Consumer traction

Anonymous

June 8th, 2013

Hey guys,

Does anyone have insight into the range of %s that demonstrate "good" traction for a consumer product? I.e., you want 50-60% of your customers to be repeat-ordering (at the appropriate intervals) at least X times? I know it's product specific but I've heard vastly different numbers, so would love to hear your opinions. LTV is obviously important, but those numbers can be hard to discern when still figuring out pricing structure, etc.

Thanks so much in advance and hope everyone is having a great weekend.

Christina

Jon OShaughnessy

June 8th, 2013

Hi Christina,

Great question. Hope you're having a good weekend too.

First, what business are you in? I think it's hard to say given whatever industry you're in. It could vary substantially (i.e. 10% re-order in one industry could be amazing in one industry, and horrible in another).

One way we used to think of it in the investment world was to evaluate a very simple formula:

CAC vs LTV. (CAC = Customer Acquisition Cost and LTV = Lifetime value for others who are reading).

In other words, how much does it cost you to get a customer at scale versus the value of that customer/user over their lifetime. Sometimes you plan on having only one interaction with a customer (say a wedding band retailer), or sometimes many - say with SaaS products. I guess my point is if you keep going back to CAC vs LTV, then it doesn't really matter. For instance one interaction at $100 of profit is the same as 10 interactions at $10. If you know your LTV is 2x your CAC, than you have a very good business.

I know it's hard to get a good idea on those numbers when you're early. But you can blend assumptions and real data. I.e. you know a customers first purchase = $10 profit, but you don't know how many purchases they'll make... you can fill in assumptions to guesstimate that amount and then compare it with how much it cost you to get them. If you're using totally free sources of customer acquisition (social media, PR), then try a few "test" buys using straight advertising... say $500 of Adwords to get an idea of how much it would cost you to simply buy that customer. That will give you a rough range of CAC.

Hope that is helpful! Love to tlak it out more if you want.

Also, if anyone is interested, I'm looking for alpha testers for a new design-your-own jewelry app. Let me know at jon@shapd.co

Thanks!

Jon

Anonymous

June 13th, 2013

Thanks so much, everyone! Really, really appreciate it. Jonathan, we're in the consumer-tech/food space. I guess my main question is whether traction truly only matters in terms of LTV and COCA or if there's more implied meaning around how good your product is if/when you have a user drop off after using it a few times. Sure, we may recoup the COCA and then some, but we'll still need to explain the drop-off to investors; at what % is drop-off typical vs. cause for concern? And I'm more than happy to try out your design-your-own-jewelry app!

Craig Green

June 8th, 2013

That really depends on the category. LTV is the way to think about it, vs. cost of customer acq. I have two clients - one where there's just one purchase over a year, and another that requires repeat purchases to come whole. It depends on ticket size, cost of acq., etc. Craig Green 703.864.3502(c)

Ron Levi Senior Director, New Products at Ask.com

June 12th, 2013

Read these:

http://www.paulgraham.com/growth.html

https://www.medium.com/what-i-learned-building/ab24a585b5ea

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