1. How efficient is Hubble's business? For its computation, please follow the steps below.
   1. How many months does an average consumer stay with Hubble once she subscribes to the service? Refer any reference site such asthis and use monthly discount rate of 0 for computation.
   2. What is the margin per box and how many boxes does an average consumer purchase per month?
   3. What is the expected gross contribution of an average consumer during her life time with the company? Do not forget to include the initial cost of a free box. This is LTV (life time value).
   4. What is the average customer acquisition cost (CAC) across all marketing channels? Refer to Exhibit 9.
      • Answer : CAC = $100
   5. Compute LTV/CAC. Is this value greater than 3? Ratio of 3 is the bench mark for a successful SaaS - software as a service - subscription model in venture capitalist community.

• I have to answer #1, 2,3 and #5 and how you compute those number. For instance, computing LTV in #3

Hubble Contact Lenses: Data Driven Direct-t0- Consumer Marketing By now it's a familiar narrative in startup circles: you can make millions by disrupting industries where exorbitant markups are the standard. Usually, though, a company doesn't. . . attempt to change an industry responsible for manuicturing something that you put on top of your eyeball. - Louise Matsakis, .Mashahle1 It was difficult for Hubble's coCEOS and founders, Jesse Horwitz and Ben Cogan, to sit still for a minute as they dashed in and out of the conference room fielding urgent calls and visits from their venture capital investors and lawyers. It was a big day for Hubble, a subscription-based, direct-to- consumer (DTC) purveyor of contact lenses, as Horwitz and Cogan were negotiating an extension of the company's Series A fundraising round. Term sheets were flying back and forth, and the two realized that their choice of terms and investor groups would dictate different growth expectations for their company and available exit options for them as founders. Hubble, incorporated as Vision Path Inc., had been launched 18 months earlier. By April 2018, it had received more than $30 million in funding and had 125 employees in New York and the Philippines. In its first year, Hubble had sold millions of contacts, generating an estimated $20 million in annual sales and a valuation of over $200 million.2 (See Exhibit 1 for recent key performance indicators.) Hubble was a social-media-first brand that bypassed traditional channels and sold contact lenses directly to consumers via an aggressive digital-marketing-fueled customer acquisition strategy that allowed effortless purchase directly from Facebook ads with one click through to Hubble's streamlined, mobile-optimized e-commerce site. It offered consumers who had obtained a prescription disposable contact lenses conveniently delivered to their door each month at an affordable price: $1 / day (or 50 per lens). As the two founders considered the term sheets, they reflected on the company's success to date, realizing that the battle had just begun. Cogan said, \"This is three standard deviations above my expectations. Entrepreneurs have a history of being optimists. We are not like that at all. It's better to be clear-eyed about what your warts are. The vast majority of startups fail."3 Horwitz agreed, stating, \"So far, everything has gone smoothly, but I'm sure there are pitfalls waiting for us. \"4 The critical task of ensuring that their marketing dollars were being spent efficiently was proving to be complicated as the company considered moving spending, which had been almost exclusively focused on Facebook ads, to other online and ofine media vehicles. Cogan said, \"The next stage is going to be really important for us. We've acquired a lot of customers so far, but keeping up our momentum is critical. We'll do that by expanding our marketing channels and rening our message.\" Horwitz continued, \"How do we grow our business? What are the additional levers we should pull regarding the right product mix, distribution strategy, and marketing communications plan?\" The two were particularly interested in ensuring that the business could scale and turn the comer on profitability as it started to move from its Series A funding period, where it focused on proving proof- ofconcept and establishing traction in the marketplace, to a Series B phase, where it would have to begin to protably scale the business, thereby testing its full business model." As he raced past on his way back to the conference room for another meeting, his husband and Hubble's Head of Finance, Mark Severs shook his head and smiled. It looked like it was going to be another late night at the office. Testing the Concept in 2015, Cogan (then 25) and Horwitz (then 27) were friends and neighbors. Cogan was ensconced in customer insights at Harry's, a DTC subscription razor company, and had just been accepted to Wharton's MBA program. Horwitz was a Research Analyst at Columbia University's endowment. Frustrated by the high prices he paid for his contact lenses, Cogan considered whether Harry's social- mediafirst subscription model could work to sell lenses at low prices directly to consumers He enlisted Horwitz's help to develop this side business. Cogan recalled, "When we looked at the market and discovered that there were no DTC prescription services for contact lenses , , , a light bulb went off. Much of the profit in this industry comes from intermediary markups, and not only is that hurting consumers' pockets, ultimately, it's really unhealthy for their eyes too. When people are forced to pay exorbitant markups on a product intended to benefit their vision, many of them . . . end up sacrificing their eye health by over-wearing expensive lenses so that they don't have to regularly purchase more.