eCommerce Acquisition Criteria
November 05, 2024
by an intermediary from Texas Tech University - Rawls College of Business Administration in Dallas, TX, USA
I'm looking to learn more about searcher interest (or private markets broadly) for eCommerce businesses.
What are people focused on from a unit economic and financial profile perspective?
What product types are interesting?
Any thoughts or materials on this would be super helpful.
Thanks!
in London, UK
from University of Washington in California, USA
1/ Contribution profit after marketing: you want a path to profitability, and this will measure that after acquiring customers.
2/ When it comes to 'focus' for founders and CPG owners, many are only focused on optimizing product first, but they forget about channel distribution. Direct to consumer, Amazon, and Wholesale are really the three core distribution channels where you need to assess the brand. In terms of profitability, generally Wholesale>Amazon>DTC. And to succeed in Wholesale, it's all about dollar velocity per distribution point x distribution points at the right retailers.
3/ For most eCom businesses, marketing and cogs (product and distribution) are the two highest buckets of spend bringing down CM. It's an arbitrage game of where to find the lowest cost manufacturer/packer while maintaining quality on the Cogs side, and minimizing digital customer acquisition cost.
4/ When it comes to margin, tend to see beauty and cosmetic products at the top with regularly 40%+ CM margins, which is why there are so many low-tier/relatively unknown products that can do $10m-$20m revenue. Why? Manageable acquisition cost, high customer retention/loyalty, really low unit cogs, and relatively high-unit price.
5/ Cash is an understated aspect of this world. It's really hard to forecast demand early on, and with the need to buy in large buckets in advance, it can be challenging for teams to make it. So much needs to go into branding and placement that.
Best of luck!