Mini Episode: The Two Most Important Acquisition Metrics for DTC Brands

Episode Summary

ROAS and MER might dominate DTC marketing conversations, but they’re not the metrics that actually tell you if your new customers are profitable. In this short, high-impact episode of The Free to Grow CFO Podcast, Jon Blair breaks down the two numbers that matter most for evaluating your acquisition strategy: gross margin dollars per order and CAC (customer acquisition cost)—both expressed in dollars.

Learn how to calculate them, why they matter more than ROAS or MER, and how reframing your analysis around these two metrics can drive better decision-making and long-term profitability.

Key Takeaways:

• ROAS and MER don’t tell you if your new customers are actually profitable.

• Reframing acquisition in dollars forces better decisions than just tracking percentage-based metrics.

• Profitability comes from improving margin per order or lowering CAC—not just increasing revenue.

Episode Links

Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/

Free to Grow CFO - https://freetogrowcfo.com/

Transcript

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Jon Blair (00:00)

Hey everyone, welcome back to another mini episode of the Free to Grow CFO Podcast. I'm your host, Jon Blair. Today I'm gonna talk about the two most important customer acquisition metrics for your DTC brand. Is it MER? Is it ROAS? No, it's not. I would say those are the two metrics that I hear most commonly discussed when talking about the financial success of customer acquisition. Actually, the two most important financial metrics for acquiring new customers is gross margin dollars per order and CAC, both expressed in dollars.

So why is that? ROAS can be misleading for a number of different reasons. So can marketing efficiency ratio, MER. They're both important metrics to track, but in reality, what really matters is how many gross margin dollars exist before spending on ad spend for a new customer. How do you measure those two things?

The way you measure them is gross margin dollars per order. So that's revenue minus all variable costs except for ad spend. In practice, that's revenue minus landed costs, minus shipping and fulfillment, minus credit card fees. That number in terms of dollars per order, that determines how many dollars are available to cover your CAC per order and then either have some left or not.

So let's use an example. Let's say before marketing is 50% of revenue. So if you sell $100 your new customer AOV, multiply by 50%, that's $50 of margin before marketing available to cover CAC. Okay, let's say that your CAC is $25, you subtract that from 50 and you have $25 left over to cover fixed overhead and or drop to the bottom line. So you really need to understand those two metrics in dollars on an order level specifically for new customers. That really is the only way for you to understand profitable your new customers are or aren't and for you to understand the drivers around why they are or are not profitable.

So you have really a couple of options. You reframe and remodel new customer acquisition financial performance in terms of gross margin dollars before ad spend and then CAC per order, then what you can do is say, hey, what are the levers I can pull to increase margin dollars per order before ad spend? And then you can ask yourself, what are the levers I can pull to decrease CAC or keep it steady, right? And so it's a reframing that gets us away from just talking about revenue and ad spend because there's way too much between revenue, ad spend, and the bottom line that we're not accounting for by looking at just ROAS and MER, which effectively just uses revenue and ad spend in those calculations.

So anyways, hope this is helpful. Again, as a summary, if you really wanna measure the financial performance of new customer acquisitions, stop using ROAS and MER and instead use gross margin dollars per order minus CAC dollars per order.