Ed-Tech trying to scale down CAC, eyeing sustainability and profitability


Sustainability and profitability are central to all businesses, regardless of the field. These two continue to be business essentials, despite the changed landscape post-pandemic. It will not be wrong to say that the pandemic brought about some severe changes in demand and supply. And one of the severely impacted domains is EdTech. 

Edtech companies witnessed a massive surge in demand during the pandemic. The need for remote learning increased with everything shifting online, even education. And it was at this hour that the meteoric rise of EdTech helped the helpless students see the light at the end of the tunnel. 

Unfortunately, the golden period is now over. Several edtech companies are now struggling to carry out their operations profitably. Let’s see some reasons why EdTech is struggling.

Why Is Edtech Struggling? 

2022 has been a dramatic year for the edtech industry. Lido informed its more than 1000 employees in February 2022 that it was shutting down owing to a lack of funding. Furthermore, 600 employees were put off by Unacademy in April, while Vedantu laid off 200 people.

The question is, despite being funded with deep pockets, why are these edtech companies struggling? In fact, 4 edtech startups in India reached unicorn status in 2021-22. Let’s find out why.

  1. High Customer Acquisition Cost (CAC)

Customer Acquisition Cost is the total amount a company spends on acquiring a new client. These include marketing, advertising, the salary of sales personnel, and more – everything that helps turn a prospect into a client. All B2C edtech companies mostly use digital platforms to generate leads, which the pricey sales professionals convert to clients using goals and incentives.

Before the pandemic, the CAC for edtech was approximately 20-25%. The same CAC increased to a whopping 70-80% of the revenue during the pandemic when edtech was at its peak. In short, the cost became so high that it couldn’t justify the unit economics, disrupting the LTV to CAC ratio. Companies that could afford to spend on pricey marketing and advertisements continued to do — those who could not simply exit the race.

  1. Unrealistic Pricing

Most edtech companies fail to realize that parents only have so much. They have restrictions on the amount they can spend. A higher CAC pushes the companies to price their services unrealistically on the higher end. Furthermore, some companies push parents to purchase expensive devices and sign up for long-term subscriptions without realizing that most parents are not likely to spend so much. Some of these services are way more expensive than a child’s school fees. This is a problem statement that edtech companies fail to solve, thereby pushing away their potential customers.

  1. Limited Time 

As schools start offline, a child only has so much time in hand. And parents understand this. During the pandemic, adding an extra course or picking up something new was more manageable, given that everything was remote or hybrid. Most edtech companies designed their services per the needs during the pandemic, which sadly do not match the present conditions. 

A Feasible Solution 

A feasible solution, in this case, is to strike a balance. Everything has to be in proportion to maintain the desired or the optimal LTV to CAC ratio. 

For instance, some companies have created the right balance by lowering its CAC while improving LTV and customer delight. They invested heavily into creating an eLearning solution combined with auto-scaling cloud labs, which, coupled with mentoring support from SMEs, create scalable solutions/services. 

Some other crucial aspect is effective sales, leveraging attractive offers and promotional campaigns to increase the quantum and size of sales opportunities. Transform your products and strategies to meet the needs of the present time. You must understand that a product or a service without a customer absolutely has no use. 

Conclusion

The future of edtech, not just in India but globally, is bright, given that companies in this sector know the right thing to do. Sustainability in the edtech domain is not an overnight miracle; it takes time. You will have to keep tweaking your products and approach to reach a level where all the components are balanced and in harmony with each other. Encourage the process and strategically plan everything – from reaching out to potential clients to signing them as clients! 

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Disclaimer

Views expressed above are the author’s own.

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