What is growth marketing?
Growth marketing is a style of marketing. The distinctive feature of growth marketing is that it takes into account every stage of the customer journey and implements systematic changes to improve business outcomes like revenue, retention and overall growth.
Wordy, right? Let's break that down in this post.
Growth marketing is a style of marketing
There are many styles of marketing and they are all suited to different businesses and business models in different ways.
Growth marketing is a style of marketing that is focused on the whole customer journey and is primarily used in software as a service (SaaS) businesses.
Growth marketing is a style of marketing that is focused on the whole customer journey and is primarily used in software as a service (SaaS) businesses.
Broadly speaking, that means that a marketer who follows a growth marketing strategy is thinking not just about how to acquire new customers from their target audience.
They're also thinking about how to take a potential customer all the way from not knowing anything about their solution right to the point where that customer is so happy that they're referring other people.
Growth marketers like to call the stages of the customer journey or funnel: Awareness, Acquisition, Activation, Retention, Revenue, Referral.
The acronym for this customer journey spells out AAARRR and sounds like the noise a pirate makes. So some growth marketers will refer to Pirate Metrics as shorthand for the customer journey. More on the customer journey in a moment.
What's the difference between growth marketing and growth hacking?
Growth marketing is often mentioned in the same heartbeat as growth hacking. And that's because they originate from the same place.
Growth hacking is a term coined by Sean Ellis while working at Dropbox where he applied many of the ideas that make growth marketing distinctive to his work.
Growth hacking is primarily focused on making incremental changes to a product, website or some other marketing collateral (like an ad set, for example) to get people to move down the funnel – these are usually stand alone tactics.
An example of growth hacking might be an onboarding checklist that users are encouraged to complete. A company creates a list of actions new users needs to take to become 'activated'
The wins growth hackers produce are usually large but non replicable because they are firmly fixed to a time and place. Growth hacks often (though not always) lose efficiency over time as more people reproduce them and users begin to cotton on.
Growth marketing is generally much more strategic. It focuses on the bigger picture and produces marginal gains at multiple stages of the funnel.
But while the gains are marginal, they will compound over time to produce a solid, methodical advantage for companies who invest in growth strategy versus growth hacks.
Additionally, because growth marketing as a discipline takes account of the context that a company is in, it is generally more effective and can draw inspiration from experiments run by growth hackers to produce a higher return on investment.
Just a quickie: if you're a visual learner and you want to look at some illustrations of this. I made this slideshow to help you:
What's the difference between growth marketing and traditional marketing?
Marketing often gets lumped into the same generic category. But there are important variations. This is rarely more pronounced than when you think about the difference between growth marketing and traditional marketing strategy (brand marketing, for example).
Traditional marketers are usually doing some kind of brand marketing. That means they're primarily focused on the awareness stage of the funnel (making sure that people know you exist.)
Brand marketing is useful once a company has product market fit; is in a traditional industry; or is selling to enterprise businesses where people consider brand as a key buying factor.
As we've already seen: the primary difference is that growth marketers will take a holistic approach to managing their work. They're just as interested in acquiring customers, retaining them and getting referrals as they are in making sure that people are aware.
Some other kinds of traditional marketing that are focused on particular stages of the funnel in a similar way to brand marketing are:
- Product marketing
- Account based marketing
- Affiliate marketing
How does growth marketing address every stage of the customer journey?
Earlier we mentioned that growth marketing is distinctive because it takes into account each stage of the customer journey.
Recently I asked a bunch of growth marketing experts what their most important lessons were.
"Operationalising, for your team, how you deliver value across the customer’s experience is a matter of survival," says Georgiana Laudi, co-founder of Forget the Funnel. "If you understand, identify and operationalise your customers' leaps of faith, their success milestones, you can be systematic in how you optimize them."
"If you understand, identify and operationalise your customers' leaps of faith, their success milestones, you can be systematic in how you optimize them." — Georgiana Laudi
The stages of the customer journey are widely accepted to be:
To understand what growth marketing strategy looks like in action, let's go through each stage of the customer journey and see what a growth marketing team would be doing.
At the awareness stage of the buying funnel, most people are just trying to ensure that when a customer thinks about a problem they have, it's their companies name that pops up as a potential solution.
