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Even $94 seems high to me, but $460?! I don't have any context for those figures though, does anybody know of a common cost per customer acquisition across ind
by Mizza 9y ago
Even $94 seems high to me, but $460?!
I don't have any context for those figures though, does anybody know of a common cost per customer acquisition across industries/products? Maybe my intuition as a humble programmer is way off, but that seems incredibly high.
- ChuckMcM 9y agoThe only way you can evaluate customer acquisition costs is to have the other number their lifetime value (LTV). In a 'goods' business it costs you $X to make the good and sell it (COGS) and people who buy it (after averaging sales, incentives, etc) as the average selling price (ASP), so to the extent that ASP > COGS you make money selling your widgets. A service business like this (or cable TV or whatever) has a customer acquisition cost (CAC), or the cost to get someone to sign up. and a life time value (LTV) which is the amount that customer will spend with you over the lifetime of their relationship with you. To the extent that LTV > CAC it tells you whether or not the business is viable. In both cases, when the ratios are wrong, the company loses money faster by either selling more widgets or getting more customers.
- Mizza 9y agoThis is of course a good explanation, but I'm actually just curious about the _magnitude_ of the actual numbers here, and across other industries.
- 55555 9y agoAffiliate networks will tell you what companies are willing to really pay for a lead, customer, etc. You really need to know BA's churn and LCV etc., though. Nutrisystem pays $140 to affiliates per new customer and gets about $12 in revenue daily from the customer. That is sort of relevant. I wouldn't personally put any money into Blue Apron. They are hiding their churn and dressing up their numbers. I suspect they will blow up or fizzle out.
- eldavido 9y agoAre they? What would "not hiding" it look like, a clear statement of it in their S-1, of the form "X is our churn rate?" I'm just not sure what people want. They show cohorts and give a lot of data on aggregate performance, but I agree, the lack of clarity is a bit alarming. Is there some kind of precedent people are comparing this to, a membership-style S-1 with clearer statement of what's going on?
- rhizome 9y agoWhat would "not hiding" it look like I'm guessing it would take the form of higher prices.
- ethanhunt_ 9y agoNot sure if LTV for blue apron is in their IPO docs or not, but to put that number into perspective: their cheapest plan is $60 per week, so if they hold onto a customer for 6 months, that $1560. 20% profit margin would mean $312. No idea if those numbers are anywhere close to correct. The magnitude of CAC and LTV are only meaningful together. A ferrari dealership might have a $5000 cost to acquire a customer and that would be a bargain, because their LTV is $250k+.
- deleted 9y ago[deleted]
- hkmurakami 9y agoQ - shouldn't CAC be balanced with Gross lifetime profit, not lifetime revenue per user?
- tedmiston 9y agoNot sure if I'm the average meal kit customer, but I don't choose to receive them every week. More like once every 2-3 weeks. Just something to consider in a customer's LTV.
- ghaff 9y agoAccording to their S-1, it seems as if their typical customer does indeed place an order pretty much every week. That certainly wouldn't be me. But, then, I think about using some of these services from time to time--but almost always end up driving to the store and picking up my own ingredients.
- marrone12 9y agoIt's a little short sighted though if your only measure is just LTV > CAC. acquisition costs will necessarily increase over time as the user base gets saturated and they churn away. At somepoint, LTVs will decrease because you've already lost your best users.
- ithinkinstereo 9y agoWow at $460 CAC you'd have the retain the customer for well over a year before you made that back (assuming 2 weeks of Blue Apron at $60/week per month with ~30% margin).
- doublerebel 9y agoThat length of time is rather normal in SaaS.
- kalleboo 9y agoIt's a lot easier to forget to cancel a software product you don't use than to ignore all the rotting groceries piling up in your kitchen.
- jamesash 9y agoMaybe this comment points to a larger misconception: that some people will fall into the trap of analyzing Blue Apron as something of a tech company?
- erdle 9y agoWhich is why they targeted tech investors for money... people that know what they're doing wouldn't touch it.
- mcpherrinm 9y agoI'm not 100% sure this is the right way to calculate costs, but those numbers seem reasonable to me: You give people their first shipment free, which you'd normally charge $60 1-in-3 people continue after that, so your cost to acquire 1 customer was $90. Tack on an extra $4 for the ads that got them to sign up. If 1-in-7 people continue, you get into the 400s. Those numbers seem pretty believable to me.
