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Comment by ChuckMcM | Hacker News Reader

The 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.

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This is of course a good explanation, but I'm actually just curious about the _magnitude_ of the actual numbers here, and across other industries.

Affiliate 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.

Are 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?

What would "not hiding" it look like

I'm guessing it would take the form of higher prices.

Not 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+.

Q - shouldn't CAC be balanced with Gross lifetime profit, not lifetime revenue per user?

Not 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.

According 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.

It'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.

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