Blue Apron, Allowables, costs of acquisition and the court of public opinion
So Blue Apron is facing several lawsuits related to their not disclosing that they knew (or whether or not they knew) that Amazon was going to enter the meal kits category. Buried in there was a small figure that a lot of people were getting hung up on: it seems that, on the face of it, Blue Apron spends around $460 to acquire each customer.
Naturally, a company spokesman immediately contextualized it by saying that it was not only acquisition but also retention. And, from my own experience, I can vouch for referral being part of that mix.
The real issue is: is that figure too high? Crippling… as some have said?
1. Gross revenues, net revenues… big difference.
The figures that are then quoted in the study are “net revenues per quarter after the first order” and look dismal (and they are dismal)
However, let’s take a guess at what the entire picture looks like. Based on my own experience, there are probably two things: COGs (Cost of Goods) were probably in the 40% range initially (and by that I mean the actual food) and second, as the company grew and became more sophisticated, COGs diminished.
Perhaps it could look like this:
So while bad, the picture might not be as dismal.
2. Blue Apron Meal Plans
Take the simplest approach and consider only meal plans when tallying up revenues (there are other sources) and we might see:
So consider that the average plan is $63/week
3. Costs of acquisition and LTV
The two most important factors in direct marketing are cost of acquisition (how much does it cost to acquire one customer) and LTV –Lifetime Value—(how much is this customer going to spend with me for his entire history).
The allowable itself can be benchmarked at around 20% with some categories requiring way less and some requiring way more, but 20% is a good starting point.
Given that, what might be the picture?
So, basically, for Blue Apron to make money a customer must be active 37 weeks. Considering that retention programs are not only well-known but most very cost efficient and that some customers will come in via referrals, that is the breaking point: 37 weeks.
Is this realistic? Not realistic? Gevalia, for example, has customers going back 10, 15 and even 20 years. So, evidently, there is a core of consumers that will last much more than 37 weeks.
4. Projections to 37 weeks.
Finally, let’s say we project the 26-week revenues to 37 weeks. Where do we then stand?
So, if the expectations are that the LTV of a customer is $2,300, Blue Apron is meeting that.
One final note:
This could be completely science fiction, for all I know. I’m not privy to any information about Blue Apron other than what I read in public media. However, this is the kind of strategic process we follow when we consult with clients about expenditures. In direct response numbers don’t lie and, the more information you have has a company the better you can do your job.
Finally, no, I don’t own any shares of Blue Apron, I just thought it is an interesting concept.
• 30 years of expertise in all aspects of advertising: consumer insights, creative and media. • Extensive international experience • No-buzzword-zone • Healthy skepticism •