Within the awareness stage, you'll often hear people talk about a couple of different stages of awareness:
- Unaware — A person doesn’t know they have a problem. It's almost certainly not worth trying to get in front of these people unless you're sure they're going to be in the next group before too long.
- Problem Aware — Someone here knows they've got a problem or has a pain point, but they don't know they can solve it by buying a product.
- Solution Aware — These guys know there are solutions to their problems, but they haven't chosen one and might not know what any of the solutions actually are yet.
- Product Aware — Product aware customers aren't necessarily ready to buy because they're not sure about the pros and cons of each solution yet. But they know that there are specific solutions and yours might be one of them.
- Most Aware — These are golden. They know about your product and they've probably already got an opinion about whether your product will solve their issue.
These stages matter because you'll eventually want to address each one (even the unaware) with some kind of message.
Seems like a lot of work? It sure is!
My preference is to start at the bottom of the funnel – or the most aware – stage using a strategy like pain point SEO and work back upwards. I've got a series of resources in the library to help you think of the best strategy when you're ready to do the work!
What works at this stage: channels with large audiences like search, social media, paid search and, if you're in B2B, cold outreach.
Acquisition is a fun stage: it's the point where a visitor to your website decides they're open to give your product a go.
At the point where you're acquiring new users, you can afford to test out a lot of different stuff with relatively low risk. That's why there's just so much information on the internet about how to acquire your first customers.
The other reason that there's a lot of information about using landing pages, paid advertising, search engine optimisation (SEO) and content marketing to acquire customers?
That's because a lot of growth marketers only ever focus on acquisition — it's one of the easiest numbers to move and makes them look successful quickly.
But if your growth marketing consultant or growth marketing agency tells you that they're doing a good job just because they're acquiring customers, definitely quiz them on why this is the case: after all, don't you want people to be moving down the funnel?
Activation is a really tough stage of any SaaS funnel. That's because at the activation stage, a customer has to take a series of actions to work out whether they're actually going to use your product in their work or day to day life.
It's made significantly easier when a company or a marketing team/person has correctly positioned the product so that the people who are signing up have a clear goal in mind and know that your product can help them meet that need.
Poorly positioned products get poor activation rates.
So how can this be part of the marketing process?
Because growth marketers are not doing broadcast only work, at this stage a growth marketer will probably be doing a series of things:
- Identifying bottlenecks in the funnel – using heat maps and screen recordings to work out why customers aren't moving in the way that the business needs them to. This work is usually done in collaboration with other teams like product or engineering.
- Creating educational content to help get users engaged and active – this could be in the form of support articles, blog posts, webinars. Content marketing, email marketing, SMS marketing and product marketing are crucial at the activation stage.
- Sending email and SMS campaigns to new users to nudge them in the right direction
They'll traditionally be looking at metrics like daily active users (DAU), monthly active users (MAU) and doing cohort analysis to work out what growth experiments are paying off and which ones aren't.
A key metric of success at the activation stage is also how many people are moving to the next stage of the funnel (revenue or retention depending on your business model).
Revenue is brilliant. When you start getting notified by your payment processor that someone has liked your product enough to pay you for it... there's very little that matches that feeling when you're building a SaaS.
Unlike traditional marketing, growth marketing even into aligning the customer journey to the payment processing. What information is asked for, at what point, and with what language/visuals.
These things matter to growth marketers.
An example experiment: changing the design of an enter payment info screen to see whether it can get 5% more people to convert.
This has potentially major impact:
- It can add revenue to the bottom line – Money in the bank is why we run businesses, right? Well, here you go. This is where it starts to happen.
- Gives you an early indicator of how much you can spend on acquisition – when you get your first paying customers, you get an early signal that your model is working. There's still a lot you need to find out but more on that in the retention phase which comes next.
- Even small increases in conversion rate = produce vastly different business outcomes – if you spend $15K a month to run your business and you add $1000 each month in new recurring revenue, it'll take you 15 months to become profitable. If you increase your conversion rate by 50%, theoretically you'll hit that 5 months earlier.
Metrics that people look at in this phase are things like:
Cost of customer acquisition (CAC) – Basically, when you pack every cost that you incur while you're trying to gain a new customer, what does the total come to for each new customer. You should segment CAC in a way that suits your business goals to get a clear picture. e.g. CAC for enterprise customers will be significantly higher than for mom and pop stores.
