Ferro Industries: Paid Growth Is Getting Expensive
Product Management
hard45 min0 submissionsMcKinsey
Scenario
Ferro Industries's industrial components product has grown almost entirely through paid acquisition. That is becoming unsustainable.
Unit economics (monthly):
- Blended CAC: $2,282
- ARPU: $1,299
- Gross margin: 82%
- Monthly churn: 3.6%
Existing referral behaviour:
- 15% of active users invite at least one other person
- 12% of those invitations convert to a signup
CAC has risen 29% over 18 months as auction competition increased. The CEO wants a growth model that does not depend on buying every user.
Supporting data
trend
- cac increase 18m pct
- 29
referral
- implied k factor
- 0.018
- users inviting pct
- 15
- invite conversion pct
- 12
unit economics
- blended cac
- 2282
- arpu monthly
- 1299
- estimated ltv
- 29588
- ltv cac ratio
- 12.97
- gross margin pct
- 82
- monthly churn pct
- 3.6
Your task
Design the growth strategy. Provide:
- Analysis — current unit economics, payback period, and the strength of the existing loop.
- Risks — of the loop you propose and of continuing as-is.
- Recommendation — the specific loop to build and how you would prove it works.
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How you'll be graded
100 points, 60% to pass.
- loop design25
- growth model25
- recommendation25
- quantitative reasoning25
Hint
Reveal suggested structure
- LTV = ARPU × gross margin ÷ churn.
- LTV:CAC and payback period = CAC ÷ (ARPU × margin).
- K-factor = invite rate × conversion rate. K ≥ 1 is self-sustaining; below that the loop amplifies but does not replace paid.
- Identify the loop type — viral, content, or paid-recycled.
- Find the weakest step and fix that, rather than adding a new channel.