The level of Active Members can only go up if the Joining inflow exceeds the Leaving outflow over time. The rate at which members join your community can be viewed as a function of advertising and word-of-mouth marketing. Advertising, in this context, means any kind of one-to-many communication initiated by you, the community’s host. In contrast, word-of-mouth marketing means one-to-one referrals initiated by existing members.
In this video, we’ll do the following:
- Add the New Members from Advertising and New Members from Word of Mouth variables and specify how they are assumed to cause changes to the Joining inflow to the Active Members stock
- Make explicit our assumption that New Members from Advertising = Advertising Budget ÷ Customer Acquisition Cost (“CAC”)
Reflection Questions
- What is your customer acquisition cost (CAC)?
- What is your value proposition?
- How might the strength of your value proposition impact your CAC?
- What might you do to reduce your CAC?
- How much time do you spend on advertising-related activities that may not be fully captured in your marketing expenses?
