This commercial aged well.
Why Consumer Metrics Are Different
For tech enabled consumer companies, attention is the most valuable commodity. Unlike B2B businesses that lock in revenue with multi-year contracts, consumer businesses have to win - and re-win - user attention daily. It's a different game with different metrics.
As John Connolly, Managing Director at Spectrum Equity (and one of the sharpest consumer investors) told me on the RTN pod:
“Everyone wants rock-solid net revenue retention.
Very few firms want to touch consumer today.”
And that investor exodus? It’s a signal. While capital crowds into enterprise AI SaaS with 120%+ NRR, many fundamentally strong consumer companies are flying under the radar (and printing cash). As Connolly says:
“When things become obvious, your returns suffer.”
I’m personally bullish on consumer. Look no further than Airbnb or Spotify: consumer juggernauts with durable moats, compounding brand equity, and fat profit margins at scale.
Let’s break down the metrics and key themes that actually matter when growing consumer companies. Whether you’re an operator trying to scale or an investor hunting for underpriced assets, this guide is a gold mine.
Along the way, we’ll draw real examples from the 10K’s and 10Q’s of:
Airbnb
Pinterest
Headspace
Spotify
Roblox
Snap
Etsy
And we’ll breakdown the following metrics and themes:
Funnel Heath & Customer Acquisition
Organic vs Paid Acquisition Mix
Monthly Active Users (MAUs)
Daily Active Users (DAUs)
Retention & Churn Metrics
Linear vs Non Linear Cohort Retention
Milestone Based Retention
Reactivation Rate
Marketplace Dynamics & Network Effects
Supply-Side Marketing
Merchant Reinvestment
Community Defensibility
Monetization Metrics
Average Revenue Per User (ARPU)
Advertising Revenue Growth
Multi-Tier Monetization
Take Rate
Brand & Distribution Metrics
Earned Media Value
Brand Awareness
Financial Performance Metrics
Revenue Growth
Adjusted EBITDA & Margin
Total Addressable Market (TAM) Evolution
TAM Expansion Vectors
Conclusion: What Makes a Great Consumer Business?
…Buckle up. Your walking straight into the teeth of 3,295 words on the levers for steering tech enabled consumer businesses.
1. Funnel Health & Customer Acquisition
Organic vs. Paid Acquisition Mix
What it is: The percentage of new users acquired through organic channels versus paid marketing.
Why it matters: Reliance on paid acquisition creates vulnerability to market changes and competitors with deeper pockets. You can only “spend your way into” a market for so long. Eventually all paid channels have diminishing returns.
Real-world examples of organic:
Pinterest: Drives significant traffic through SEO and image search
Headspace: Built early growth through earned media (more on this below) and founder visibility
Airbnb: Leverages host marketing and word-of-mouth referrals
Investor perspective: John Connolly identifies this as perhaps the most critical metric:
"The metric I look at the most with consumer businesses is funnel health. How much traffic are you attracting? And then more importantly, how are you attracting that traffic?
Is it paid?
Is it organic?
Is it branded search?
Is it non-branded search?
Are your customers pumping the product themselves?
This is particularly meaningful when you see customers building their own businesses on top of your consumer platform and promoting you by extension
In respect to a heavy reliance on paid acquisition:
"It’s a huge red flag for me. It's good while it's good, and then it's terrible when it's not. Those economics can just erode really fast."
Monthly Active Users (MAUs)
What it is: The number of unique users who meaningfully engage with a product or service within a month.
Why it matters: MAUs represent the total addressable audience for monetization in any given period, and indicate overall platform health.
Source: Spotify
Real-world examples:
Pinterest: 537 million MAUs in Q3 2024, up 11% year-over-year
Spotify: 678 million MAUs in Q4 2024, up 12% year-over-year
While MAU growth is celebrated in earnings calls, the metric alone doesn't tell the full story. It’s just the start. Pinterest's 11% MAU growth is solid but needs to be viewed alongside monetization metrics to understand true business health. The value of an active user is predicated on them taking some value demonstrative activity that eventually results in a purchasing action.
Source: Peloton
Daily Active Users (DAUs)
What it is: The number of unique users who meaningfully engage with a product or service within a day. Some products are fundamentally meant to be engaged with on a daily level.
Why it matters: DAUs indicate the stickiness of a product and how deeply it's integrated into users' daily routines.
Source: Roblox
Real-world examples:
Snap: 453 million DAUs in Q4 2024, up 9% year-over-year
Roblox: 85.3 million DAUs in Q4 2024, up 19% year-over-year
The DAU/MAU ratio (often called "stickiness") is more revealing than either metric alone. Using the two in a ratio helps uncover the balance of true power users.
