Blue Apron, the meal-kit startup, filed to go public on Thursday afternoon after the company increased revenue 10x from less than $80 million in 2014 to nearly $800 million in 2016. The company’s net loss also widened over that time, from $31 million in 2014 to $55 million in 2016.
But if the leader in this emerging grocery category is going to keep growing rapidly, it’s going to have to start making more money from its existing customer base. That’s because its cost to acquire new customers looks like its increasing fast.
First, the revenue growth. It’s been fueled in large part by new customers, with a heavy dose of paid marketing supporting a robust customer referral program.
“Substantially all of the growth in our net revenue from 2015 to 2016 was driven by new customers, as evidenced by the relatively narrow ranges in the quarterly amounts of Average Order Values ($57.12 to $59.40) and Orders per Customer (3.9 to 4.6) in 2015 and 2016,” the company said in its S-1 filing.
This revenue-per-customer chart below shows the same idea: Existing customers are basically spending what they’ve always spent, meaning you have to acquire a lot of new customers in order to add a lot of new growth.
Up to now, Blue Apron says its marketing spending has “historically been primarily focused on new customer acquisition.” That makes sense for a company that is less than five years old and that believes it has mass appeal.
But that’s going to change going forward. “[W]e anticipate adding additional products and increasing the portion of our marketing expenses focused on brand awareness and customer retention in order to drive increased customer engagement and growth in our net revenue from existing customers,” the company said.
The core of Blue Apron’s business comes from the boxes of premeasured ingredients that it ships to customers in order to complete recipes that serve either two or four people at a time. The company added a monthly wine delivery option nearly two years ago, but that doesn’t seem to have had any material impact on the company’s top line (though perhaps it has helped profit margins).
So Blue Apron says it plans to expand the flexibility of its meal offerings in the future so people have more options on how many meals they want to make a week. The company also says it may add similar flexibility to its wine program.
The moves have the potential to increase revenue per customer; meal flexibility could also keep a customer from churning out of the service when they are busier and want to downgrade to fewer meals.
One big reason why all of this is so crucial: It seems to be costing Blue Apron a lot more money to acquire a new customer today than it did in the company’s early years.
In the filing, the company claims its cost to acquire each customer — or cost per customer — is $94. But it uses the wide timeframe of the beginning of 2014 through the first quarter if 2017 to calculate the average.
From 3/31/16 to 3/31/17 Blue Apron added 387K customers. Marketing expense was $178M.— modest proposal (@modestproposal1) June 1, 2017
If you want a more recent number like, say, over the last 12 months, you get cost per customer of around $460 — not $94 — if you divide marketing costs over that timeframe by customers added during that period. Whoa!
I’ve reached out to the company to see if I can get any clarity on this huge disparity — beyond just saying that it gets more expensive to acquire new customers as you expand wider outside of your core niche. I’ll add more context if I can dig it up.
This article originally appeared on Recode.net.