The Biggest LTV Mistake Keeping DTC Brands From Scaling
If you think LTV only matters for subscription brands, this episode will challenge that assumption.
In this episode of The Free to Grow CFO Podcast, Jon Blair sits down with Dylan Byers — founding partner at Aplo Group and his co-host on the Ecom Scaling Show — to break down why LTV has to show up in every growth marketing game if a brand wants to scale past $100 million. They walk through all three games in the FTG framework: how new-customer-dominant brands eventually need to disconnect rising CAC from flat contribution margin by pushing into wholesale and retail; why apparel brands need a strong product curation strategy to avoid capping out early; and why, in the high LTV/subscription game, first-order subscribe-and-save take rate is often the single highest-leverage metric a brand can move. Dylan shares a real example of a brand that boosted subscription take rate from 5% to nearly 70% with only a few dollars of added CAC — unlocking a massive jump in contribution margin.
If you're trying to figure out how LTV applies to your specific growth game — not just the "subscription" one — this episode will give you the playbook.
Episode Links
Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/
Dylan Byers - https://www.linkedin.com/in/dylan-byers-046010149/
Free to Grow CFO - https://freetogrowcfo.com/
Aplo Group - https://www.aplogroup.com/
Key Takeaways
LTV has to show up in some form in all three growth marketing games, not just the subscription game, if a brand wants to scale past $100 million.
A little more CAC to boost subscription rate can massively lift margin.
First-order subscribe-and-save take rate is often the single biggest lever in the high-LTV game, sometimes mattering more than any individual retention tactic.
Transcript
~~~~~~~~
00:38 Introduction
01:57 The importance of LTV in growth strategies
03:03 The new customer dominant game explained
11:01 High SKU apparel brands and LTV importance
19:56 High LTV subscription brands and growth tactics
23:08 Balance sheet risks in different growth models
27:00 Final Thoughts
Jon Blair (00:38)
All right, we are back and man today's gonna be a fun one because I have a guest on. Feels kind of weird saying guest because he's actually a co host with me on another podcast, e com scaling show. But I got Dylan Byers, founding partner at Aplo Group. What's up, Dylan?
Dylan (00:53)
I love talking about growth, Jon. I'll I'll take I'll take another pod with you, man. Let's go.
Jon Blair (00:59)
Yeah, thanks for joining, man. The reason I want to have you on is because we talk about a lot of really useful stuff for scaling a DTC brand fast and profitably on our other podcast, Ecom Scaling Show. And it doesn't always make its way to the free to grow podcast in the same form. And so today, I want to get right into it, man. I want to talk about the secret to scaling a DTC brand to 100 million and more specifically.
Why LTV needs to show up in every growth marketing game if you want to get to 100 million. So let me preface this and then I'm gonna let Dylan rip on this. We have launched this growth marketing game playbook framework, which is something that we've been working on for a long time. something that we've collaborated with you guys on at Aplo with several mutual clients. And really, what it comes down to is fast, profitable scale and D to C.
It doesn't happen by accident. It's not random acts of growth marketing. There's actually just a few different playbooks you can possibly run. And you have to run the playbook that aligns with your brand's unit economics, LTV, and and ultimately like customer consumption patterns, right? And so my goal in this episode is to give everyone an overview of whether you're playing the new customer dominant game or the, high SKU count game or apparel game.
Or you're playing the high LTV subscription game, if you want to scale to 100 million, LTV in some form has to show up in all three of those games, even if that might leave you scratching your head going, isn't it only supposed to show up in the subscription game? So let's let's first start, Dylan, with the new customer dominant game. Let's walk through from your perspective what is the new customer dominant game kind of like more broadly.
And where do you start thinking through how L T V has to show up at some point as you continue to scale?
Dylan (02:49)
Yeah, so The new customer dominant game is essentially any business that does not have a heavy reliance on lifetime value to drive a meaningful percentage of your contribution margin and in turn net margin for your store. oftentimes these are gonna be like durable goods, things where you don't necessarily have to keep buying them and where there isn't many like obvious complementary pieces or other products that people may need to buy from you. and
These brands can be great to start. And the reason why is say I'll clarify by saying can be great to start DTC. Oftentimes they're higher AOV, Oftentimes they can be first order profitable, and in turn you can scale them relatively quickly. The issue with them, or maybe not the issue, but the pros and cons are essentially that because you don't have LTV and because there's not obvious complementary products sometimes, one of two things often has to happen. You either have to get
more durable good products or other products that you can sell so you're more diversified and you have multiple different funnels running on acquisition that are first order profitable, or you have to pursue LTV. And when you pursue LTV, a lot of people think, I'm gonna do like email and SMS. Sure. We do email and SMS for brands all the time and that helps a lot, but it's only gonna do so much for a business that does not naturally have an LTV based product. So you actually have to go and pursue sales channel diversification.
normally in this case it's gonna be wholesale retail. So your retailers that you're selling to effectively become your recurring customers. So it's not that these brands can't start DTC and it's not that they can't get super large D to C, but at some point from a durability perspective, Often brands in this kind of niche or type have to pursue the retail channels faster to get that recurring revenue.