2. Retention & Churn Metrics
Linear vs Non Linear Cohort Retention
What it is: Retention patterns that show stabilization after initial drop-off periods.
Why it matters: Indicates a core audience with strong product-market fit, even if overall churn appears high.
Source: Vox
Real-world examples:
Streaming services: Often see high churn in months 1-3 after users binge specific content (how many people churned from HBO Max after Game of Thrones ended?)
SurveyMonkey: Many users needed just one survey, creating high initial churn but valuable virality
Investor perspective: John Connolly emphasizes looking beyond simple retention rates:
"There's a difference between linear and non-linear retention.
A lot of consumer businesses have very heavy churn in months one through three... But what's really important is that you see that nonlinear retention curve, where some subset of the user base really values the subscription and is going to stay forever."
What he’s referring to is when the curve flattens after the initial drop off.
He adds:
"With a lot of consumer businesses, there's parts of churn you will never be able to change. I've seen countless companies bust their pick and spend tens, hundreds of millions of dollars trying to fix parts of retention that just, you can't change human psychology."
Some churn is by design. It’s actually an at-bat you might not have gotten to prime the top of your funnel.
For example, Shopify has an enormously high churn rate for people fooling around with business ideas. But what if they never showed up in the first place? And what if your tools actually are the push to help make them successful? You’d rather have them take a shot than not.
Cohort Analysis at Key Milestones
What it is: Examining retention at specific renewal points (12, 24, 36 months) rather than average retention.
Why it matters: Reveals the true long-term value of your customer base.
Source: Peloton
Real-world examples:
Headspace: Spectrum Equity passed on their first funding round because only four cohorts had been through a renewal cycle. They later pulled the trigger and invested once they saw the cohorts stick around.
Peloton: Hardware purchases created strong retention anchors despite high subscription costs. Even if you use the bike as a drying wrack.
Investor perspective: Connolly notes:
"We spend more time focused on the tail of retention. What that looks like when you're at renewal in month 12, month 24, month 36, and are you seeing some retentive characteristics there that are going to enable you to build a really strong base of business."
Reactivation Rate
What it is: How frictionless it is for churned users to return to the platform?
Why it matters: Enables capturing value from intermittent users who would otherwise be lost.
Source: Etsy
Real-world examples:
SurveyMonkey: Stored survey data created natural return paths for occasional users
Streaming services: One-click resubscription options for returning users
Source: Etsy
Investor perspective:
"Did they leave with a good experience? Did they leave some sort of stored value in the product? Is it easy for them to reactivate? Making things easier for people to come back is important as well."
Source: Etsy
3. Marketplace Dynamics & Network Effects
Supply-Side Marketing
What it is: When suppliers/merchants actively promote the marketplace to drive demand.
Why it matters: Creates a powerful flywheel effect that reduces customer acquisition costs.
Source
Real-world examples:
Teachers Pay Teachers: Teachers promoted the platform on their blogs and social media
Seamless/GrubHub: Restaurants displayed "Order on Seamless" stickers in their windows
Airbnb: Hosts promote their listings across social media and personal networks
Investor perspective: Connolly describes this as "a total life hack" for marketplaces:
"With a lot of our marketplace businesses, you saw this at Seamless, you saw this at Teachers Pay Teachers, where they would be pushing the site for you, and that was our unfair advantage. We'd have stickers in restaurants that said, 'Go to seamless.com to order,' or teachers would have blogs that would say, 'Hey, come to TeachersPayTeachers to get my content.'"
Merchant Reinvestment
What it is: Suppliers increasing their investment in the platform over time.
Why it matters: Signals platform value and creates deeper lock-in.
Real-world examples:
Upwork: Freelancers pay to promote their services on the platform
Etsy: Sellers invest in better photography, descriptions, and paid promotion
Airbnb: Hosts upgrade properties specifically for the platform
Investor perspective:
"What the merchants see is a lot of demand coming from these platforms. And so they want to up their profile on those platforms. They kind of get a taste and they're like, 'Wow! This is amazing. I can get orders from Seamless or I can get new customers on Teachers Pay Teachers, let me invest in that platform more.' So they might pay for ads, they might place you more prominently on their website, they might put a sticker in their store."
Community Defensibility
What it is: The strength of the community and relationships built around the platform.
Why it matters: Creates moats that even the largest competitors struggle to overcome.
