Let’s talk business

By Simon Huntley

Originally published on the Small Farm Central blog on 05/24/2017 

In every business, there is some “customer acquisition cost” (CAC from now on) — in other words, how much do you spend to acquire a single customer?

In my experience, for most CSA farmers this number is close to zero and not something you think about.

Even if you are not spending money on traditional advertisements, there are costs to find new customers. There is a website hosting fee, staff or personal time to develop content for the website, Facebook boosted posts, email marketing software like MailChimp, time spent developing content for email marketing, and on and on. So even at a basic level, if you think your cost of customer acquisition is $0, it is not.

I asked farmers on the CSA Farmer Discussion group on Facebook about their CAC and answers ranged from up to $100 to as low as $2.

Here is where it becomes a major blind spot and perhaps a systemic problem within the CSA movement/industry. The meal kit companies like Blue Apron, food hubs, and grocery stores have the economies of scale, the marketing expertise, and cash to spend $100s to acquire a single customer. So they can spend money on Facebook ads, Google Adwords, direct mail and whatever they can figure out to acquire a cost at less than their target CAC.

So if they are able to do this, they take the air out of the room from a marketing perspective and it does start to pull people away from CSAs and towards programs that have better marketing reach. If Blue Apron spends $100 to acquire a customer and the average CSA spends $3 to acquire a customer, that means on average that a potential customer is going to hear about Blue Apron 33 times for every one time they hear about the CSA! Can you blame them for choosing Blue Apron? They almost don’t have a choice!

It is certainly not getting easier. In the early 2000s, a farm could just show up and tack a CSA sign on their website, get some good press, and fill up their membership. People were actively going out and looking to join a CSA farm in these years, so it was relatively easy to find new customers. In this new landscape, where there is a lot of competition from all angles, I believe that we need to get better at marketing in general and starting to think about CAC and the types of channels you can use to reliably generate new customers at a profit will be important.

This is one of the trade-offs in using direct-to-consumer farm marketing: if you sell wholesale or through a food hub, they take care of finding the customers and you will get a lower percentage of the retail dollar. In a CSA, you are getting close to 100% of the retail dollar, but you need to go out and find those customers and finding customers is not free!

Acquisition cost also needs to be paired with your retention rate and the lifetime value of your customer. So if your retention rate is very low, then you cannot afford to spend as much to acquire each customer because you will not be able to spread that cost over multiple seasons. So acquisition cost and retention are intertwined in this way.

I have seen a couple rules of thumb in the larger business world that may help us to think about CAC in the CSA context. One rule of thumb is that a business wants to see CAC paid back within a year of the initial sale, so in the context of a CSA, if your average yearly spend per customer is $500 and you have a gross profit margin (minus marketing spend) on that of 20% then your aim should be to get CAC to be below $100. Assuming you have a fairly good retention rate (>60%), over the long term this will pay back well for you, although you will need to do some more calculations with your own numbers to make this analysis work for your situation.

There are many ways to view this, but the rule of thumb that I am thinking about is to look for a CAC that does not exceed 10% of the first season that the member is with your farm. For example, if your average price is $500/season then a CAC of $50 should be profitable over the long term.

In some ways, I hate to be the guy injecting all of this business terminology into CSA because these are such high-ideals business. However, I think there is a lot to learn from the wider business world that we can apply to CSA programs so you have the freedom to go out and develop your business to impact more people while building a business that supports your family.

In the end, it is all about the goals you have for your farm business. Are you getting the CSA membership numbers you want? What is your most profitable marketing channel? If dealing with these kinds of issues like customer acquisition is not in your skill set, you may need to hire someone with these skills, delegate, or consider pursuing other marketing channels like wholesale that don’t require this kind of work.

How do you think about customer acquisition cost within your CSA? How much are you willing to spend to acquire one customer?

In your corner,

Simon Huntley