Jon Blair (04:34)
Okay, so what's interesting, as you were talking, I just thought of something that I've never thought about before, even though you and I have talked about these marketing games for hours on end over the last year, which is that really the goal with trying to leverage LTV at some point in your scaling journey, what the goal is really it's to it's to disconnect the trend of CAC.
And the trend of new customer contribution margin dollars. That's ultimately because when you're playing and I want to relate this back to the new customer dominant game, The problem at some point with many new customer dominant brands, they scale to a certain point D T C where the usually they're sufficiently high gross margin dollars per order. It's usually a quality, durable good that usually I'll call it an AOV of like at least 150, but it's like a higher.
Higher AOV product and usually higher margin margin dollars. What happens as you scale is CAC keeps going up, but your kind of gross margin dollars per order stay the same. And eventually that margin gets so thin, contribution margin dollars per new customer order, that at some point, like the next incremental dollar of ad spend is not profitable. And it's like, so where do we turn next? Ultimately, what you're trying to do by getting into physical retail in this game is you're disconnecting CAC going up with.
sales growth and ultimately with new customer sales growth and you're bringing in margin dollars that's kind of dare I say CAC-less you know, and that that's that's really what you're trying to do when you're driving LTVs you're trying to drive margin dollars that don't have a CAC or have a marketing cost that is like significantly lower than acquiring a new customer. But there's one other thing though I want to ask you sp because I see brands try this a lot.
I actually see brands try try to do this more frequently, and I don't know how effective it is, which is try to drive D to C LTV by expanding into a consumable product line. Have you ever seen that have you ever seen that drive sufficient LTV to allow that D to C brand continue to scale?
Dylan (06:39)
I don't think so. I'm sure it's possible, but like you almost have to build that first product with a consumable on the back end in mind. Like there are instances of durable goods. Like, think about all the wearables. Like the recurring revenue on the back end of those are the app subscriptions as an example. Like I think that's an example of a category that can be a great durable good. but most durable goods aren't built with retention in mind.
Jon Blair (06:48)
Mm.
Dylan (07:05)
and you might get lucky sometimes and I can sorta think of one, but by and large, if you're selling a durable good for like I don't know camera equipment, you're not going to attach supplements in the back end of that. Like there's there's like there's like natural limitations.
Jon Blair (07:16)
For sure. Well
well, and there there's another issue that I have seen because I have worked with several durable goods brands who've tried to launch complementary consumables and they've done that in practice. They've done it somewhat successfully, but when you look at the economics of it, it's like it it the margin dollars per like follow on order are a couple bucks. It's like a really small replaceable part.
Dylan (07:42)
Yeah, yeah.
Jon Blair (07:43)
Right, or something like that.
Dylan (07:44)
Yeah, yeah.
Jon Blair (07:45)
It that's different from if you buy fifty dollars worth of coffee every single month or every two months, you have the same AOV or at least a sufficiently high AOV relative to your first order on your follow-on orders. And that's so so I actually would say, like, if you're gonna figure this out, whatever the consumable component or piece is to kind of your whole customer journey.
It needs to have sufficient margin dollars per repeat order and that's usually where I see this stuff fail.
Dylan (08:11)
A hundred percent.
Yeah, and I guess like the reason why that's so important to kind of double click on is like if you have a two hundred dollar AOV and let's say you're reaching the point at break even on CAC, if you only make an extra three, four, five bucks on the back end, even if the margin percent is great, the risk you're taking to make such slim dollars in relation to how much you have to invest into the acquisition product, like in an ideal world, you actually want the the ascension to L T V
Jon Blair (08:33)
Totally.
Dylan (08:41)
to be really high dollar values in relation to the cost of a durable good. And that's even more rare. But like, but again
Jon Blair (08:48)
Well no, I agree.