Real-world examples:
Teachers Pay Teachers: Survived multiple attempts by Amazon to enter their market
Etsy: Maintained position despite Amazon Handmade's entry
Rover: Created strong community bonds between pet owners and sitters
Investor perspective:
"At Teachers Pay Teachers, like Amazon tried to crush us I think three or four times, which was scary every single time they did it. But they never could, just because of the community and the flywheel that we had with that business."
4. Monetization Metrics
Average Revenue Per User (ARPU)
What it is: Total revenue divided by the number of users.
Why it matters: Measures how effectively a company monetizes its user base.
Source: Roblox
Real-world examples:
Snap: $3.44 ARPU in Q4 2024, up from $3.29 in Q4 2023
Match Group: Revenue Per Payer (RPP) increased 5% year-over-year
ARPU growth is critical for mature consumer platforms, but the metric can be manipulated by changing the definition of "users." Snap's modest ARPU growth (4.6%) suggests challenges in improving monetization despite user growth.
Advertising Revenue Growth
What it is: Revenue generated from advertising on the platform.
Why it matters: Increasingly important secondary revenue stream for marketplaces and platforms.
Real-world examples:
Uber: $800 million in advertising revenue (2023 estimate)
Amazon: $38 billion in advertising revenue in 2023
Instacart: Rapidly growing advertising business complementing delivery fees
Investor perspective: Connolly sees a pendulum swing in monetization models:
"If you think about the early days of the internet, it was all ad-driven. You couldn't get anybody to pay for subscriptions. And then people became disillusioned with that as a revenue model, liked the predictability of subscriptions, so everybody pivoted over to subscriptions. I think there's a consumer fatigue with subscriptions... So I actually feel like ads have come back into the fore again."
On marketplace advertising specifically:
"Once you have the eyeballs of the customer and have real deep engagement with the customer, you're then able to intercept that customer demand and send it numerous different places... Advertisers want to be at that point of intercept to reach the customer at the right time."
Multi-Tier Monetization
What it is: Different revenue models for different user segments.
Why it matters: Maximizes revenue across the user base while accommodating varying willingness to pay.
Real-world examples:
Spotify: Free ad-supported tier alongside premium subscriptions
Duolingo: Free basic access with premium subscription for advanced features
YouTube: Ad-supported free tier with Premium subscription option
Investor perspective:
"Companies are realizing like, 'Hey, we might have a big free user base. And we might have different tiers of users, some that are hyperactive that will pay a subscription, some that are moderately active, or we maybe monetize with ads or with digital commerce or some number of different ways.' But companies are starting to become more creative."
Take Rate
What it is: The percentage of each transaction the company gets to keep in a marketplace or platform model. It can apply to one or both sides of the transaction.
Why it matters: Take rate represents the value provided to sellers on the platform, and indicates it’s level of pricing power.
Source: Etsy
Real-world examples:
Etsy: 22.8%
Stubhub: 20.4%
Buyer Fees: 10–15%
Seller Fees: 5–10%
Airbnb: 14%
It’s very common for one side of a marketplace transaction to not even realize that the other side is also being charged, allowing the business to double up or subsidize one side to make it more attractive and increase throughput volume.
From reading Lennys Newsletter, marketplaces can increase take rate over time through “add ons” which make their existing service either:
Faster,
Deeper
Curated,
Ancillary,
Extra
5. Brand & Distribution Metrics
Earned Media Value
What it is: The estimated value of organic media coverage and mentions.
Why it matters: Indicates brand strength and efficient marketing.
Real-world examples:
Headspace: Founder Andy Puddicombe appeared on major shows like Oprah without paid placements
Airbnb: Consistently generates press coverage for unique listings and experiences
Peloton: Created cultural moments that drove organic conversation
Investor perspective: On Headspace's brand strength:
"The reach that they were getting, the earned media they were getting, I mean, Andy Puddicombe, the founder of that business, he was on Oprah and The Today Show, and we weren't paying for those placements; they just wanted a piece of Andy. And that was pretty incredible at the time."
Brand Awareness
What it is: The relative strength of brand versus product in driving business success.
Why it matters: Helps identify true competitive advantages and vulnerabilities.
Real-world examples:
Calm: Used celebrity partnerships (Matthew McConaughey, Harry Styles) to drive acquisition
Peloton: Combined strong hardware product with powerful brand community
Headspace: Leveraged distinctive brand voice alongside solid meditation product
Investor perspective: On whether product or brand wins:
"I don’t think the best product always wins in consumer. There’s a bunch of good products out there that just don't crack distribution, and so they stay lost in the app store forever. Don't get me wrong, product is important, product drives advantages, you really do want to have the best product, but you got to marry that with a really strong brand and top of the funnel to be successful in consumer."
