A few weeks ago, we came across a tweet from Moiz Ali (Native founder, DTC investor, all around eComm wiz), that piqued our interest.
His tweet briefly discussed some of the performance data presented in the HIMS (NYSE) Q2 earnings report.
I mean, a company spending 48% of revenue on marketing would spark anyone’s interest, right?
So we dove into the data, mocked up a HIMS Triple Whale dash & even broke down some scenarios that may help you think about what you’re willing to spend on new-customer acquisition costs.
Read on… then tell us if you whale-y like it or if we should be banished to Davy Jones’ Locker.
What would it look like if HIMS had a Triple Whale dashboard to help them easily visualize their marketing data? Here’s a mock up using real numbers from their Q2, 2021 report.
HIMS mock Triple Whale Dashboard
HIMS is telehealth company that started out (2017) providing men’s health services for things like ED & hair loss, but now covers a variety of services for both men & women.
Within two years, HIMS ads were everywhere. It felt like I saw an ad for it at every subway station in New York.
Where are they now?
In early 2021, it merged with Oaktree Acquisition Corp (a SPAC) at a valuation of $1.6B & now trades on the New York Stock Exchange under HIMS.
Why do they have a -$4.7M EBITDA?!
EBITDA = (earnings before interest, taxes, depreciation, and amortization)
Off the top, HIMS is spending 48% of their online revenue on marketing expenses and 63% on SGA (Selling, General, & Administrative). For those of you already doing the math, that’s 111% of revenue.
Online Revenue: $58.14M
Net Orders: 786,000
Marketing Spend: $27.99M
MER (Revenue / Marketing Spend): 2.07
Net Loss: $(9M)
EBITDA (earnings before interest, taxes, depreciation, and amortization): $(4.7M)
Before your jaw hits the floor & before we start making too many assumptions…
🍑 You know what happens when you make assumptions...
But hey, let’s have some fun making some unsolicited assumptions…
50/50 new-to-returning customer split
If we assume that HIMS Q2 revenue is realized by a 50/50 new/returning customer split, they would be paying $71 for new customers on an AOV of $74. When you add COGS (cost of goods sold) into that equation, they’re most certainly in the red (aka losing money) on every new customer acquired.
Why would they be okay with this?
Businesses with a subscription component like HIMS can utilize historical data & make predictions on the future revenue of each of those customers. Additionally, they can spend very little to nothing for each sequential order (i.e. automatic subscription renewals)
Let’s use that conversation to break down a “predicted value” of a new HIMS subscriber based on a 50% new customer assumption (the average monthly subscription value provided by the HIMS report)
HIMS reported mo. sub. value: $20 to $44/mo. = $32 on avg.
% of net orders that turn into subscribers: 57% (reported by HIMS)
Now, if 57% of HIMS net orders are on subscription, here’s how HIMS should be thinking about their 60 & 90 day LTV on new customers acquired:
That $71 nCPA is starting to look a little better, right? They now have a 1.94 ROAS on new customers after 90 days.
Still with me here? If so, I imagine you’ll appreciate some more nerdiness; so, let’s break this down just a little further.
If HIMS recorded 786,000 net orders in Q2, 50% of those are new customers (assumption), and 57% of those customers are on subscription, the following math would (🤞 should) hold true.
$37,728,000 (new cust. sub. revenue after 3 months of rev.)
$66,810,000 (total rev. from nCustomer cohort after 3 months)
Understanding the future revenue you will gain from the new customers you acquire can truly change the optics of the dollars you spend today & what they mean to your business.
Furthermore, taking the time to improve metrics such as:
…can vastly change how you look at new customer acquisition.
FYI - This was meant to be 2-parts fun, 1-part informative, so if you enjoyed today’s content, shoot us a reply and let us know.
If we totally jacked up one of our calculations, don’t tell anyone.
Kidding, please shoot us a reply with any questions or proposed edits.
– Logan “how would you spend $28m?” Brown & the Whale Watchers
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