And you almost you almost want to see you wanna see the retention curve or like the accumulated margin dollar LTV. You wanna see it exponential. You don't wanna see it linear with a really low slope. You wanna see it gaining speed in a perfect world. It's hard to do that with some of these examples. And that but that's why physical retail, let's say
You get there's a brand that we work with that got to about 30 million, new customer dominant, very low. Well, let's call it effectively no LTV, right? They got to 30 million profitable in D to C plus Amazon, right? So they even had to expand into Amazon. But then what's taken them from 30 to 100 million is they got into every store in the US in Target. And so they're getting they're getting POs.
Of like hundreds of thousands and millions of dollars at a time. And those POs don't have an additional CAC to acquire them. They're just getting follow-on POs from Target. And that's their LTV and the new customer dominant game. So I want to now turn to the high SKU count game or the apparel game. It is not the it's not the same as the subscription or high LTV game, but there is an LTV component. that's very important to tap into.
As you scale. Can you walk through that, Dylan?
Dylan (10:04)
Yeah, so clothing and apparel in high SKU count stores can have high LTV. It's just often not as aggressive in terms of how fast you actually make that value over time. and maybe at the extreme too, it's not it doesn't have the same potential in many cases to be quite as high. But there are many instances where These these brands can have great lifetime value, but not great to the point that you can afford to acquire customers at a major loss.
You kind of refer to these clothing brands often, Jon, and on the e-com scaling show as like breakeven-ish, where it's like depending on the the incrementality of spend and the volume of spend, so on and so forth, like there are situations where you can afford to acquire customers at a slight loss, depending on the brand. But the game in that category in that in that category is often trying to acquire as many customers as possible, breakeven-ish. If you can be profitable and healthily profitable, great.
But there are times where it does make sense to push near the break-even mark. the game, and especially to kind of zero in on clothing, the game really then becomes product strategy to actually drive that LTV. And the best clothing and apparel operators I've seen are the ones who are the best product planners and designers who also have an appreciation for like curating collections that
make sense in context to what people have bought before. What do I mean by that? The worst clothing and apparel operators I've seen generally are the ones who spend too much time focusing only on like the next product that's going to work on Facebook. And like that is important, don't get me wrong, but you have to think about the long tail of this because if you can actually curate a great collection of products, the upside on the retention
is just so so huge from an from a CAC to LTV standpoint. So you really want to make sure you're covering both. and I guess a fair statement would be you can do what you can do too much of both. Like at a certain point you need new clothing products that work on acquisition. But the benefit of clothing is that oftentimes if you find enough products that work on retention, oftentimes some percentage of them is often are often going to work on ads.
Jon Blair (11:49)
Totally.
Yeah, for sure. I learned this very, very clearly on a mutual client that you and I worked on. And I've I've I've talked about that brand before on the e comm scaling show. The operator that drives product development in that business is one of the best, in my opinion, in the apparel world. And they know that if they miss the mark on product launch, both
what they're launching and the time of year that they're launching it. They know if they miss that, that it basically kills the month that they're that they're heading for. And so the other thing that I think is important is again, we're talking about this in the context of scaling to a hundred million, which really a hundred millions, it's an arbitrary number. It's just like scaling to a big brand, right? Like you can't really scale, in my opinion, an apparel brand that doesn't have
Healthy LTV over time to, you know, anywhere close to 100 million. If if you basically because you don't have the retention, maybe it's because of your lackluster product, you know, development strategy and whatnot, you don't have the LTV and you have to stay first order profitable, you are begin kind of operating more like the new customer dominant game, you will cap out a lot quicker than you think on how.
big you can scale. You have to tap into the LTV if you want to grow large enough.
Dylan (13:26)
Yeah, you'll you'll either cap out or you'll just increase your odds of not having a consistent compounder. Like y when you're building these consumer brands, you want to try to increase the odds that you have something like would you rather grow 100% for a year or two, or would you rather grow 40% a year for 15 years? Run the math on that. Probably want to grow 40% a year for 15 years. So it's one of those things where it's like oftentimes
Jon Blair (13:47)
For sure.
