How to Scale a Subscription Brand 10X Without Running Out of Cash
If your team knows the CAC-to-LTV theory but can't seem to execute it in practice, this episode lays out exactly how.
In this episode of The Free to Grow CFO Podcast, Jon Blair sits down with Kevin Jornlin, a Free to Grow CFO who took a subscription consumables brand from $300K to $4M in monthly sales in just 12 months. Kevin breaks down the four-step process his team put in place: setting a combined new-customer ROAS floor across Shopify and Amazon, building a daily tracker so the brand always knows where it stands against that target, layering in a top-down net income guardrail so ad spend never outpaces the cash the business actually has, and finally locking down balance sheet and cash flow management so inventory financing keeps pace with aggressive growth. Jon and Kevin also unpack why running out of subscription inventory can quietly kill a brand's momentum for years, and why this kind of scaling only works when finance and marketing are making the risk-versus-return call together.
If you're running or advising a subscription brand and want a real, repeatable framework instead of CAC/LTV theory, this one's worth a close listen.
Episode Links
Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/
Kevin Jornlin- https://www.linkedin.com/in/kevin-jornlin-cfa-650a40b/
Free to Grow CFO - https://freetogrowcfo.com/
Key Takeaways
Running out of inventory for a subscriber base can stall a brand's growth for years, even after the business survives.
Set an NC ROAS floor on a combined basis across all sales channels, not any single platform in isolation.
Financing inventory purchases can extend your payback window and prevent a double cash outflow from new customer losses and unsold inventory.
Transcript
~~~~~~~~
00:41 Introduction to Subscription Brand Scaling
03:06 Understanding Economic Metrics for Growth
05:47 Setting the NC ROAS Threshold
08:28 Implementing a Daily Tracker for Performance
11:10 Managing Ad Spend and Cash Flow
13:57 Balancing Inventory and Cash Conversion
16:37 Final Thoughts on Financial Strategy
Jon Blair (00:41)
All right, and we are back. And I've got a special guest with me today, one of our awesome CFOs, Kevin Jornlin back for the second time on the show. Kevin, what's up?
Kevin (00:52)
Hey Jon how you doing?
Jon Blair (00:55)
I'm good, man. All right, we're gonna take a crack at this. We had some technical difficulties right before this, but that's okay. today we're talking about something super awesome, super important if you run a consumables brand, specifically one that you're trying to scale through a subscription program. Kevin works with a number of subscription brands at Free to Grow CFO. There's one in particular that he has implemented this four-step process for scaling that brand. And the result has been about 10x growth.
In the last 12 months. this brand is incredibly profitable, printing money. And I think I just want to like set the stage as to why we're talking about this and why it's so important. I think most subscription brand founders understand intuitively that they potentially have the ability to lose money on a first order on acquiring a new customer. There's a lot of talk out there in the marketing world and on social media, like CAC to LTV optimization.
You can look up all kinds of stuff on like what does that really mean? But in reality, the trick is turning that theory, that LTV to CAC optimization theory, into practice, a daily, weekly, monthly discipline. Because you can have all the theory in the world, but if you don't execute it properly, you can still kill a brand that otherwise could scale fast and profitably if executed properly. And so, Kevin, before we
go into the the four steps. Can you give a little background about this brand, its kind of economic makeup, and the first step of your process that you put in place for the brand?
Kevin (02:36)
Yeah, for sure. Okay. Thanks, Jon. All right. So this is a a clear success story for us. I'm I'm excited to talk about. This is a company that is in the consumable space. It is a subscription-oriented type of a business that one year ago was doing about 300K a month in sales. They sell on Shopify and on Amazon. And fast forward about 12 months.
They are now this month going to hit four million in sales. So a more than 10X of their business. that type of thing is only possible when you have a pretty high repurchase rate, which thankfully this business did have and still does. It actually th this was a business that had the kind of the golden goose of.
Both a high repeat purchase rate as well as really good marketing efficiency. When they came to us, they had a ro NC ROAS that was like well above two, and their LTVs were just off the charts. So there is so much that you there's so much potential for a business like that to scale. That's not to say that you have to have a super high NC ROAS.
to implement what I'm about to talk about. It it is necessary though, for the steps that we're about to go through, that your business be one that lends itself to some level of repeat purchase behavior. There needs to be some some high LTVs here. So subscription subscription-oriented brands are perfect. Okay, so let's dive into the
Four steps. So step one when we're working together with this brand is let's set a floor NC ROAS threshold. All right. So so we worked with this brand. And this is something that you have to, I'm not going to go through the details specifically of how we set this number. This is something that you have to work with your CFO to figure out. The floor level that we set for this brand was.
