Customer Acquisition

Playbook for Building out an Internal Affiliate Program

September 10, 2019 by websiteadmin Leave a Comment

In this video below, I spoke with Sklyar Ganz from The Farmer’s Dog, on how they could build out an affiliate program internally.

It’s a model I’ve seen and/or implemented multiple times quite successfully. As much as I’ve seen agencies help, I’ve seen particular success when the affiliate program is built internally.

I walk through the playbook of how to do so, the roles needed (whether one or more people), the types of affiliates to reach out to, payout structures, etc.

I also make mention of a few tools. I’m listing those below.

Finding partners – I’ve had a few folks speak very highly of this tool – Mediarails
SEM compliance – Brandverity – for monitoring bidding on TM terms, etc.
Leads/sales fraud – Fraudlogix – didn’t really capture much. Internal controls can work well here – to the extent you see sudden changes – traffic, CVR, etc. – that’s usually one of the better ways. If so, I’d def suggest doing so in excel/sheets – someplace that you can easily do the comparisons and then use conditional formatting etc. to call out big changes – much easier than trying to eyeball it manually.
Email address verification – I can’t find the names right now. But there are a couple that I’ve used. Good to have in general even beyond the affiliate program. I’ll try to update this with some recommended vendors. (Certainly if you have trusted partners, pls let me know.)

Hope the video and the tools above help.
-Babak

Peloton – A Marvel at Customer Acquisition, Brand-Building, and Its Untapped Opportunities

August 29, 2019 by websiteadmin 2 Comments

A couple years ago, I dug into the Blue Apron S-1 here. People seemed to liked the way I broke down what wasn’t always explicit in their filing. I figured it’s time to do another breakdown.

The one similarity they both have is that their S-1’s seemed to be written to disclose only the info they wanted to share. That’s where the similarities end, as we’ll get into.

I believe in cutting to the chase and then I’ll get into the nitty gritty. So here’s my summary take on Peloton:

–Peloton essentially acquires its customers for free – meaning, their gross margin on the sale of their bikes covers their customer acquisition costs. Not just of their media costs. But of their fully-loaded marketing costs, inclusive of people and showroom expenses.

–They have 500K+ ridiculously fanatical customers who seem to be churning out at less than 1% per month. We’ll dig in to this figure, but even if the figure is 5% per month, which I don’t believe it is, it’s one of the highest retention rates I’ve seen in a subscription business (comparable to DirecTV in its heyday and Netflix). And certainly remarkable for a fitness biz where the average lifetime is 3-6 months.

–Yes, they have $200MM (and growing) of Operating Expenses they have to cover. They’ll need to increase their subscriber base by 50%-100% to cover those expenses, which will likely go up as they continue to scale. Or they increase revenue/margin dollars per customer. THERE ARE AT LEAST 2 UNTAPPED OPPORTUNITIES THAT ARE NO-BRAINERS FOR THEM TO DO SO. MORE BELOW…

–If/when the economy turns south, my guess is that they’ll dial back their acquisition machine, cut staff, and dial back new major higher-investment initiatives. The question is whether those 500K subscribers continue to pay their $40/month. Based on my experience at Beachbody during the Recession, I have some thoughts here.

-Bottom line, Peloton has built a following that is ripe for much further monetization, and the Company likely can navigate a downturn in the economy and/or new customer growth.

Now Digging In…Let me get a couple things out of the way

What I did NOT like about the S-1.

I’m a big fan of Peloton as a consumer and more broadly about the business based on what I found and was able to decipher thru the S-1 (not to mention what I’ve seen over the past few years). But rather than start with a love-fest, I’d rather address some of the negatives first.

First, the LTV figure they provided – based on subscription revenues only.

This is just a silly figure they’ve put out there. It doesn’t have context and frankly is based on an expected time period that isn’t realistic. In trying to show a massive figure, I think they hurt their credibility. It just doesn’t seem like they needed to do so. But here’s what they did:

It’s based on the monthly fee ($39), gross subs added, expected lifetime (more in a second), and an adjusted subscription margin. Btw, the number of “Adjusted” figures in the S-1 is a bit too much. You can see my calc’s below – the numbers tie out, but it kinda gives you a headache trying to reconcile what they’re referring to.

As for the lifetime in the calc below, it’s based on the monthly churn. 1 divided by the churn to be precise. In a business with 8% monthly churn the lifetime would 1/.08=12+ months. Based on the churn figures Peloton has provided (which overall do NOT seem to be radically inflated) – less than 1% – the average lifetime is ~160 months, which translates to 13+ years.

I just don’t see the point in making this assumption. I’m a massive Peloton fan myself but there’s no way I can conceive of being a subscriber for 13 years. Now, it’s highly possible that they generate the same amount of money from me and other subscribers over a shorter period of time, but using 160+ months as the expected lifetime is, well, not believable. Now, they don’t actually say 160 months – they just describe the calc. But that’s what it’s based on.

And as you can see in the below, customers who were acquired in 2019 are expected to generate over $1 billion in revenues over their lifetime. Over 13 years.

Um, ok.

A couple other points about the above. I’ve backed into the estimated gross subs added and churn based on figures they provided. You can see the delta from my calc of LTV to what they provided – it’s ~5%. I’m good with that margin of error.

Similarly, on a per subscriber basis, my calc of the # of subs is essentially identical.

That $3,593 says that over the course of 13 years, these customers will generate $3,593 of margin dollars.

One word on the margin % calculation. It’s one of their “Adjusted” figures, backing out Depreciation & Amortization, as well as stock compensation expense. Both adjustments are not unusual. But they also back out the costs they’ve incurred for “Content costs for past use” – as below. Basically, they used content they didn’t have the rights to. Or as they say, it was “alleged past use.” I’m not sure why it’s alleged. Since everything is recorded, it should be part of the record to prove one way or another. These fees below are $45MM over the past 3 years. Really, they sound like fines and shouldn’t give anyone the warm-and-fuzzies.

But these costs have also been backed out of subscription costs and increase subscription margin by 9 percentage points (not 9%, but percentage points) in 2019. Meaning, subscription margin increased from 51% to 60% as a result of backing these out. Whether these will continue is anyone’s guess.

What else that I didn’t love:

–No real detail on cohorts – counts, LTV, churn. All are at the aggregated level. I take a stab at reconciling their figures below. It would appear the numbers in the S-1 are at least directionally representative. If that’s the case, then why not share more detail? If your cohorts really are that strong, then share the data – most everyone else doesn’t. They’d stand out even more if they would do so.

–This awful definition of Churn:

Particularly in a fast-growing business (subs are literally 5x from 2017 and 2x the 2018 figures), taking the current period’s cancellations relative to the beginning of period subs figures – well, it doesn’t tell you much. Who is cancelling? Are they recent subs or older ones? This is why cohort figures are so important.

