How do candy companies that sell like 2 rupee or 1 rupee or 5 rupee chocolate ever come close to their cost of acquiring customer?

How the fuck do candy companies that sell ₹2 chocolates ever come close to their cost of acquiring customers?

Like, even the lifetime value of a customer can’t be that much, right?

The math just doesn’t add up.

Here’s what’s actually happening.

Instead of having a cost of acquiring customers, they have a cost of acquiring retailers.

Then the volume takes care of everything else.

The value is about the retailer, not the customer.

Think about it this way.

The smaller your ticket size, the more you have to depend on demand aggregators like retailers.

D2C can work for high ticket items where the CAC is low enough that you can justify it.

If that’s not the case, just go for retailers and spend that CAC to acquire retailers instead.

The cost spent to acquire a retailer is alot of times much more efficient than CAC spent digitally.

There’s a reason 90% of retail is done offline and only 10% is online in India.

Many online stores actually make more money and have better margins on their offline stores.

If your margins are good enough for the retailer, and if customers like your product enough, you don’t really have a CAC problem.

Because your retailer becomes the salesman after that point.

Then it becomes a game of having a huge distribution network.

You’re sacrificing your margins to give them to the retailer, so you need huge volume to make it work.

There are very few demand aggregators that actually work in real life.

It can be your local shop, a trusted supermarket, some street vendor, or an influencer with a strong online brand.

These are the situations where your product can sell a lot without you having to acquire each customer individually.

The candy companies figured this out long ago.

They acquire the channels that aggregate demand.

And let volume do the rest of the work.

And this is the noose around the neck of D2C brands.

The above mentioned constraints eliminate so many hypothetical businesses from being feasible for you.

If you are going D2C, The first question to deal with even before product is that of CAC.

Since you are willingly giving up so many existing demand aggregators to create your own.

You have to be able to make the CAC make sense.

D2C is challenging because not only are you creating product market fit, but also a demand aggregator that keeps CAC reasonable.

I believe the rise in interest for social media brand is a result of this D2C rush too.

These companies have already handicapped themselves from demand aggregators so now they have to desperately create an presence somehow to get revenue.

Plus this pattern is observable.

You can see a lot of car manufacturers or furniture sellers being D2C because the ticket size makes sense.

But you’ll never see candy company selling directly without a retailer in between.

The economics of acquiring customers have kind of been solved.

And there are a lot of lessons to learn from the pre existing companies.

It is observable that many of the software companies have marketing spend more than that of their research and development costs. And that is totally unexpected.

And on the contrary, many FMCG companies, you will see that they are spending proportionally way less amount of their revenue on marketing, even though FMCG is the first thing that pops up in your head when you think about marketing and not Software companies.

This is because software companies are D2C and FMCG companies are not.

This shows the financial implications of choosing a distribution model.

Some are in the customer acquisition business and some are in retailer relationship business.