Kevin (04:59)
An NC ROAS of one and a half on a combined basis. Okay, so notice I said the word combined. Combined is the key because, like I said, this brand was selling on both Shopify and on Amazon. What matters is what the combined NC ROAS is across both of those channels together. And that's not how most.
Jon Blair (05:06)
The combined basis. That that's the key. Yes.
Kevin (05:27)
folks are gonna look at it. Most most folks probably look at a single platform in isolation like Shopify. And indeed for this brand, their Shopify NC ROAS was only like a 0.7. All right, at a 0.7 NC ROAS, that that does not look good on the face of it. It would mean that it's gonna take you a very long time to get paid back on your ad spend. But a one and a half for this brand, we calculated that would
lead to a payback of month three. So we are targeting a month three payback. And that's that's the level that we set. Okay.
Jon Blair (06:07)
So one thing I wanna say, because you you mentioned like, hey, the s exactly why you set how and why you set that NC ROAS target, you're not gonna go through. I wanna kind of like elaborate on that, which is it depends on many different factors, right? And and a CFO that understands e-commerce and understands both the P&L and the balance sheet perspective of CAC to LTV optimization is going to help use both
kind of quote science and math as well as judgment and subjectivity and risk tolerance and things of that nature to help set that number. Cause at the end of the day, from a theory standpoint, in principle, that NC ROAS is is kind of the inverse of looking at your new customer CAC, right? It's it's it you kind of one or the other. And what number you set for that metric is in large part dictated by
How much risk do you want to take on a new customer loss? Because that's what we're doing, right? We're taking risk on losing money on this new customer loss and we're paying it back over some period of time. So whether you choose a three month payback period or four or five or six, it's gonna depend on numerous factors, and it's not the same for any one brand. A really good ecom CFO is gonna help you weigh the various P&L and balance sheet factors in that decision and then set that target. So
After you got the the combined NC ROAS target set, what's the next step in the process?
Kevin (07:43)
Yeah, so in many cases working with brands, we have gone through this exercise of setting an NC ROAS target, only for me to realize that the implementation of that is a little harder than than than the theory of just saying one and a half is your target. You need to have a it a tracker and it needs to all be centralized so that the brand can.
View how is my NC Roas today, this week, this month pacing? And am I above or below that? And then I can adjust my ad spend accordingly. All right. So I then set up for this brand a daily tracker, a daily tracker that pulls in ad spend for all channels and pulls in new customer sales for all channels. We used Expand Fi to get the Amazon new customer.
Sales. It's not that easy to get daily Amazon new customer sales. Expand Fi is very helpful for that. And then it's a Google Sheet that gets updated on a daily basis that then is managed in-house by the brand. It has to be someone that looks across. So, like a think of like a CMO type person. Many times you'll have different agencies for different ad platforms. You can't assign
Those agencies, the responsibility needs to be someone in-house that can look across. So you can see last week we were only at a one. That means we are overspending. We need to pull back our ad spend. Or last week we were at a two. Hey, that's a green light. That means we should be spending more into this to reach that one and a half that we were targeting. So that was step two, was the creation of that daily tracker.
Jon Blair (09:38)
So a couple things I wanna add to this, which is like one, we're not gonna go over this because this is like a this is something that is probably should live with whoever owns the ad spending function within the business. There is this question, this debate, it comes up a lot, which is like if you're above or below that NC ROAS target for a given day.
Should you make the adjustment that day? There's a lot of subjectivity there, right? And like on on my other podcast, Ecom Scaling Show, where the co-host is someone from a growth marketing agency, we've talked a lot in detail about like the the pitfalls of adjusting ad spend too quickly. And so the finance team's job, what Kevin's doing, his job is to give them a coherent method of tracking performance. We know that financially,
We wanna settle into this one point five new customer ROAS. Does it mean it needs to be one point five every minute of the day, every hour of the day, every single day? Not necessarily, but it needs to settle into that on average. And so there's a lot of nuance and subjectivity around how quickly to adjust. But the finance team is there to say, look, from a CAC to LTV optimization standpoint, we wanna land this month at 1.5 new customer ROAS. So
the point I wanna make is like I think sometimes I talk to founders and they're like, perfect, you're just gonna give me the perfect scientific formula and I'm gonna know exactly what to do every minute of the day. No, there's always subjectivity, but we have w y what Kevin has set up in this case for this client is these guardrails to operate within, right? And so you can always kind of you drift off path, you could take steps to drift back on path, right? And so anyways, that that's that's what I wanna say about that. So we got step so step one
Set set NC ROAS floor. Step two, set up the daily tracker to basically effectively measure NC ROAS throughout the month. What's step three?
