Meet Bob. Bob loves to fish.

After thousands of casts, Bob knows the average fish weighs about 10 pounds.

Everything Bob builds from here, he builds on that average. Watch where it comes from.

Bob's water: 100 fish, 1,000 pounds

The same net, cast after cast

The first net goes in shortly

Every cast, counted

Live casts as they come up, and any you add.

Fish per cast

Pounds per cast

The average fish, over every cast so far–pounds sold ÷ fish caught · 0 casts
Fish a cast–the average
Pounds a cast–the average

Keep casting. The average settles and stays put. The bars behind it never do.

Every cast, one by one

The bell-shaped net is lowered at a random spot. Live casts appear here as they come up.

CastWhereFishWeight

The same 100 fish, in four groups

59%5%A5 fish · 56–180 lbs25%11%B11 fish · 10.5–50 lbs11%25%C25 fish · 2–9.5 lbs5%59%D59 fish · 0.5–1.85 lbsThe average, 10 lbs
Most of the weight sits in A and B. Most of the fish sit in C and D. The average Bob fishes by lands in between, where almost no fish is. The average up top is this average: 1,000 pounds spread over 100 fish, 5 of which carry 59% of it.
The math: the four groups

The groups come from Power Law Nested Means, the two-split test. Split the fish at the average weight, 10 lbs, then split each half at its own average. The 16 above-average fish, A and B, carry 84% of the weight. The biggest weighs 180 lbs, the smallest 0.5 lb. That shape is a power law: a few of something carry most of the total. You'll find it in customers, in sales and in revenue.

GroupWeightFishShare of fishShare of weight
A56–180 lbs55.0%59.0%
B10.5–50 lbs1111.0%25.0%
C2–9.5 lbs2525.0%11.0%
D0.5–1.85 lbs5959.0%5.0%
Total100100.0%100.0%

The net is a bell curve lowered over the line. Over the giants it brings up a few heavy fish; over the little ones, dozens of light ones. Cast after cast the throws average about 25 fish and 250 lbs. The averages settle because the water holds a fixed set of fish, the biggest 180 lbs; a true power law with a tail this heavy never settles, however many throws are added up.

Why Bob never notices

There's a reason Bob never notices his average isn't really an average. He isn't fishing one side of the water, where the big ones are. He drops the net into a cube of water and pulls up a lot of fish.

The same 100 fish, in a cube

The first net goes in shortly
SmallerBigger: the bigger the fish, the darker the blue

Every cast, counted

Live casts as they come up, and any you add.

Fish per cast

Pounds per cast

The average fish, over every cast so far–pounds sold ÷ fish caught · 0 casts
Fish a cast–the average
Pounds a cast–the average

Same fish, same net. In the cube the average lands on 10 pounds and the casts bunch tighter. About 25 fish and 250 pounds a cast. That's something Bob can build on.

Every cast, one by one

The same round net every time, cast at the middle of the cube. Live casts appear here as they come up.

CastWhereFishWeight
Extra: the same fish, mixed in flat water

Between the line and the cube: the same 100 fish swimming mixed across one width, and the same bell net lowered at the same spot each time. The fish count evens out, but one giant can still make a cast.

The first net goes in shortly
Fish per cast

Pounds per cast

Live casts appear here as they come up.

CastWhereFishWeight

Bob has a product he can go get, every day

Some casts bring up less and some more, but there's enough consistency to build around. Going to get it costs money every day, and so does selling it. Every business boils down to the same three things: a product, a sale and the margin between them.

Getting the catch in$250 a castthe boat, the crew and the fuel, whether the net lands 10 fish or 40
The cost of the sale$1 a fishhandling at the dock, so it rises with every fish
The merchant pays$1.50 a poundevery catch, sold the day it's caught, at its full-grown weight

Each catch goes into the pool, and the merchant pays by the pound

The next cast from the cube comes here

The receipt for this cast

Sale–$1.50 a pound
Getting the catch in–$250 every cast
The cost of the sale–$1 a fish
Contribution after acquisition–this cast, so far

Each bar is one cast: what it left after the cast and the handling. Green above zero, pink below.

The first catch is on its way.

The average cast, from net revenue to what it leaves
Net revenue$375The cast−$250Handling−$25Contribution after acquisition$100
One cast is luck: about 1 in 3 casts don't cover their costs
10 of every 30 casts lose money20 make money

On average a cast brings in $375, pays $250 to get the catch in and $25 to sell it, and leaves $100. About 1 cast in 3 doesn't cover its costs, and one giant can carry a cast to several hundred dollars.

