Beauty has a strong repeat rate: UrbanClap CEO

Two-year-old UrbanClap, one of the most-funded startups in the home services industry, has charted out a clear growth plan for the next six months – focus on the beauty segment, add new categories like nannies, maids and cooks and keep improving its systems for better customer experience.

The Gurgaon headquartered startup serves nearly 5,000-6,000 customer requests per day, with requests varying from beauty to interior designing to handymen. The ticket size also varies, with some as low as Rs 300 and some running into a few lakh rupees, with an average ticket size of about Rs 4,000. Currently, the largest chunk of revenues - 28% - comes from beauty services and the company wants to take it to 50% by the end of six months.

UrbanClap has raised a total of about $37 million, so far, and is backed by Ratan Tata, interim chairman of Tata Sons, and investors such as Accel Partners, Bessemer Venture Partners, SAIF Partners, and others.

Founded in 2014 by Abhiraj Bahl, Varun Khaitan and Raghav Chandra, the company has presence in 8 cities right now, spanning more than 80 services. In an exclusive conversation with Techcircle, chief executive and co-founder Abhiraj Bhal shares the company's future plans and why competition does not bother him too much. The home services space has seen some troubled days, with some startups such as FindYahan and Near.in getting acquired, while others like LocalOye and Qyk pivoting to curb costs.

Edited excerpts:

How has UrbanClap been performing?

Thanks to our investments in supplier training, quality control, product and technology, we are happy with the growth in the company. We know there are a lot of customers to be served, and we have to ready ourselves for it. We are in eight cities right now, and offer 80 plus services …Most recently, we launched in Kolkata. We now have 50,000 professionals on our platform, and for many of them, UrbanClap is the only way of getting customers.

Would you be adding any more services?

We keep reviewing and adding a few. But we usually gravitate towards doing fewer things better, so prefer getting deeper into existing cities and services, rather than adding newer cities and services. We also experimented with a few categories, such as maids, cooks, nannies. There might be a deep partnership with the government for a larger project involving maids.

Which is the biggest category in terms of bringing customers?

Beauty. We are developing it as a customer acquisition and recruitment category. It also has a strong repeat rate. A beautician in a parlour, ends up making 12,000-15,000 rupees. The economics of the parlour are misaligned with the economics of the beautician. In our model, they get 70-80% of the proceeds, while currently they get 15%, while rest goes to owners, franchise, and so on. So, her earnings shoot up by 3 to 4 times with us, and the customer gets the comfort of getting these services at home. At some level, these services can be standardised too. We are looking at partnerships with training academies too. For the next few years, this is going to be an anchor category.

How much revenue does it contribute?

Twenty eight per cent, and we want to get it up to 50% by the end of six months.

Which is the biggest category in terms of ticket size?

Interior design. We have two models - one is the managed marketplace, while the other is a slightly open and curated marketplace. So the customer tells us what they want, and we match them at our level, and the providers will get back with custom quotes. Usually, we will send 3-5 curated recommendations. This usually happens for high-ticket size transactions. Above Rs 4,000-Rs 5,000, we observe that customers want choice and don't rely on marketplace, below that, they are happy to let UrbanClap take the headache. In some segments, the ticket size can go into lakhs as well.

How do you evaluate which categories work and which don't? For example, you took the call of scaling down the laundry business.

The way we look at any category is in terms of absolute volume (both number of orders and gross value of those orders), what is its potential, and the contribution margin that we make as a marketplace. So we see how profitable the category is, and how mature the supply market in the ecosystem, and how much effort is required to tap into this market.

If you look at beauty, there is massive potential, even if I limit myself to 25-40 year old middle class women in the top 10 cities, we are talking about 5 million women, with minimum 6-8 touch points in a year, and average ticket size is Rs 1,000, and this is just one category. We do not have to re-acquire the customer, and there is a good margin as well, and our take is 20-25% of the ticket size, so we become profitable after the second or third order. Supply ecosystem is also mature here.

We still have the laundry and dry-cleaning services, we haven't really shut it down. It was a temporarily halt in one city where we had supplier issue. But when it comes to laundry, is there a massive market size? Yes, in terms of people washing clothes, but no, in terms of problems that we are solving for them. In beauty, there is no alternative and is a real pain point. But when it comes to laundry, everyone has a maid or a washing machine. There is a theoretical problem, but not a practical one. It's a low-ticket size, very high contribution margin market, and supply ecosystem does not exist.

What is the percentage of repeat customers?

Right now, 60% of all our orders come from repeat customers, across all categories.

How much is your customer acquisition cost?

Over the past one year, it has come down significantly, by almost 60%, while the number of customers has gone up.

What do you think of competition?

We hardly spend any energy worrying about competition. Because less than 1% of this market is penetrated as of yet, so the real competition is the 99% which still hires the local plumber and so on. Secondly, there is no company I really respect in this sector, which has a meaningful scale, has a great team, and has figured out something we haven't.

How much have you been growing year on year?

Our revenues in the last 10 months have grown almost 10 times. This is not the kind of growth we will see going forward, but we have an aspiration of 5x. This time next year, our revenue will be 5 times.

Would you looking at another fundraise?

We get a lot of interest, but we are very well-funded, so not immediately.