Dylan (13:51)
Especially in clothing, when it's so simple to launch new SKUs. Simple's relative, obviously. It's still a lot of work, but like relative like to durable goods, it's probably a lot easier. you really want to make sure you're curating the product catalog well. And I'll I'll double-click on one thing about this curation piece. Let's say you're selling supplements, food, whatever, those categories, in my experience, are less likely to experience disruption. in the sense that the
Odds of future cohorts behaving like past cohorts are higher because people tend to just consume the same thing. They either like it or they don't like it. In clothing, there's trends, there's fads, things change, and you have to stay on it. So the it doesn't mean that your cohorts can't be relied on, but you have to kind of understand that they're not as reliable. And you have to really be always on that.
grind of figuring out what's that next kind of product to ideally even get better cohort retention because it can go both ways, right? So I think uniquely the clothing category requires more focus on product. I think all categories require focus, but it's like a different it's a different game. You're just like it's it's such a volume and quality game, in the clothing space.
Jon Blair (14:49)
Totally.
Yeah, one hundred percent. And that's partially why I've kind of formed this opinion that like really niche clothing brands actually s ha they they may have a limited TAM depending on how niche, but they can build a cult like raving fan following of customers. In fact the the Yeah, and and w so
Dylan (15:22)
yeah. I think they're great they're they're great businesses.
Jon Blair (15:27)
That's another thing to keep in mind here when you're talking about being able to scale profitably and tap into LTV when when you're playing the apparel game. But one one other thing that to mention too is like if you start playing the apparel game or the high SKU count game, The apparel game is inherently inventory intensive because of all of the variants driving a huge product catalog. I would say that.
If you can't tap into LTV, the inventory on your balance sheet becomes incredibly risky because you have this massive catalog and you can only sell it to new customers likely with diminishing returns because CAC is going up, right? And so you're getting squeezed on on new customer contribution margin dollars per order. And so you you've got to figure out how to tap into LTV or scaling the apparel game or high SKU count game is actually really, really risky.
Dylan (16:16)
Yeah, I I I I actually think of all the games, there's different sizes where I think you like need to have a fractional CFO. I think this game is the one you probably need one the soonest. Would be my
Jon Blair (16:27)
No, it's you know what's funny that you you you as we've developed this framework and have developed like part of the framework of the of the marketing game playbook, it's not just first order profitability rule, how you tap into LTV. It's also where are the balance sheet risks in each of these games? Because the balance sheet risk is not the same in every game. And as we have developed this framework, It's very clear that the apparel game
stands to have the most balance sheet risk sooner as you're scaling, in large part because of well, two factors. One the product catalog size. and then the other thing is seasonality of apparel. And the fact that like your winter stuff goes seasonally obsolete every year until until the next winter. And the same thing with spring and summer. And there's this extra risk that is not necessarily
There on some customer dominant brands or like how high LTV, like supplements, products, and things of that nature. So, okay, so just to recap, LTV does matter as you're scaling to 100 million if you're a new customer dominant durable goods brand. And usually that shows up in the form of getting into physical retail, right? And it matters in the apparel game. and it usually shows up in the form of
Launching products on a regular cadence, selling them into existing customer base and using that to fund break-even-ish CAC, you know, acquisition. Now, I wanted to save for last the obvious one, which is the high LTV game, the subscription game. Obviously, LTV needs to be tapped into here, but like Dylan, from your perspective, if you're scaling a high LTV brand.
subscription business and you have aspirations to get to nine figures, what are some of the things that brands need to be thinking about to really leverage their LTV to make that happen?
Dylan (18:14)
All the games, it's probably the one that's easiest to get that big DTC only. This category often it has a higher probability of facing issues as like becoming a commodity. in the sense that like it differentiation here can be hard, but if you can pull off differentiation through branding, mission, or unique product components.
Like this category can, for lack of a better term, absolutely rip. And the single biggest metric that I think often gets un overlooked is first order subscribe and save take rate. if you look at your cohorts and you try to improve them with your marketing, oftentimes email SMS, you know, free products on certain number of orders, your subscription automations, a bunch of different stuff you can do.
All that is great and it matters, but oftentimes what we often will look at is like, what is the first order subscribe and save take rate? And if you look at the 12-month LTV of a subscriber versus the non-subscriber, it's not abnormal for some brands for subscribers to be worth two, three, four times more than that of customers who don't subscribe. So the game is often how do you get subscribe and save take rate to go up without having much or all or at all a negative impact on CAC?
And that single metric, it's not always the case, but it's often the case that that one single metric, if improved, can be a literally the difference maker between scale or not scale or how fast or how big you can scale to. and I would say that on the back end of that, for those of you who do not subscribe, for the customers who buy one time purchase on the front end, what percentage of them can you ascend a subscription? the game is basically getting customers on subscription and looking at everything on a CAC to L T V basis.
And then you can build a a great a great compounder.
