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What kills a business is a lack of cash. What causes a business like meal delivery (kit or prepared) to run out of cash are broken unit economics. Munchery's Chapter 11 reveals they still don't understand the impact of customer churn (inverse of retention) gallery.mailchimp.com/8d06deefb7d38f…
"Companies that retain their customers ...should be awarded a much higher multiple than another business that do not ... even if the historical revenue patterns look exactly the same." knowledge.wharton.upenn.edu/article/game-c… The financial impact of greater customer retention can be non linear.
Why isn't Munchery a Chapter 7?
I illustrate the unit economics of a fictional business named "Blue Oven" here: google.com/amp/s/25iq.com…
Unit Economics: google.com/amp/s/25iq.com…
Churn/retention: google.com/amp/s/25iq.com…
CAC: google.com/amp/s/25iq.com…
GM: google.com/amp/s/25iq.com…
I illustrate the unit economics of a fictional business named "Blue Oven" here: google.com/amp/s/25iq.com…
Unit Economics: google.com/amp/s/25iq.com…
Churn/retention: google.com/amp/s/25iq.com…
CAC: google.com/amp/s/25iq.com…
GM: google.com/amp/s/25iq.com…
Simply explained: once you pay to acquire customers you want to keep them so you don't need to pay to acquire replacement customers. Customers leaving before CAC payback destroys capital. Put differently, a fantastic way to grow is to not shrink. NB: Never ever run out of cash!
When you dig in to unit economics on a bottoms up basis you nearly always discover that customers are heterogenous. Metrics that are averages are often misleading. Investments in customers who churn less can produce higher returns on capital. Not all customers are created equal.