The quarterly figures provide at least a small bit more visibility into what’s happening, but not at the level of detail that most of us would prefer. And as I alluded to above, the typical thinking is – if you aren’t sharing the info, what are you trying to hide? And from the other side, sharing the info is such a strong sign of confidence.

Later in this post, I do my best to make sense of their numbers. There seems to be a recent trend of increasing cancels – both absolute and percentage-wise, but it’s not a crazy figure. At least not yet. And they still have some pretty strong fundamentals we’ll get into.

-Content Costs for Past Use – I mentioned this above, but it deserves an additional call-out. Essentially, Peloton has paid fees (fines) for using content (presumably music) without having the rights to do so. To the tune of $45MM over the past 3 years. Which doesn’t include at least some of the $19MM in litigation expenses.

I don’t like it for a few reasons: a) anyone who has any IP knows what a pain it is to enforce it – IP rights are only as good as the oftentimes-deep pockets you need to pursue those breaching those right; b) there’s a much bigger lawsuit by more content rights owners, seeking $150 million in damages. Who knows what amounts will be paid and/or whether that’ll show up as cash fines or stock ownership for those parties. But given Peloton’s history, it’s reasonable to expect some amounts will be paid out.

–Almost 2,000 employees. Wowza! That’s a lot of people. Sure they have ~80 showrooms, and this is a billion dollar biz, but that’s a lot of people.

–This wasn’t in the S-1, but it’s posts like this which can be indications of operational issues. There were 235 comments, many describing a similar experience. Not good. There will always be exceptions. No one is perfect. And as much as my personal installation experience (of the bike, not the treadmill) was outstanding, this doesn’t sound like the exception. This type of stuff can be the result of growth outpacing operational support. It just better get addressed very quickly.

Okay, now to the positives.

Customer Acquisition:

I mentioned at the top that they essentially acquire customers for free. Basically, the margin they make on their bikes and treadmill covers their sales and marketing costs. What’s particularly amazing is that these costs include people and rent. In most performance marketing businesses, we look at media costs and then exclude the costs of people. But Peloton is essentially breakeven for each bike/treadmill they sell.

Below are my estimates of revenue, calc’ed gross profit and CPA (based on my new subs figures above) – all on a per-customer basis. You can see the comparison of my figures to those provided in the S-1. It’s a pretty good match.

Now, I wouldn’t say this is unheard of in fitness businesses. To be breakeven on day 0. I’ve done it in businesses I’ve been involved with and seen it with my clients. But it’s still pretty awesome when it does happen.

The implication is that everything they generate afterwards is margin. Or you could say they don’t make any money until the next sale. But it’s still better than the majority of venture-funded businesses that go in the hole for 6-18 months before being breakeven on a per-customer basis. Peloton is breakeven on a per customer basis pretty much on Day 0.

Subscription Revenues and the Rest of the Economic Model

Whether you believe the fees for use of prior content is in the past or they’ll continue to incur these fees, their Adjusted 2019 subscription margin was somewhere between $92MM and $108MM. That’s pretty good. Until you look at the nearly $200M of OpEx they incurred – a combination of R&D and G&A.

In this case below, I don’t think it’s unreasonable to back out stock-based comp expense nor D&A, especially when considering the business’ going-forward model.

$179 million in non-sales and marketing expense is pretty hefty, at 20% of revenues. And of course, that’s for the full year. It’s very likely their run rate figures are even higher as they continue to invest in their business. As for the 20% figure, for Peloton and with their model, it doesn’t seem so crazy. But what are the implications and what is it going to take to get to breakeven?

Looking at the figures below, assuming $179 million in OpEx, that implies they’ll need 753K subscribers to pay $39 per month for the year. But they’ll likely incur greater OpEx to get there.

If we look at their current base of 511k, with no net change in subs, and paying $39 per month for the year, they’ll generate $121 million in gross margin. That leaves $58 million left to cover.

Somewhere in this model, there has to be greater efficiency and leverage.

Can Peloton get to 753K subscribers and beyond?

What is going to take to get there?

What happens if they don’t grow?

I’ve got a few thoughts.

The last two lines in the above table are calc’s showing that if Peloton can generate another $100 in margin dollars per customer, how many would they need to cover that $58 million. It’s simple math. They’d need 576K subs. A bit more than they have today.

And if they could generate another $200 of margin dollars per customers? That’ 288K customers.

Now you’re probably wondering how feasible it is to get the annual revenue from subscribers to increase from $468 ($39*12) to $568?

I do NOT believe it comes from converting Bike buyers into Treadmill buyers. But rather…

Apparel – the “Other” revenue line reflected ~$15 million in revenues in 2019. That’s a massive opportunity waiting to be capitalized on. Frankly, during my time at Beachbody, we didn’t sell much apparel either. But when customers are fanatical about a health and fitness product – as they were with P90X and Insanity – and certainly as they are with Peloton, they love being walking billboards for the brand. “Oh, this Peloton sweatshirt? Oh, I forgot I’m wearing it. But yea, I have a Peloton. I looooove it. Did you have one? Let me tell you all about it…”

It’s a no-brainer in my estimation. Now, if they put together a referral program a la Morning Brew, and turn those customers into referrers and compensate them with apparel, that might not generate apparel revenues, but it’s a customer acquisition channel that is a ton cheaper than the current $1000 they pay to acquire a customer.

You don’t think a customer wouldn’t be absolutely thrilled to get a Peloton sweatshirt or cycling shirts or tank for every customer they referred?

Okay, so I combined 2 point in there – apparel and customer referrals. Yes, they get a ton of word-of-mouth benefit already that is driving referrals. I’d think that compensating customers with a piece of apparel would move the needle further.

2. Supplements – this is the MONSTER opportunity that I think Peloton has waiting in the wings. I have zero info on whether they’re spending any time here. But think about it. A rabid customer based that is obsessed with the brand, the trainers, and with being healthier.

Pills, powders, shakes, bars. Generally high margin, another source of recurring revenues. And an entirely reasonable way to generate another $100+ of margin dollars per customer.

Both of these draw on one of the big wins that Peloton has achieved. I’ll get to that just below, but I first wanted to share why I think Peloton can win.

Sorry, the marketer in me can’t help but mention untapped opportunity #3:

3. Email – they could do it better. Frankly, they haven’t needed to. Communicating with their customers via email extremely well, especially after the purchase, hasn’t been a necessity. But if/when they really emphasize product sales like the above, they’ll need to get it dialed in. It’ll happen. Just a matter of time.

Ok, why Peloton can win…

The Peloton Family is Real

I posted this a couple days ago on Twitter. Look at the post below. It had 5,000+ likes and over 250 comments. The fact that a customer shared difficulties about their personal life in the Peloton Facebook group and received such love, both from the community and from Peloton itself, speaks volumes about the brand.