- mattmanser 9y agoWhat you charge $60 for shouldn't cost you $60, but I generally support the point. I think you're downplaying the $4.
- deleted 9y ago[deleted]
- clay_to_n 9y agoPlus all the initial marketing costs to get those people to sign up in the first place. Which, for an expensive service like this, where very few people are interested, seem significant.
- clay_to_n 9y ago(Not to imply that it's a bad service - just meaning that the CAC is a lot higher for Blue Apron than an iOS app - they have fewer, but more valuable, customers.)
- godzillabrennus 9y agoThe acquisition cost number is irrelevant. It could be $5,000.00! All that matters is you make money from the customer after all the expenses are taken into account. It's like the old adage: would you give me a quarter if I give you a dollar?
- eldavido 9y agoTo throw some actual _data_ into this conversation: From the S-1, this is a 68% COGS business, meaning their unit margins are 32%. You can debate whether some of their opex belongs above or below the line, but let's assume the 32% number is baseline credible. The business had 4.1 orders/customer last quarter with an average order value of $57.23, meaning 73.21 of gross profit per customer. That means they recoup their marketing spend in 6 quarters. The big questions, in my mind, are (1) will people continue to be customers after a period of time and (2) will CAC stay the same, rise, or fall? I think there's more room for disagreement here than people admit. I haven't looked too closely at their IPO pricing, but there is some amount I would pay for a share of stock in this company - it's >$0. I'm just not sure how that number compares to the current share price.
- jamesash 9y agoFrom yesterday WSJ: "Daniel McCarthy, a professor of marketing at Emory University, analyzed Blue Apron’s numbers and estimated that roughly 60% of customers stop using the service after six months." https://www.wsj.com/articles/blue-apron-chops-its-ipo-price-range-1498652104 https://www.wsj.com/articles/blue-apron-chops-its-ipo-price-...
- Declanomous 9y agoI can't read WSJ, so I don't know if they address this, but I wouldn't be surprised if people find favorite recipes over time and then just go to the store and buy the ingredients. I've never tried Blue Apron, but that seems pretty likely given their business model.
- naravara 9y agoIt makes sense. My girlfriend and I have been doing it for about a month. We like the variety, the sense of surprise, and the ingredients are actually fresher than most of the produce at our grocery stores so the price per meal is almost worth it. (Though we'd prefer bringing it down to about $7 per rather than $10. Where the value falls down is in how much of a time sink it is. These meals take a fair amount of prep, and in exchange for all that time you only get two meals. When I cook on my own I usually batch enough to have at least another 2-3 meals worth of leftovers. If they set it up as a channel for weekly meal prep rather than 3 fun new recipes to try we'd be much more inclined to stick with it, but as it is it's just too much work for busy people to do every week.
- hkmurakami 9y agoThink of insurance. It has the highest Google keyword cost of any industry iirc. Something like $200+ CPC since LTV is so high.
- brianwawok 9y agoSome lawyer terms are 1000 per click. They win the cpc war. Stuff like personal injury lawyer.
- erdle 9y agoask/follow this guy: http://blog.minethatdata.com/ http://blog.minethatdata.com/
- marrone12 9y agoSo the higher the pricepoint of the item, the harder it is to actually acquire a customer. To convince someone to buy subscription to a $60 box of food is quite the endeavor. You also need to be wary about how they exactly calculate CPAs based on ad buys. For instance, if they just comissioned a large scaled TV ad buy, that's millions of dollars they have to pay now. TV advertising has a long tail of user acq as it takes time for the message it wear in to a user. So if those millions hit in the billed quarter, they could still get customers in a later period and the CAC would change.
- shostack 9y agoChannel-specific CPAs become very fuzzy and downright misleading the higher up the intent funnel you get. Things like display, TV, etc. are notoriously difficult to measure the exact impact of. Thus, looking at all marketing expenses rolled up is really the only safe way to capture all that value for this sort of math.
- ozi 9y agoI work for a B2B SaaS startup and it costs us around $1500 to find, acquire, and onboard a client that brings in a minimum of $5K/yr. That cost is projected to approach $500 over the next 24 months.
- speedplane 9y agoWhat's your point here? That your company is better than Blue Apron? If so, go get em!