What’s Scarier Than Low Margins? A Million-Dollar Business With No Repeat Customers
The Hidden Danger of One-Time Sales in High-Revenue Businesses
Alright, I was recently called into a deal because two Investment Bankers were looking at a $900,000 M&A opportunity and they needed the expertise of a seasoned marketer.
They had a critical problem. They wanted to purchase this business but required a second opinion before moving forward. They were too deep in the financial details. My job? To evaluate the CPA, LTV, and the overall viability of scaling this operation.
Initially, several issues stood out to me that were glaringly obvious. Then I realized that what seems clear to me might not be apparent to everyone else. I’ve trained my marketing eye to identify strategic angles, positioning opportunities, and unique ways of applying concepts to real-world business strategies.
Analyzing Critical Metrics: AOV & LTV – The Foundation of Sustainable Growth
When evaluating any business acquisition, certain metrics tell the real story behind the numbers. Let’s break down what I discovered:
What is AOV? Average Order Value – How much revenue the average purchase generates
What is LTV? Lifetime Customer Value – The total worth of a customer throughout their relationship with your business
In this scenario, the AOV was $88 with the LTV sitting at only $150
These numbers raised serious red flags from a scalability perspective
The first questions that immediately came to mind when analyzing these metrics:
Why Is Customer Retention So Low?
A) Why is our LTV only double our AOV…and why can’t we increase our LTV?
B) If our LTV is double our AOV, that means we essentially get a MAXIMUM of two purchases per customer throughout their entire lifetime. How do we increase repeat purchases?
C) Then something else stood out to me that made the situation even more concerning…
Revenue vs. Profit: The Numbers Behind the Business
The business presented some interesting financial data:
Revenue: $1,000,000 per year
Profit: $250,000
25% Margins – not bad, but definitely room for improvement
No marketing strategy had been implemented up to this point – a curious omission
A single strategic partnership generated 2/3 of the company’s revenue – a major risk factor
This partnership insight sparked ideas about B2B expansion and distribution opportunities
The low LTV made me increasingly skeptical about B2C expansion and bringing products direct-to-consumer seemed risky
I understand that’s a significant amount of information to process. Still with me? Great, let’s continue.
Strategic Analysis: Making Data-Driven Decisions
Once we gather all the necessary information, we can make informed assumptions about the best next steps. We can evaluate what’s worked in the past and cross-reference it with current market conditions.
Here’s My Strategic Assessment:
B2C expansion would deliver minimal revenue increases after accounting for advertising costs
The B2C route would require YEARS of development, infrastructure building, and optimization (SEO, Traffic, Funnels, etc.) and without fixing the LTV issue (through back-end products), we’d perpetually be playing the one-off acquisition game without sustainable repeat sales
B2B expansion could potentially 10x the company’s size with half the workload – The primary focus for scaling would be streamlining operations and building strategic B2B relationships
The Conflict: Seller’s Vision vs. Market Reality
Here’s where the situation became particularly challenging.
The seller remained deeply attached to the B2C approach and continued selling the buyers on this vision. He genuinely believed it represented a “big opportunity” for growth.
I strongly disagreed with this assessment. Pursuing the B2C route would require a monumental amount of effort with questionable returns.
The product catalog was extensive, and I didn’t believe they could achieve full distribution as quickly or efficiently as they could with a handful of strategic partnerships. The advertising costs would likely consume all profit, effectively eliminating those 25% margins.
The Strategic Partnership Solution: De-Risking Revenue Concentration
Why was I so convinced about this approach? Earlier I mentioned that 2/3 of the company’s revenue came from just ONE strategic partnership – a significant vulnerability.
My #1 recommendation was to de-risk that dependency by establishing at least two additional partnerships. This approach would:
DOUBLE the revenue
Increase business stability
Create multiple revenue streams
Then? We could leverage the profits from these partnerships to fuel massive SEO growth and authority content production – creating hundreds of thousands of expert-written words targeting valuable keywords.
The Outcome: A Grounded Approach Wins
The investment bankers appreciated this approach.
It was grounded in reality rather than chasing the advertising hamster wheel. We were proposing to build something substantial by reducing risk and increasing long-term scalability.
With full commitment to this strategy, we could build a business generating significant cash flow that could either:
Continue operating as a profitable enterprise
Be positioned for a lucrative sale later
The ultimate direction would depend on the investors’ goals, wants, and needs.
The Common Pitfall in Business Growth
This scenario happens frequently in the business world. Owners focus on the wrong metrics, build unsustainable systems, and eventually find themselves dismantling what they worked incredibly hard to create.
On your side,
Troy Assoignon
Are you facing similar challenges in your business? Do you need help identifying the right growth metrics and strategies? Let’s connect and discuss how strategic positioning and partnership development could transform your business model.