Major props to the Peloton team for the hand-written card and apparel they sent.

This type of thing doesn’t happen overnight. And when you think about competitive advantage, this is huge.

They have nailed the Customer Experience

Here’s a list of what they nail:
-The bike
-The instructors
-The tablet
-The quality of the streams
-The workouts themselves
-The music
-The leaderboard
-Sync’ing with Spotify
-The Facebook group
-The shout-outs for anniversary rides
-Hours upon hours of new content every day

The list goes on and on. So many of the core areas that make a difference. Peloton isn’t top-notch at everything. But they do more than almost everybody at the sheer count of things they nail. It’s for this reason that they are able to use the graphic at the very top of this page describing themselves not just as one thing. But as many things.
I’ll give them their due. They create a customer experience unlike almost anyone else.

Increasing workouts per cohort

This graphic below is pretty unreal.

For starters, it may not sound like much to get customers to workout 10x per month. Every 3 days doesn’t seem that much. 2+ times per week. But there are very few fitness companies that get their customers to do so. At home!

And then to see the count of workouts increasing for a given cohort over time – that means customers are working out more per month each year. Again, this is remarkable.

How are they doing it? Well, they now suggest a workout when you finish a ride – upper body, core, stretching. An extra 5-10 minutes. Does this mean that the nature of the current workout count is different than those in prior years? Yes. But it also highlights something that Peloton has been doing for years.

They announce anniversary rides when their folks hit a special number. 50, 100, 500, 1,000. Could customers cheat? Yes. Can they do shorter rides versus longer rides? Yes. But Peloton and their customers don’t care. And don’t care to keep track. No one asks whether someone did 100 20-minute rides or 45 minute rides. It’s all about engagement and support.

The Churn Figures Seem Real

I took a stab at trying to back into the churn figures.

Walking thru the chart below, I note which line items were provided in the S-1. I then calc’ed the incremental subs each quarter (line A) and calc’ed the monthly rev / subscriber just to make sure the numbers made sense.

I think looked at their Connected Fitness Product Revenues (basically sales of bikes and treadmills), and then based on some average revenue per customer figures I’ve estimated, I back into the Implied New Customers (line B).

For the most part, line A and B are pretty close. Q3/Q4 2019 (the March and June quarters) show the highest variance. To the extent more recent sales have skewed towards the Treadmill and the AOV is higher, that would explain some of the difference. It’s also possible that the Digital Subscribers (those with a subscription but without a bike/treadmill) is increasing. Or, as I mention below, churn may be increasing.

Using Line B, I show CAC, which mirrors what I’d done above – basically a $1K cost to acquire a customer.

In Line C, I look at the difference between A and B. This is a proxy for churn – the new customers are higher than the incremental subs. Presumably most buyers become subscribers, so the difference is likely churn. The one potentially worrisome metric is if the Q3/Q4 figures on line C are in fact churn. In count, those are the highest absolute figures on the line, though still directionally in line as a % of the base. It’s just a question of which cohort those people are connected to.

Finally, I calculate churn based on the methodology they describe in the S-1. I don’t have monthly subs figures so I just took the average of the beginning and ending of the quarter, multiplied by the churn percent at the top. You can see the difference b/w this churn (line D) vs. the one above (line C). Again, not perfect, but pretty close.

Yes, it’s possible churn is increasing, albeit with a noticeably larger base. But for the most part, my calc’s seem in line with the figures the company shared.

Btw, I’ve seen some mention that the Company figures don’t take into account those on an installment plan. There have been comments suggesting that these customers are not able to cancel their subscription just yet. And when they finish their installment billing (up to 39 months for the bike, 24 months for the treadmill), we’ll see higher cancels. From everything I’ve read, the subscription is NOT tied to the installment plan, so a customer isn’t locked in to the subscription should they want to cancel that part. Nor does Subscription Revs include the installment payments. As such, it doesn’t appear that there is mixing and matching, nor do these installment payment customers seem to be skewing the churn figures one way or another necessarily.
(Update: In July 2018, Peloton ended an offer whereby the subscription revenue was either prepaid and/or bundled in to the purchase of the bike. Those plans lasted from 12-39 months. The current offer allows for financing of the bike itself and the subscription is offered separately. There is no info as to how many/what percentage of new subscribers took the bundled installment plan. But it should be noted that some of these customers really haven’t had the ability to churn out, but their revenues are being recognized over time and the subscriber counts continue to include these customers.)

As for the final reason I think Peloton can win…

Have you ever spoken to a Peloton customer?

‘nuf said. They’re beyond passionate. And loyal.

The Bigger Win

What is it that Peloton has achieved?

They’ve acquired a massive number of customers. Of fans. Of devotees.

Of customers who will fly from wherever they live to do their anniversary ride in the NYC studio. Hopefully with their favorite trainer. And snapping a pic while they’re at it.

Of customers who love that they can click a button on their screen when a favorite song plays, and that song sync’s with their Spotify account.

Over the past few years, they established a foundation of half of a millioin loyal paying customers. That’s a very very asset to have created.

What happens when the market turns?

I’m guessing a few things:

– Sales of bikes and treadmills will drop. This seems like an obvious statement – again, based on the growth we experienced at Beachbody, it’s not entirely a given. But for now, let’s assume it to be true. If the company is watching its numbers closely, they dial back customer acquisition spend. Let’s assume it goes to zero. It won’t, but even if it did. New customer acquisition was operating at breakeven. It wasn’t adding margin dollars. But obviously adding new customers into the mix.

-How many customers stay on for $39/month? I was at Beachbody from 2007 thru 2015. We grew in a meaningful way thru the Recession, presumably because people gave up their gym memberships to buy a $60-$120 program. Let’s call it $100 they paid. Peloton customers are on the hook for $500/year. Are people going to stay on? And what happens to those that are on installment plans? To date, according to the S-1, bad debt has not been meaningful. Unless I missed it, they didn’t disclose any figures. But it will go up.

-It’s not clear just how much leverage they will get with their current OpEx and how much additional overhead is required to add 250K new subscribers.

-But if the economy goes south, they likely won’t get that additional 250K and will likely cut staff to consolidate around higher-margin opportunities.

$200 million of non-sales and marketing OpEx is huge. Their current employees don’t want to hear it, but realistically, cutting back on R&D and tightening up with those 2,000 employees, is something they’ll need to do.

But with coffers potentially of over $600 million post-IPO, tightening up as needed on acquisition and/or G&A, and expanding its offering into additional high-margin categories (ingestibles in particular), Peloton appears in position to grow. And certainly to withstand a market downturn.

Having 500,000+ active customers is a huge advantage. It’s a pretty good bet that if offered more, they’ll take it.

If all else fails, those 500,000 will come to the Company’s rescue.

That’s what families do.

