Project Management Articles

Common Mistakes in Daily Scrums: Moving Beyond Stand-ups

The daily scrum is essential for team synchronization in agile development. Common pitfalls include misnaming the meeting, treating it as a project report, and allowing it to become lengthy. To enhance effectiveness, stick to the three questions and address deep discussions later. Embracing inclusivity, brevity, and focused discussion empowers teams for project success.

In the agile development world, the daily scrum is a vital ritual for teams to synchronize and plan their work. However, many teams fall into common pitfalls that hinder the effectiveness of these daily meetings. Let’s explore some of these mistakes and how to overcome them.

Misnaming the Meeting: The term “stand-up” is often used interchangeably with “daily scrum,” but it’s essential to recognize the distinction. While standing up during the meeting was once thought to increase alertness and efficiency, it’s not a necessity and can exclude team members who are unable to stand. Embracing the term “daily scrum” or finding alternative names promotes inclusivity and clarity within the team.
Treating it as a Project Report: Daily scrums should not devolve into mere status updates or project reports. Instead of each team member reporting to the scrum master, the focus should be on fostering collaboration and problem-solving within the team. Encouraging open discussions about progress, obstacles, and upcoming tasks enables the team to self-organize and make informed decisions collectively.
Skipping or Lengthy Meetings: Some teams either skip the daily scrum altogether or allow it to drag on for too long, diminishing its effectiveness. Daily scrums should be brief, focused, and held consistently to maintain momentum and alignment within the team. Keeping the meeting short encourages brevity and ensures that discussions remain relevant to the team’s immediate goals and challenges.

To enhance the effectiveness of daily scrums, teams can adopt the following practices:

Stick to the Three Questions: While no longer an official part of the Scrum framework, the three questions—”What did you do yesterday? What will you do today? Are there any impediments?”—serve as a useful guideline for keeping discussions concise and relevant.
Address Deep Discussions Later: If certain topics require extensive discussion, they can be deferred to after the daily scrum to avoid derailing the meeting’s focus. Reserving the meeting for quick updates and identifying immediate priorities helps maintain its efficiency.

In conclusion, the daily scrum is a cornerstone of agile methodology, fostering collaboration, transparency, and adaptability within development teams. By avoiding common mistakes such as misnaming the meeting, treating it as a project report, and allowing it to become lengthy or irrelevant, teams can maximize the benefits of their daily scrums. Embracing inclusivity, brevity, and focused discussion empowers teams to stay aligned and agile in their pursuit of project success.

Mastering User Stories: A Guide for Product Managers

User Stories are essential narratives guiding product development. They focus on user needs, with a simple format (WHO, WHAT, WHY) and follow the 3 C’s (Card, Conversation, Confirmation). Adhering to the INVEST criteria ensures value and actionability. Breaking down stories into manageable pieces is crucial. Mastering this art empowers Product Managers for success.

User Stories are not just containers for requirements; they are narratives that drive collaboration, guide development, and deliver meaningful outcomes for users. As a Product Manager, understanding and crafting effective User Stories is crucial for product success. Here’s how to master the art:

1. Why User Stories Matter

User Stories are written from the perspective of users seeking value from the product. They articulate desired outcomes and are embedded in the context where users interact with the product. Understanding users and their needs is essential for crafting meaningful User Stories.

2. The Basic Format

A User Story follows a simple format:

WHO: As a [user type]
WHAT: I want [action to perform]
WHY: So that [the desired outcome]

This format keeps the focus on user needs and desired outcomes, guiding the development process effectively.

3. The 3 C’s of Effective User Stories

Card: Clear, concise description of WHO, WHAT, and WHY, traditionally captured on physical cards or in tools like Jira.
Conversation: Engage in discussions to understand the reasoning behind the User Story and its contribution to the product outcome and strategy.
Confirmation: Define acceptance criteria to ensure requirements are met, providing a concise checklist for validation.

4. The INVEST Criteria

Well-written User Stories embody the INVEST principles:

Independent: Each User Story should stand alone.
Negotiable: Details can be discussed and adjusted.
Valuable: Deliver value to the user.
Estimable: Effort can be estimated.
Small: Small enough to complete within a single iteration.
Testable: Clear criteria for successful implementation.

These qualities ensure User Stories are effective and actionable.

5. How to Split User Stories

Break down larger User Stories into smaller, manageable pieces:

Epic: Larger element combining smaller User Stories.
User Stories: Small, manageable items delivering specific value.
Tasks: Detailed work items for engineers.