\"5 So Horwitz and Cogan decided to run an inexpensive demand experiment Horwitz explained: It's hard to intellectualize whether an idea is good or not. You just have to start doing it and see. Not knowing quite what to expect, we tried gauging customer interest through a simple prelaunch site We described our new business offering and asked interested visitors to leave their email address. We provided visitors with a link to share with their friends on Facebook and dangled freebies for each successful referral. We asked 30 friends to share the campaign Then we sat back and waited to see what would happen. Cogan recalled, \"It went mini-viral. Within a few days, not only had their friends signed up, but friends of friends had too.\" Horwitz continued, \"We were abbergasted to log over 2,000 signups over a couple of days, including everyone from a Fortune 100 CEO to a New York City cab driver,\" However, the two realized that they would face more hurdles than finding consumers who wanted to pay lower prices. By law, purchasing contact lenses in the US. required a valid prescription from a licensed optometrist, so the two set up a second demand test to see if they could drive prospective customers to optometrists who would prescribe Hubble lensesr \"We collected consumer email addresses through Facebook's Lead Adsa and connected these potential customers to a network of optometrists we recruited to fit our lenses. We wanted to see whether people would show up and pay for an eye exam in exchange for two months of free lenses, It turned out they would,\" recalled Horwitz. The two then searched for a suitable supplier that satisfied all of the legal regulations surrounding the manufacture of lenses. Unlike DTC consumer brands that offered unregulated personal care products, such as Harry's and Dollar Shave Club (razors) and Glossier (cosmetics), Hubble wanted to sell Contact lenses, which were classified as medical devices by the US Food and Drug Administration (FDA) and governed by strict rules on manufacturing protocols and sales practices. According to Sunny Gosain, hired later as Hubble's Director of Operations, \"There are only 4050 viable soft lens manufacturers in the world that are FDA approved If you cross out the ones that don't have enough capacity to support a meaningfully sized business, you quickly wind up with a fairly short list, realizing how limited the supplier landscape is.\" Cogan and Horwitz, as industry outsiders, didn't have the medical or legal expertise to conduct a thorough process to find a good partner, Thus, two contact lens industry experts accompanied them when they visited different manufacturers to help them make the decision. They found a partner in St. Shine Optical, a large Taiwanese manufacturer that produced 20% of the lenses sold in Japan. St. Shine's daily disposable product had been approved in 2002 by the FDA and sold since then in the U.S., although most brands had moved on to newer lens technology that allowed more oxygen to flow through to the eye's sensitive cornea. To reduce their inventory exposure and simplify the supply chain, Hubble decided to offer spherical lenses that could fill prescriptions from 050 through 12.0 and chose not to offer toric lenses, which corrected for astigmatism, or multifocal lenses, which offered multiple prescriptions in one lens, allowing the wearer to differentially see objects close up and at a distance. This allowed Hubble to address 59% of the dailies market with a product line that contained 109 stock keeping units (SKUS) Hubble was able to negotiate an exclusive contract for the online sale of daily disposables for the North American market with St. Shine Optical. As Horwitz and Cogan placed their first order for 50,000 lenses, Cogan declined his admissions offer to Wharton and the two began to hire friends to build out an e-comrnerce platform, develop a brand, and design advertising campaigns to promote the product. Paul Rodgers, one of Horwitz's best friends from college, and Dan Rosen, one of Cogan's best friends from middle school, were brought in to help, Rodgers as Chief Technology Officer and Rosen as Creative Directorr Horwitz and Cogan applied to tech incubators and began meeting with prospective investors. Venture investors had poured $3 billion into DTC startups since 2012 and were eager to talk to companies operating in the consumer space After Euromonitor reported that companies that sold exclusively online were growing faster than any other type of retailer, at a rate of 17% per year, The Economist questioned whether this pace of growth could continue: "The success of some DTC firms has attracted a lot of wannabes, making this a crowded market and leaving some wondering whether the boom has reached its limits\" However, Unilever' s acquisition of Dollar Shave Club for $1 billion fueled continued investor interest. In funding rounds led by Wildcat Capital Management and Josh Kazam, an angel