And make no mistake, they’ve got a huge Peloton family.

Do Performance Marketers Intentionally Ignore Brand?

August 4, 2019 by websiteadmin Leave a Comment

In one of 2PM‘s recent Member Brief’s, (article is here – behind a paywall), he describes the reaction to his Brand-First Strategy. (In a nutshell, it’s an outgrowth of the growing CAC’s, at least in bigger digital channels. And that those who’ve used aggressive performance marketing strategies are struggling a bit to continue their growth. The Brand-First Strategy is more focused on content to build a community, then leading to commerce. Build the audience, then sell to them. I have separate thoughts on the specific strategy which I’ll save for a different post (it makes sense, it’s just expensive and only a few handfuls have executed well).

Back to the 2PM article. In it, he references a side conversation that occurred after his piece. There, he quotes Tonal’s founder Nate Bosshard as saying, “Seems like a straw man argument. What marketing executive has ever said “ignore brand?”

As a good friend of mine would say, I don’t think that’s the right question.

Instead, my experience with performance marketers over the years has been that’s it’s not that they SAY “ignore brand”. It’s just that they IGNORE THE BRAND. Not all of them of course, but I think it’s fair to say that it’s more often than not. And I find it’s not intentionally doing so, which is what I took from Nate’s comment above. Rather, it’s that so many of them have gotten so focused on growing a business, loving the process, getting customers, driving sales – that “brand” just doesn’t come up.

To be clear, for me, “brand” really is about paying attention to and taking care of the product and the customer. Which is crazy to think that so many people don’t really pay attention to either. They may say they do, but really they just love making money – often at the expense of brand. By the way, I’m nowhere close to perfect in this regard and am not trying to take a self-righteous approach here as you’ll see in the next paragraph.

When I was at Beachbody, so many of our decisions were driven in large part by the nearer-term, quantitative results – whether of an A/B test or otherwise. I’ll give you an example of something I did which in retrospect was understandable intellectually but short-sighted from the brand side. Early on in my time there, I made a decision to remove an extra set of handles for our resistance bands from a box so customers would have 1 set of handles, not two, for the 3 bands we provided. It made us more money, and I simply figured customers could switch handles between bands. Great short-term financial decision. Horrible for the customer – those handles were brutal to take on and off. (My bad if that affected you.) That might seem like such a simple and basic example, but it reflects the thinking that occurs in so many businesses today – save money but at the expense of the customer’s experience.

After I left Beachbody in 2015 to build my consulting business, I began speaking about bridging performance marketing and brand. More often, I was talking to bootstrapped entrepreneurs much more so than to venture-backed businesses. So that brings a slightly different type of thinking – much more financially-driven because they don”t have the level of outside funding. What i found is that the “brand” conversation fell on deaf ears. They just didn’t want to or just couldn’t hear it – given their mindset and priorities.

Which is what has led me to focus so much more on this idea of crafting an incredible customer experience. Done well, it can benefit both the performance marketing needs as well as help to build the brand. So even if you’re not bought in to the brand conversation (at least not today), and you see that crafting an incredible experience satisfies your performance marketing sensibilities (customer acquisition and retention, most notably), then that’s fine. And then if you’ve done it well, in a year or so, the brand should have started to build, and you’re happy you went down this path.

As an example, Dollar Beard Club (now The Beard Club) did this well – by tapping into identity and community (what it means to be a bearded man) in their Facebook video ads. Clearly performance marketing-driven AND it help to build their brand.

There are plenty of other examples:
-Loot Crate and Nerd Fitness do a similar job of tapping into identity and community
-Supreme New York leverages scarcity and its Thursday morning drops to drive the real-life frenzy to help customer acquisition and repeat orders
-Rover uses information transparency so that dog owners have a sense of comfort of knowing where their dog has been, benefiting both its customer acquisition and retention goals
-NOBULL creates content to engage with its customers and to drive product launches
-For Warby Parker and Stitch Fix, their business model itself was based on creating a new and different customer experience, so it served a performance marketing goal and concurrently helped to build the brand.

No one is perfect, and there are of course examples of the above companies doing things that didn’t serve either a performance or brand-driven goal. But I would argue that these businesses have realized that building their brand is not at odds with their performance marketing goals. They are not mutually exclusive but can entirely co-exist.

What that means is they’ve managed to achieve impressive financial results (both top AND bottom-line) as the brand grew. And arguably, it was their attention to brand (again, product and customer), while matched with a performance marketing set of constraints, that lead to these outcomes.

And so in thinking about Nate’s original comment, these companies clearly did the opposite of saying they wanted to ignore the brand. They were intentional about making it a priority.

As for others, it’s a rare company that says they actively want to ignore the brand. And to those who just do so – whether believing it’s not important or they can’t afford it – I’d offer some of the above as examples and inspiration to start doing so.

If you’re interested in seeing further examples and contexts of where to create incredible customer experiences, I’m in the midst of writing a book on the topic. You can see some of my thinking here. I also share my eCommerce Framework, which ends with a lengthy section on the categories and companies (70+ in total) that I’m featuring in my book.

A final note here. I’ve found that many performance marketers fear that focusing on brand means that they’re now a brand marketer. Which sounds like a big insult to brand marketers. But it’s not the label but rather the feeling that they’ll be doing things that aren’t measurable, or at least not as measurable as what they’re accustomed to. Again, I would simply say to start by trying to create an experience in the context of the performance marketing goals. That doesn’t mean spend a bunch of money and don’t track it. But to the extent you can be intentional about what you’re trying to create longer-term and you use those goals with your acquisition or retention goals, you’ll be much farther down the path of building a successful and sustainable business (er, brand).

Crafting Incredible Customer Experiences – Presentation at Traffic Mastery Live, Nashville, Sept 2018

November 8, 2018 by influexwp Leave a Comment

Ed O’Keefe asked me to come speak at his event in Nashville this year. I’ve received his permission to share the video.

How Blue Apron Revealed a Lot More about Customer Acquisition and Retention than It Likely Intended To

November 8, 2018 by influexwp 20 Comments

I’ll cut to the chase first. I have no inside information, but my analysis has lead me to conclude that Blue Apron is acquiring customers at a rough CPA of $150, its current monthly churn appears to be ~10%, and the Company eventually nets ~$150+ of contribution margin over the lifetime of an average customer.

Those numbers aren’t written in their S-1, but the analysis used to come up with them is based entirely on the information provided in that S-1. No one else, as far as I have found, has published them. I frankly haven’t seen even educated guesses at specific numbers. Other than saying that the current number is probably higher than the $94 figure they disclose in their filing – but that number is based on the average of 2014 through early 2017 results.

For background, I helped to build the analytics team at Beachbody, then ran media and customer acquisition there for the last 5 of my 8 years. I’ve since spent the last 2 years helping my clients use information to dramatically improve their customer acquisition and retention efforts. This isn’t an entirely new area for me. And certainly, if someone or the Company proves me wrong, I’ll be the first to acknowledge it.

