
208. What You Need To Know about Insurance COIs
Retailers are raising the bar when it comes to liability coverage, and the process of securing the right insurance is becoming more complicated than ever. Not only are brands facing
This is the ratio we use to grow e-commerce stores faster with more confidence (and how we use it).
Use the following Ratio– CAC : 3 Month CV
After iOS14 and the rise of ad costs in 2021, we began to think deeper about the metrics we used to measure success and make decisions.
ROAS is obviously out the window.. when it comes to conversion tracking (any KPI that happens off-platform) you can’t trust your ad dashboards.
ROAS also doesn’t allow us to think about the business holistically. It’s short-sided.
Here’s how we use CAC : 3 Month CV and what it means.
CAC = Blended New Customer Acquisition Cost
$ Total Ad Spend / # New Customers
3 Month CV = 3 Month Customer Value
(3 months after first purchase, what is a customer worth on average)
We use TripleWhale or Polar Analytics to measure these.
Now, why do we use these metrics as our guiding targets?
In order to scale we need to know two things:
Thing #1: What is a customer worth to us?
Thing #2: How much does it cost to acquire that customer
To answer this question we must apply the variable of time.
Because a customer is worth more over time (obviously).
People often talk about LTV… But when do we realize the profit on LTV? We can’t make good business decisions with LTV, we need a period of time.
Now, what is a customer worth after 3 months? 6 months? 12 months? That is a better question because now we can begin to see a timeline on our ROI?
Why 3 months? Two basic reasons… For MOST stores, a customer will make one or more purchases within this time period. If they don’t, the likely hood of them coming back is much lower.
This gives us a realistic timeframe to give new customers a great experience and provide them opportunities to replenish or buy other products of ours while they are still excited about us.
After the 2nd and 3rd purchases, we know that the chances of having a customer for life are MUCH higher.
The second reason we focus on 3 months… Cash flow.
We want to see profit in 3 months so that we can re-invest that cash for growth. For most businesses, they don’t have a year of cash to sit on before they can see an ROI.
On the other end of the spectrum, being profitable after the first order is becoming much rarer, especially for brands with an AOV under $100. This is simply do to the rising cost of ads.
*hint for someone starting a brand without much cash. Look for something with an AOV over $100 and landed cost (COGS + Shipping) under 25%.
Customer acquisition cost AKA blended CAC or CAC.
This one is pretty straightforward… We want to acquire customers PREDICTABLY at the lowest possible cost.
If we have a predictable CAC and a predictable 3 Month CV that we know results in profit, we can now predictably scale.
Now, this is obviously the ideal situation… What if our metrics aren’t where they need to be?
The more challenging metric is CAC.
Here are some basic questions we would ask if CAC is too high.. Getting to the bottom of it would require more context (obviously).
The real question is, what do you focus on first, second, third?
This is strategic decision-making at its finest and the best entrepreneurs are incredible at this.
Putting the cart before the horse can be dangerous.
If you can create predictability with CAC & 3 Month Customer Value, you put yourself in a position to scale rapidly.
Cheers to Q3, I hope you take your business to new heights!
Retailers are raising the bar when it comes to liability coverage, and the process of securing the right insurance is becoming more complicated than ever. Not only are brands facing
Retailers are raising the bar when it comes to liability coverage, and the process of securing the right insurance is becoming more complicated than ever. Not only are brands facing
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