investor from Two River, Hubble netted $7.2 million by November 2016. Other investors included Firstmark, Founders Fund, Greycroft Partners, and some angel investors, one of whom, Brian Levy, the former Chief Medical Officer of Bausch 5t Lomb, provided credibility and an industry insider perspective. Industry Dynamics In the U.S., 75% of people required some type of vision correction, 64% wore eyeglasses, and 12% (or 40 million people) were contact lenses. Four companies collectively controlled 70% of the $4 billion U.S. contact lens market (see Exhibit 2): Johnson 8: Johnson (Acuvue), Valeant (Bausch IS: Lomb), CooperVision (multiple brands), and Novartis (Alcon). Sales were split among optometrists offices and associated optical chains (37%); grocery stores, including Walmart and Target (36%); warehouse clubs (13%); and ecommerce through 1800Contacts and others (14%). Customers purchased lenses to correct vision and avoid wearing glasses. Most were ages 1545, and women outnumbered men. Some wore contacts every day, while others wore them only for sports or special occasions. There were three categories of contact lenses: conventional, which were daily-wear lenses removed each night and stored in a case lled with a disinfecting solution and replaced once to four times per year; extended wear, which were worn continuously without removal for up to a month (depending on the type of FDA approval); and daily disposables, a more hygienic choice, which were inserted each morning and removed and thrown away each night, so that a fresh pair was worn each day. Daily disposables accounted for 41% of the lenses sold in the U.S., and 70% in the rest of the world; the U.S. total had increased from 18% in 2012, as prices had decreased. By 2017, average unit prices were $1.00 for one daily disposable lens, $7.00 for one extended-wear lens, and $77.60 for one conventional lens. Contact lenses were regulated as medical devices in the US. because there had been serious health risks associated with their use and the level of risk had been demonstrated to be associated with the wearing schedule. The Federal Trade Commission (H C) mandated that lenses be tted and prescribed by a licensed optometrist or ophthalmologist Prescriptions specified the brand and the product, with the proper curvature for fit on the patient's eye; prescriptions were generally good for one year to encourage patients to return for annual checkups. Many optometrists sold contact lenses to consumers directly, filling prescriptions onsite. In the U.S., prescriptions could be filled by outside retailers either through patients physically sharing their prescriptions with the retailer or after a verication process with the prescribing doctor. A retailer was required to subrrrit a verification request to the prescribing doctor whenever a physical prescription was not available, through either an active verification process, by which the retailer would speak with the doctor, or a passive verification process, by which the retailer would wait eight business hours for the doctor's office to deny the prescription if it was not deemed to be valid. In the latter case, if no word was received back, the prescription could be legally filled. (A typical purchase process is illustrated in Exhibit 3.) An optometrist would pick the brand and product that best fit a particular patient, and consumers largely relied on their doctors' brand and product recommendations. Despite the warnings of their doctors, many consumers were careless with their lenses. One relayed, \"I am, admittedly, one of the over-wearing, often procrastinating contact lens wearers of the world. I have been known to wear my lenses until they rip, run out before I have even thought of making another appointment with my doctor, and buy the cheapest lens I can instead of continuing with one brand. The one . . . time I bought lenses in bulk, I ended up with a lens I hated, one that tore easily and was very uncomfortable in my dry eyes. . . . My experience with contacts has just never been that great.\" The big four contact lens companies invested heavily in R&D to continuously deliver innovations that improved eye health. Products included those with increased oxygen permeability (measured by a metric known as Dk/ t), with higher water content and moisture-retention capabilities to eliminate eye dryness, with UVblocking technology to protect the eyes from sunlight, and with aspheric technology designed to reduce eyestrain from prolonged digital screentime. Sight-threatening risks associated with wearing contact lenses had been identified through rigorous clinical and epidemiological studies over the years and were stratified by wearing schedule. The highest risk, bacterial infection, was associated with extended or overnight wear of contact lenses. The newer materials developed by the industry to increase oxygen permeability to the cornea, which was thought to be the major contributor to this problem, failed to reduce the risk in subsequent studies. Compared with wearing lenses overnight, taking lenses out at night and properly disinfecting them with an FDA-approved solution reduced the risk by approximately fourfold. Further clinical studies indicated that daily disposal of lenses appeared to be the healthiest form of contact lens wear. Globally, the $9 billion contact lens market served 125 million people and was projected to grow to $13.5 billion by 2020. The US. market grew by 3% in 2017, with dailies, at 15% growth, outpacing other categories. The compound annual growth rate (CAGR) of the market was projected to be 2%, and the CAGR of dailies to be 9%, through 2022. Creating a Brand Once Hubble had secured its product, attention shifted to creating a brand focused on price and convenience. Horwitz explained, \"Contacts is a broken category today, with high costs, inconvenient access, and poorly desigred packaging, and we founded Hubble to fix that.