Kevin (11:40)
Step three, I'll call let's make sure we don't run out of money. Okay, so the at a at a month three payback, that might that might sound good, but what does that actually mean? That means in initial month you are not profitable. You've lost money. You're unprofitable in month one, two, and then finally you become profitable in month three. That means if you spend infinity dollars on ad spend, you will wipe out the company in that month. Okay, so then
Jon Blair (11:44)
Yeah.
Kevin (12:09)
Again, I'm not going to go through the details of of how this is how this is calculated, but you work with your CFO to figure out at a 1-5 NC ROAS what is the max level of ad spend that we can that we can hit and still achieve, let's say, breakeven profitability, whatever you determine is your minimum net income threshold. So that depends very much on things like returning customer sales.
As you see returning customer sales go up and up and up, like it did for this brand, that gives you a green light to spend more next month on ad spend and then more the following month, et cetera. So that's the top-down view of how much we spend on ad spend. The bottom up is let's make sure it's at a one and a half NC ROAS or whatever the level should be. The top down is let's let's just make sure.
we're we don't run out of money and and we're hitting our our net income thresholds, particularly if you're a bootstrapped company like this brand was no VC funding, no investor outside investor capital of any kind. So it's very important that net income stay at or above zero.
Jon Blair (13:27)
So yeah, so this is important. One analogy or kind of metaphor I like to use a lot is the seesaw, where one side of the seesaw is new customer loss, the other side is retention. It's your returning customer contribution margin. And the thing is, I I like how you said if you spend infinit like infinite dollars, right? Because I think another misconception brands have is like, my CFO set this.
New customer ROAS floor of 1.5, I can spend as much as I want. It's all governed by your retention, right? The more that retention goes up or that side of the seesaw, right? The more that you can lose more money faster by spending faster and producing more more of an absolute dollar loss on new customers and still stay in balance. And, you know, again, there's nuance here, right? It's not all some brands who have a
A more padded balance sheet, right? With excess equity capital, excess retained earnings, they might be able to push harder and lose more for a period of time. They may make the strategic decision to lose more. And it actually will impact negatively total profit for, you know, a a a certain number of months and pay itself back later. But other brands.
Which this is I see this very common in many of our subscription brand clients. Many brands like to just balance that seesaw so that they are able to spend more every month and ultimately increase the cohort size and incre increase the business size. But they don't want to ever outpace their retention so that every month they still make more contribution margin as they kind of climb the staircase, so to speak. Right. And and that's really what Kevin is talking about is like you've got to decide how fast you're gonna go. And if you're gonna be willing to tip the seesaw to actually
lose maybe the company loses money or it's it's even possible to have negative contribution margin like at the company level for a period of time. This is again very much a strategic risk versus return and balance sheet management conversation as much as anything else, which is why this whole CFO like finance times growth marketing is an equation that like
Jon Blair (15:41)
I want more and more brands to understand because yes, your growth marketing team needs to execute on these principles, right? But it's only it's a CFO and a CFO only who's gonna help you be able to make the risk versus return, the risk-adjusted bet decision. It's not ever gonna be a chief marketing officer or a head of growth. And so you do need all of those parties at the table. So we've got step one.
Step two, step three, what is the the fourth and final step in this process?
Kevin (16:12)
Step four is balance sheet management. Okay, so everything I've talked about so far has ignored the concept of manufacturing lead times being the big one. So in this case, the brand had had pretty decent cash conversion cycle, but because it was growing so fast, the constraints that were placed based on because of ordering inventory ahead of time and and that inventory taking some time.
To flow through to the P&L. What we did for this brand was we helped them get a debt solution with a company lender that we work with a lot. That line is now up to two and a half million dollars. They're putting their inventory POs on that line. It helps them push off payment by four months in their case, such that their cash conversion cycle looks a lot better. So we we did that in conjunction with.
We actually took over their accounting too. Their accounting was managed by someone else previously, and some things needed to be cleaned up, like specifically around AP. So we did that. We created a cash flow model so that we can model all cash inflows and outflows. So again, we can make sure that there's no cash crunch as we're scaling so aggressively.
Jon Blair (17:37)
It's interesting because this is gonna be an oversimplified kind of mental model here, but the general principles are true. So I want everyone to hear this. Let's say this brand needed to just pay cash up front, not borrow it for this inventory, but they have a three-month payback period. If you think about the cash outflow, every cohort every month of new customers as a cash outflow, because we're losing money on them, right? But then additionally
We're sending money out the door to buy inventory that we likely haven't even received yet, right?