Put in your own numbers

The same three things, whatever the business: what it costs to get the product in, what the sale costs, what it sells for.

$
$
$
At Bob's average catch, 25 fish and 250 pounds a cast. The rest of the story runs on Bob's numbers.

About $100 a cast, and $10 to land each fish. One cast is a gamble. After enough casts, it's a business.

The math: what a cast leaves

contribution after acquisition per cast = $1.50 × pounds − $250 − $1 × fish caught

cost of acquiring a fish = $250 ÷ fish caught

The $250 to get the catch in is the acquisition cost. The $1 a fish to sell it is a variable cost, because it rises with every fish. The sale is the net revenue. Less the variable cost it's the contribution, and less the acquisition cost as well it's the contribution after acquisition, what each cast leaves. Operating expenses, the dock, the boat payments and the rest of the overhead, don't change from one cast to the next, so they stay out of it and get paid out of it. Contribution margin is the contribution as a share of net revenue: $350 of $375 here, 93%.

What one fish costs to catch: the cast split across the fish it brings up
No bait: $250 for 25 fish$10.00 a fishone fish

Split the $250 across the 25 fish it brings up and each fish costs $10 to catch. That's the cost of acquiring a fish, what The Numbers, Defined calls the cost per acquisition.

Is this worth putting money into?

Bob needs money to grow, so he takes the numbers to investors. For every dollar you put in, over the long haul, 36 cents comes back on top of it. They're excited: "You're telling us you take a dollar today and hand back $1.36 tomorrow?" The cycle is that fast. Pay for the cast, the boat goes out, the boat comes in, the fish sell, the money is back.

Your $27,500, one cast at a time

Cast 0 of 100
0.001.002.003.00Paid back: 1.00 (100%)1255075100Casts fundedOn average: 1.36 (136%)8 in 10 investors land in the shaded band
Casts funded0of 100
Invested$0$250 a cast + $1 a fish
Net revenue$0what the merchant paid
Revenue return–net revenue ÷ invested
Contribution return–revenue return − 1
The first cast goes in shortly.

One cast on its own is a gamble: about 1 in 3 doesn't pay back. A hundred casts aren't. Over 100 casts, 8 in 10 investors land between 1.27 to 1.45 per $1. They put the money in.

The chance you haven't been paid back yet
After 1 cast35%, about 1 in 3After 5 casts12%, about 1 in 8After 10 casts4%, about 1 in 22After 20 castsunder 1%, about 1 in 135After 50 castsalmost never, under 1 in 20,000
What $27,500 brings back over 100 casts
A slow 100 castsRevenue return 1.27 (127%)
$27,500 invested · $35,000 net revenue
Contribution after acquisition $7,500Contribution return 0.27 (27%)
The average 100 castsRevenue return 1.36 (136%)
$27,500 invested · $37,500 net revenue
Contribution after acquisition $10,000Contribution return 0.36 (36%)
A lucky 100 castsRevenue return 1.45 (145%)
$27,500 invested · $40,000 net revenue
Contribution after acquisition $12,500Contribution return 0.45 (45%)

Grey is what's invested. The bar runs on to net revenue, so the colored part past the grey is the contribution after acquisition.

But any investor group reads the numbers the same way. The boat is the big cost, and nothing is being done to support it. What if the boat had bait? What if the fish swam toward the net?

The math: the revenue return

invested = $250 × casts + $1 × fish caught

revenue return (R2M) = net revenue ÷ invested · contribution return = revenue return − 1

$27,500 funds 100 casts: $25,000 for the casts and about $2,500 to handle the 2,500 fish they bring up. On average the $27,500 brings back $37,500 of net revenue, a revenue return of 1.36 (136%), and $10,000 of contribution after acquisition, a contribution return of 0.36 (36%). After 1 cast, 8 in 10 investors land anywhere from 0.50 to 2.31; after 10 casts 1.09 to 1.65; after 100, 1.27 to 1.45. Each investor here funds 100 casts drawn from 20,000 no-bait casts, and the band is where 8 in 10 of 4,000 investors land. These follow The Numbers, Defined, the page every number on this site uses.

The bait team asks Bob who to design it for

"Bob, you've fished this water for years. You're the reason we're all here. You know these fish better than anyone. Who should the bait be built for?" The answer is the fish everyone has been planning around: the average one. Ten pounds, right in the middle of the bell.

The fish the bait was built for

59%5%A5 fish · 56–180 lbs25%11%B11 fish · 10.5–50 lbs11%25%C25 fish · 2–9.5 lbs5%59%D59 fish · 0.5–1.85 lbsThe average, 10 lbsthe fish the bait was built for
It sits in the center of the bell, where almost no fish is. The real fish are the ones behind it: a few big green ones on the left, a crowd of little pink ones on the right.