\" In a 2017 interview, he further said, \"Lens technology has been good enough for a long time nowit doesn't need more innovation. . . . By focusing instead on user experience, we can encourage healthier practices among wearers.\"B The company's hypothesis was that if consumers could access dailies easily and inexpensively, those currently wearing monthly lenses would be more likely to switch to dailies, and those already wearing dailies would be less likely to overwear their lenses. Cogan summarized the customer value proposition as follows: Hubble is America's first DTC contact lens brand that is dedicated to making it affordable and convenient to purchase high-quality daily contact lenses for a fraction of the price of other brands. Because of Hubble's subscription service, wearers will never run out of contacts againa more convenient, healthier approach to avoid overwearing. He continued, \"Working at Harry's taught me to look for what is most important to the customer. It's very easy to get distracted by the secondary or tertiary issues, like what your packaging looks like or the font you use on your website though these are not unimportant. What matters to our customers is value. You need to deliver a highquality product at a good price. And it needs to be convenient, and you need to have good customer service." Hubble offered contact lenses via a monthly subscription, priced at $30 for a one-month supply ($1 for a pair of lenses per day, or 50 per lens), with a shipping charge of $3 per month. As a result, Hubble's lenses were more expensive than some extended-wear and conventional lenses, but less expensive than almost all dailies that featured the latest technologies, some of which could cost consumers $700 or more per year. (See Exhibit 4 for price comparisons.) Horwitz explained, \"We cut out markups from intermediaries to sell directly to consumers. This means that our lenses generally cost a fraction of the price of competitors'. Secondly, we are willing to accept lower profit margins than the 80%-plus that are common in the industry.\" Cogan agreed: \"Our profit margins are reasonable, not exorbitant. As a result, our business today is not cash-ow positive because we are investing in growth. But, when you're an established competitor and you have really high profit margins, it is not in your interest to lower prices." Consumers who had already tried Hubble contacts during a fitting at their optometrists' offices were enticed to try the subscription service risk-free by an introductory offer that sent the first two weeks (30 lenses) for free (plus a $3 shipping and handling cost) and could cancel their subscription at any time or pause it if their supply of contacts became too large. The subscription format was designed to appeal to cash-strapped millennials. Horwitz said, \"Millennials aren't interested in laying out $500 for a 12-month supply of contact lenses. . . . A subscription is more manageable.\"9 (For the purposes of case discussion, assume that Hubble's gross margins were roughly 40%, and that the cost of the initial free boxes was $13, including shipping. Note that these numbers have been disguised.) Hubble enlisted branding agency Athletics to help develop a brand, packaging, and a digital user experience that would add fun to a category that had long been serious and clinical, Athletics landed on the name Hubble, which it called "a nod to the first major optical telescope to be placed in space," adding, \"Hubble evokes omniscience, technology, and of course, super vision.\"m (Shortly after its 1990 launch, the Hubble Space Telescope required the last-minute addition of a special lens to correct its optics, giving Hubble Contacts another connection with its namesake.) The agency developed recyclable boxes, which Vogue deemed "zippy and colorful" and Forbes declared added "a coolness factor to a staid product.\" (See Exhibits 5 and 6') Cogan proclaimed, \"People hide their Contact lens packaging in their medicine cabinets because they're pretty unattractive. We have five different colored boxesr They look like chocolate boxes you can find in Europe\"11 Rosen expanded: The Hubble brand was created with the intention of being opposed to what was existing, which was a much colder clinical, medical, big-corporation stylea lot of blue with health~care graphics. Since we were attempting to reach an audience that wanted something more personal, our brand is more fun, much more accessible, and lighter. That flows through our website, which is very easy to use and to read, So, from the first ad you see, to our website, to our packaging, it's all meant to be extremely welcoming and the kind of thing you want to have in your bathroom. It's something that you want to fit into your lifestyle, something you can show off on Instagram to your friends, not just