No matter how potent your customer acquisition model looks, it’s mere speculation until converted into hard numbers and integrated into your financial forecast.
Forecasting your customer acquisition engine in your model accomplishes three major things:
- It clarifies your strategy’s real costs and returns.
- It illuminates the strengths, weaknesses, and potential improvements of your customer acquisition strategy.
- It assures investors of your growth forecast’s reliability and your acumen as a founder.
Unfortunately, many customer acquisition forecasts we receive are half-baked and lack depth, providing founders and investors with a skewed and unreliable growth prognosis. Today, we’ll show you how to reflect your customer acquisition model in a financial forecast, along with some insider presentation tips&tricks for impressing investors.
Let’s start with segmenting the two main sources of clients.
Four pillars of your customer acquisition model
Regardless of your customer acquisition strategy, your projections will be based on three mutually dependent facets: acquisition channels, expected growth rate, and budget.
Acquisition channels / Traffic source
These are the channels you use to attract traffic. Depending on your solution and go-to-market strategy, your client acquisition strategy can rely on inbound/organic channels, outbound channels, or both types of channels to drive traffic.
Inbound/organic traffic comes from:
- Content marketing and blogging
- Social media marketing
- PR activities
- Referrals and partnerships
Outbound traffic comes from:
- Running paid ads on Google, social media, TV, etc., or offline
- Messaging prospects through email or social media
- Offline events
We always break down outbound traffic by channel, as it is more straightforward and easy to forecast than inbound.
Your customer acquisition must follow an upward trajectory, or you’re in trouble. The pace of this growth may vary depending on your resources and industry benchmarks, but it must be present and accelerate eventually to meet your milestones.
To set a realistic growth rate % and apply it to your customer acquisition channels, consider the benchmarks for your stage, industry, and specific channel.
In your customer acquisition model, conversion typically manifests as a multi-step sales funnel.
- Traffic-to-lead conversion: traffic to Marketing Qualified Leads (MQLs)
- Lead progression: MQLs to Sales Qualified Leads (SQLs) to opportunity
- Lead-to-customer conversion: SQLs/opportunities to clients.
Here is one of our examples of a sales funnel in a forecast:
This funnel may vary between businesses, but you can use the above example for inspiration. Support your assumptions with industry benchmarks or historical data where possible; where not, rely on logic and common sense.
If you can’t yet predict conversions from some indirect marketing activities like PR, don’t sweat it — simply set a budget for it without a conversion forecast.
Growth isn’t free, so you must consider the cost of achieving your targets. Typically, chubbier budgets mean higher growth, assuming your acquisition strategy is effective. To calculate your budget, break down the channels you’ll be using, the expenses related to them, and the growth rate.
The expenses might include:
- Content creation
- CPC for paid ads
- Sales team composition and compensation
- Costs associated with conducting events and conferences
- Travel expenses, etc.
As you can see, there are quite a few things to consider. We discuss this in detail in our guide on effective budgeting strategies for sales and marketing.
When you’ve set the expected growth rates and budgets for each customer acquisition channel, it’s time to translate your customer acquisition model into Excel sheets.
But enough with theory. Let’s talk practice.
Forecasting your customer acquisition model
Let’s delve into the practical steps for constructing your customer acquisition model and transforming it into a robust forecast. We’ll examine the forecasting of three typical components of customer acquisition strategies: paid traffic, organic traffic, and sales function.
Paid traffic acquisition
If your marketing strategy employs multiple paid advertising channels, consider the following elements.
1. Channel breakdown and budget allocation
To forecast paid traffic, begin by dividing your monthly budget by channel. To determine how much to allocate to each channel, refer to industry benchmarks or use metrics like cost per click to estimate the traffic you can anticipate for your budget.
If you plan to use various paid channels but intend to launch them at different times, detail this in your sheet. When it comes to numbers, such details matter. Remember: your customer acquisition expenses will grow with your company. Not accounting for this growth is a typical mistake we see in models we review.
To avoid this, apply an expected growth rate to your monthly/annual budgets:
2. Budget-to-traffic conversion
Once the budget is set, you need to understand the logic of converting each dollar of your budget into the traffic you will receive.
