What is Aviron's strategy for controlling customer acquisition costs as a fitness hardware company?

High customer acquisition costs are super problematic, because everyone's operating on a very thin margin. Many connected fitness companies lose a ton of money on the sale of their hardware. From what I understand, margins are typically between 20-30% on average on hardware for most connected fitness. If companies are selling a product that's $1,000—let's just round it up to $2,000 because most products around that $2,000 range—maybe they're making $400 to $600 after costs, shipping it to North America etc. The margins are quite thin. 

But then they can justify it and justify a high acquisition cost that goes way beyond the contribution margin because there’s a very strong lifetime value (LTV). If retention is 1-2%, then if the LTV is huge, and they’re really digging into one year, one and a half years of membership, then that's how companies have been able to justify their business.

That has allowed all these companies to continue raising capital and continue growing because they're like, ‘My LTVs are $7,000, even though I'm only making $400 on contribution margin, because my churn is so low.’ That's where it started.

When COVID lockdowns ease off is where we get into the problem. Because now when I'm ABC Company, and my top line is a $100 million and I'm supposed to be bringing in $10 million a month, if not more, and growing 150% a year. And suddenly the acquisition cost increases by 20-30%, the impact on business is significant.

When shipping overseas to get the product to North America has increased 200%, all these changes are having a really significant impact on the business. Because traditionally, pre-pandemic, a company wouldn't be able to get away with a $400 contribution margin with one or two years of LTV.

A lot of startups were able to do that because cash was so cheap and everyone was growing and valuations were inflated. Now that we're back to reality, some startups are in big trouble because the CAC went from maybe $600 and now it could be $1,000,or more and investors aren't going to continue fueling those businesses. That's the issue with all these companies and why we're seeing huge cuts.