because it was a good deal, but also because it was aesthetically fun and fits in with other trends. You want it to be Instagrammable, not only because that excites customers, but also because they can share it and show it off. Athletics also helped with the design of Hubble's digital platform, hosted by Shopify. The agency said, \"While digitalization simplifies ordering contact lenses, we didn't want to lose the human touch. . . Crisp, friendly characters and icons guide customers through the experience. . . A hyper- streamlined questionnaire/sign-up form translates this dry, practical procedure into a more conversational, effortless process. Fully responsive, . . . the site feels airy, approachable, and modern. On mobile, it ties into native touch controls, supporting the best possible user experience.\"12 (See Exhibit 7 for examples of Hubble's brand storytelling.) Recruiting Optometrists Due to FTC regulations, Hubble needed to engage and recruit optometrists who would fit and prescribe its contacts This was challenging on Hubble's limited budget The optometrist market in the US. was highly fragmented, with over 34,000 practices, Over imlf had fewer than five employees. Each practice competed not only with other small, independent practices but also with one national chain Visionworks, with 750 stores across 41 statesand one international chainLuxottica Group, with a worldwide presence of 9,000 stores, including LensCrafters, Target, and Sears. In the last decade or so, a few group practices had formed, partially as a response to emerging competition from Walmart and Costco, which had begun operating vision centers in their stores, and ecomrnerce sellers such as 1800Contacts. A typical private optometry practice derived 39% of its revenues from eye exams and medical care, 29% from prescription eyeglasses, and 32% from contact lenses, Nearly 50% of revenues came from patients' own out-ofpocket payments, and the rest from insurance company payments. Private insurance companies typically provided full coverage for annual eye exams but only partial coverage for prescription eyewear.13 Patients who wanted Contact lenses were fitted for a specific branded product SKU and often were encouraged to purchase it on the spot at the optometrist's practice, Unlike eyeglasses, for which a prescription could work across any brand, prescription contact lenses could not be transferred to another brand or product SKU without the doctor's consent or, often, a new tting process. Optometrists typically did not carry a complete inventory and would arrange for direct delivery from a brand's warehouse to a customer if they didn't have a particular SKU in stock. Prices at optometrists were often higher than prices online. For example, a patient prescribed )8: 1'5 Acuvue Oasys 1-day could purchase a year's supply (eight boxes) for as little as $56632 online vsr $708 from an optometrist, Optometrists purchased the product for $430 from a distributor that bought it from ]&] for $360. The cost of goods sold for eight boxes was approximately $70. Daily contact lens margins for the optometrist were typically $200$300 for a year's supply, while margins for monthly contact lenses were substantially lower, around $75$100 for an annual supply. Gosain quickly learned the lay of the land \"Optometrists who have thriving practices are often unreceptive to our pitch because there's a limit to how many customers they can service. If their chairs are filled all day and they have the choice of serving a customer whom they can also sell contacts to, that's a better deal for them. So we started looking for practices that didn't yet have a lot of patients." He became aware of Zocdocan online platform that charged doctors $3,000 a year to receive patient referrals. Hubble targeted optometrists listed on Zocdoc, offering them a similar referral service for free. All they would have to do to receive referrals from Hubble was carry Hubble's fitting kit. Initially, efforts to engage optometrists were outbound, but inbound requests kicked in as optometrists saw Hubble's message online or their customers began asking for Hubble by name. Hubble provided optometrists with fitting kits but no inventory, which drove lens purchases to its DTC website (optometrists were not compensated for completed sales). In the long run, Hubble was aiming to have at least one prescribing optometrist within a half-hour drive for 90% of the US population Not all optometrists were on board. Some raised concerns about the product' 5 quality and the integrity of the company's prescription verification process. Optometrist Courtney Dryer wrote: \"Would I prescribe Hubble contact lenses for my patients? No, the technology in contact lenses today is far superior. . . . Hubble is doing contact lens wearers a disservice by offering them old materials r . . for a perceived lower price . r . The reality is, you can obtain lenses of superior quality and proven track record of safety and success for comparable costs. In a world driven by innovation and technology, our eyes deserve better/'14 Optometrist Sasha Radford elaborated: \"To maintain corneal health, the Dk of a contact lens must be at least 24. Hubble contact lenses have a Dk of 18. Most contact lenses I fit today have a much higher Dk, typically over 50' . r r I want my patients to have the healthiest eyes possible so I do not fit low Dl