Avoid overcomplicating the process; simplicity is key.

Mastering User Stories empowers Product Managers to articulate user needs, drive development, and deliver products that resonate with users. Keep user-centricity at the core of your approach, and success will follow.

Unraveling User Stories: A Comprehensive Guide

Definition of Ready – Crafting ‘Ready’ User Stories: A Blueprint for Sprint Success

To ensure smooth sprint execution, it’s vital to have “ready” user stories, clear, feasible, and testable. A sample user story for password reset should have acceptance criteria, security measures, scalability, and performance criteria defined. The “Definition of Ready” checklist outlines the necessary criteria for a user story to be considered ready for implementation.

For a smooth sprint execution, it’s crucial to ensure that the user stories slated for inclusion are thoroughly “ready.” Introducing incomplete or poorly defined user stories into a sprint leads to implementation challenges, echoing the adage “garbage in, garbage out.” When developers tackle inadequately detailed or defined user stories, the likelihood of delivering high-quality code diminishes significantly.

A “ready” backlog item needs to be clear, feasible and testable. Sample Definition of Ready :

User Story is clear
User Story is testable
User Story is feasible
User Story Acceptance Criteria defined
User Story dependencies identified
User Story sized by Development Team
Scrum Team accepts User Experience design/artefacts
Performance criteria identified, where appropriate
Scalability criteria identified, where appropriate
Security criteria identified, where appropriate
Person who will accept the User Story is identified
Team has a good idea what it will mean to Demo the User Story

A sample user story with acceptance criteria defined

User Story: As a registered user, I want to be able to reset my password so that I can regain access to my account if I forget it.

Acceptance Criteria for the Password Reset User Story:

User Receives Password Reset Email:
- Upon initiating the password reset process, the user should receive an email containing a secure password reset link.
Password Reset Link Expires:
- The password reset link sent via email should expire after a specified time period (e.g., 24 hours) to enhance security.
User Can Reset Password:
- Upon clicking the password reset link, the user should be directed to a secure page where they can enter a new password.
Password Complexity Requirements:
- The system should enforce password complexity requirements (e.g., minimum length, use of alphanumeric characters) when the user sets a new password.
Successful Password Update Notification:
- After successfully resetting the password, the user should receive a confirmation notification indicating that their password has been updated.
Incorrect or Expired Link Handling:
- If the user clicks on an incorrect or expired password reset link, they should be notified and prompted to request a new password reset link.
Logging of Password Reset Activity:
- Password reset activity should be logged for audit purposes, including timestamps and user identifiers.
Integration with Email Service:
- The system should integrate seamlessly with the email service provider to ensure reliable delivery of password reset emails.
Performance Criteria:
- The password reset functionality should have a response time of under 3 seconds under typical user load conditions.
Scalability Criteria:
- The password reset feature should be designed to handle a potential increase in password reset requests without service degradation, supporting at least 10,000 concurrent requests per hour.
Security Criteria:
- Password reset links should be generated using cryptographically secure methods to prevent unauthorized access or tampering.
- The password reset process should adhere to OWASP security guidelines to mitigate common security risks, such as SQL injection and cross-site scripting (XSS).
- All password reset transactions should be encrypted using SSL/TLS to protect sensitive user data during transmission.
User Documentation and Help Resources:
- Clear instructions and help resources should be provided to guide users through the password reset process in case they encounter difficulties.

Definition of Ready:

User Story is clear: The purpose of the user story is well-defined and understood by the team.
User Story is testable: Success criteria for testing password reset functionality are clearly defined.
User Story is feasible: The team has assessed the technical feasibility of implementing password reset functionality within the system architecture.
User Story defined: The user story is documented and available for review by the team.
User Story Acceptance Criteria defined: Acceptance criteria, such as the ability to receive a password reset email and successfully reset the password, are clearly outlined.
User Story dependencies identified: Any dependencies, such as integration with email services for sending password reset links, are identified and addressed.
User Story sized by Development Team: The development team has estimated the effort required to implement the password reset feature.
Scrum Team accepts User Experience artefacts: The user interface design for the password reset feature has been reviewed and accepted by the Scrum Team.
Performance criteria identified, where appropriate: Performance expectations, such as response time for sending password reset emails, are defined.
Scalability criteria identified, where appropriate: Criteria for ensuring the password reset feature can handle a large volume of requests are specified.
Security criteria identified, where appropriate: Security measures, such as encryption of password reset links, are identified and implemented.
Person who will accept the User Story is identified: A designated product owner or stakeholder responsible for accepting the completed password reset feature is identified.
Team has a good idea what it will mean to Demo the User Story: The team understands what constitutes a successful demonstration of the password reset functionality, including user flows and error handling scenarios.