And so we haven't been able to liquidate that and turn that into a cash inflow. So you have a double cash outflow of losing money on new customers and paying for inventory that you haven't even been able to sell yet. Now contrast that with having four months to pay a lender back. You go buy that inventory, you have four months to lose money on new customers and get retention to break even by month three, and even turn a bit of a profit on those coho cohorts by month four, which is when you finally owe the lender. So now you've got this kind of cash.
conversion cycle optimization. It's a puzzle that your CFO is putting together for you, right? You're trying to take cash out cash flow management. Now look, in practice it's not this simple, but but conceptually it's no more complicated than saying
This is the timing of your inflows. This is the timing of your outflows. How do we engineer this so that the inflows come before or at the same time as your outflows? So you don't have this gap, right? That's basically cash conversion cycle management. And so when you are losing money on new customers in this subscription game, this high LTV game, as we call it, if you're increasingly losing money on new customers and you're placing this bigger inventory burden on the business.
Jon Blair (19:27)
The cash conversion cycle management actually becomes like, I don't know, multiple times more important. And I will tell you right now, I've seen this happen before, unfortunately. When a subscription brand runs out of inventory, it's a death sentence to their scaling momentum because you've got all these people waiting for the subscriptions to be filled. So you just do not ever, ever, ever, ever want to run out of inventory for your subscriber base when you are on a roll.
Scaling a subscription brand. I've seen it kill brands, they're still alive, but I've seen it kill their scale, and two years later they've still have not re-you know clawed back out of that hole and regained that momentum. So this step four of like balance sheet management that Kevin just ran through, it's probably like the least sexy to the founders out there. It's like, balance sheet management. But it's arguably the most important.
Because once you have step one one through three working, this is the one that could stop the freight train while it's rolling downhill and you don't want that to happen. So, Kevin, this is super awesome, super practical, super helpful. Just from the collective experience you have scaling this brand and some of the other subscription brands that you work with and have worked with, what's your kind of like final thought for people listening to this? Intrigued, like
What what's your final thought on this topic for brand founders listening right now?
Kevin (20:53)
Hmm, let me think about that. Hmm.
Kevin (21:02)
What do you think, Jon?
Jon Blair (21:06)
I My final thought is you need finance and marketing at the table, and don't assume this is a pure science, meaning that it's just going to be as simple as a A plus B equals C, or if A and B, then C. There's going to be math and scientific modeling around this, but it does take a marketing strategist and a financial strategist.
at the table to work this in practice and you just gotta be willing to do that work every single month.
Kevin (21:44)
Yeah, that's super well said. Yeah. This brand is in an awesome spot now because they've scaled their revenue to such a place that they have a lot of options. And the option that they've chosen now is to operate at like a 10% margin. So they're taking in about 300 to 400K in profit per month now. But the only reason we are at that that level now is because.
We we knew the pathway and they were comfortable operating at basically zero for several months in a row because they were seeing how it was impacting the model and how returning customer sales were were growing. And through our like our cash flow model, we were able to with some precision predict what the their cash was going to be in future months.
That gave them the confidence to continue putting their foot on the gas on ad spend when maybe they otherwise wouldn't. Or maybe some marketing agency would have told them, you you could be spending, you know, 5x what you what you should be. And then that would that would have an impact on their ability to continue to function. So I think we threaded the needle pretty well for allowing them to grow as
Jon Blair (22:52)
Mm.
Kevin (23:11)
quickly as they possibly could without like jeopardizing the the business.
Jon Blair (23:17)
That is such a good takeaway. And I I I think a good place for us to kind of conclude is like the key from having the the key to in in my opinion to having a CFO on your team who understands this, right? Is that there is a loss up front, which means there's a risk up front. And it's really hard to scale into that risk without some sort of forward looking visibility.
That drives confidence and going like this risk is worth it, right? And and that's the key. You can have all the unit economics and the cohort data to support doing this, but you still need the financial modeling and the strategic insights that look forward into the future to be able to execute on this. It is a risky strategy, but if you know where you're headed.
And you know, to manage that risk, it can actually be incredibly, incredibly lucrative. So, man, I appreciate you coming on and chatting through this, Kevin. This this four step framework is super, super helpful. And if you're gonna let me, I just might I just might like to call you back on again to talk some more about this.
Kevin (24:30)
Yeah, I'd be happy to. Thanks, Jon. All right, see ya.
Jon Blair (24:32)
All right, Kevin.