My goal here is to show how you can dig through information that may not be explicitly detailed and how I got to my conclusions.

More important than what the numbers they shared reveal is what the implications are for their own business as well as others in the meal delivery space, and the broader subscription business. More on these points in a bit.

What Blue Apron Shared

The below graphic is the one that has been making the rounds. It is pulled out of their S-1.

Chart #1

What the graphic shows is the average cost to acquire a customer during the 2014 to early 2017 period. I’m not sure why it’s called CPC (“Cost per Customer”), but it’s more normally called CPA (“Cost per Acquisition”). In addition, it shows the lifetime revenues for customer over various periods after their first paid order. Since the date range considered is 2014 to early 2017, but we are only in mid-2017, the metrics shown for 30 months out and beyond are based on customers in the earlier part of the range.

Let’s also not gloss over the clearly very intentional label, “Months after First Paid Order.” One frequently-used component of Blue Apron’s customer acquisition strategy has been to give away meals and/or the first box. That language is specific, such that if a customer doesn’t pay for the first box, they are excluded from the lifetime revenues part of the table.

As for the Marketing Expense associated with these free boxes, there’s this language from page 67 of the S-1 – “Also included in marketing expenses are the costs of orders through our customer referral program, in which certain existing customers may invite others to receive a complimentary meal delivery…The cost of the customer referral program is based on our costs incurred for fulfilling a complimentary meal delivery, including product and fulfillment costs.”

Re: the definition of a customer: “We determine our number of Customers by counting the total number of individual customers who have paid for at least one Order from Blue Apron across our meal, wine or market products.”

Which means the marketing expense captures the cost, but shouldn’t capture the count of customers if they didn’t convert into a paying customer.

Net net, I actually think the way I’ve done by analysis is okay given how they’ve calculated their metrics. But real churn, if you included free trial customers, would be dramatically higher. Churn from paying customers is all I could calculdate. But the fact that the Marketing Expense includes the product/fulfillment cost means they are correctly loading up their marketing numbers.

Next, the below is another table they presented. It’s an eye-sore for everyone, but has some valuable information in it.

Chart #2

Here is a view of the more telling parts of this table.

Chart #3

Based on Charts 1 and 3, we have the information to calculate their acquisition cost and churn.

I’ll start with churn:

The first line is provided in Chart #1. The second line is just the difference from one period to the next. Now, the estimated retention is based on the following:

From Chart #3, it looks like the Average Revenue per Customer is roughly $247 per quarter. I’ve had to make some simplifying assumptions – this number is a simple average – not perfect but likely close enough.
$247 per quarter implies $494 per 6 month period. So if in the period from 6 months to 12 months in, customers generated an incremental $196 of revenue, then that implies that Blue Apron only has 40% of them left ($196/$494). This is the calculation behind the 40% figure in the 12mo column. The same math is used for the rest of that line.
Dropoff – this is the percentage point difference from the prior period – Note that I haven’t shown Day 0, which was the starting point, to calc the 17% for the 6mo column.
A couple things jump out, whether from the Estimated Retention Line or the Dropoff one.
- Somewhere between month 6 and 12 is where the 50% figure is crossed, which helps to give a sense of the average stick rate of customers
- Estimated retention seems to go up from month 30 to 36. My guess is 2 main factors are causing this: a) we don’t have the exact same cohorts in the analysis, only what was available when the S-1 was put together, so it’s not pure apples-to-apples; and b) I’ve made simplifying assumptions based on Average Revenue per Customer, but I would guess that those customers who have stuck around 30 and 36 months have higher-than-average quarterly revenue.

To get a bit closer to when the 50% threshold is crossed to give a sense of the average retention rate (at this volume, I think it’s fair to say that the mean and median are approximately the same), we can do some additional analysis.

Using a straight-line average of dropoff – use the figures at 6 and 12 months as the starting and ending points, respectively, we can generate this table:

From there, it looks like somewhere around month 10.5 is when the 50% figure would be crossed. If the average customer sticks around 10.5 months, that implies monthly churn of roughly 100/10.5 = 9.5%.

This figure is going to be supported as I get into the CPA calculation. But one other way to back into that churn rate is to take the Company’s reported $939 of lifetime revenue, and divide it by the simple average revenue per customer, which I’ve calculated at $247 (per quarter). That implies 3.8 quarters that a customer sticks around, or 11.4 months.

The simple average of these two calc’s would be 10.5 months. I’m discounting a bit for scale to get to my 10% figured.

Couple additional points here – the average lifetime revenue from those cohorts in the 36mo column will go up. They’ve simply reported the data they have now. So arguably LTV will only get better, but at the same time, as the Company attracts a broader group of customers, that’ll be counter-balanced with lower-quality customers. We can argue about what retention plans they have in place, do people get stickier to the service, etc., but for now, let’s assume this is all a wash.

Now, to calculating the actual CPA Blue Apron is running at

The top part of this table is from Chart #3, the rest is the analysis based on it – my explanation of the table is below:

Change in customers is simple math – the net change in customers from the end of the prior period to the end of the current period.

The next section – Customers acquired at different CPA’s – shows the number of customers acquired based on the Marketing spend reported by the Company and based on varying CPA’s. Since the average from 2014 through early 2017 is $94, I’ve made the assumption that the Company CPA has been increasing over time – not unreasonable at their scale. I’ve just used simple $50 increments after trying out a few different ranges.

For example, for Q1-2017, based on $60MM of Marketing spend, and at a $150 CPA, that would imply 404K customers who joined during Q1.

Based on these figures and the net change in customers (to repeat, a calculated figure based on the table), the Churn section is then created. At $150 CPA, that would imply the Company lost over 247K customers during Q1-2017.

Monthly churn is based on the average of the prior and current period figures, adjusted for the fact that those numbers are quarterly. Again, sticking with the Q1-2017 and $150 CPA figures, that would imply churn of ~9%. I’ve simply multiplied the monthly figures by 12 to show annualized numbers. Anything over 100% describes a scenario where the Company is essentially turning over its entire customer base each year. We know that in actuality that isn’t the case – there are clearly some customers who have stayed on for a very long time, but it’s a helpful way to make sense of those over 100% figures.

Finally, Lifetime in monthly is calculated based on the Churn percentages – the opposite of what I did in the original churn analysis.

Which assumption on CPA is correct?

If we assume a lower figure, that means that churn is higher. And vice versa.

But if we layer on the first analysis here, and use the “starting point” of ~10% churn as a possible figure, that leads us to look at the $150 CPA line. Note that during Q4 of 2015 and 2016, the Company lost a lot of customers, which isn’t unexpected given the holiday season. Even with the Q1-2016 figure, as much as CPA doesn’t stay constant, the 10% churn figure and $150 CPA seem like defensible metrics for the business based on the information they provided.

