Tech’s Customer Loyalty Is Priceless Until It Isn’t

Last year, consumers canceled plans, hunkered down and saved money. The lengthy pause in spending hurt many businesses, but it may also have leveled the playing field for others. Brands now have a unique opportunity as the world opens back up to acquire new customers or those once loyal elsewhere, with the hope of securing their business for the long-term. Investors will need to decide what that loyalty is worth.

Jason Bornstein, principal at Forerunner Ventures in San Francisco, predicted last month in a blog post that a wave of new loyalty options would be coming to market, noting that consumers are “ready for something fresh” after a year without shopping and travel. If the last decade was about efficient customer acquisition, Mr. Bornstein says today is about the power of loyalty.

Even before the pandemic, there were many examples where the juice of customers’ long-term value looked well worth the squeeze. Slack Technologies spent a whopping 61% of revenue on sales and marketing on average in 2018 and 2019, but not for nothing: Its net dollar retention rate—essentially how much its customers paid at the end of a period relative to what they paid 12 months prior to that—averaged nearly 148% over that period.

Similarly, DoorDash spent an average of nearly 57% of its revenue in 2018 and 2019 on sales and marketing, but its metrics also show a significant return on that investment. DoorDash’s public offering filing shows that by year two, customers acquired in 2018 were already spending 1.65 times what they spent in their first year on the platform. As of the third quarter of 2020, DoorDash said its existing customers generated 85% of its gross order value, up from 68% in the third quarter of 2018.