Challenges for Direct To Consumer Brands : Rising CAC 

Direct to consumer online only brands have taken grown massively in the last 5 yrs or so. 



They have built their own distribution using online platforms like Amazon and their own websites. 


Online channels have allowed d2c brands to attack the core of consumer packaged goods brands - distribution. 



But d2c brands face significant challenges as more and more brands get built online. 


One of the biggest challenges for direct to consumer brands is fast growing customer acquisition cost. 


They are paying enormous amounts to googles / facebooks of the world to acquire a customer. 



CAC in most cases grow faster than the revenue. 

Performance marketing spend generally increases really fast as the initial pool of customers start to diminish.


 Potential customers get blind to the brands trying to reach them. What was initially a novelty becomes a mundane blindspot in the digital real estate of a customer. 



Also due to rising competition, costs keep escalating as larger players press the pedal on same keywords. 


So key is to increase the lifetime value of customer or LTV. If LTV of a brand is higher than they can afford to spend more amount of money on CAC, thus creating a flywheel. LTV/CAC ratios are a great way to keep a benchmark. 


LTV/CAC ratio is like a ROI metric which can be used as guard rails to derive what should be right CAC investment. 


For D2C brands, keeping CAC in check is paramount. 

This requires doing marketing efforts which are a bit novel and at the same time which move the needle.