🤔 Why Would HIMS Spend 48% of Its Revenue on Marketing?

‍🧐 What HIMS $28 Million Quarterly Marketing Budget Looks Like

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.

🐳 HIMS (mock) Triple Whale Dashboard

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

What’s HIMS?

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.

📊 What key stats could we help HIMS easily visualize?

Online Revenue: $58.14M

AOV: $74

Net Orders: 786,000

• 453,000 of those are subscription (57%)
• CPA (cost per acquisition or order): $35.61

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…

Here’s what we don’t know from this HIMS report.

• % New Customers - It’s unclear how much of HIMS revenue is being realized by net new customers
• LTV (Lifetime Value) - We know that their AOV is $74, but given that some customers purchase one-off products and others are on subscription, it’s unclear how valuable their customers are over time

🍑 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)

💰 Remember our 30/60/90 day LTV Conversation?

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)

• New Customer Acq. Cost: $71
• AOV: $74
• New Customers Revenue: $29,082,000 = 50% of net orders * AOV

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:

• 60-day LTV: $106 = AOV + Avg. 1x Mo. Subscription value
• 90-day LTV: $138 = AOV + Avg. 2x Mo. Subscription value

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.

• nCPA: $71
• Initial revenue from new customers: $29,082,000
• Future revenue from new subscriptions (up to 90 days): $25,152,000= orders (393000) * 2 months of avg. subscription revenue ($64)
• Total 90d Revenue from New Cust. Acq.: $54,234,000
• Marketing $$ spent: $27,990,000
• nCustomer MER or ROAS (90 day LTV): 1.93
• nCustomer MER (120 day LTV <- assuming 100% retention): 2.38

$37,728,000 (new cust. sub. revenue after 3 months of rev.)

$66,810,000 (total rev. from nCustomer cohort after 3 months)

🧑🏫 What did we learn from this HIMS rundown?

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:

• % of repeat customers
• subscription retention
• value of subscription revenue (i.e. improve cross-sells)

…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