Many folks have commented on the fact that Blue Apron didn’t explicitly reveal its churn. But I wanted to share that it’s possible to back in to that figure.

As for the $150 CPA, it seems reasonably that the current CPA is ~50% higher than the average over the past few years. At their volume, that isn’t unexpected, not to mention, they are going after more mainstream customers, as opposed to the early adopters. That usually means spending more to reach those folks. Finally, competition has increased – everyone like pure competitors such as Hello Fresh and Plated, as well as additional options like Munchery, Uber Eats and even Door Dash – have no doubt made customer acquisition more costly for Blue Apron.

What this really means for the business, and how much does the Company make on each customer:

Using the average revenue per customer, alongside the disclosed cost of goods, the Company makes roughly a 33% Gross Margin on its revenues (Revenues less Cost of goods, which include product and fulfillment expenses). Adjusting the quarterly revenue per customer to a monthly basis, the average monthly gross margin per customer is ~$26. (Note, at a $150 CPA, that implies 6 months to breakeven on a customer, which is exclusive of all of the Company’s additional expenses such as G&A, capital expenditures, etc.) If we then multiply that margin figure by the average lifetime, we get a lifetime gross margin, which when reduced by the acquisition cost, gives a lifetime contribution margin (“CM”) per customer. At a $150 CPA, the Company is roughly making $152 per customer.

Implications for Other Businesses

For starters, Blue Apron has significant funding – almost $200 million according to Crunchbase. That has allowed the Company to operate at a significant loss for pretty much the entirety of its existence. Many of the other larger food delivery companies are in a similar situation, though the vast majority of companies at large don’t. In addition, operating in the red on a per customer basis for 6 months+ is more taxing than most companies can afford.

It’s also tough to run a business when 10% of your customer based is cancelling each month. Those are figures reminiscent of my days at Napster in 2006, when the iPod was the hot thing and subscription music was widely criticized as a non-starter. (This was also the period when Blockbuster came out with its competitive product to Netflix, and everyone “knew” that was the end of Netflix. I think we’ve all seen how that worked out.)

10% monthly churn is really high. As I mentioned earlier, that equates to turning over your customer base more than once a year. Which puts dramatically more pressure on customer acquisition. And while the company only has tapped 2-3 million total customers (I’m again making some simplifying assumptions), which is 1% of the US population, with rising competition, it makes its model more difficult. Not that I’m betting against them necessarily. More just looking at what their metrics seem to indicate.

Net net, this is a tough business. The margins aren’t great, customer acquisition isn’t cheap, and retention is unlikely to jump from 10 month to 20 months in the near future.

Something would need to change for their model to dramatically improve. With these dynamics, it’s not just a “we’ll make it up on volume” play. But to the extent one or more of those components – core margin, acquisition cost, or retention – could change markedly, the model could be different.

The only one of these metrics that was likely reasonably understood early on was margin. Until they (or anyone else) began testing, acquisition costs and stick rate were really unknowns.

Which go to the larger point for other businesses, whether in the same or other categories, and that is about how to get as quick an understanding about the business fundamentals and dynamics as possible.

To be clear, there are plenty of subscription businesses that are thriving, both in the food category and beyond. This is absolutely not a criticism on the category – and frankly it’s not a criticism as much as it is a deep analysis on the Blue Apron business itself.

Every business has to manage through the relationship of Customer LTV and Customer Acquisition Costs. And then must layer on constraints such as cash, risk it is willing to take, and business objectives – in determining the better path to proceed down and what strategic decision it wants to make as it evolves.

That is the challenge and the fun of forging ground in new categories.

I, for one, am certainly very interested to continue to watch Blue Apron along its own path.

What I Learned from Managing $500MM+ in Media and Acquiring over 10MM Customers

November 8, 2018 by influexwp 7 Comments

I’ve talked to a number of people recently who think that optimizing and scaling campaigns has this magical and mystical aura around it. And that there’s some secret to doing so.

Well, I’ll let you in on the secret…

During my time as the SVP, Media & Customer Acquisition at Beachbody, we ran over $500MM in media and acquired more than 10 million customers. I now work with a variety of direct response marketers — helping them to optimize and scale their businesses, identifying not only gaps and opportunities, but also key points of leverage to exploit.

And whether at Beachbody or with my clients, I’ve found that just like everything else, there is no magic.

Instead there is a process to follow, primarily driven by a list of questions, to help identify gaps and opportunities in your business. (Because oftentimes, those gaps and opportunities are where optimization and scale happens.)

Some questions have quantitative answers, others are qualitative. Some questions identify gaps in…

information (oftentimes reports that should be run regularly)
a marketing issue (why you don’t offer installment billing, for example)
or a training issue (do your customer service reps know how to respond to certain customer issues)

Almost always, the first answer someone gives is not the entire story, and so pressing on additional questions can help to uncover the next layer of understanding. Those questions are harder to script because they are dependent on the specific answer and/or individual responding.

Today I’m sharing the 6 category process I use to dig in to a business, regardless of whether it’s doing $10K a month or $100MM per month. The process is the same, it’s just at a different scale and level of complexity.

But it’s not for the faint of heart.

Most likely, some of what you’ll find from this process, you can take immediate action on, like training. Other areas require testing. (Where possible, PLEASE test before you change a control.)

But before you go out and implement anything, there’s one crucial step to take…

Prioritization.

Everyone is resource-constrained — for people, time, dollars, or traffic. We would all love to test everything we think of, but of course we can’t. And not all tests are created equal. This is where doing a bit of math can help you to understand the possible impact of different tests. You’ll likely have to make some assumptions but even with reasonable guesses, you’ll realize how little (or how much) a certain test could move the needle, when compared to others.

Here’s an example:

You may believe that both your landing page and one of your later upsells could use some improvement. Based on some assumptions and running some numbers, you might find that if you could increase the front-end conversion rate from 3% to 3.1%, that change would have the same impact as tripling your conversion rate on the upsells from 1% to 3%.

But with some business context, you might also know that the upsell is a hard sell at this point – maybe it’s really expensive or maybe the offer just isn’t compelling as it needs to be. Not to mention, a later upsell requires more traffic to get the test to statistical significance. As such, that little bit of math you do might help you move forward with the front-end test instead of some lengthy upsell one.

Too many people miss this prioritization step and as a result, don’t focus on the key points of leverage in their business.

So… ready for the 6 category process? We’re about to get into it. But first a word to the wise…

The below is fairly in-depth and so it might serve to identify where you ASPIRE to be. You may not have these things in place now or in a year. Don’t be intimidated. If you’re at the beginning of your journey, pick one or two of these gaps and close them. When your business is young, even the smallest changes can have a tremendous impact.