Jon Blair (19:54)
Yeah, and if you can figure this out, it really helps other areas of the business financially. Like I'll speak specifically to balance sheet management. If you've got a predictable subscriber base, now when we start talking about inventory planning, right, we can look at the subscriber base inventory forecast as a lot less risky than, say, your new customer acquisition inventory forecast. You compare that to a new customer dominant brand, where
Every single piece of inventory has to be bought by a new customer, potentially with a rising CAC and no LTV to supplement it way riskier when you're placing inventory POs, right? So if you can figure out this subscription opt-in, like Dylan is talking about, it actually makes a lot planning outside of just ad spend planning a lot easier and specifically around inventory. And that's usually where most balance sheet and cash flow risk, you know, go like it stems from.
That's where profit goes to die and not become cash flow is inventory level. So that this is key.
Dylan (20:57)
Yeah, I I couldn't agree more. Like this game is uniquely set up where the durability of revenue is generally higher because return customer revenue tends to be more stable. These businesses often have fewer SKUs. So like clothing and apparel businesses, if you do two million dollars of EBITDA like good luck pulling at a million. Like it's often hard depending on what your balance sheet looks like, obviously. Whereas in like some of these like low SKU count high L T V stores, depending on your objectives and your goals.
Like you can often have very healthy cash flow to EBITDA . And that, depending on your objective, can make them better businesses to run. I would also say that, like, just to kind of give an example, and this is like ru a rough example of an experience we recently had at Aplo, is we saw one store had like 5% subscribe and save take rates. the value of a subscription customer was about, I think it was about $150 more.
of revenue within the year, which on a gross margin basis was almost $100 more of value. I think we tested a funnel where CAC went up a few dollars, like two or three bucks, and their subscription take rate went from like five-ish percent to almost 70%. And if you and if you and if you run the date if you run the math on whatever that is, two or three dollars more of CAC to get like like
Jon Blair (22:00)
Dude, that's so massive.
Dylan (22:08)
But would it would it have like I'm gonna butcher the math on this off the top of my head of like maybe sixty dollars more of contribution margin dollars on that first year? Like that literally took that business from growing at this growth rate to probably now it's gonna grow at so again, it's not always a slam dunk like that. And it sometimes takes multiple tries. Like what I would frame to people too is like people love talking about ads, but often forget like landing pages and offer testing. If you make
Jon Blair (22:14)
Yeah. Super profitable.
Dylan (22:33)
hundreds of ads and you're happy if you get one or two that win. How many offer tests or landing pages should you do before you like like it's a it just takes volume and people often underinvest in this one area. I think I think maybe because it's harder. And it also takes longer to validate the data. It's not as simply put in the dashboard and in Facebook, but it matters a lot.
Jon Blair (22:43)
Yeah.
Dylan (22:56)
so I would just say more brands should focus on that and that's one of those metrics that can s makes such a big difference.
Jon Blair (22:56)
Totally.
Well, and look, when you're playing the high LTV subscription game, you can have all the potential in the world that lives within your LTV and your unit economics. But if you don't have a finance team and a marketing team that understands how to use that cohort data and optimize CAC to LTV, you can leave all this untapped potential on the table. There's numerous brands, high LTV brands, that Free to Grow and Aplo both work with.
And when we were able to bring forth our viewpoints on the data and where those brands should push or shouldn't push or what would have to be true to scale to this, when we were able to bring that advice to the table, we've had several brands that we've scaled from, you know, a few hundred thousand dollars a month to over a million a month.
It's about having the right team who knows how to take that potential and turn it into actual results. And that's honestly why we're going so hard on spreading, like getting the message out to the marketplace. There is a game your brand is playing. It's only playing one game. It's not playing multiple. And there is a framework, there's a playbook to follow in that game. And so what I want everyone to take away from this is if you want to scale your brand fast and profitably, whether you're playing the new customer dominant game or
Or you're playing the apparel high SKU count game, or you're playing the high LTV subscription game. At some point, you need to tap into LTV and you need to have a growth marketing team and a finance team who understand these dynamics to help guide you along the way. So if you're interested in learning more about how Aplo Group can help you guys with that, where can where can people find more about Aplo Group, Dylan? Bam, ecom scaling show is the other podcast.
Dylan (24:40)
Hello Group dot com.
Jon Blair (24:44)
That we co host. It's all about marketing and finance and scaling and D to C brands fast and profitably. Check it out. And I think that's a wrap. Thanks for joining, Dylan. This one was fun.
Dylan (24:56)
Thanks for having me, Jon.
