Metric loss

A Twilio manager explains which metric should always accompany customer lifetime value

Hello,

Over the past few weeks, I’ve been talking with academic experts and CFOs about emerging KPIs (key performance indicators). As I wrote before, the customer lifetime value (CLV) is present; and the 30-year-old KPIs are out. I thought it would be particularly interesting to talk to an expert in the company who is in the Company from customer engagement to dig deeper into what metrics matter and why.

If you interact with DoorDash or Uber via text, you are also interacting with Twilio. The San Francisco-based company provides a customer engagement platform powering digital communications through SMS (text messages), voice calls, video and email. Founded in 2008, Twilio closed the second quarter of 2022 with over 275,000 active customer accounts.

Yesterday I met Khozema Shipchandler, who joined Twilio as CFO in November 2018 and became Chief Operating Officer (COO) in October 2021. Customer acquisition cost (CAC) is just as important at CLV, says Shipchandler. “The cost of acquiring a customer shouldn’t be measured independently,” he says. “It has to be measured against the lifetime value of the customer. It has become a top priority for CFOs as the digitization of business has forced companies to build direct relationships with their customers. Ideally, you should spend less to acquire customers than you earn in long-term profits from those customers, he says.

How Twilio thinks about CAC and CLV when taking on a new client:

“How much is it costing me? Shipchandler explains. “I’m thinking of the account rep who takes care of the customer, all the associated costs that go with the account rep, like a solution engineer, the marketing cost associated with the transaction, all the support costs, maybe be the R&D, as well as the technology like a CRM (customer relationship management) – which is used as part of the transaction. What is the full cost before I end up signing up a customer?”

He continues, “And when I engage this client, I first estimate how much value they’re going to create for themselves and then ultimately for me, because we’ll end up making money out of the value more broad that it ‘create with their consumers.

How would a potential Twilio customer think of CAC and CLV:

“I’m going to buy this technology from Twilio,” says Shipchandler. “It could be the asset and the data capabilities with Twilio Segment (a customer data platform) and it will likely be combined with some of our communication capabilities. And so they’re going to assess, what is- What do I pay for Segment? What do I pay for the basic communication software stack offered by Twilio? And then on top of that, how can I use these capabilities with my own marketing efforts with the costs of my own salespeople? And then, am I generating so much more value for that consumer base? In most cases, they have thousands of consumers, sometimes millions.”

Shipchandler also says that CLV should be “far superior” to CAC. If your CLV isn’t at least 2-3 times the CAC, “you’re probably dealing with an unprofitable business,” he says.

He gave an example of how Twilio customers are using the company’s technology to lower their CAC. Dominoes The Mexican division used first-party data powered by Twilio Segment to reduce cost per acquisition by 65% ​​and saw a 700% increase in return on ad spend for Google ad campaigns, according to Shipchandler.

Employee experience (EX) is also a metric that “many traditional companies, and certainly tech companies, have started using,” he says. “We do our internal employee experience surveys and I think we’re getting great insights that we take very seriously. We try to correlate it quite closely to employee sentiment and then relate employee sentiment to employee retention,” says Shipchandler.

Twilio started with the basics of creating APIs (Application Programming Interfaces) for businesses and consumers to communicate digitally. For example, “you get a message that your prescription is available or someone confirms your doctor’s appointment,” says Shipchandler. But Twilio then focused on providing a customer engagement platform with the acquisition of Segment in 2020. An example? “We may use data-rich communications when we know something specific about you,” Shipchandler told me. “This is Sheryl and we know something about her and we know her purchase history. We know she likes or dislikes. And by the way, you are giving your consent for all of these communications.

Accelerating digital transformation, an emphasis on consumer privacy, and the emergence of a direct-to-consumer business model in which brands seek to build direct relationships with their customers are trends shaping the business. .

CFOs focus on preparing companies for these challenges. “As a metric, customer lifetime value has become important,” Harmit Singh, EVP and CFO at Levi Strauss & Co., told me recently. and e-commerce. These are channels where you can build relationships with customers.

Shipchandler is now chief operating officer, but “as chief financial officer, I was quite operational in the way I thought about the business,” he explains. “I would say that when I talk to a lot of my peers, I find they’re very engaged operationally, whether it’s in the CFO or COO ranks,” he says. “They like to be part of creating that value for customers.” He added: “The solutions are much more compelling if this lifetime value can be demonstrated. And I think the finance officer’s job, frankly, is to help do that.

Twilio confirmed in a blog post on Sunday that he had been hacked august 4th, I also asked the question. “I happen to own the cybersecurity team, so I know a lot about this particular incident,” Shipchandler told me. “We were the victim of a phishing attack. We believe we have limited it to a certain number of employees and a certain number of customers. It’s not massive or widespread or anything like that.


Until tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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