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Most brands don’t realize that offering a larger discount is one of the easiest ways to make more money on each customer.

Let me explain…

When you offer a discount, your website conversion rate spikes, driving down your customer acquisition cost (CAC).

Often, the reduction in your CAC is larger than the cost of the discount you give the customer.

🔍 Here’s an example:

Let’s say my CAC is $100 at a 2% conversion rate.

If I offer a $25 discount, my conversion rate jumps from 2% to 3% as more customers take advantage of it, driving my CAC down by 1/3 from $100 ➡️ $67.

So, while I spent $25 on a discount, I saved $33 on marketing.

All said and done, I made $8 more in profit 💰

On top of that, promos cause your sales to spike, multiplying your better margins over a larger number of customers, amplifying your improved profits.

Finding the right balance between discounts, conversion rates, marketing spend, and contribution margins requires modeling these different scenarios to explore assumptions.

In my next video, I show how a business spending $100,000 / month on ads can optimize its overall business-wide profits by offering different discounts.

🎥 Check it out here:  https://youtu.be/I0oU6cuIAt0 

I’m seeing a ton of brands giving their best discounts to their worst customers.

These are usually one-time sales with much higher discounts than their loyalty programs (e.g., a 40% off flash sale when subscribers are only getting 20% off).

This generally creates the following two issues:
1)
Brands acquire a bunch of low-quality customers who never buy again, at zero or negative contribution margins. 

2) All their loyal subscribers churn to take advantage of the flash sale.

Not all customers are created equal. Try cohortizing the customers you acquire during flash sales—you will usually see that they have terrible LTVs compared to your regular customers.

This is because they are the marginal customers who will ONLY buy with a large discount. Without a discount, they are gone. Goodbye…until your next flash sale.

Why would you reward these people with your best discounts? 

If you are going to run a flash sale, tie it into a subscription program. Then your customers will self-select to have a higher LTV. A prepaid subscription program would be ideal to prevent customers from churning after the first order.

Long story short - save your big discounts for your most loyal customers. You will generate far more revenue and profit per dollar of discounts spent. 

Just looking at the data for a very large (billions) omnichannel retailer. 

They started out with all stores, then they launched the DTC business (but just for transactional purchases), then they launched subscriptions DTC. The subscription business became a huge revenue stream for them. 

But a few years ago they launched in-store subscriptions (at checkout).

Within 14 months their in-store subscriptions surpassed online subscriptions. Within 24 months their overall subscription revenue 9X'd. Today 70% of their subscription rev is initiated in-store.

A lot of brands try to convert people online to do something offline. 

This is the opposite, converting people offline to do something online. 

More brands should be doing this. 

How should discounts and customer acquisition costs (CAC) be managed to optimize profitability? 

I'm thinking about making a video about what questions to ask about your stock option package when considering joining a startup- specifically around valuation, percentage ownership, option pricing, things to look out for, etc. Would you be interested in that subject? 

For subscription-first eCommerce businesses, despite what you might think (tons of incorrect beliefs around these), prepaid subscriptions have insanely good performance and I believe will be one of the biggest revenue unlocks over the next 5 years. 

I'm currently seeing:
1) roughly 150% increase in customer lifetime revenue on customers in a prepaid plan
2) 20-30% of customers choose a prepaid subscription over a regular month-to-month subscription 
3) no credit card expirations which usually result in 2-3% of involuntary revenue churn per month
4) receive up-front cash which improves working capital dynamics

If you are not exploring or testing these yet, I highly recommend doing it. 

I go deeper into the data here in a webinar I held recently. Jump straight to that section here:

 https://youtu.be/YaJ7D4VP1DQ?si=k24_W... 

A few weeks ago, I led a private executive roundtable discussing 3 of the biggest levers we’re seeing subscription box businesses use to lift recurring revenue and grow lifetime value at  @OrdergrooveOfficial  where I am the Director of Commerce Strategy & Growth. 

Leaders from a dozen companies attended, and they found it so impactful that I wanted to share it publicly with you here. 

We covered the benchmark data and strategy best practices around prepaid subscriptions, customized flexible promotions, and curated bundles and how they are driving customer lifetime values up 50-100%+ for top subscription box businesses. 

Very tactical and packed with case studies. Don't miss it if you are in the sector! 

When I think back, there are really two main books that totally changed how I think about startup strategy & growth. If you haven't read these yet, I highly recommend you do. Here they are:

📘 Zero to One: Notes on Startups, or How to Build the Future:  https://amzn.to/4do3RRw 

Peter Thiel’s incredible book about how innovation & disruption work. Absolutely packed with narrative violations and things that defy intuition. Astounding, never thought the same after reading it.

📘The Cold Start Problem: How to Start and Scale Network Effects:  https://amzn.to/3xTejAb 

Deep explanations/case studies about how networked businesses scale. Written by Andrew Chen (GP at a16z). Extremely actionable for building growth teams and strategies.

Please note, the links above are Amazon Affiliate links, so if you choose to use them, I will receive a small commission at no cost to you. That said, please read these books regardless of how you get your hands on them. 

Big congrats to Sourish for landing a job at one of the top enterprise SaaS companies in the world Zscaler.

You guys have no idea how happy it makes me to receive messages like this. 

If you've had a big win, please share it in a comment or shoot me a LinkedIn message, I always love to hear about them.

Let's connect on linkedin:  https://www.linkedin.com/in/eric-andrews-1624b656/ 

Sometimes I think I should make shorter YouTube videos, "people prefer short content," I say to myself.

Then I look at my top 3 videos and they are: 

#1 - 38 minutes long
#2 - 4 minutes long
#3 - 1 hour and 38 minutes long

And remember that I have no idea.