? And the reason for this is one: If you're running paidmedia, you need to know essentially how much you're making on a customer tofigure out how much you can afford to spend to acquire them and then thesecond part, which I think a lot of people underestimate, is to understandthe key lever s in the business and so whether it's a product, business orservices business. The concept is the same, which is water all the revenuesand whether, depending on your business...

...constraints and cash constraints andgoals, you may only look thirty days sixty days out and maybe youl look outtwo years, but essentially trying to capture essentially gross margin sothat you can figure out. How much can you actually afford to acquire thecustomer for and then really then to hon it on each of the line items Umagain a product business is going to have proticau shipping and fulfilmentthe services business that may be personnel. Marginal cost of you knowservicing a custom to whether it's software sechnology personnel, and thenit really it's about putting people to be accountable for increasing other therevenues or the costs, while at the same time really making sure ITD bebuilding the brand Yeah Yep. Absolutely so. In your mind, the real value of ofthis kind of model is twofold: yeah, absolutely and yeah. It is because youknow first, if you're going to spend money to a cuircrussron. I come from apaid media world, whether it's in the B, TC or BDB World Um, either way, Ibelieve in paid media. I think it's...

...just generally more predictable andcontrollable, and I think, if you're going to do that, I don't know how youcan run paid media without understanding what the value of acustomers so is ten dollars good to accuire a customer is fifty thousand. Idepends on your business, but if you don't know how much customers worth andas obvious as this sounds, I think people underestimate and just really ah just doing a littof it of the work to get some of these things in place. Butpart of the benefit is the process of going through building this model, andit's it's not just an excel model. It's understanding when you get a customer.How much do you generate from Ilon Day zero again, whether product or service?What are Y R? What's your base? If you want to call it that, what's your upSol and then how long do Yo customers stick around and over what lifetime? Doyou generate that those those revenues and then really? What are the costsassociate with it and Youcn? Essentially, you build a MINNEPNL foryour business and then it it really forces you to say how do we get betterat each one of these things and so there's the paint there's theunderstand the target cost per...

...acquisition, the target CPA side andthen there's he we've got to continue to optimize, and every business has all,I believe, has to always ben a a mindset about testing an optimizationokay. So so I mean kind of these. The two benefits determining what thatcosts for acquisition is and the other benefit, meaning that you can start tounderstand and identify these. These key levers right in your business.That's what that's KINDOF, what you're talking about yeah exactly- and I thinkthat second part two in particular. Well, both sides ther're, always submetrics. You know and again like this is not like it's a bit of math, but itis not rocket science math. You know it's really about just start trackingand wherever you are put benchmarks in place and a and start to kind of identify what arall the submetrics. You know, for example, on the Casside, an let's say:It's a physical product business. You know you may have like a shipping costthat you have per box or per order, but there may be all these. You knowsubmetrics, like slas timing, transit...

...things like that. If Youre serviceperson, as you may have those similar kinds of concepts, but they just theyapply differently and they maybe just they atet may not be shipping, but itmay be how you deliver what the what's the turn around time. What are yourSSLLAS things like that? But it's about start with some corometrics and somecor m cor things and en you're clearly going to have some submetric and eachperson there should be specific people who have accountability. For you know,delivering performance results improvements, and it really. You knowit's the whole thing of what you report on gets better and what you don'treport on. Oftentimes Wont H and I've just found it is. I don't like to saymagical, but it's amazing that when you start reporting and tracking thingsthey just get better because they're in front of people's faces, yeah well andso, and that's kind of understanding seems like on on the casside. But it'salso about sort of understanding on the revenue side as well, correct, yeah,absolutely and again, whether a product...

...or service. You know that what happenson day zero, a whatever your funnel is t at maybe on the phone and a sales rapit may be online. You know what happens on days, zero. What are people signingup for at that point? And then, let's assume, you have a it's a subscriptionor a continuity, or it's a SAS business and there's recurring revenues. Howlong are people sticking around and then you know what are you doing toimprove that and so, and certainly part of that is then looking see when peoplestop using your service or they cancel whatever. It is. What are the corereasons? Typically, I mean a lot of people have the same things: pricevalue not using it, don't see the benefit, and so then it should thenthat should trigger a course of action. So it's not just reporting it's notjust an exam odel. It should lead to specific actions based on some of theinformation you see from it and from some of the followon metrics or sumemetric that you're looking at, but at the end of TDAY. Everything for me isalways grounded in action, so it's not just a nice to have it should be, itshould trigger. How do we get better...

