Get Out of the ARPU-CAC Danger Zone with Channel Model Fit

two types of companies:

  • Tugboats, where growth feels like you have to put a ton of fuel in to get only a little speed out,
  • and Smooth Sailors, where growth feels like wind is at your back.

Channel Model Fit is simple - channels are determined by your model.

The two most important elements of your model are:

  1. How Your Charge - For example, free (monetized with ads), freemium, transactional, free trial, one year up front, etc.
  2. Average Annual Revenue Per User - What the average $$ you make from a customer/user per year.

The ARPU <-> CAC Spectrum ATTACH

On far left you have businesses that have low ARPU and as a result have to use low CAC channels to drive customers. On the far right you have businesses that have high ARPU and as a result are able to use high CAC channels.

The ARPU-CAC Danger Zone ATTACH

this zone have a much higher failure rate because they lack Channel Model Fit. These companies’ problem with Channel Model Fit can be broken down into two major reasons.

1: Too Much Friction For Low CAC Channels

Low CAC channels require low friction products (quick time to value) and low friction models.

2: ARPU Doesn’t Support Higher CAC Channels

The ARPU ↔ CAC Spectrum for Product Tiers ATTACH

Channel Model Fit doesn’t just exist for overall products and companies; it exists at a product tier level as well.

Implications Of Channel Model Fit

two primary implications of Channel Model Fit:

  1. Don’t Treat Model and Channel In Silos: f you are making changes to your model (pricing, how you charge, etc.), you also need to consider your channel to make sure you still have Channel Model Fit.
  2. Don’t Treat Channel Model Fit In A Silo