Casper Retention Rate

Casper has only 20% retention rate

Aron Levin went over Casper’s S-1 filing (preparation for IPO) and his verdict is “Casper is screwed”. That seems harsh for the poster child of DTC brands, but Levin presents his findings and the financials don’t look good. At least Casper’s growth looks unsustainable.

Why is that?

“20% of direct-to-consumer orders in 2019 came from repeat buyers.”

Also, in the documents, the company says it increased its advertising budget by 23% in the last year (before filing for IPO).

This means they increased their investment in marketing and still got only one-fifth of orders from old customers. Adding the fact that Casper relies immensely on brand awareness and it turning into brand loyalty, things are looking weird.

20% share of return customers is way too low for a company that looks like a lovemark (80% positive brand sentiment and 60 in Net Promoter Score cited). And 80% of sales coming from new customers apparently isn’t achieved through word-of-mouth marketing as the company stated it aspires to achieve (also cited in the article).

We see an average of 60% of revenue coming from repeat customers for clients we work with.

Read the whole Report on customer retention and DTC brands here.

Its huge ad spend ($104,687,000 in direct advertising) is trying to acquire ever-new customers to fill up those 80%. And this is why their growth model is not sustainable. How long can they keep pouring money into ads as ad prices go up?

What if Casper had a higher retention rate?

What if more than 20% of their sales came from existing customers?

This would mean:

  • less acquisition costs while keeping the revenue levels
  • better profitability than the current loss of $157 for every mattress sold
  • no need for huge investments for growth
  • and more sustainable growth

Let’s see what other DTC brands could do to improve their retention rate if they’re looking for better outcomes than Casper’s not-so-promising IPO.

Maximize CLTV

Higher retention rate comes with higher CLTV, which offsets customer acquisition costs (CACs) and yields better unit economics (a customer is the unit).

UE = CLTV/ CAC

CLTV is your safety net against rising costs – you still have revenue coming in even when unable to pay for new customer acquisition. It also allows you to reinvest in the business, develop new products and expand into new markets.

CAC < LTV – strong unit economics

CAC = LTV – business stagnation

CAC > LTV – poor unit economics (source)

Usually, unit economics show that:

  • You cannot grow on PPC alone indefinitely
  • You cannot discount all the time
  • You cannot sponsor influencers that don’t bring valuable customers
  • You cannot keep acquiring customers at any price (and assume the market is indefinite)

CLTV projections

Of course, it’s hard to project CLTV far into the future because many things can change. Instead, increase CLTV by making the lifecycle more active (more frequent sales over a shorter period instead of longer customer life cycle).

  • Retention analysis helps identify the right time for reengagement and reminder emails to speed up reorder rate.
  • Cohort analysis shows you when customers drop off and this is the perfect time for a special win-back campaign to prevent it from happening.
  • Cohort & performance analysis by source/ medium/ campaign helps optimize acquisition channels for CLTV, cutting spending on those that do not bring high-value customers.
  • Cohort analysis by product shows which products drive high CLTV for your brand – make them your frontliners, use them to turn a negative trend in other cohorts around, drop the bad performers. This is optimizing your product range for high CLTV.
  • Analyse and learn from customer shopping behavior and make your offers relevant and promotions (even coupons and campaigns) tailored to their tastes. Some people respond to aggressive promos and others want very specific related products.

More on segments and relevant offers here.

  • Use content marketing to build a relationship with customers and stay connected so they learn about new products immediately and shorten the time between orders.

Nature of product

Casper’s problem here: due to their product’s long life cycle (industry reports say people change mattresses every 9-10 years), it’s hard to estimate CLTV. 10 years is a long time and no data Casper has accumulated during their 6 years in business can predict it. If you’re in a better position with your company and product, use it by any means.

Or just don’t go into DTC with a product that only gets ordered once in a lifetime like a wedding dress :). Sooner or later you’ll hit the cap of the market size and would not be able to acquire new customers.

Choose your niche wisely and match it with your financing strategy: hockey stick growth that VCs love does not happen to all kinds of products.

For existing brands

If you’re already in the game, you need to find a way to expand your product range to foster customer retention. Casper says it is going into bedding and other sleep accessories. These too are not the most frequently bought products, but we guess they can’t really deviate from their core product.

DTC only

Another of Casper’s problems is that it went into traditional retail, which changed the dynamic of sales and marketing among the different channels. It had to fuel money into brand awareness, hoping to get people either order on their own website (DTC) or in store (retail), where the costs are different.

In order to stay on top of profitability, DTC is your best channel. When you expand into other channels, unit economics change (the model is different) and you cannot control CLTV (retail does not work for retention, you lose data).

Read more: Best practices for customer retention

Brand loyalty is not the same as retention rate

Brand loyalty doesn’t mean anything if there are no numbers to prove it.

What’s your repurchase rate? What share of customers come back to shop again and again?

Casper’s reported 31% aided brand awareness will not drive the company into profitability. A 31% retention rate could.

A simple calculation to illustrate 20% and 30% retention rate:

Revenue 1,000,000, split 20/80 between old & new customers

300,000 spend on advertising

 

Revenue 1,000,000, split 30/70 between old & new customers

262,565 needed for advertising to get the same 1,000,000 in revenue with the same efficiency

Saving almost 40,000 with only changes in marketing strategy to focus on retention marketing!

In short

A better retention rate lets you grow more sustainably because it makes you less dependent on constant advertising spend (and the need for funding). This is why it might be the solution to the DTC brands growth problem.

More: Exponential growth may not be the future of DTC brands

 

About the author

With experience in FMCG and marketing, Dimira writes to help the brands of tomorrow succeed and believes passion is a key ingredient in any business.

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