Tldr: CAC essentially measures the cost of manufacturing enough trust to convince someone that your product/service satisfies their “what’s in it for me” (WIIFM). Trust can be built through being an authority or by understanding people deeply enough to activate their beliefs/emotions about themselves or their social surroundings.
Low trust → High CAC → Unsustainable business model
I was thinking about the pattern and noticed that the lesser the leverage in the business, the lesser the CAC of the business model. By leverage, I mean how reproducible the work is. Like, if you just do it once, do we have to repeat it or can it just keep going like software or content.
But on the other hand, you can see that products and content which are high leverage things have high CAC.
So the first conclusion I had was that highly replicable is equal to high leverage, and thus you would have a lot of supply of it in the market. So you will end up with high CAC.
But we don’t see the same level of high CAC even in services with high supply.
In high leverage business model, the marginal cost of serving one more customer is low, but the marginal cost of acquiring one customer is high because you are competing for attention in crowded channels. So, niches and targeting helps enter spaces with low crowd and might lead to a lower CAC. And that kind of makes me hopeful about Facebook’s new Andromeda algorithm because it is very targeting oriented and finds their targets itself.
In services, crowding doesn’t happen because it’s a high-trust environment. So even if the ones without trust spend a lot of money on customer acquisition, it doesn’t help much. So there’s no point in spending, so the CAC doesn’t rise.
Basically in low leverage Commerce, you are structurally capped in service delivery and need trust. Thus CAC is also capped because you can neither gain business because of low trust nor service it of huge workloads come to your way, if CAC somehow relates to that.
And this made me realize that trust and serviceability do govern CAC in some way. High certainty of being served and trust in the provider of service or product can lower CAC.
We can say that CAC is governed by how many trusted players exist inside a market where CAC can lead to acquisition of viable businesses for the owner. Number of players doesn’t matter; the number of trusted players matters, or players who have the potential to be trusted.
Thus, leverage can manipulate the levels of supply, but trust determines the viability of that supply commercially.
That you can make a bazillion paper stars, but are you trusted that the product will make a positive impact for the customer? Do the customers trust you that you and your product can solve the “what’s in it for me?”
The trust is equal to lower CAC, and the trust can be endowed to both low and high leverage ventures.
And thus getting high trust for high leverage things is the cheat code because then you can make a lot of supply viable, and that volume can make you a lot of money.
The converse of this is that lower the trust, higher will be the CAC because no commerce happens till trust manifests. Trust that this satisfies the “what’s in it for me.” In a way, CAC is a manufacturer of trust. You establish rapport and communication with them such that they know and trust you. So if something else is also manufacturing trust, then it subsidizes CAC.
Commerce requires trust, and trust is human. All business is human. Buyers trust that the product or service serves the interest of the buyer is what makes commerce happen. To get something from someone, even when they think that it does not serve them requires so much effort. It’s basically robbery. You have to show them a knife for them to give you money, and in that too, they look for their own interests. If they don’t give you the money, you’re going to stab them, so them getting to keep their life is what their interest is.
Many SaaS die because no one trusts that it helps them. Trust that paying for it is worth it. The trust might also stem from not even knowing that the SaaS exists. Thus, to trust something, you have to be aware about it also.
Trust might be intrinsic or extrinsic.
Trust that I am lucky, or I can make it work might make me buy something. Or, if buying this thing gives me good feels or optics. Or sometimes the supplier might be someone so trustworthy that it makes me wanna buy from them.
Thus you can lower CAC by inducing trust by targeting what’s inside the person and their surroundings, or making yourself as an authority.
Thus you should sell something you are an authority in, or something you can stir up someone for because you know so much about the domain and the people in it. Thus you should ask, “What are you an authority in, or what do you understand deeply enough to activate belief or stir up emotions in others for?”
And if you look at it from another angle, you will realize that information is the source of all this. You are an authority because you have possession of information and connections. You can stir up belief or emotions because you have information about the landscape, and you can thus hit on points that are touchy.
Information allows you to engage in activities that induce trust. That trust makes commerce viable, and thus you can get to make money.
Look, as it is possible, where you possess informational asymmetry that translates into meaningful signal to the buyer, either because you are an authority or because you trip them up internally or socially. Good. Information asymmetry is the core ingredient of business. If you know something that others don’t know, they cannot induce trust that well. Thus, high CAC is a sign of low trust or inability to make them trust.
Because whenever I launch my future product, I will have to think of it from this lens: “How do I make them trust that I can help them? That I can satisfy their “what’s in it for me?”
I am talking about trust in the absolute sense that it solves the “what’s in it for me.” Things like:
- Is the price good?
- Is it actually going to work?
- Is it better than competitors?
- Are they going to treat me better than competitors?
- Am I going to find anything better with the amount of effort I’m trying to put in and the constraints I have?
You have to make all those decisions and then trust that it would happen. Even scammers are able to get something out of people because they trust them. Without trust, no exchanges happen. The basic belief that “this exchange will benefit me.” CAC is the cost of manufacturing enough trust to cross this transaction threshold.
Just for background, I am so obsessed with CAC because for me, the first step in a business cycle is to pay money to find work for you to do.
- Pay money to find work
- Pay money to get that work done
- Pay money to get that work delivered.
- Get money paid to you from your customer
- The most crucial one is to reinvest in step one.
Another way to phrase “pay money to find work” is to acquire customers. Cost to acquire customers. Low trust makes it unviable to reinvest into finding new customers. Thus business cycle stops and your business dies. Your ability to create ‘new’ trust must be cheaper than your ability to deliver value.
Low trust → High CAC → Can't afford step 5 → Game overCAC.
roll credits lmao
A lecturer has to go on while he is ignored.
Its because people dont trust him
There is no trust that what he is saying is important enough to listen and not zone out
Send a terrorist in and people will trust the threat and pay attention
Send a billionaire in who is give away money if you do a 2 digit addition correct and people will trust him and listen
Lecturer: No clear WIIFM → no trust → ignored
Terrorist: Clear WIIFM (stay alive) → trust the threat → attention
Billionaire: Clear WIIFM (get money) → trust the reward → attention
Basically, you have to have clear what’s in it for me that people really care for, and you have to be trusted that you can deliver it.
That’s why people go after problems when they are thinking about business, that hey, the clearest WIIFM is that hey, I solve your problem, you make more money. But there are social, environmental, cultural WIIFMs that can help you. A single product can cover many WIIFMs and thus, you can have diverse messages and positionings as per the ICP you face. Different people care about different things, thus there are different WIIFM that you should target.
Economic: Make/save money, save time
Social: Status, belonging, identity ("I'm the type of person who...")
Environmental: Convenience, comfort, aesthetics
Cultural: Values alignment, tribal affiliation
Emotional: Feel good, avoid feeling bad, excitementA CEO might care a lot about money, so you have to go for economic WIIFM. While an artist might not care that much about money and really cares about his identity, so they might care about the characteristics and vibe of the product. For each type of person, the hierarchy of the WIIFMs is different. Not optimizing for that can lead to higher CAC.
You hold information asymmetrically when it comes to yourself. Not a single unique experience meme shows you can sell anything. If you feel it, 10000s others too. Thus you have enough surface to monetise. You can target it better because you know:
- The emotions you feel
- The social context around you
- The things you care about
You have a better idea about the WIIFMs you care about and in which order.