If you have a mature business but are looking to take it to the next level, you’ll want to address more of these gaps or hire someone to get it done.

Ready? Let’s go.

6 Revenue-Focused Categories

The list below is by no means perfect, nor comprehensive across all businesses.

But it does reflect the primary steps in my process of helping to break down a business to find areas to maximize.

The core questions fall into 6 categories that are primarily revenue-focused. They may also help to define roles and teams as the organization grows. I’m a huge believer in managing expenses, but if you’re a younger, growing company and you don’t have sales, the rest doesn’t matter:

Traffic / Media
Conversion
Offers
Non-converting leads
Post-Transaction
Retention

Let’s start with…

1. Traffic / Media

Start with your traffic sources.

Do you have a weekly report showing…

traffic
spend
conversions
CPA
conversion rate
AOV (Average Order Value)

…by traffic source (SEO, Facebook, Email, etc.)? Can you analyze trends weekly? If not, you’ll likely find that simply reporting on this type of information will provide a foundation upon which to build.

Then you can starting digging in with a number of questions:

Do you know customer LTV by channel?Because performance relative to goal is the only way you can say that one channel is doing better than another. (I’m assuming you’re a direct-response marketer and not simply focused on impressions and reach.)
If the LTV is different, are you actually managing to different CPA goals?
Are those different goals on your reporting spreadsheet and are you managing to those different goals?
What channels are performing better than others?
What sub-channels, ad groups, etc. have shown success and which have struggled?This sounds like the same question, but the former is at the channel level. This is about looking at results where everything happens — in the details.
And then, there’s the simple question of when was the last time you tested new copy or images?

Not all questions will come from a report. For example:

How repeatable and scalable is an opportunity or channel you’re considering? You might get pitched what you think is a great idea, but if it’s only a 1-off and you can’t replicate it and scale it, you might want to consider passing. For example, someone with a list offers you a JV deal, but you need to do a ton of customization on your site and to your backend to run it. And that customization isn’t applicable to other JV partners. That takes work and is a potential distraction to your team who might be able to focus on other opportunities that are repeatable and scalable. This is not to say you never do 1-off’s, but rather that you look at these types of opportunities with a discerning and intentional eye.

In general, in my experience, the companies that have had the greatest success know that repeatability and scalability are two keys to their success. And those companies know…

The one big mistake to avoid.

And this applies beyond media. Once you find success with a channel (or offer), go deep and hard on it. It’s really easy to get so caught up in testing different sources that you fail to fully exploit one (or two) that is working. Or like a lot of marketers, you might have shiny object syndrome or get captivated by something you hear from a friend.

If you look at the successful marketers out there, they aren’t actually masters of every channel. They are usually really good at one or two. When you think about it, that’s not surprising. They probably tested a few things, found some success and then pushed hard there. Because they knew that they couldn’t be great at everything but also that they needed to go deep where they were having success.

Sometimes that’s the difference between those who scale and those who don’t. Two companies might both achieve early success but it’s what they do with that success that can separate them.

Key Takeaways

Work to understand the value of customers from different channels and that you’re managing to those respective goals.
Filter on repeatable and scalable opportunities.
Once you find success, exploit the heck out of it.

Next up…

2. Conversion

Most people have the raw basics down:

Click through rate
Overall conversion rate
Average order value

Then you can starting digging 1, 2, or even 3 levels deeper with a number of questions:

Do you know conversion rate by traffic channel?
If you have a 2-step conversion path (landing page -> checkout page->thank you page), do you know the click through rate from landing page to checkout page and from checkout page to thank you page? It might reveal something to you, such as break points in your funnel. Translate this to other parts of your funnel and your business.
Can you betterunderstand the different steps in your business? For example, do you track how many people submit an email address or a credit card on your form but don’t complete an order? This might tell you something about your form, page, offer, or something else.
What is the take rate for each upsell in your funnel? Do you know it overall and by channel?
When you calculate AOV, are you including continuities initiated from that first transaction when you consider Lifetime Value? Meaning, when you analyze initial orders, are you appropriately valuing them(while understanding there are cash flow implications to consider)?

I know… I just hit you with a ton of questions. Take a deep breath.

Then, just pick one of them and focus. Or, hand that list to whoever handles conversions and allow them to pick. I’m intentionally throwing a bunch out there to give you different ways of looking at your conversion path.

Then, there’s the most underused and valuable conversion tool that digital marketers fail to add to their mix:

…a phone number.

But isn’t the phone old-school technology? Yes, it is. But you also might not realize that many marketers make 25% or more on a phone order than an order online (even factoring in the cost of talk time and agent costs), not to mention conversion rates can be dramatically higher on the phone.

So if a customer has a question or wants to order on the phone, do you let them? Particularly if you have customers 45+ years old or have a higher ticket offer?

Even if the idea of managing a call center scares you, you can do a simple 3-step test:

Get a new prepaid mobile phone number for your business
Put that phone number on the landing page AND checkout page
You or one of your team can answer calls – even if you only want to answer calls 5 hours a day, put a voicemail message for when you don’t answer.

You will quickly figure out if people want to call, then you can see for yourself if the added work of more numbers, agents, or even a sales call center (VERY different than your customer care agents) is worth it.

Key Takeaways

Whether you’re sending your traffic to a…

landing page
phone number
webinar
Amazon
physical store

…try to break down and track the process each step of the way.

At the least, you’ll have a baseline to measure from.

Better yet, once you break things down at a more granular level, you’ll uncover opportunities you hadn’t seen before.

3. Offers

There is plenty of info out there Tripwires, writing copy, etc., so I’ll focus on a couple other areas that can have a significant impact on your business.

Upsells

Anything less than 2 and you’re probably leaving money on the table.

Giving customers the ability to order more than 1 of whatever you offer — 2 or 5 or 10 of something — is an upsell. They don’t have to be some magical new product. While ingestibles have had real success offering multiple units, if you offer a training program, why not suggest that a customer buys a second for a friend, or gets a second for a discount?

Offer Bumps

Russell Brunson has a really slick version in Step 2 of his process here.

Don’t have another product to sell? Be an affiliate to a relevant and complementary product…

If you are in weight loss, go partner with a company like HealthyOut or a food delivery company
If you’re in the dating niche, find someone who can help your clients with personal style and attire
If you teach internet marketing skills, find a technology partner (look at what Digital Marketer has done with InfusionSoft)

Then, when you test, you can see what your traffic responds to, and that might give you some insight into what product your audience will respond to.

Installment Billing and Payment Plans

Some marketers offer a premium for installment billing — the multi-pay total is actually more than the 1-pay.

(By the way, this is also called financing and what each of us did when we bought a car or a house.)

Some marketers (see: infomercials) start with a multi-pay offer and then offer an incentive for 1-pay (managing to bad debt and getting cash on day 1 can be hugely valuable).

