Chewy, which IPO’d in 2019, is a beautiful example of a company with growing cohorts. Chewy sells pet products online with nearly 11 million active customers. Their cohort repeat rate is so strong, “existing customers account for approximately 90% of our net sales in any given period,” and “our net sales in fiscal year 2018 would have grown by 20% fiscal year over fiscal year as a result of increased spending among our customer base without any net increase in customers.“ As an example, the 2015 cohort generated sales of $287mm in 2018 which was 165% higher than sales generated in 2015. A chart of healthy repeat cohorts looks like the below:
The very best ecommerce businesses look like Chewy, but even if your cohorts don’t spend more next year than they did last year, so long as your CAC is low and LTV is high, you’ll be in good shape. Below is Chewy’s LTV to CAC which as you can see is below 1.0x in the first year, meaning they actually lose money on the customer in year 1, but then grows to 4.0x over time. For ecommerce companies we look at, 3x+ LTV to CAC within 4 to 5 years is where we like to see the data.