We all know Elon Musk founded Tesla and SpaceX, but do you know that he also cofounded Paypal?
Paypal, the fintech pioneer with over $10 billion in revenue and over 190 million customers, would not have been where it is today without viral marketing.
Here’s what I learnt from Elon Musk:
1. Leverage the virality of your business model
Paypal is fortunate to have a business model in which one customer would essentially act as a sales person by bringing in other customers. For someone to send money to a friend and, he or she, needs to recruit that friend into the Paypal network. Thus, the exponential growth. It was like bacteria in a Petri dish like Paypal. Elon ran Paypal for about the first two years of its existence and by the end of year two, they had a million customers.
2. Dumping cash in marketing isn’t the most effective in creating viral marketing
To generate word of mouth marketing, the most useful and cost effective marketing method, it does not mean spending tons of money. It is about managing the marketing cost: profit ratio.
Spending $10 to acquire each customer was what Paypal did. They gave $10 to each new customer and $10 to the customer who referred them.
Having said that you should not blindly spend $10 to acquire each customer. The Customer Acquisition Cost should not exceed the Customer Lifetime Value. For example, if you earn $20 profit per product you sell, spending $10 to acquire each customer is justifiable.
3. Revisit the STEPPS checklist advocated in the book Contagious to stretch your marketing dollar
When brainstorming the marketing/ branding for your product