Thread by @dunkhippo33

Today’s tweet storm is on margins - why % in itself doesn’t matter, and how it relates to customer acquisition

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1) I often hear a lot of ppl say - oh I don’t like marketplace models because the take is too low. Or I like SaaS margins or something.

But it’s important to dig deeper. What is low or high?

2) Really it comes down to the dance of unit economics - how many transactions do you need to pay back your customer acquisition costs? (CAC)

3) And so if you look at an Airbnb as an example, their margins are low, but their total take is not bad because ppl stay at a home for days. It’s the total take that we care most about - not the % of the transaction.

4) For other tech enabled models or marketplaces that may have lower total takes, does the repeat purchase happen quickly to reduce the payback period.

Is it even reasonable to assume the repeat purchase can happen soon?

5) in the case of vacations, if Airbnb can’t get cac paid back on 1st buy, they likely have to wait months or a yr until the next trip to pay it off.

In contrast, I’d guess doordash would get a repeat purchase within the next month.

Speculation based on reasonable ppl behavior

6) On the flip side, SaaS has great margins but a $20/mo product may still have a long payback period because the net earned per month is so little. Again the % take doesn’t matter - 90% take of $20 is still small dollars to get cac to work at scale.

7) tl;dr - running a business really is this constant rejiggering of the triangle of a) customer acquisition costs, b) how much a customer is worth to you, c) and payback period based on reasonable human behavior.