The truth about onboarding costs

Conventional wisdom says that web-based companies must be scalable on all levels. Start-ups should avoid any kind of manual intervention or heavy lifting to acquire, onboard or retain users… after all, users automatically flock to, sign-up to and stay with great products.

However, as we’ve seen time and time again, conventional wisdom doesn’t always know best.

Paul Graham recently noted that early phase start-ups often NEED to do things that aren’t scalable in order to gain traction. He argues that companies usually need to start recruiting manually and then as things get going, can switch over to less manual methods. Airbnb is a prime example – in the early days, the founders went door to door in New York to recruit new users and help existing ones improve their listings.

What is true for acquiring users in the early phases might also be true for onboarding customers throughout the lifecycle of a SaaS company. High onboarding costs are often seen as detrimental to the long-term scalability and profitability of an enterprise business but it is worthwhile taking a second look – here are some of the advantages of investing in an extensive onboarding process:

  • Reduce churn as users better understand the depth and breadth of the product, and are therefore “hooked”
  • Provide an opportunity for upselling
  • Reduce future customer service incidents (since users are more familiar with the product and know how to use it from the start)
  • Shorten sales cycle. For example, scheduling a demo as part of onboarding can result in a faster customer sign-up

If you do a good job on scaling your onboarding, all these benefits will more than make up for the additional costs. Of course, you can’t just assume that’s the case based on this post or any other blog. You should always be aware of your metrics:

  • What are the added onboarding costs? Add them to your initial customer acquisition costs to get a total CAC amount.
  • What’s the change in Lifetime Value (LTV) because of a better onboarding process?

Understanding these metrics should give you the confidence that you’re on the right track, even if your onboarding costs seem unsustainable at first glance. In short, don’t be deterred from doing “non-scalable things” just because conventional wisdom says not to.

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