Project Kick Off Meeting

Introductions, Project Name, and Overview:
- During this step, participants introduce themselves, including key stakeholders, sponsors, project managers, and team members.
- The project name and its significance are introduced, setting the tone for the discussion.
- An overview of the project is provided, emphasizing its importance, scope, and alignment with organizational goals.
Review of Project Goals and Objectives:
- The kick-off meeting provides an opportunity to revisit and clarify the project’s goals and objectives.
- Each goal and objective should be clearly articulated, ensuring that all stakeholders have a shared understanding of what the project aims to achieve.
Timelines and Milestones:
- The project timeline and milestones are discussed to establish a clear roadmap for execution.
- Key dates, deadlines, and milestones are identified to track progress and ensure timely completion of deliverables.
- Dependencies and critical paths may also be highlighted to manage expectations and mitigate potential delays.
Project Risks:
- Risks associated with the project are identified and discussed openly.
- Each risk is assessed in terms of its likelihood and potential impact on the project’s success.
- Mitigation strategies and contingency plans are outlined to address identified risks and uncertainties.
Assignment of Roles and Responsibilities:
- Clear roles and responsibilities are assigned to team members, ensuring accountability and alignment with project objectives.
- Each team member understands their specific role, authority, and expectations within the project structure.
- Communication channels and reporting mechanisms are established to facilitate effective collaboration and coordination.
Tools and Methods:
- The tools, methodologies, and frameworks to be used during project execution are discussed.
- This may include project management software, communication platforms, collaboration tools, and specific methodologies tailored to the project’s needs.
- Training and onboarding sessions may be scheduled to familiarize team members with the chosen tools and methods.
Q&A Session:
- An interactive Q&A session is conducted to address any concerns, clarify doubts, and gather feedback from participants.
- Participants are encouraged to ask questions and share their perspectives on various aspects of the project.
- This session fosters open communication and ensures that all stakeholders are on the same page before moving forward.
Next Steps:
- The kick-off meeting concludes with a summary of key takeaways and action items.
- Next steps, including immediate follow-up actions and upcoming milestones, are outlined.
- Clear expectations are set regarding communication channels, reporting protocols, and ongoing collaboration.

By following these steps, the project kick-off meeting establishes a solid foundation for successful project execution, aligning stakeholders, clarifying objectives, and setting the stage for effective teamwork and collaboration.

A Day in the Life of a Technical Program Manager

As a Program Manager, my daily routine is a delicate dance between reacting to immediate needs and proactively driving long-term initiatives. In this blog post, I’ll take you through how I divide my day into two distinct parts – reactive and proactive – to ensure effective management of projects and teams.

Reactive Responsibilities: The reactive part of my day involves addressing immediate needs that come through various channels such as emails, Slack, and team notifications. Here’s a glimpse of what it entails:

Email and Slack Management:
- Reading and responding to emails and Slack messages promptly to stay informed and keep communication flowing.
Meetings:
- Attending emergency meetings and re-prioritizing my schedule based on the day’s meetings.
Meeting Preparations:
- Starting the day by reviewing upcoming meetings and adjusting priorities as needed.

Proactive Responsibilities: The proactive part of my day is dedicated to actively engaging with different teams and driving the progress of various initiatives. Here’s how I manage my proactive responsibilities:

Team Check-Ins:
- Connecting with different teams to get updates on various aspects of ongoing projects.
Collaboration with Product Managers:
- Discussing the status of PRFAQs (Product Requirement Frequently Asked Questions) and PRDs (Product Requirement Documents) with Product Managers.
Engagement with Business, Legal, and Finance Teams:
- Collaborating with business, legal, and finance teams on initiative approvals, third-party integrations, and vendor agreements.
Design Team Collaboration:
- Coordinating with the design team to ensure the completion of design work for specific initiatives.
Engaging with Cross-Functional Engineering Teams:
- Working closely with engineering teams on design, development, and quality assurance.
Interaction with Analytics & Data Science Team:
- Touching base with the analytics and data science team to gather insights and updates.
Communication with Go-to-Market Team:
- Collaborating with the go-to-market team on collaterals for upcoming product launches.

