What strategies has Instamojo implemented to address the common challenges of high churn and low average customer value when serving the SMB segment?
Co-founder & CEO at Instamojo
The bad news is that the mortality rate is very high in this sector, extremely high. Because they don't find business, they don't find sales, whatever, so it's very high. But the good news is the number of micro merchants is also very high, we're talking about at least 10 million. I'm talking about people doing up to about $10,000 of sales a year—selling on a social platform like Instagram and Facebook. So the key is to keep the CAC low and retention high. If you are not able to manage the CAC and high retention, you are dead. You can keep spending, throwing money at the problem, but you will just burn out.
Just to give you some context on the CAC side. Our CAC is about $1 to $2. And I think this is like a world-beating number. And that is because 80% of our merchants that we are acquiring every day, we are acquiring about 1,200 – 1,500 merchants on a daily basis, 80% of the merchants are coming through word of mouth, for the reasons I mentioned earlier -- because you create a link or a store, you share it, people are coming, and they say, "I can also build it for myself."
On the retention side -- I'm talking about last month -- retention month over month is about 96%. When we launched a subscription plan -- same time last year -- it was 80%.
We believe our retention rate will cross 100% as we upsell more services to the existing captive base. So CAC and retention, we have figured it out, if you may say so.
Now, the question is, how do we add more and more merchants? So far, it is an organic play. Now we are looking to promote and do a lot of branding, which we've never done in the past. To acquire more and more merchants on the platform. So that's the key to balancing the mortality rate that we have and the large audience base that’s the micro merchant base.