They build it. Bait costs $10 a cast, on top of the $250, so it's part of the acquisition cost. And it works.

The same 100 fish, bait in the net

The first cast goes in shortly
What's in the net, on average: 4 casts with no bait and 4 casts with bait

No bait

4 casts bring up 100 fish

Giants 5
Big 11
Small 25
Tiny 59

With bait

4 casts bring up 110 fish

Giants 5
Big 14 +3
Small 32 +7
Tiny 59
Fish per cast
Contribution after acquisition per cast

More fish, 25 to 27.5 a cast, and bigger fish, because the bait sits in the middle and the big volume of little fish is way over on the right. About 28% more B fish and 28% more C fish on every cast. Each cast earns $125 instead of $100, and each fish costs $9.45 to land instead of $10.

No bait next to bait, on average
No baitWith baitFish per cast2527.5Contribution after acquisition$100$125Cost per fish$10.00$9.45
Every $10 of bait brings back $35
Bait, every cast$10More profit it brings in$35

The baited catch, sold at the same $1.50 a pound

The next cast from the cube comes here

The receipt for this cast

Sale–$1.50 a pound
The cast and the bait–$250 + $10 bait
The cost of the sale–$1 a fish
Contribution after acquisition–this cast, so far
The last 5 casts
Every baited cast so far

The first catch is on its way.

Back to the investors. Bob said a dollar comes back as $1.36. With the bait it comes back as $1.43. Marketing looks like heroes, and the investors say what investors say: spend more on the bait. Get more fish in the net.

What every $1 brings back, with and without bait
No baitRevenue return 1.36 (136%)
$275 invested · $375 net revenue
Contribution after acquisition $100Contribution return 0.36 (36%)
With baitRevenue return 1.43 (143%)
$288 invested · $413 net revenue
Contribution after acquisition $125Contribution return 0.43 (43%)

Grey is what's invested. The bar runs on to net revenue, so the colored part past the grey is the contribution after acquisition.

The plan the investors hand Bob

Scale it. Four times the fish, call it 100 a cast, with the cost per fish coming down and every fish still earning its $4.55. Drag the catch up to see their math.

Fish a cast
27.5 today100, the plan (25 × 4; Bob gets a break on 27.5 × 4)

That number is the investor baseline. The fish the team lands, each still earning its $4.55. Every test from here is judged against it.

The math: the bait, and the baseline

cost of acquiring a fish = ($250 cast + $10 bait) ÷ fish caught

contribution after acquisition per cast = $1.50 × pounds − $250 − $10 − $1 × fish

investor baseline per cast = fish landed × $4.55, where fish landed = $260 ÷ cost of acquiring a fish

The bait adds 2.5 fish of the average size to each cast: 25 more pounds, $37.50 more from the merchant and $2.50 more in handling, so $35 more contribution before the bait's own $10. Every $10 of bait brings back $35. The fish it pulls in more often are the 36 fish from 2 to 50 lbs, groups B and C, which average exactly 10 lbs. $125 spread over 27.5 fish is $4.55 a fish, and that is what the investors expect every fish to keep earning as the team lands more of them.

Two ways to get there

Now the team has one job: make the bait better. Every round they test a small change against the bait in use, cast after cast, and keep whichever wins. Keep the winner on what? That one choice is the whole story.

Path 1

Drive the cost per fish down

What most marketing teams are told to do. Count the fish, keep the bait that lands more of them for the same $260.

Path 2

Grow the contribution on every cast

What the e-com world figured out. Connect what each cast actually leaves to the test, and let it optimize on that.

Bait chosen on cost of acquiring a fish, sizes in plain sight

Round 0 of 20
Drag to any round
Every number starts at 100, on a log scale so that doubling and halving look the same size. Tested on the cost of acquiring a fish, the fish per cast climb while the pounds and the contribution after acquisition fall. Tested on contribution after acquisition, it climbs and the pounds climb with it, while the cost of acquiring a fish goes up, because the bait lands fewer, bigger fish.
Contribution after acquisition per cast, round by round, against the investor baseline and the $125 the bait started at
Cost per fish · path 1Contribution · path 2Investor baseline · the fish path 1 lands, each still earning $4.55$125 · where the bait started

On path 1 every test wins, and every win is a loss. There are more small fish than big ones, so the bait that lands more fish is the bait that lands smaller fish, round after round. The team started in the right place and ends up in the wrong end of the ocean: $28 a cast, and the investor baseline they were chasing is $426.