Meetings : This proactive work is often conducted through various meetings, including stand-up meetings, Scrum of Scrum meetings, and 1:1 meetings. Additionally, I attend program meetings with stakeholders from product management, engineering, legal, finance, and business teams.

Proactive Updates : Presenting proactive updates, whether good or bad news, is crucial for maintaining transparency.

Documentation: A significant part of my proactive responsibilities involves documenting various aspects of the program, including status updates, program plans, resource loading Gantt charts, roadmaps, and more. This documentation helps keep everyone on the same page and provides a clear roadmap for the team and stakeholders.

Conclusion: In the dynamic role of a Program Manager, balancing reactive and proactive responsibilities is key to ensuring the success of ongoing projects and the long-term health of the program. By dividing my day into these two components, I can address immediate needs while actively driving the progress of strategic initiatives.

TPM Interview Question – As a Technical Program Manager, how would you handle a situation were critical and blocker bug is reported one day before the launch ?

Handling a critical and blocker bug reported just one day before a launch is a challenging situation that requires a swift and well-coordinated response. Here’s a step-by-step approach for a Technical Program Manager (TPM) to manage such a scenario:

Assess the Severity and Impact:
- Quickly assess the severity and impact of the reported bug on the system and end-users.
- Understand the potential consequences, such as system downtime, data loss, or compromised functionality.
Communicate Effectively:
- Notify all relevant stakeholders immediately, including the development team, testing team, product managers, and leadership.
- Clearly communicate the nature of the bug, its impact, and the urgency of the situation.
Convene an Emergency Meeting:
- Schedule an emergency meeting with key stakeholders to discuss the bug, its implications, and potential solutions.
- Ensure that the right technical experts are present to analyze and address the issue.
Prioritize and Triage:
- Work with the technical team to prioritize and triage the bug based on its severity and impact on the launch.
- Identify any workarounds that can be implemented quickly to mitigate the immediate impact.
Define a Contingency Plan:
- Collaborate with the team to create a contingency plan. This may involve postponing the launch, implementing a hotfix, or deploying a rollback to a stable version.
- Determine the feasibility and impact of each option.
Engage Cross-Functional Teams:
- Engage cross-functional teams, including development, quality assurance, and operations, to collectively address the bug.
- Facilitate communication and collaboration between teams to expedite the resolution process.
Communicate to External Stakeholders:
- If the launch involves external partners or customers, communicate transparently about the situation, the decision to delay, and the plan moving forward.
- Provide regular updates as the situation evolves.
Invoke Incident Response Protocols:
- If available, invoke incident response protocols to streamline the coordination of resources, communication, and resolution efforts.
- Ensure that there is a clear incident owner responsible for driving the resolution.
Monitor and Test:
- Continuously monitor the progress of bug resolution and test any proposed fixes thoroughly.
- Implement additional testing to validate that the solution does not introduce new issues.
Update the Launch Plan:
- Update the launch plan with the revised timeline and communicate the changes to all stakeholders.
- Ensure that the team is aligned on the new schedule and that necessary adjustments are made.
Conduct a Post-Mortem:
- After the resolution, conduct a post-mortem analysis to understand the root cause of the critical bug and identify process improvements.
- Document lessons learned and implement preventive measures to avoid similar issues in the future.
Review and Learn:
- Review the incident response and resolution process. Identify areas for improvement in communication, testing procedures, and risk mitigation.
- Use the experience as a learning opportunity for the team and the organization.

In challenging situations like this, a TPM’s ability to lead and coordinate a swift and effective response is crucial. Clear communication, collaboration, and a focus on finding the best resolution are key elements of successfully managing such incidents.

Program Status Meeting

Apart from running regular daily standup meetings with development/engineering team, it is important to run Program Status Meeting involving engineering, program management, product management , sponsor and other important stakeholders.
It is important to use program management plan in program management tools and/or deck.
Purpose of this meeting is to under how we are tracking towards our deadlines. Also align on the program progress, address roadblocks and discuss next steps. This also helps brainstorm solutions to program roadblocks.
The frequency of Program Status Meetings can be weekly, every 2 or 3 weeks or 1 month depending upon program complexity and stakeholder alignment. Ideally Program Status meeting should occur in weekly or every 2 weeks frequency. Decide on frequency at program kickoff/start and maintain and hold these meetings as per frequency
Program Manager should start with Status of Program. Status of Program can be Green, Yellow and Red. If Status of Program is Yellow and Red, mention corrective actions.

