The Bigger You Get, The More CAC Becomes a MOAT
Why the winners focus on absorbing the highest CAC they can, and why it's a losers game to focus on minimizing CAC.
In a world where basically no one in ecommerce has a real MOAT and all profits get competed away, your CAC is actually more of a MOAT than you think.
It’s something we have started to think about as more and more folks enter our category. We are lucky that we started out 5-6 years ago. I think it is much harder to start today than it was back around 2019, obviously, and that is good.
There are a ton of reasons why, but one of them is just how hard it is to win on digital ad platforms like Meta. It takes a ton of money to win and breakthrough the unprofitability hump (whether that’s $200k/mo, $500k/mo, $1m/mo depends on the brand/product). And unless you have some revolutionarily CPG, it’s nearly impossible to raise any money without real traction.
That’s why we consider our CAC a MOAT.
Could a competitor today launch a somewhat similar product, website and brand? Sure, that can happen to literally every ecommerce brand on earth.
But can a competitor today afford to acquire customers at our CAC and have the supporting retention systems, LTVs, etc? No shot. Unless they have a way to be severely unprofitable for a long time.
Absorb Max CAC, Don’t Optimize For Min CAC
We’ve recently realized that we want to orient our ecommerce business around being able to afford the highest CAC possible and still be profitable when we deem necessary. We don’t want to just continuously optimize for the lowest CAC, that’s a losers game now. We want to optimize things to be able to take down a 30%, 40%, even 100% higher CAC then we are getting today.
We’ve started to shift more of our time into focusing on LTV, that’s the real gem. It is largely product of course, but there are other big levers too like building brand, community, retention systems, optimizing your subscription program etc..
If we acquire all of our customers on X product, what is Y product that we could launch that is relevant for them all? Or, how could we make their experience with X product 5x better so they buy it a lot more?