To create a reliable and comprehensive traffic funnel, include all channel-specific metrics, e.g.:
- Cost per view and # of views for YouTube
- Cost per 1000 impressions and # of impressions for TikTok
- CTR % for each channel, etc.
Your projected numbers for each metric should come from reliable sources — historical data, market research, competitors, etc. While they won’t be 100% accurate — they’re educated guesses — the main thing is that you can justify them. From there, you can calculate the traffic based on your budget and specific metrics for each channel.
Note: Ideally, your marketing efforts should improve over time, with your click-through rate and other metrics enhancing, so don’t forget to factor this in.
Organic traffic acquisition
Organic traffic is when potential customers come to you from word-of-mouth, OOH advertising, results in the Google search, etc. As a rule, its amount depends on the resources you can invest in channels like SEO or content.
In our models, we usually don’t break down inbound traffic by channel and, simply put, an overall amount we expect from all channels combined. We also specify what % of the total traffic we will get from inbound activities.
Here is an example:
Organic traffic might be harder to project due to its indirect and somewhat unpredictable nature. This is especially pronounced when dealing with traffic from TV, radio, billboards, or leaflets.
Since there are no clear-cut benchmarks and references for organic traffic, focus on backing up your projections with a portion of logic and realism. Consider historical data (if there is any), your current level of publicity, and future promotional activities to make a more reliable prognosis.
If you have a sales function on top of your marketing activities, this section is for you.
Any sales strategy consists of two crucial components: a team and a sales cycle.
When it comes to your sales team, the key questions you must answer are:
- Do I really need one?
- If yes, how big should it be?
By this point, you likely have answered the first question (if not, check out our article on how to build a sales team). If your solution doesn’t require sales reps to sell it, jump right to the next section.
If you do need a team, here is what to include in your customer acquisition projections:
1. The number of salespeople people at a given stage.
2. The quotas for each salesperson in terms of SQLs and closed deals.
3. Ramp-up time for the newly-onboarded folks.
Here is an example from one of our models:
2. Sales cycle
A sales cycle is the process of converting your leads into customers. This process typically includes multiple stages and can roughly look like this:
Each stage involves specific actions and interactions with the prospect, guiding them through the buying journey to conversion.
Understanding your company’s sales cycle is crucial for building your financial forecast. It includes the following elements:
- Type of clients (if you have multiple): small, medium, SMB, enterprise
- Lead status: MQL, SQL, opportunity, win/close
- Conversion rates: from traffic to MQLs/SQLs to clients, etc.
You can refer to the above example to see what a sales cycle can look like in a forecast.
Another factor to consider here is the length of the sales cycle. How long will it take to convert a visitor into a customer? One, two, five months? The answer will depend on the complexity and price of your product.
How to level up your customer acquisition forecast in the eyes of investors
For those of you crafting a financial model for your fundraiser, we’ve stored some tips & tricks to make it more appealing to investors:
- Back up your assumptions. Investors will question the origins of your model’s numbers: why you chose a particular conversion rate, click-through rate, or the number of Marketing Qualified Leads. Without data to support them, your numbers are nothing more than empty claims. To maintain credibility, use industry benchmarks, competitor data, and historical information (if available) to demonstrate your understanding.
- Explain the logic, but keep it simple. Your financial model should illustrate your customer acquisition strategy in action, proving its effectiveness. For instance, if you target multiple countries and offer several products, include them all. But avoid overcomplicating things with numerous variables and complex formulas. Overly intricate forecasts can confuse investors and are prone to errors.
- Be consistent and comprehensive. Present a complete customer acquisition journey to investors, from views and impressions to traffic, leads, and, ultimately, clients. Ensure your data is clearly and compellingly visualized.
Modeling a robust customer acquisition forecast — one that guides you toward your revenue targets and reassures investors of their attainability — is no easy task. It requires knowing the optimal level of detail to include, understanding the formulas and approaches that work best for your situation, and sometimes, recognizing gaps in your strategy that necessitate a return to the drawing board.
However, when done correctly, your model becomes a litmus test for your customer acquisition strategy and a significant tool in your fundraising arsenal. Make sure to read all the amazing stuff we wrote on creating financial models to get some fresh ideas. Or just give a shout to our financial wizards to create a stellar financial model that investors will love.