Ratz­fatz: The right way to deal with unit economics #DHDL

Maraike Höhne, Sarina Morawiak and Luisa Schu­bert present Ratz­fatz, a new product cate­gory, in the first episode of the anniver­sary season of ‘Die Höhle der Löwen’: Their start-​up offers healthy frozen ready meals for chil­dren to take the strain off parents in their everyday lives despite the high demands placed on their chil­dren’s diet. The lions were enthu­si­astic about the founders, despite a very crit­ical discus­sion about impor­tant key figures.

Many founders still think that investor talks can be success­fully concluded primarily through detailed finan­cial plan­ning. This is why they often create sheer monsters of spread­sheets that never seem to come to an end. However, these are often not really appre­ci­ated by the investors and the disap­point­ment after all the work is great.

This is because the problem is often that the infor­ma­tion that the funders are really looking for is hardly or not at all contained in these plans. And the masses of finan­cial plan­ning templates avail­able online, which are completely unsuit­able for nego­ti­a­tions with profes­sional investors, make things even worse.

As the founders in ‘Die Höhle der Löwen’ cannot bring any spread­sheets with them, it is often very easy to follow the real discus­sion about the figures – and some­times also to observe very closely what investors are really concerned with when it comes to the company figures.

In the case of ‘Ratz­fatz’, this became very clear, as lion Carsten Maschmeyer in partic­ular led a detailed discus­sion about unit economics. This ‘economics of units’ reveals the most impor­tant part of a busi­ness model, as it answers the ques­tion of whether it is possible to earn money at all – at the smallest level.

At the time the programme was recorded, the start-​up was selling its ready meals for chil­dren exclu­sively online. Natu­rally, the lions quickly enquired about the sales price of €6.99 and the produc­tion costs of €2.37 per pack. These figures also count as unit economics, as they relate to a single product unit. It is there­fore a matter of looking at a unit and, if neces­sary, ‘down-​calculating’ other values to this unit.

But let’s stay with the sales and purchase price first. This results in a margin of €4.62 per product. However, Carsten Maschmeyer seems to be directly scep­tical as to whether this is enough for such a frozen product, as this does not include the refrig­er­ated ship­ping.

We quickly learn that each parcel sent costs €20, of which only €5 is passed on to customers as ship­ping costs. Of course, it imme­di­ately becomes clear that ship­ping a single package would mean a huge loss for the start-​up. That’s why the lion imme­di­ately asks for a minimum order value, which the founders answer with €30.

And this is where a small but impor­tant shift in the discus­sion takes place: the refer­ence value, i.e. the ‘unit’, changes. The indi­vidual product is no longer used as the smallest unit, but the indi­vidual order now forms the basis of the discus­sion. The reason for this is simply that the €20 frozen food ship­ping costs relate to the entire parcel – regard­less of whether you are sending just one or 10 packs.

With a minimum order value of €30, at least 5 packs must be ordered. This means that the start-​up receives at least 5 times its margin for each order, i.e. initially earns €23.10, of which €15 must be subsidised for ship­ping. This means that only €8.10 remains with the startup for an order with a minimum order quan­tity, which explains the subse­quent exchange of words between Carsten Maschmeyer and the startup team.

The finan­cial lion concludes from the figures mentioned that Ratz­fatz online is doing a loss-​making busi­ness, which the founders agree with if they include marketing. After all, €8.10 is not normally enough to win over a customer in this sector.

Although the founders subse­quently empha­sise that they already have an average shop­ping basket of €42, the corre­spond­ingly improved value of €12.72 is still far from covering the average marketing costs.

Although these are no longer explic­itly mentioned in the episode, the Ratz­fatz team provides impor­tant infor­ma­tion here: from a shop­ping basket value of €60-70, it should be possible to scale the online busi­ness, i.e. the margin should cover both marketing and ship­ping costs. At €63, you would there­fore have 9 pack­ages sold, a margin of €41.58, i.e. €26.58 minus the €15 ship­ping allowance, which could be spent on marketing without ‘paying extra’.

Of course, you could analyse the unit economics even further at this point and perhaps change the refer­ence value from the order to the customer again, because after all, the customer could order again several times, but the marketing costs are only ever incurred once.

However, the discus­sion takes a different direc­tion at this point – at least in the short­ened version of the broad­cast – and the founders skil­fully empha­sise both the oppor­tu­ni­ties in retail and in the B2B sector with deliv­eries to facil­i­ties such as hospi­tals, day-​care centres or nurs­eries. Here, of course, the expen­sive indi­vidual logis­tics costs are elim­i­nated, so that busi­ness with larger quan­ti­ties can become more attrac­tive. Even if you then prob­ably have to sell for a lower price.

However, the founders are very confi­dent throughout the discus­sion, never fail to answer ques­tions and seem to have a clear vision for their busi­ness.

This impresses the lions, so that – although he initially pulls out – even Carsten Maschmeyer joins Janna Ensthaler in an offer. The lions are enthu­si­astic about the founding team, praising their comple­men­tary back­grounds and exper­tise – to which their numer­ical certainty has prob­ably once again contributed.

In the end, the founders decide in favour of the competing offer from Nils Glagau and Till­mann Schulz.

They will prob­ably have needed a spread­sheet in the next stage of the invest­ment nego­ti­a­tions – but one that clearly shows the inter­play and unit economics of the various sales chan­nels.

These founders are certainly not working with a template from the Internet that is useless for investors.

Photo (above): TVNOW / Bernd-​Michael Maurer