The key to getting acquired? Focus all efforts on contribution dollars and margin.

One of the main reasons Chubbies got acquired was how it finally started generating large amounts of contribution dollars at stable or increasing contribution margin.

We only started growing those numbers once we stopped focusing on the vanity metric of revenue.

We learned the only way to grow both contribution dollars and contribution margin was by transitioning away from 100% direct response marketing to a balance of direct response supported by real investments in brand building.

The key to getting acquired was to focus all efforts on increasing contribution dollars and contribution margin.

It just turned out that the only way to do it was by investing in brand building.

Transitioning our business from revenue to contribution got us acquired.



Here are the 5 things we learned that can help you make the transition



1) stronger brand = more contribution

in general, you don’t need a strong brand to drive revenue.

however, in order to drive long term, consistent increases in contribution margin and dollars, you necessarily need to build your brand

why?

when you’re able to acquire customers without having to prompt them with direct response ads - and they pay full price - you start to generate big time contribution dollars at high contribution margin


2) when you’re focused on revenue, there is no way to know if your business is actually getting better when you increase that metric because it lacks any info on the cost to buy that revenue.


3) focus on revenue and not contribution will create situations where marketing thinks they are crushing it, but business fundamentals are suffering.

example: your marketing team is seeing a huge ROAS selling the product you just launched.

however, one (or all) of the following things is happening.

the issue doesn’t show up in revenue, so no one knows.

a) gross margin on this new product is 10 points less than any other

b) this product is bulkier than all other products you’ve ever sold, so shipping cost as % of AOV skyrockets

c) the merch team put a bunch of sale products up on the site. people clicking on your ads are finding their way to that collection, purchasing product at a much lower margin. that ad set is getting way more spend because the pixel data getting sent back is telling facebook SPEND MORE!


4) track it

contribution = revenue - your variable costs

ideally, report daily contribution dollars and contribution margin, broken down by channel, customer type, and traffic source, and incorporating real time product COGs (correctly allocated to SKUs sold), and actual shipping costs attributed to the actual orders.

but don’t let perfect be the enemy of good.

start with imperfect today


5) operationalize it: reporting —> goals —> incentives.

a) reporting - get to what's mentioned in 4

b) goals: set 2024 goals using contribution rather than revenue

c) incentives: once people make more money by driving more contribution, that’s when the magic starts.

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Thanks for reading. If this post was helpful, here are 4 things you can do right now to 

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