Green: On schedule, on budget, all good.
Yellow: Potential issues with schedule or budget, but both can probably be saved with corrective actions.
Red: Serious issues and the project will probably be delayed or have significant budget overrun.

Start the meeting by going over Program Gantt Chart. Program Manager goes over current week program activities planned from Gantt chart and highlights the stage the program is. Program Manager should clearly state whether the program is in Design, Development, Testing , Deployment or Support phase. Program Manager should clearly highlight all dependencies for current and next week. Program Manager should also highlight major deadlines and milestones in the future weeks
Program Manager or Scrum Masters of different teams share their team updates. Updates should include what team did since the last time they met, what team will do till the next time they meet and any blockers or obstacles.
Provide Status Update on RAID items and Capture new RAID items – RAID stands for Risk, Assumption, Issue and Dependency. Program Manager should review and share an update on existing Risks, Assumptions, Issues and Dependencies. Program Managers should also add new Risks, Assumptions, Issues and Dependencies to RAID backlog. Program Manager can also use this time to solve issues/roadblocks and also to remove risks/obstacles that can occur in future.
Program Manager should then go over next steps. Next Steps should highlight next week program activities, steps to resolve roadblocks if any.
After Status meeting is done, program manager should send Program Status update email which should include :

Milestone Completed since last status meeting
Milestone Missed
Milestone Planned till next status meeting
Risk log
Issue log
Action Items

Portfolio – Project Selection and Prioritisation

As Portfolio / Program Manager, you will have lot of projects in your project backlog. As an effective Portfolio/Program Manager, you should prioritise the right project and select it for further planning and execution.

You need to prioritise projects by scoring/ranking projects on different prioritisation criteria. Some of prioritisation criterias that I recommend portfolio/program managers to prioritise projects are listed below :

Strategic Alignment – You need to see if your projects is aligned to your organisation/department strategic goals and score it accordingly
Financial Criteria – You need to see your projects ROI , Savings and Cost vs Benefit. Based on this , you can score the projects
Risk Criteria – You need to also check how much risk is involved.

You can give different weightage and score for each of the above criteria and then prioritise your projects based on final scores.

This exercise will help convert your project list to prioritised project list. You can start planning and executing projects based on projects ranking in prioritised project list

Also, it is important to revisit the prioritised project backlog on monthly or quarterly basis to make sure you are working right projects which are high value to your organisation at that point of time

Author : Santosh Kumar Singh – Program & Product Management Professional

Product Metrics and KPI to Forecast Business Sucess of Product

Metrics to forecast business success of a product

1. Monthly recurring revenue (MRR)

These metrics measure a product’s total revenue in one month.

What are the different components of MRR?

MRR metric can be broken down to help you understand how your business is performing in terms of acquisition, retention, and scaling.

New MRR: This is the revenue your business makes from all the new customers gained during a month. This can be directly attributed to all your new customer acquisition strategies and help mark out the channels that contribute to revenue.
Upgrade MRR: This is the additional MRR from all customers who have upgraded to a higher pricing plan from a lower-priced plan, or purchased a recurring add-on. Upgrade MRR gives you a fair representation of how well your product scales with the growth of your customers.
Expansion MRR: Often confused with Upgrade MRR, Expansion MRR also takes into account MRR contribution from reactivation of a previously canceled subscription and free-to-paid conversions. Especially useful for subscription businesses that use a freemium model, contrasting Expansion MRR with Upgrade MRR gives a deeper level of understanding of how well you are able to convert free customers to paid customers, and how often canceled subscribers return to you.
Contraction MRR: This metric reports the MRR lost due to cancellations, downgrades to lower price plans, removal of recurring add-ons, or even because of availing discounts. It is useful for understanding how well your business is able to retain the MRR from existing subscribers, indirectly indicating the capability of your product/service to scale with your customers’ needs.
Churn MRR or Cancellation MRR: A component in the calculation of Contraction MRR, Churn MRR or Cancellation MRR takes into account the MRR lost due to canceled or churned subscriptions. Churn is useful in understanding how well your product stays relevant to your customers’ needs. During the early stages of a subscription business, a high or a rising churn MRR or cancellation MRR may indicate poor product-market fit, while a similar trend during later stages may point towards a recent marketing campaign that brought in customers with the wrong promise.
Downgrade MRR: This is the other component that drives Contraction MRR. Downgrade MRR is the sum total of all reductions in MRR from existing customers, excluding those from cancellations.
Reactivation MRR: Additional MRR from customers who had previously churned or canceled. Reactivation MRR is a component of expansion MRR. It is important for these customers to have contributed $0 to the MRR in the previous month (does not include users in free trials).

