In a 'goods' business it costs you $X to make the good and sell it (COGS) and people who buy it (after averaging sales, incentives, etc) as the average selling price (ASP), so to the extent that ASP > COGS you make money selling your widgets.

A service business like this (or cable TV or whatever) has a customer acquisition cost (CAC), or the cost to get someone to sign up. and a life time value (LTV) which is the amount that customer will spend with you over the lifetime of their relationship with you. To the extent that LTV > CAC it tells you whether or not the business is viable.

In both cases, when the ratios are wrong, the company loses money faster by either selling more widgets or getting more customers.

The magnitude of CAC and LTV are only meaningful together. A ferrari dealership might have a $5000 cost to acquire a customer and that would be a bargain, because their LTV is $250k+.

Nutrisystem pays $140 to affiliates per new customer and gets about $12 in revenue daily from the customer. That is sort of relevant.

I wouldn't personally put any money into Blue Apron. They are hiding their churn and dressing up their numbers. I suspect they will blow up or fizzle out.

I'm just not sure what people want. They show cohorts and give a lot of data on aggregate performance, but I agree, the lack of clarity is a bit alarming. Is there some kind of precedent people are comparing this to, a membership-style S-1 with clearer statement of what's going on?

I'm guessing it would take the form of higher prices.

From the S-1, this is a 68% COGS business, meaning their unit margins are 32%. You can debate whether some of their opex belongs above or below the line, but let's assume the 32% number is baseline credible.

The business had 4.1 orders/customer last quarter with an average order value of $57.23, meaning 73.21 of gross profit per customer. That means they recoup their marketing spend in 6 quarters.

The big questions, in my mind, are (1) will people continue to be customers after a period of time and (2) will CAC stay the same, rise, or fall? I think there's more room for disagreement here than people admit. I haven't looked too closely at their IPO pricing, but there is some amount I would pay for a share of stock in this company - it's >$0. I'm just not sure how that number compares to the current share price.

Where the value falls down is in how much of a time sink it is. These meals take a fair amount of prep, and in exchange for all that time you only get two meals.

When I cook on my own I usually batch enough to have at least another 2-3 meals worth of leftovers. If they set it up as a channel for weekly meal prep rather than 3 fun new recipes to try we'd be much more inclined to stick with it, but as it is it's just too much work for busy people to do every week.

If they provided larger meal sizes it would probably come closer. They'd be able to provide you one meal's type of food (less variety, fewer things to measure, and fewer types of ingredients = easier supply chain management) and you could get 5 or so meals out of one cooking session's worth of prep.

It probably still wouldn't come down to $7. But I assume there are people more willing to pay than me out there who would be happy with it.

But Blue Apron, as it is now, isn't cheaper or easier than what I do now and it's a nightmare of wasted packaging.

Three fancy-ish meals during a typical week tends to seem like a bit much. I'm also cooking for one at least some of the time. On the one hand this usually gives me leftovers. On the other hand, I don't have the portion control I'd have if I bought the ingredients in the store and not all their recipes lend themselves well to leftovers.

On the other hand, I look at some of the services that more explicitly try to simplify. Those that do more of the pre-prep make sense to me but I also see recipes that make me go: "Umm, I could grab the three ingredients for that in 5 minutes at the store."

All that said, I'll probably give these things a try again when I have some periods at home. I don't actually have a good grocery delivery option where I live so it's easier to justify these services on that basis given that they can cut out a visit to the store.

This is also a bit different from that HBO subscription that you know in the back of your head you're not using all that much but the pain doesn't reach the threshold of calling up and canceling. These are groceries either rotting in your refrigerator or guilting you into spending a fair bit of time to prepare food when you don't really want to.

Added: Interesting. I originally read orders as meals but it does seem be a typically $60-ish order. Which means that their typical customer does seem to be someone who uses the service as an ongoing subscription.

I'm not sure if I'm surprised or not but, assuming I'm reading their S-1 correctly, their customers seemingly tend to be all-in or they drop the service.

You give people their first shipment free, which you'd normally charge $60

1-in-3 people continue after that, so your cost to acquire 1 customer was $90. Tack on an extra $4 for the ads that got them to sign up.

If 1-in-7 people continue, you get into the 400s.

Those numbers seem pretty believable to me.

Which, for an expensive service like this, where very few people are interested, seem significant.

You also need to be wary about how they exactly calculate CPAs based on ad buys. For instance, if they just comissioned a large scaled TV ad buy, that's millions of dollars they have to pay now. TV advertising has a long tail of user acq as it takes time for the message it wear in to a user.

So if those millions hit in the billed quarter, they could still get customers in a later period and the CAC would change.

Things like display, TV, etc. are notoriously difficult to measure the exact impact of. Thus, looking at all marketing expenses rolled up is really the only safe way to capture all that value for this sort of math.

It could be $5,000.00!

All that matters is you make money from the customer after all the expenses are taken into account.

It's like the old adage: would you give me a quarter if I give you a dollar?