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

> Acompany spending 48% of revenue on marketing would spark anyone’s interest. We mocked up a HIMS Triple Whale dash and broke down some scenarios that may help you think about what you’re willing to spend on new-customer acquisition costs.

**Author:** Logan Brown  
**Published:** 2021-12-07  
**Source:** https://www.triplewhale.com/blog/hims-marketing

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[https://twitter.com/moizali/status/1452702396396757002](https://twitter.com/moizali/status/1452702396396757002)

## ‍**🧐 What HIMS $28 Million Quarterly Marketing Budget Looks Like**

A few weeks ago, we came across a tweet from [Moiz Ali](https://twitter.com/moizali?utm_campaign=%F0%9F%90%B3%20Whale%20Mail&utm_medium=email&utm_source=Revue%20newsletter) (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 spending48% 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](https://investors.forhims.com/news/news-details/2021/Hims--Hers-Health-Inc.-Reports-Second-Quarter-2021-Financial-Results/default.aspx?utm_campaign=%F0%9F%90%B3%20Whale%20Mail&utm_medium=email&utm_source=Revue%20newsletter).

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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](https://www.oaktreeacquisitioncorp.com/?utm_campaign=%F0%9F%90%B3%20Whale%20Mail&utm_medium=email&utm_source=Revue%20newsletter) (a [SPAC](https://www.investopedia.com/terms/s/spac.asp?utm_campaign=%F0%9F%90%B3%20Whale%20Mail&utm_medium=email&utm_source=Revue%20newsletter)) at a **valuation** of **$1.6B** & now trades on the New York Stock Exchange under [HIMS](https://www.google.com/finance/quote/HIMS:NYSE?sa=X&utm_campaign=%F0%9F%90%B3%20Whale%20Mail&utm_medium=email&utm_source=Revue%20newsletter&ved=2ahUKEwjZh8H7mJT0AhXzRDABHUK-CPcQ3ecFegQIHxAU).

**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**

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