When we looked at BeachMint, we wanted to compare it’s customer economics to other subscription services to benchmark BeachMint’s current performance, and see what it’s model might evolve to over time. We chose three public companies to analyze, Ancestry.com, Netflix and GameFly because they are pure subscription models, and they provided information in their public filings about their cost of customer acquisition. We also tried looking at Nutrisystem (diet food products delivered as a service), but marketing expenses isn’t broken out in a useful way.
This analysis pre-dates Netflix’s changes to it’s subscription plans, so is subject to change, but represents 12 years of it’s financial performance, and 4 years for each of the others.
The answer: in these successful companies, a subscriber’s stream of gross, margin dollars is worth 4-6 times it’s marketing cost. For example, an average sub at Ancestry costs the company $96.87 in advertising and other marketing costs, but churns slowly at 3.9% per month, and with the 80% gross margin, yields $377 of margin over his or her lifetime on the service. Netflix and Gamefly each have lower LTVs based on higher churn and lower gross margin, but with lower CPA, they also make the same return multiple.
|Monthly Churn||3.9 %||4.3 %||7.7 %|
|Acquisition Cost (CPA)||$96.87||$18.03||$23.98|
|Avg. Monthly Rev/Sub||$17.78||$12.19||$20.41|
|Avg Gross Margin %||80%||35%||50%|
|Implied Lifetime Value* (LTV)||$377.75||$105.56||$114.41|
|LTV/CPA||3.9 x||5.9 x||4.8 x|
|* based on gross margin $|