Average Revenue Per Account (ARPA) and/or Average Revenue Per User (ARPU) – It is what it is. How much does every user or account (i.e. collection of users using the same billing admin) contribute to your revenue each month
Monthly Recurring Revenue (MRR) and/or Annual Recurring Revenue (ARR) – MRR is eighth wonder of the world. It is revenue that you get paid each month without having to convince a customer to pay you again. Healthy SaaS businesses mostly run on MRR. Investors like to hear what your ARR numbers are when you're at an enterprise business. And they're fun to share on Twitter.
Expansion MRR and Contraction MRR – Revenue in a SaaS business often comes from upgrades and is lost by downgrading. When a customer pays you more to use a different tier of your pricing model, you get expansion MRR. When they downgrade to a lower tier, you've got contraction MRR.
Reactivation MRR – Sometimes a customer will downgrade or churn completely for a period of time. Then they'll upgrade to a paid plan or create a new account. You can consider these people to be reactivated. It happens more than you might think.
SaaS businesses grow when they retain revenue. Churn is what happens when they lose customers.
The example of the business in the previous stage of a business adding $1000 a month in MRR? If you lose 5% of your customers by revenue each month, you're going to take a whole extra month to hit that target.
More optimistically, you can work out how your revenue will be affected by retention with a simple formula (although it may take you a little while to get reliable data):
Revenue Growth = Number of Customers x ARPA x (Growth Rate - Churn Rate) [Source]
What does this mean for you? Simple. Keep churn as low as possible.
It's not rocket science.
At this stage, your growth formula is getting a lot more reliable. Here you can add an important metric:
Customer Lifetime Value (LTV) – LTV is a metric to show how much revenue on average a customer will be worth to you across their whole time using your product.
If you retain a customer who pays you annually, their LTV doubles.
That means you can spend a significant amount more to acquire customers if you're retaining them past year 1.
Business A has a customer base with an LTV of $500. That business spends $500 to acquire each customer. Therefore, they're not going to grow at all.
Business B on the other hand has an LTV of $1000 because they retain customers twice as long. They also spend $500 to acquire each customer and so their business is profitable. They make 2 dollars for every 1 spent. We call this a LTV:CAC ratio. In this case, it's 2:1. A pretty good business.
Business C is the golden child though. Their LTV is $1500 because they retain customers three times as long. They spend that same $500 to acquire each customer. They are a fantastic business because they make 3 dollars for every 1 spent. It's a 3:1 LTV:CAC.
Growth marketing experiments you can run to try to impact churn are so broad and numerous because they depend on the root cause of the churn itself. So rather than give examples, here's a few reasons that revenue is not retained:
- The product is poorly positioned – go back to your acquisition phase and work out whether your customers actually knew what they were signing up for
- The product resolved a pain point – great! arguably a kind of churn you can be happy about even if your bank balance isn't. In my experience, in B2B SaaS churn happens because the buyer/user of the product within the business moved onto a different role.
- The product wasn't good enough – in this case, learn why. Send post churn surveys to identify common themes among churned customers
- The customer found a preferable product
There are a lot of reasons people aren't retained.
The best work you can do at this phase is to make sure that your product is well used and that it solves your customers' problems.
If your retention efforts are good, you're going to be in a place where a customer is so happy with your product that they will talk to their colleagues about it.
This is called referral.
I like to think about referral in two ways:
- Active referral – where a user takes an action to actively sell the product on your behalf. Examples: user sends an invite link; user talks about your product; user shares what they made with your product publicly
- Passive referral – where a user takes part in the general marketing activity but at your request. Examples: a customer gives you a testimonial, logo or case study to use on your marketing materials; a user leaves a positive NPS score.
Referrals can massively cut CAC because every time existing customers tell their friends about you and then their friends pays to use your product, you've got 2 customers for the same marketing spend.
That's why a lot of SaaS businesses will build in product features that encourage active referrals such as incentivised email invites – where they get rewarded for each customer they refer.
The classic example is Dropbox whose growth team rewarded their early users with free space for recommending their product to new team members or users.
As you can see, while it's easy for someone to say that they're an expert at growth marketing, you really need to have your fingers in a lot of areas of the business.
Growth marketing is a systematic process that helps to grow businesses by focusing on the whole customer journey. It's different to classic forms of marketing which have are more loosely correlated with revenue growth.
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