Innovation Tactics

Develop innovation ideas you can be proud of

Customer Acquisition Cost (CAC), Customer Lifetime Value (CLV) or (LTV): Learn from Netflix

We are continuing our mini-series of crucial metrics for growth companies using Netflix as an in-depth real-world example. Last time, I covered the crucial metric Contribution Margin that guides Netflix’ decision making on content investment on a macro level.

Today, we are going to look at a number of metrics that are being used in the context of assessing companies’ growth potential:

CAC: Customer Acquisition Cost
CLV (or LTV): Customer LifeTime Value
ARPU: Average Revenue per User
Churn
The important ratio of LTV/CAC
Profit per user
These metrics are helpful in the context of repeat users within the subscription business model but also the platform business model (e.g. Uber, Airbnb, TripAdvisor, Facebook, etc) which I have covered in extensive detail under those links.

Join me today to gain valuable real-world innovation knowledge.

Contribution margin: why Netflix uses it for their most important decisions

Our US contribution margin structure is set mostly top down. For any given future period, we estimate revenue, and decide what we want to spend, and how much margin we want in that period. Competitive pressures in bidding for content would lead us to have slightly less content than we would otherwise, rather than overspending. The same is true for our marketing budget. The output variable is membership growth that those spending choices influence. 

This is what Netflix tells their investors in the long-term view (the wording has slightly changed just a few weeks ago but this is how it read for a long time until then).

With this, you know they are using the contribution margin metric in one of the most important business decisions: investing in content.

That is why we are covering the topic of contribution margins: it is one of the most important metrics and decision making tools for many companies like Netflix (I have an example from Lyft’s recent IPO filing at the end).

It is also a crucial tool in the break-even analysis (i.e. finding out when you start making money).

Find out more about one of the most crucial business metrics for many companies.

Economies of scale [part 2]: Learn from Netflix about related concepts

Last time I have covered economies of scale using Netflix as an excellent example of this important concept.

This time we will be looking at important concepts related to economies of scale:

– Diseconomies of Scale
– Economies of Scope
– Economies of Density and Economies of Agglomeration
I will continue using Netflix since we want to learn from real-world examples.

Join me for a tour through these concepts and more interesting facts about Netflix!

Economies of Scale: what you can learn from Netflix about scaling up

The concept of economies of scale can be one of the most valuable ingredients to bringing down your cost structure as you scale up your innovation idea.

Economies of scale are an accepted concept that makes common sense – so, why bother writing anything about it?

Because the journey of scaling up (and benefiting from economies of scale) will, in reality, be very different from what you learn in the economics textbook. Today, I am going to use Netflix as an in-depth, real-life example to demonstrate the challenges on their innovation journey as they have grown over the years.

You will also learn how Netflix transformed from a DVD-mailing company to an envied tech powerhouse.

Check out their exciting journey …

Best of 2018: How to develop your innovation idea

Dear innovator,

2018 was yet another fascinating year. I am getting many questions (and positive feedback) on a daily basis. I decided to make your most common questions the highlight of the year.

Most questions revolve around how you should go on about their innovation ideas. Many of you already have an idea/concept while others have founded a start-up based on their idea.

In my responses, I typically refer back to certain sections of my previous articles. So, why not do the same for everybody’s benefit? To be as specific as possible I have added direct links to the most appropriate section of the respective article rather than a wholesale link to an entire article.

Platform Business Model

One of the biggest innovation opportunities right now is the revolutionary platform business model (click here for an overview) that fuels Uber, Airbnb, Facebook, Google, ... a great opportunity for start-ups and established companies.

Innovate like Uber & Airbnb

Get a knowledge burst on sharing platform business models (click here) with ebooks & infographics
sharing platform business model

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