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The Fundamentals of a Good DTC Business are Customer Acquisition Cost, Lifetime Customer Value, and Average Order Value. It’s a Simple Math Equation.

By November 17, 2021No Comments

Great interview out of Practical E-commerce by Eric Bandholz talking with Ben Smith from Disco, a skincare DTC brand for men. This was a great read and great interview because it hits on most of the challenges most e-commerce businesses have dealt in the past such as growing pains or current challenges in the market such as the iOS14 privacy changes making targeted advertising on Facebook and Instagram a thing of the past, at least on scale with the data that was available to us.

“The fundamentals of a good DTC brand are customer acquisition cost, lifetime customer value, and average order amount. It’s a simple math equation. Had I understood that, I would have done things differently at the start.”

Listen To The Interview:

No matter how big or small you are, there are 3 fundamental KPIs that will dictate your business:

  1. Customer Acquisition Cost
  2. Lifetime Customer Value
  3. Average Order Value

Yes, there are other metrics to look at that will ultimately dictate success, however, these are key drivers and north stars that can tell a lot about your business and ar e always optimized for, at any scale.

As customer acquisition costs rise due to iOS14 changes that’s literally affecting EVERYONE, {Read: Apples IOS Privacy Change Is Now Showing In Balance Sheets From Snap, Peloton, Smile Direct Club, And Across All Industries} It’s never been as important as it is today, although it’s always been important to those that truly understand the fundamentals of good business and growth, that retention that drives lifetime value can allow for CAC to go rise without wiping out your business.

One of the key takeaways is the talk on focusing on subscription-based purchases that provide a higher LTV across the board.

This interview specifically serves well to all those going through this iOS14 challenge, as we all are, and hit on some things we’re all experiencing but good to hear from others.

[Bandholz: Let’s return to iOS 14.5. For listeners who aren’t familiar, before iOS 14.5, Facebook, Google, and other platforms could track iPhone users’ activities, such as the apps they use and the sites they visit. iOS 14.5 changed that. Now, iPhone users have to agree to be tracked. The impact for advertisers is less-precise audience targeting, lower ad performance, and higher customer acquisition cost. What is your iOS 14.5 plan?

Smith: We raised money in March 2021 to aggressively acquire customers. Fortunately, that was just before iOS 14.5 rolled out. Brands and marketers have to rethink advertising — mainly on Facebook, Google, Instagram, Snap.

We’re not immune to that. Our customer acquisition cost increased by 300% with iOS 14.5. However, the reaction by advertisers has been a bit overblown. Advertising on Facebook still works. It’s just more expensive.

We scaled down ad spend, which had been very profitable in terms of customer acquisition. Around the same time, we launched on Amazon.

We had the cost-per-acquisition increase due to iOS 14.5 and simultaneously gave up nearly 15% of revenue to Amazon because we placed a top-selling item there. Then Amazon started bidding on our Google keywords for that SKU, which increased our cost per click on Google Ads.

We experienced all of the harmful effects more or less at once.  So a month or two ago, I shut down our Amazon presence. Almost immediately, our on-site conversion rate doubled, and our Facebook acquisition cost came down massively.

There is some merit to being on Amazon because lots of folks shop there. But if you’re focused on owning the customer experience and on subscriptions, it doesn’t make sense to be on Amazon, period, especially if you’re below $10 million in revenue.

As an aside, iOS 14.5 will likely prompt brands overly reliant on Facebook to consolidate or shut down.]

Pablo Palatnik

Pablo Palatnik

Pablo Palatnik is an industry veteran in e-commerce & digital marketing with over 20 years experience. He successfully built and sold businesses; he now serves as the VP of Global E-Commerce for cosmetic dermatology brand DS Laboratories. Pablo is the Founder of Etrend.com.

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