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#Zomato is paying roughly $22 for acquiring a new #UberEats customer. Here's a quick and dirty working to determine Zomato's customer acquisition cost (CAC) from the deal...
A. Zomato's current monthly users = 70m
B. Zomato's current monthly orders = 40m

i.e. 57% of Zomato users convert into placing orders...

C. Uber Eats' currently monthly orders = 10m
D. Assuming the same 57% is applied to Uber Eats...that implies = 18m monthly users
...
E. Zomato says it will "transition 90% of Uber Eats users onto its platform" which equals 90% x D = 90% x 18m = 16m

F. Zomato's consideration for Uber Eats = $350m

Zomato's CAC from the deal = F/E = 350/16 = $22...
Conclusion: Zomato always said its CACs are negligible owing to being a restaurant discovery platform where people also order.

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Tren Griffin
@trengriffin
1/ As long as there is customer acquisition cost (CAC) "free" isn't going away. CAC will disappear exactly never. What may go away is paying so much in CAC that 1) the impact on unit economics destroys shareholder value and 2) the business runs out of cash.abovethecrowd.com/2012/09/04/the…
2/ Finance businesses are notable for high CAC. This attachment from about a year ago was circulating on Twitter yesterday. That businesses will stop using loss leaders that have been in use at least since salty snacks were first given away in very early taverns is just wrong.
3/ Acquiring customers at scale economically is a challenging problem. That businesses will just use paid media and no longer rely on freemium isn't remotely credible. For example, free-to-play accounted for 80% of dollars spent on digital games in 2019. google.com/amp/s/ventureb…
Read 10 tweets
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Simon Erickson
@TMFInnovator
We talk a lot about #SaaS, and I'd like to present a framework I use to evaluate these types of companies.

It's important for SaaS to recoup upfront costs thru ongoing subscriptions.

I'll walk through my process, using Veeva Systems $VEEV as an example.

docs.google.com/spreadsheets/d…
Specifically, we're looking for Customer Lifetime Value (LTV) to exceed the Customer Acquisition Cost (CAC).

We want to see customers pay enough & stick around to justify the upfront sales & ongoing R&D.

If LTV > CAC, the company is generating profits for its shareholders.
Veeva $VEEV spent $148m last year on Sales & Mktg to acquire 94 new customers.

So on average, its Customer Acquisition Cost (1) is $1.584 million.

[Note that this isn't perfect. Much of that sales spend went to current customers; but it's the best data we have available.]
Read 10 tweets
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Tren Griffin
@trengriffin
1/ Battle of the Banks- CAC vs COGS.

In this corner CAC:

Morgan Stanley: "banks have an advantage in that they don’t have the same customer acquisition costs as startups." bing.com/amp/s/fortune.…
2/ In this corner COGS:

"Zelle, the person-to-person money transfer service created by a coalition of banks cost the banks billions of dollars to launch.

Venmo, a similar app used by millions of millennials, cost in the single digit millions."
3/ The CAC advantage of banks is reduced as financial technology startups start to cross sell ("would you like a credit card or insurance with that?") and upsell ("we have a premium plan for that") as the startups move from unbundling services to rebundling services.
Read 9 tweets
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Tren Griffin
@trengriffin
Customer Acquisition cost (CAC) in financial services:

"Citi offered cardholders 30,000 airline points to sign up for an online checking account. This quarter, it plans to enhance its Thank You and Double Cash reward programs for select cardholders." google.com/amp/s/www.bloo…
The "game on the field" in consumer banking is upsell and cross sell based on telemetry about customers from a loss leader:

"Citi added $3B in deposits... cardholder spending jumped 6%. Altogether revenue from consumer banking climbed 3% to $8.51B."

bloomberg.com/news/articles/…
A financial services firm that doesn't have the ability to run growth experiments to improve unit economics using modern data science is toast. Every lifetime value factor is constantly being tested, revised and retested. The data science never sleeps.
Read 3 tweets
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Tren Griffin
@trengriffin
"If I were a buyer today, I’d find it hard to transact at these levels," [But] if I’m Goldman Sachs and I don’t have [a wealth management] business, maybe these prices are actually quite cheap, because I can immediately have an infrastructure...." financialadvisoriq.com/c/2288973/2784…
Quiz: What is a reasonable customer acquisition cost (CAC) in the wealth management business right now? Is that why you get unsolicited spam snail mail like this? What is the CAC of a wealth management customer acquired via direct mail? What is the current key word based CAC?
US$480B in acquired Assets Under Management (AUM) / 22,000 customers = ~$21.8M in AUM per customer. $750 million/ 22,000 customers = ~$34,000 paid by Goldman per customer. morningstar.com/news/dow-jones…
Read 4 tweets
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Tren Griffin
@trengriffin
Part of a rent has always been customer acquisition cost (CAC) to the extent it is paid for street traffic and visibility (ie, it belongs below the gross margin line as part of marketing). inc.com/magazine/20180…
If a business adopts direct to consumer the need to pay to acquire customers does not evaporate. The ability of sellers to use organic search and social media to reduce is gone. "If a business does not know its CAC it is a blindfolded poker player." google.com/amp/s/25iq.com…
Every business has the same underlying financial engine. Some businesses have enough product/market fit that word of mouth increases exponentially If they sell a digital offering with ~no marginal cost that can make for "mighty fine" margins. If the product is atoms not so much.
Read 7 tweets

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