AOV, CAC, and CLV can be misleading.
Any metric taken average from any number can lead to wrong insights.
There’s a saying in the statistics world –
“If your head is in the oven and your feet are in the freezer, on average, you feel just fine.”
Don’t fall victim to averages.
Now, how are averages hurting your brand’s profitability?
Suppose your store number looks like this –
AOV: $55
CAC: $20
Now, with fix $15 COGS & $10 Shipping
$55 – $20 – ($15+$10) = $10 in profit
You are making a $10 profit on each purchase.
But in reality,
70% of orders look like –
Order value: $45
CAC: $25
With fixed COGs & shipping
$45 – $25 – ($15+$10) = $5 in loss
So you are making $5 in loss with the majority of your orders.
Why are averages looking good?
It’s mostly because –
- Organic or direct traffic sources
- High ticket orders
- Repeat purchases
- Word-of-mouth marketing
- Email marketing
Until you examine each channel, product category, and cohort differently, you can’t see the real picture.
With scale, numbers skew more toward your regular use case
So, more and more orders are generating losses.
Organic and repeat channels are taking time to scale.
The only way out is to cut down the loss leaders
No more loss leader strategy
Stop taking a loss on every order
Focus on First-order profitability
