14 lines
4.5 KiB
JSON
14 lines
4.5 KiB
JSON
{
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"HubID": "2824",
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"Date": "8/18/2023",
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"HubTags": [
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"External Platform Posts"
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],
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"Contacts": "",
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"Companies": "",
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"File": "",
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"Image": "",
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"Summary": "<p>This is a pretty classic scenario with respect to growing in #cpg. Where do you focus your efforts, why, when do you raise and how much? Here it is copied in</p><p><em>I met with the founder a very cool ethnic frozen brand last night. They have frozen prepared meals that are currently selling in Target, Walmart, Kroger, WFM and beyond. Around 6,500 doors, $7M in revenue, and a very small tight and nimble team of 5. To date, there hasn't been sufficient capital for marketing so they are gearing up for a raise to turn on the marketing engine. Currently, they are crushing it in the natural channel and moving 4-6 units per week per sku, however, in conventional and mass, they are moving closer to 1-1.5 where they need to be at 2.5-3.</em></p><p><em>ADDING one more variable. Let’s assume $250k burn due to lean team and assumption of 35% frozen product margin at $6-8 SRP</em><br /></p><p><em>A couple questions here and would love everyone to chime in:</em><br /></p><p><em>1. In today's macro environment, how much money should they raise and at what structure. This is an open ended question as you only have the information I provided above on revenue, doors, velocity and small team etc.</em><br /></p><p><em>2. What should be the focus of the use of capital? Couple options below as examples:</em><br /></p><p><em>a) Should they focus on deploying a majority of their dollars into marketing and trade to achieve velocity needed to stay on shelf and not expand distribution?</em><br /></p><p><em>b) Continue to expand door count in the natural channel where they are winning ?</em><br /></p><p><em>c) Build up team to support 2x revenue</em><br /></p><p><em>d) Cut down on doors and focus on where they are winning while allowing new capital to drive specific channels</em><br /></p><p><em>e) Start SKU extensions in the natural set</em><br /></p><p><em>There are so many different routes one can take and so many ways to use the capital. Focusing on multiple channels and supporting a diverse set of doors is tough. Nail your velocities and then SCALE!!!!!</em><br /></p><p>Back to me. The answer really comes down to one thing: what is your #roas (return on ad spend). The only variable in a CPG P&L that really matters is ROAS. All other P&L line items will pretty much standardize to industry ranges. But ROAS is a measure of how efficient your marketing is at generating sales and can vary widely and is both art and science to get it optimized. <br /></p><p>Breakeven ROAS for a CPG is around 2. As a rule of thumb, if your ROAS for analog marketing is north of 4 and for digital north of 7, you are doing really really well and getting into blockbuster brand potential. Your goal is to test marketing constantly and find strategies, tactics and channels that deliver the highest ROAS. When you find one, you run with it and scale it and see if the ROAS holds at higher marketing spend. If it does, you probably have a winner. <br /></p><p>So in this example, I would find the marketing strategy that maximizes my ROAS for the natural channel where I am seeing success and see if that ROAS holds as I ramp my marketing spend. If it does, then I have a formula that mints money. <br /></p><p>Raise money to plow into marketing (and associated operations as needed) for expansion into the natural channel using the marketing strategy that delivers me a high ROAS. That money I am raising can be at a strong valuation because I have derisked the investor...I am raising money for what I know works. <br /></p><p>Increase my door count in natural as well as increase my real estate on shelf, constantly testing against my ROAS. If ROAS holds as I get more doors and shelf space, then I have a formula for door/shelf space growth that will help entrench me so I build a competitive moat. <br /></p><p>As I build on my strengths in the natural channel, test, test, test in the conventional channels to figure out how I can get a high ROAS there. If I figure that out, I can then go raise more money that is now derisked which I will use to conquer conventional channels. <br /></p><p>To me, it all comes down to leverage, which if quantified, is a simple KPI called ROAS. Let it be the north star. But ROAS has its limitations and should only be used to compare marketing/sales campaigns across the same channel. ROAS should always be tested against #ROIMI (Return on Incremental Marketing Investment). <br /></p>",
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"Notes": ""
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}
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