6. Financial Performance Metrics
Revenue Growth
What it is: Year-over-year percentage increase in total revenue.
Real-world examples:
Airbnb: Revenue grew 10% year-over-year to $3.7 billion in Q3 2024
Netflix: Revenue up 15% year-over-year in Q1 2024
Spotify: Revenue grew 16% year-over-year to €3.7 billion in Q4 2023
Roblox: Revenue up 32% year-over-year to $988 million in Q4 2024
Revenue growth is the north star metric for consumer companies, but the quality of that growth matters. Airbnb's 10% revenue growth aligns with their 8% growth in Nights and Experiences Booked plus modest ADR increases, suggesting organic growth rather than aggressive price increases or accounting changes. You can grow revenue by adding more products, increasing existing transactions, or raising your take rate.
Adjusted EBITDA & Margin
What it is: Earnings before interest, taxes, depreciation, and amortization, adjusted for non-recurring items.
Real-world examples:
Airbnb: $2.0 billion Adjusted EBITDA in Q3 2024, representing a 52% margin
DoorDash: $430 million Adjusted EBITDA in Q2 2024, representing a 2.2% margin of Marketplace GOV
Snap: $276 million Adjusted EBITDA in Q4 2024, representing an 18% margin
Source
Investor perspective: Connolly has seen consumer businesses achieve remarkable profitability when they nail their acquisition model:
"I just invested in a consumer business that has 60% EBITDA margins and another one that had 55% EBITDA margins. And it's not like they're not growing, they're all growing well, but again, they've got that je ne sais quoi, something special in their funnel that's making them operate that efficiently."
On Airbnb specifically:
"When you have your customers advertising on your behalf and driving demand for you, that means you don't have to spend as much on marketing. And when you don't have to spend as much on marketing, if you look at P&L of enterprise SaaS businesses, that's a big part of it. And so that's real margin in there that you should be able to get meaningfully profitable."
Free Cash Flow (FCF)
What it is: Cash generated from operations minus capital expenditures.
Real-world examples:
Source
Airbnb: $1.1 billion FCF in Q3 2024
Snap: $182 million FCF in Q4 2024, up 65% year-over-year
Roblox: $121 million FCF in Q4 2024, up 54% year-over-year
FCF is harder to manipulate than Adjusted EBITDA and better reflects a company's ability to generate cash. Airbnb's business model shines here—their asset-light approach and upfront payment collection drives exceptional FCF conversion. Snap's improving FCF despite modest revenue growth suggests disciplined cost management.
7. Total Addressable Market (TAM) Evolution
TAM Expansion Vectors
What it is: New markets, customer segments, or use cases that expand the company's potential reach.
Why it matters: Reveals growth runways beyond the core business.
Source: Instacart
Real-world examples:
Teachers Pay Teachers: Expanded from teacher-to-teacher transactions to accessing school budgets
Otter.ai: Started with individual transcription users, expanded to enterprise
Canva: Began as a consumer design tool, now competes with Adobe for enterprise customers
Investor perspective: Connolly emphasizes looking beyond the obvious TAM:
"In a lot of instances, I actually think people get TAM wrong, where they think it's too small. And so really pushing your thinking about, okay, can this - the TAM at obvious first glance is X, but could this become Y? And that's where I think you create real value."
On Teachers Pay Teachers:
"We were fascinated how big that business was able to become, because not only were they monetizing the obvious stuff where teachers were selling to each other, we were then able to unlock schools where we were able to access school budgets, and that increased the TAM."
Conclusion: What Makes a Great Consumer Business?
The best consumer businesses demonstrate strength across multiple metric categories:
Efficient acquisition: Strong organic traffic and low reliance on paid channels
Non-linear retention: Stable core user base after initial churn periods
Network effects: Supply-side marketing and community defensibility
Flexible monetization: Multiple revenue streams across user segments
Brand strength: Earned media and strong distribution advantages
Path to profitability: Clear unit economics and improving efficiency metrics
No consumer business excels in all areas, but the strongest ones show a balanced profile with clear strengths and manageable weaknesses. Airbnb's exceptional profitability comes with slowing growth, while DoorDash's impressive growth comes with thin margins.
For investors and analysts, the key is understanding which metrics matter most for a specific business model and stage, then tracking trends in those metrics over time rather than focusing on absolute numbers.
As John Connolly reminds us:
"You got to have something unique and special about a company, but what defensibility has meant historically, and what it means today has massively changed."
Remember: behind every metric is a real user making choices about how to spend their time and money. The companies that create the most value for those users will ultimately create the most value for shareholders.
Wishing you a non linear cohort retention curve,
CJ