Neither is right or wrong. Or inherently good or bad. But are you doing either?

Price Testing

When was the last time you tested increasing or decreasing your price point?

You can test by traffic or adding/removing something simple in the offer in case you’re worried about customer backlash — test to a small percentage of your traffic, but you need to get at least 500-1000 orders to feel good about the results.

Key Takeaways

What can you do to generate more?

When all else fails, go check out what your competitors are doing!

4. Non-converting Leads

The average conversion rate to most sites is ~5%. That means 95% of visitors aren’t converting.

Which means it’s absolutely necessary to be using retargeting. Are you?

On Facebook?

Here’s what a retargeting ad looks like on Facebook…

Display?

Via email for cart abandoners?

Test when and how many to send – perhaps start with 3 emails – 20 mins post-exit, 23 hours later, and then 1 week later.

You can dig in to your retargeting efforts with these questions…

When was the last time you tested your creative on retargeting?
What can you apply from your retargeting campaigns to cold traffic.For example, lookalike audiences on Facebook or Google?
If you have a higher price point product (over $500 for example),have you tested calling non-converting leads? (There are some specific legal rules on calling people, so take a look at the rules before doing so.)
When was the last time you had someone go through your site to make sure that pixels are actually in all the places you thought they were? Or whether your remarketing automation is actually working as you believe it to be?

Key Takeaways

Don’t let anyone go.

Even junk traffic can be monetized — I know a guy making a killing by taking people who mis-dial toll-free numbers and offering them a survey which has been funded by a research company. Don’t harass people, but even people who inadvertently raised their hand can be valuable.

Regardless, definitely make sure you have a path for people who don’t convert.

5. Post-Transaction

Again, there is a lot out there about offering more on the thank you page.

So let’s target other areas of your business

Do you send an order confirmation email?

Do you offer content or additional offers in that confirmation email?

What about a shipping confirmation email?

Do you provide onboarding content?

Here are some great examples for SaaS businesses, but applicable to any business.

This one frankly could come pre-transaction but do you make it super easy to get going with something as obvious as a “Start Here” button

Do you tell your customers what to expect when using your product?

If you offer a cleanse, do you tell customers to be prepared to be cranky on day 3 or 4, so that they might want to start on a Thursday so their work doesn’t suffer?
If you sell them an ingestible, like a shake, do you provide recipes and/or make suggestions on how to make it a part of their daily routine?
Do customers know to expect that muscle soreness doesn’t usually kick on the next day but 2 days after (because of DOMSS – Delayed Onset of Muscular Stiffness and Soreness)
On day 30, if they purchased an ingestible like protein powder, do you send them an email with a quick reorder link?

Is it easy for people to find answers to questions or know where to go or do you try to make it nearly impossible for customers to contact you?

And in that case — are questions responded to in a timely manner?

Key Takeaways

Most of these suggestions don’t immediately impact your bottom line. But if you can take steps to make sure that people’s experience of your product or service is great, and that they feel like you are looking out for them, they will like you that much better.

And their chances of success with your product will be higher.

Which means repeat and referral business. (This is the cheapest source of traffic you can get.)

6. Retention

Note: This section is applicable both to continuity offers (e.g. membership sites, subscriptions, etc) and “1-time” transactions

Let’s start with a few questions here:

Especially if you have a continuity or subscription-based business, do you have a single person accountable for retention?If the answer is everybody or nobody, that may be the first place to start.

Well beyond retention, having a single person accountable for a component of the business increases the chances of it improving, or the rate by which it improves. And simply because there’s a single person accountable doesn’t of course mean that individual is the only one working on it. It merely means that they are the owner who then coordinates with other folks on the team.

That individual could then focus on understanding and improving questions like the following:

How long do customers stay on continuity? By channel or offer?
Are you breaking down customers into cohorts based on start month to see if there are any changes over time?

Do you know your refund rate? Remember that refunds are a part of customer retention, even if you don’t have a continuity product.
What are the top 3 reasons people cancel or return your product/service?
What do your customer service reps say when a customer wants a refund? Based on any kind of segmentation?

The above gets you to a baseline level of understanding. Again, don’t get too caught up if you don’t have this historically – at the least, beginning the process of tracking sets you up going forward. The next step is to see what you are actively doing to extend the lifetime of a customer.

Can the messaging on the front-end be tweaked, without killing conversion?
What content should be communicated to the customer after they have purchased? (Overlaps with the post-transaction section above.)
Can you partner with someone to offer a product or service that addresses the bigger challenges people face?

One of my friends has a product to help people build their own business, but he knows that one of the biggest challenges his customers face is psychological, not technical. So he has partnered with a personal development coach offering his services to his customers as an upsell. He can also test offering these services, potentially for free, given how high his price point is, to customers wanting a refund.

“Before you cancel, can I connect you with a personal development coach who will spend 45 minutes with you to help get you over the barriers that have been holding you back?”

That’s a pretty compelling message.

Can you keep people on a downgraded plan when they want to cancel?

When I tried to cancel my ClickFunnels account, which was $97 / month, I got an offer for $19 /month (I think) to keep pages but they aren’t live. But if I cancelled, my pages were deleted forever. So I’m paying to pause my account.

That’s pretty slick!

Here’s a question I’m sure more than a few of you are asking right about now:

What if you don’t have a subscription model?

(Other than the snarky, “well you should get into one…”)

Retention doesn’t have to be about continuity billings but can be about making sure someone is active and/or happy enough to buy when you put out new offers.

Ultimately, what can you do to create happy and successful customers? It sounds so obvious, and yet too often we fail to dig in to understand our customers’ key pain points – just spend a couple hours taking customer care calls and you’ll hear it first-hand. Then figure out how to take that knowledge to tweak your customer’s experience.

Key Takeaways

No matter what, your business shouldn’t be just about traffic and acquisition.

As everyone knows, it’s a lot easier to sell to an existing customer than to a new one. So what can you do to nurture your existing ones?

So here we are…

This process really is about identifying and digging in to the key components of your business. Whether you’re a 1-person shop or have teams all over the place, the actual process of going through and answering these questions – at least for the first time – will likely identify gaps as well as needs (oftentimes information needs).

But the process doesn’t stop after that first time. It should build to be a continual process that eventually gets parsed out to team members who have accountability for improving their respective areas.

Final note: everyone is resource-constrained, so you’ll want to find the biggest points of leverage in your business. But don’t shy away from small wins. Remember, a lotta littles can add up. When you and your team start paying attention to the more granular details in your business, that is when you will create true optimization and scale.

So at the very least, pick a single area to focus on. Make it something achievable. And go make it happen!

I’d love to hear your thoughts on where you have challenges driving growth and where you’ve had particular success.

(This post originally appeared on the DigitalMarketer blog.)

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