What visitor attractions can borrow from Silicon Valley

 

The one thing Silicon Valley has mastered is the formula for using hyper growth to take a mission to the world. After years in a bull economy, the tech industry shifted from obsessing over unicorns – companies with billion dollar valuations, to idolizing whales – those with a billion plus in revenue alone. It’s incredible given most alumni companies are barely out of their teens – unlike other giants of the world, few were around last century (in many cases, their founders were still at school).

The typical Valley brand looks beyond the code, waxing lyrical about changing the world. With this magnitude of money behind them, they certainly make a difference – the billion dollar kind. It might imply a glamorous world, but the reality is an industry obsessively honing the data playbook. There’s a good driver behind it: theirs is a winner takes all game – a race to grow, thus a need for investment. Tolerance for losses requires high confidence in unit economics in lieu of profit. They really know numbers.

The visitor attraction business model is more complex and capacity bound by physical premises, limiting scale. Yet at its heart, growth metrics remain the same, so the plays for global impact can be appropriated.

Think in Life Time Value (LTV)

A big reason behind the stunning revenue growth and sky high valuations the Valley enjoys is that most of their products are subscriptions. Revenue recurs. It compounds. Most of these companies limit exposure to one time revenue: they don’t start the year with a blank ledger, having to go out and earn each dollar from scratch. Instead, they open the year where they left off on the performance of the last, building from there. In the visitor attraction, some lines of business naturally recur, such as membership or licensing. Yet for many, these revenue lines are secondary to the focus of one time visitors. Tech companies think about customers in ‘Life Time Value’ (LTV), accounting for most remaining for years. Understanding the true value of say, a member’s lifetime against a one time visit is a reality check on the priority of recurring revenue. A $65 membership, with an average per visit spend of $5 twice annually and 3 year lifetime is worth $225, versus a single visit ticket of $20 with a spend of $7 giving an Average Revenue Per Visit (ARPV) of $27. That member is worth nearly 10x the single visit.

Manage Customer Acquisition Cost (CAC)

LTV shines light on the cost of acquiring customers. In terms of the cost of acquiring visitors, this is primarily marketing spend, but for higher value business like corporate or gifts, it includes business development costs too. Tech companies think of this metric as a ratio against LTV, aiming for around 3x return – any less isn’t sustainable, any more leaves business on the table. With visitor attractions’ higher costs to serve maintaining venue and operations meaning lower gross margins, a benchmark of 5 – 7x is a better ratio for sustainability. Unit economics makes right sizing easier investment over arguing whether the marketing budget is sufficient.

Convert the funnel

Behind CAC is a solid understanding of the customer funnel. Each touchpoint is measured and optimized. Understanding the visitor journey and metrics at each point is a quick win for visitor attractions. What percent of visitors from ‘visit’ website pages buy a ticket? Which referring channels perform better? How many advance passes show up? What ratio of visitors to a free venue convert into a paid product? What proportion eat onsite? How likely is a visitor to buy a membership? Each funnel stage is a quantitative opportunity for experimentation.

Obsess over churn

Continuing on the thread of worshipping recurring revenue, tech companies obsess over churn (customers who cancel subscriptions), going to great lengths to prevent, rescue or revisit. Big believers in the notion that ‘the most valuable customer is one you never lose’, given it is more expensive to find a new customer than keep an existing one, they use tools such as net promoter, customer health checks and qualitative feedback to monitor and address churn risk. The retention benchmark is set at 90%, with the holy grail referred to as ‘net negative’, meaning revenue from expanding existing customers outweighs churn – the company grows without selling. There are three takeaways here for the visitor attraction. First, venues should focus on churn in areas such as membership. Second, the venue should be proactive where there are obvious cliffs, such as families with maturing children or the year following a big show. Third, the venue should look to upsell subscription customers to achieve net negative status – such as with membership tiers or additional recurring donations.  

Monitor granular growth and know when to pivot

Elite tech companies double or triple each year. The top quartile are over 90% growth on <$50 million revenue and 60% plus thereafter (a median of 75% and 45% respectively, with only the lower quartile under 20%). Compare this to visitor attractions with tourism industry growth around 5%, where venues are lucky to hit double digits – the price of non recurring revenues. It’s also correlated to how granular this metric is monitored and growth hacked. In tech companies, growth is measured down to the week, with little sympathy for seasonality. In attractions it’s usually managed annually, with wriggle room for external influences during the year, meaning action can be late to follow. Tech companies are famous for hockey stick curves of surging growth, layers of marketing tactics, channels, offerings and more built as they mature, but as they experiment, they’re picky about what they keep. The visitor attraction sector has done a great job of diversifying the income stream in things like experiences, merchandise, hospitality, parking, education, hire, events, licensing and more. Equally important is identifying elements with slow demand or low margin and experimenting scaling techniques or analyzing when to retire. Without a harsh enough microscope on what to quit, the attractions business model easily becomes a tangled, complex mix of products, expensive to serve. Failing to swing the axe hampers growth.

The press plays a lot on the unique melting pot of the Valley’s ecosystem, talent pool and access to capital. But what sets this heart of the tech sector apart is its use of unit economics to attract long term investment and deliver predictable revenue. By telling the mission story, incorporating the visitor experience and journey, then illustrating it all with numbers – so too can the visitor attraction pursue a global vision, rapid traction and significant scale.