July 09, 2023

A Different Investment Method

Are you aware of what General Catalyst is doing? No? Click here to learn how they are funding your marketing efforts, then taking downstream orders/sales from the customers they help you acquire (HT to https://twitter.com/d_mccar).

Think about it this way. Here's our Marketing Budget Experiment, and in this case our brand is going to spend 25% more on Paid Social for one year. Here's the projected outcome of the Experiment.

In this example, you spend $1,773,219 of marketing expense (you spend money acquiring the customer, then in the first year you have marketing expenses associated with the newly acquired customer, resulting in a lot more total first-year marketing spend). You lose $785,458 in the first year. Yikes! You generate 14,614 customers ... meaning you lose $53.75 converting these customers. Once you lose that money, the customers begin paying you back.

  • $15.48 in year two.
  • $16.47 in year three.
  • $14.83 in year four.
  • $13.80 in year five.
  • (presumably more in years six, seven, eight, etc.)
  • You generate $60.59 profit in years two, three, four, and five.
Would you give up all profit on this customer for years 2/3/4/5 in order for a third party to allow you to acquire a customer you would not otherwise acquire? Or under different terms, would you give up two-thirds of your incremental sales gain in year one to pay for the incremental ad cost provided to you from a third party (plus interest)?

If the answer is "yes", how would this change how you approach growing your top-line?

Something to think about. You may adore this style of "investment", you may abhor this style of "investment". But you should think about it at minimum, right?

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