Why MRR is important for your business?

If your business revolves around subscriptions, this should be a fair representation of the money your customers will be bringing in. It depicts the health of a business, something an investor will look at before he or she invests in the business. That makes MRR the one number metric you should strive to be growing every month.

2. Average revenue per user (ARPU)

Average revenue per user (ARPU) allows you to count the revenue generated per user monthly or annually. You need these metrics to define the future service revenue, in case you’re going to change the pricing plan or roll out a promotion.

There are two types of ARPU: per new account and per existing account. ARPU per new account refers to metrics based on new accounts appearing after the subscription plan or product price was changed. ARPU per existing account involves the data from accounts established before the price change. This is the ARPU formula:

Monthly recurring revenue / total number of accounts = ARPU

Use ARPU to compare yourself to competitors, consider different acquisition channels, or segment which tier of customers brings more value.

How to use MRR and ARPU. It’s an effective KPI to use to monitor a company’s current health and it’s especially valuable in SaaS businesses working on a subscription basis. Since you don’t need to worry about one-off sales after acquiring a recurring customer, MRR is easily calculated and predictable.

3. Customer Lifetime Value (CLTV or LTV)

CLTV is the total worth to a business of a customer over the whole period of their relationship. It’s an important metric as it costs less to keep existing customers than it does to acquire new ones, so increasing the value of your existing customers is a great way to drive growth.

If the CLTV of an average coffee shop customer is $1,000 and it costs more than $1,000 to acquire a new customer (advertising, marketing, offers, etc.) the coffee chain could be losing money unless it pares back its acquisition costs.

Knowing the CLTV helps businesses develop strategies to acquire new customers and retain existing ones while maintaining profit margins.

Average Revenue Per User (ARPU) * Average customer lifetime = CLTV

How to use CLTV

It is useful metric used by marketing managers especially at a time of acquiring a customer. Ideally, lifetime value should be greater than the cost of acquiring a customer. Some also call it a break-even point.

The basic formula for calculating CLTV is the following (1):
(Average Order Value) x (Number of Repeat Sales) x (Average Retention Time)

For example, let’s say you run a Health Club where customers pay Rs 1000 per month and the average time that a person remains a customer in your club is 3 years. Then the lifetime value of each customer is (according to the formula above):

Rs 1,000 per month x 12 months x 3 years = Rs 36,000. This means each customer is worth a lifetime value of Rs 36,000.

Once we calculate CLTV we know how much the company can spend on paid advertising such as Facebook ads, YouTube ads, Google Adwords etc. in order to acquire a new customer.

4. Customer Acquisition Cost (CAC)

This metric covers all the costs spent on attracting customers: marketing spendings, sales team work, advertising. Sometimes these costs include salaries of marketing and sales professionals. Usually, customer acquisition cost involves setting a specific period of time and total revenue. There are several formulas to calculate CAC, but the simplest one is:

Sales & marketing spendings for a period of time / total # of customers generated for a period of time = CAC

How to use CAC. Use CLTV and CAC together to identify whether customers bring you less profit than what you spend on them, and whether it’s time to reconsider pricing and product marketing strategy to attract more users.

Importance of Customer Acquisition Cost

CAC is a key business metric that many businesses and investors look at. In fact, many companies end up failing due to not fully understanding their customer acquisition cost.

1. Improving return on investment

Understanding the cost to acquire new customers is crucial to analyzing marketing return on investment. For example, consider a company that uses several channels to acquire customers:

By using CAC, a company is able to determine the most cost-effective way to acquire customers. In the table above, we can see that Social Media provides the lowest acquisition cost while Social Events cost the most. A company presented with this data may consider using social media marketing more to generate more customers.

2. Improving profitability and profit margin

Understanding its CAC provides a business with the ability to fully analyze the value per customer and improve its profit margins. For example, assume that the value of each customer to a business is $60.

Relating it to the example above, which channel would you choose to use? A business that does not understand CAC would adversely affect profitability by choosing to use Social Events as a channel. The channels Social Media and Posters would improve profitability for the company as the CAC is lower than the value per customer.