...and what are the reasons that let's saypeople are canceling? Let's start identifying SNG, which ones can we chipaway at and start making improvements on, and then we got a track and measuretests and Yo just iterate on that right, I'm not trying to over a simpletough,I'm not trying to say it's easy, but in certain ways it is simple and then it'sjust the execution that that's you know, that's where you put your time and youknow you gotta, you gotto bring some smarts to those ardeas yeah well andone of th. One of the points that you had made um sort of before we startedrecording was that you know it is a matter of deploying resources y. Youhad mentioned putting accountability on to specific people as you're sort oftinkering and testing and working to make improvements. Yeah absolutely- AndI think there are two big points in there. One is whether you're a milliondollar or a hundred thousand dollar year business or a billion dollarbusiness. Everyone is resource constrained. Everyone thinks biggerfolks, ie it better and the reality is, everyone has a re has a constraint, andso it's a question of how o you...

...prioritize resources. How do you deploythem and whether that's time, people money whatever it is? You have tofigure out how to prioritize and part of this model helps o do that or itshould be at least a trugger point for in the things that come out of it,because you should. I mean I come from again from a place that information,quantitaative anqualityve, should inform decisions. It shouldn't just bebehey. This feels good icenquat or qualitative watersome key points thatyou can look at say. This is how we're going to prioritize and then the secondpart is accountability and again, like I'm, a big basics and fundamental's guy,you know, for me: sexiness comes from results in cash, as opposed tonecessarily the shiny, bright object, but you know again, I think most peoplehave found that when they've done this a when you have a single person, who'saccountable doesn't mean they're. The only person doing the work, but there'sgot to be a buckstops here and there's got to be a person who is leading thecharge and has that accountability and then ather people may have subaccountabilities with that, but whatever it is you're trying to proveyou'e got to have a single point to say what are you doing or what are the keyareas? What are you testing and th...

...again? They may work with if t's, theone person shopis them or they may work with a variety of teams, but havingaccountability o beg very clear about that. I think we've all been otherbigger small meetings, we've come out of meetings and not be clear on what'ssupposed to be done and who's going to do it. You know those kinds of thingsare like hey. These are very clear, nect steps. This is who's going to takethe lead, that kind of stuff again not rocket science. Nothing that's entirelynew, but I found that Eighty Tho ninety percent of the winds and just success,conmissroom, focusing on these basics and funamentals and certainlyaccountability, is one of those tast fantastic yeah. That, I think that's Ithink, that's a really strong takeaway now baback. I know that sort of you,you, you breathe and live this kind of stuff. We could probably sit here andsort of go down the rabbit whole even further, but m if anyof our listenersare interested in reaching out and connecting with you finding out moreabout today's episode finding out more...

...about round two partners. What's thebest way for them to go about doing that sure I think they're, two quick,easy places, ones wit the site. It's round two partners, Otcom all lowerall, love or case- doesn't matter B, butit's all letters Um. So all the way through and then my blog. Where a lotof my contents is, I actually have a model Um. Just it's all. It's allavailable. There is at Babakazad tcom t Abak Azad tcom that s the businessitemten. My my blog were a lot of my conscentss, perfect wwe'll, make sureto include the the link to the blog and the show notes. Boa. Thank you so muchagain for your time as a pleasure having you on the show today,absolutely appreciate. Being or think it if you've been getting value from thiscodtest, you can help us reach more people by reviewing the show on Itunes,here's how you can leave a review in Muss than a minute open your pod castout and tap the search igon in the bottom ray corner type in fee to Bgrowt then select our show once you're there tap the reviews tohave and tellus what you think of the show. These...

...reviews help us out of time. Thank youso much for listening until next time.

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