As a budding company in today's competitive landscape, the allure of rapid growth can be intoxicating. Just take a look at the cautionary tales of once-thriving direct-to-consumer (DTC) brands like Casper, Away, and Allbirds. Casper was taken private again in 2021, Away is currently looking for a buyer, and Allbirds has growing annual losses.

So, why are these brands now faltering?

The answer lies in a fundamental oversight: many emerging brands plunge headfirst into expansion without fully grasping the underlying economics of their growth strategies. Prolonged payback periods especially can precipitate cash flow constraints, unsustainable growth trajectories, and ultimately, financial difficulties. Getting this window right starts with understanding it.

What are common myths? 

Dispelling prevalent misconceptions surrounding payback windows is imperative for steering brands toward their customer acquisition objectives. 

Here are a few common myths: 

• Myth #1: Payback window is always 12 months. It is often assumed that it takes approximately 12 months for brands to surpass the point where revenue from new customers outweighs the costs incurred in their acquisition. This varies however by maturity, company size, sector and product.

• Myth #2: The customer will come back again. It's easy to fall into the trap of believing that customers will return, helping to cover costs incurred during the growth phase. Unfortunately, for many, it doesn’t always work out this way. People's tastes change, and they might find a better deal somewhere else.

• Myth #3: Every customer comes back at same rate. It's common to think that everyone who buys from you will spend the same amount of money and come back at the same rate. But in reality, some customers might spend a lot, while others only buy once in a while. Ignoring these differences can mess up your predictions about when you'll start making money.

• Myth #4: Rising costs are inevitable. Several factors contribute to the rise in marketing costs for businesses including increase competition, evolving consumer behavior and regulatory requirements. However there are often opportunities to optimize spending and improve efficiency. If you have a product that people really love, they'll tell their friends about it, and you won't have to spend as much on advertising.

What’s the bottom line?

While the desire to scale quickly is understandable, it's crucial for startups to prioritize sound economics. By understanding and considering factors like payback windows and avoiding common myths, businesses can build a solid foundation for long-term success.