Negative CAC: Users paying you money, to learn how to pay you money

Word of mouth is great, negative CAC is better

With the economy crashing & venture capitalists pushing hard for startups to be fiscally conservative, reducing Customer Acquisition Costs is top priority for many growth leaders right now.

Most of us are tasked with a job that defies the “laws of physics.” We need to continue to increase our rates of growth while reducing CAC.

Signups STILL need to go up, and the cost per signups needs to go down.

What many growth leaders are doing right now is focusing more heavily on organic channels - building out better referral programs, email marketing campaigns, funnel optimizations, etc.

… and paid CAC is being heavily cut, in some cases to $0.

While focusing on increasing organic growth is a great lever for reducing our average CAC, I wanted to discuss the concept of negative CAC. Driving users in a way where the acquisition efforts create profit for your business.

Introducing - RupaUniversity.com, a system where our users pay us money to learn how to pay us money.

“Product Led Growth” is more than a freemium → premium system

PLG is often considered solely in a “freemium to premium” system, where the focus is on building a product so great that it replaces the marketing & sales efforts.

My personal favorite execution of PLG is when you build mini products on top of your core product, which drives usage towards your core product. Ideally, products that generate profit.

For us at Rupa Health (a SaaS platform that allows doctors to order from 35+ different labs), we were spending a lot of money on paid acquisition by working closely with educational institutes.

We found organizations that trained doctors, and we paid them money to allow us to sponsor their educational courses.

At one point, we realized it would be fantastic that instead of having to pay someone else money, that rather we could own the educational assets that drove signups for our product.

This lens of “how do we create owned versions of the places we spend money on acquisition” is game-changing for reducing CAC.

We still spend money on lots of outside educational institutes, but by building our own educational product, we drastically reduced our CAC because now for every person that signups up for one of our bootcamps we make profit … and then that user continues on to use our core product after the bootcamp.

Where do you spend money?

The best way I’ve discovered to uncover a negative CAC channel is by first looking at where you spend money on paid acquisition.

The places that you pay for users are likely places where you can build profitable owned products.

Examples:

• Do you spend money sponsoring podcasts?

• Do you spend money sponsoring newsletters?

• Do you spend money going to conferences?

• Do you pay “partners” for leads?

Hubspot acquired TheHustle for ~$25M-$30M because it was able to drive users for Hubspot & they now own a huge media product (newsletter + website) that doesn’t just generate revenue, but it drives users.

The education model that we follow at Rupa Health can easily be replicated for other industries. Alchemy (the web3 development platform) launched Alchemy University, allowing developers to level up their careers through free courses, projects, and code.

Mortgage Loan Officers heavily rely on Real Estate Agents for leads, oftentimes paying for half of their marketing campaign or giving direct cash for referrals. Wouldn’t it be great if the loan office also led the real estate team?

Owned Products > Owned Channels

I’ll admit - this is a slight rift off the concept of building owned channels. Building a newsletter, creating a social media following, building up your organic SEO.

The concept of building owned products instead of just owned channels is where the difference between Marketing and Growth comes into play (and where exponentially better returns manifest).

Product thinking applied to channels of growth is the difference between “owning a really big newsletter” and owning TheHustle.com, a revenue-generating media giant that also drives business.

Start building an ecosystem of profitable products that drive usage towards your core product & you’ll watch your blended CAC plummet. Do it well enough, and the “team that drives signups/leads” will have a profitable P&L instead of having a cost per acquisition. 👀