On path 2 the cost per fish goes up first, $9.45 to $10.86. That's the point. The bait finds bigger and bigger fish, the misses get bigger than anyone expected, and it compounds: $1,045 a cast, eight times what the bait started at.

What one cast brings up after 20 rounds of testing

The bait, before testing

27.5 fish a cast

Giants 1
Big 4
Small 8
Tiny 15

Tested on CAC

93.7 fish a cast

Giants 1
Big 2
Small 13
Tiny 78

Tested on contribution after acquisition

23.95 fish a cast

Giants 6
Big 5
Small 6
Tiny 7
What every $1 brings back after 20 rounds of testing
Tested on CACRevenue return 1.08 (108%)
$354 invested · $382 net revenue
Contribution after acquisition $28Contribution return 0.08 (8%)
Tested on contribution after acquisitionRevenue return 4.68 (468%)
$284 invested · $1,328 net revenue
Contribution after acquisition $1,045Contribution return 3.68 (368%)
Before any testing1.43 (143%)

Grey is what's invested. The bar runs on to net revenue, so the colored part past the grey is the contribution after acquisition.

What every $1 of net revenue leaves, after 20 rounds of testing
Before any testing$413 net revenue a castContribution $385, 93% · after acquisition $125, 30%Tested on CAC$382 net revenue a castContribution $288, 75% · after acquisition $28, 7%Tested on contribution after acquisition$1,328 net revenue a castContribution $1,305, 98% · after acquisition $1,045, 79%

Each bar is $1 of net revenue: light grey goes to handling, grey to the cast and the bait, and the colored part is what's left after acquisition.

Read as an investor, path 1 brings back 1.08 (108%) on every $1, down from 1.43 (143%). Path 2 brings back 4.68 (468%). Read as margins, the bait started at a 93% contribution margin and 30% after acquisition. Path 1 lands a crowd of tiny fish that each cost the same $1 to sell: 75% and 7%. Path 2: 98% and 79%.

Optimize for contribution margin, not for fish. When you can see what every cast is worth the moment it's sold, judge every test by what it leaves of every $1, not by the cost of acquiring a fish. Cost per lead going up only matters if you can hold margin. And if you have no way to tell how big a fish is when you catch it, you'll optimize in the wrong direction every time.

Most businesses can't see the size of the fish when they buy it. That's the next story.

The math: why the winning bait drifts

Picking the bait that earns more is selection on how strongly each bait pulls each fish. The cast and the bait cost the same $260 whatever the bait, so whatever the fish, the result is

change in contribution after acquisition per cast = fish per cast × [Cov(pull, contribution per fish) + (average pull − 1) × average contribution per fish]

Pull is how many times as likely the new bait is to land each fish as the bait in use, and both averages are taken over the fish the bait in use lands. The first part is selection, more pull on the fish worth more. The second is volume, more pull on every fish. A fish's contribution is $1.50 for each pound it grows to, less $1 to handle it: about $176 for an A-tier fish, $33 for a B, $5.60 for a C and 27 cents for a D. Optimized on the cost of acquiring a fish, the tests keep whichever bait lands more fish, since the same $260 spread over more fish costs less per fish, and it drops to $2.77. Each test sets the bait in use against a new one, checks every 50 casts for up to 500, and keeps the new bait when it wins at p < 0.05. The lines are averages over 200 runs of the 20 rounds. Tested on contribution after acquisition, 8 in 10 runs finish between $446 and $1,905 a cast; tested on the cost of acquiring a fish, between −$78 and $166, and 48 runs in 100 end up losing money on the average cast. Pair one run of each at random and path 2 comes out ahead 996 times in 1,000.

What the winning bait pulls in, compared with no bait

About the numbers. Illustrative. 100 fish weighing 1,000 lbs, 180 lbs down to 0.5 lb, split into four groups by Power Law Nested Means. In scene 1 the net is a bell curve lowered at a random spot along the line; from scene 2 it is a round net cast at the middle of the cube, where every fish has the same 1 in 4 chance of being in it. Scenes 1 to 5 use the same 100 fish and scene 6 three copies of each. A cast costs $250, bait $10 a cast, handling $1 a fish, and the merchant pays $1.50 a pound. Every bait test sets the bait in use against a new one, checks every 50 casts for up to 500, and keeps the new bait when it wins at p < 0.05. The rounds in scene 6 are the average of 200 runs worked out in advance; the size of each change sets how fast the lines move, not which way. In scene 4 each investor funds 100 casts drawn from 20,000, and the band is where 8 in 10 of 4,000 investors land. Casts run in your browser, and caught fish go back in the water.