Analytics

Cost Optimization Isn’t Sexy Until You See What It Does To Your Bottom Line

November 8, 2018 by influexwp Leave a Comment

I have previously shared the process that businesses can use to scale media and revenues. If you’re a small company, that’s where the focus should be, because if you don’t have sales, the rest doesn’t really matter.

As you scale, though, it becomes crucial to make cost optimization an additional area of focus. You of course want to get as much margin on those sales as possible.

I’ll acknowledge that optimizing your media, CPA’s, and revenues can be more fun and sexy than, say, lowering your costs to your shipping carriers. Or working to improve your merchant processing fees. But if your larger goal is to put more money in your bank account or to have more money to invest back in the business, then shifting from what’s more fun to what is more impactful is an important change to make.

Below is a breakdown of 8 cost-focused categories where I’ve seen significant impact to a business’ bottom line. As with any area that you want to improve, make sure there is a single person who is accountable for that part of your business.

Merchant Processing
Commissions to affiliates
Commissions to sales reps
Shipping / Fulfillment
Technology
Product Costs
Customer Service

Prioritization

At the risk of repeating something from my prior article, I cannot stress enough how important prioritization is. Whether across cost buckets or in evaluating tests within one. Sometimes you know straight away where your numbers are out of whack. Even then, I’d suggest taking the 5-10 minutes to do some math on how much impact you think you can have. Or how much improvement you need to get relative to other areas you may focus on.

Testing

A quick word on testing. Generally, many of the areas below are more about vendor pricing and so it’s easy to assume that there really isn’t testing involved. Most of the time, I’d agree with you. But to the extent you are affecting customer experience, such as changing shipping carriers or repackaging your product, keep a particular eye out for noise from your customers. These types of changes may not be based on a pure A/B test. If you approach them as tests, however, then you and your team are likely to be more mindful of watching for changes elsewhere.

Let’s dig in…

1. Merchant Processing

This is arguably the least sexy of anything on this list. It’s likely not the largest expense on your P&L, but it may be the one you cannot survive without.

If you can’t process payments, you are likely not in business. And there are a TON of companies who are seeing their processor go away as a result of Operation Chokepoint, the government’s way to shut down marketers with questionable or problematic business practices.

When it comes to payment processing, many businesses optimize for ease and speed at the outset. As such, they set up with Paypal, Stripe, or a 3^rd party that works with smaller, oftentimes higher risk marketers.

But once you achieve any sort of scale, you may be leaving dollars on the table in higher processing fees because you have a sole provider or simply because you haven’t shopped around for a better partner. Whether Paypal adds incremental orders for you is something you should test, but typically, going through one of these services means you have a higher overall rate or per-transaction fee. Or how much you’re charged for chargebacks. Or countless other buckets in that annoying bill that you aren’t really paying attention to. That is real money out of your bank account.

You might also be eligible for better service, such as a lower reserve (or none at all) or getting approved to process more when your volume increase. Unfortunately, I’ve worked with several clients who weren’t able to scale, not because they didn’t have the demand, but because they literally couldn’t transact those orders. Their merchant processing partner hadn’t approved them for higher volumes. That is a painful, frustrating and costly situation in which to be.

Here’s the thing – merchant processing is one of the most annoying parts of running your business. And it’s an area that very few people understand. But it could be costing you percentage points to your bottom line. And those points are 100% margin, 100% cash.

So what to do? At the very least you (or someone on your team) should go through your statements to try to understand the different components of your bill. There are consultants who can help you do this as well; it’s your choice whether you want this knowledge in-house or just want to pay for outside help. Then get on the phone with your processor to talk through your bill. Make it a goal to get better pricing and service for your company.

(I’m actually trying to get a friend to put out a marketer-friendly, no sales pitch webinar explaining some of the more important aspects of merchant processing. If that’s something you’d be interested in, shoot me a line here.)

So while merchant processing may not be as sexy as front-end split testing, when all is said and done, what margin do you get on that test that got you a 5% lift, versus the lower points you pay and better relationship you have with your processor?

2. Commissions to Affiliates

These next two sections arguably should’ve been in my prior article, as they are ultimately about media, but a) I forgot to put them in there; and b) they have some commonalities and relate to broader vendor and employee management, so they’re going here.

When it comes to affiliate commissions, I’m actually going to push back on a commonly-held philosophy: trying to pay out out as little as possible. Many marketers see their affiliate channel, whether offline or online, as a hedge against paid media. So they use it to balance out their numbers, in case their paid media comes in over goal. I understand that mentality. We did this for some time at Beachbody. But then we realized that we need to manage our paid vs. affiliate traffic channels separately. The latter wasn’t there simply in case the former had an off week so that our overall numbers looked okay. Each had to perform on its own. And our goal was to maximize the opportunity from each.

To do so, we, similar to most people who use affiliate traffic at scale, knew that we wanted to do everything we could to reduce friction for your affiliates – deliver to them ready-made banners, creative, swipe copy, etc. And in that “etc.” bucket needed to be “give ourselves the best chance of maintaining that partner’s traffic by making working with us as lucrative as possible..”

Most affiliates are driven predominantly by how much money they make. That’s their business, they’re allowed to think that way. So while you might be hedging against your cash media, it’s also likely that you are not getting the traffic you could.

This isn’t to say you are blind to issues like fraud or attribution. Not to mention remembering to nurture the relationship, since behind every affiliate name is a person. But I’d also suggest looking at the value of customers coming through you affiliate channels. Figure out what margin you’d be happy with. There isn’t a great reason why that margin should be any different as that from your paid media channel. Then payout as much as possible.

Once you know that figure, you can test out different payment structures – how much is paid day 1, over time, or even whether you extend lifetime commissions to your partners.

3. Commissions to Sales Reps

I could make the same argument here re: payout amounts as for affiliate commissions above, so I’ll add an additional nuance.

And it starts with a small point I made just above.

Remember: Your sales reps are people.

As such, each is motivated by different things. What you have to do is figure out a model that works for your business and then attract those for whom that model works.

One area where I’ve seen people make huge gains with their salespeople is in creating the right incentives for the behavior and results they wanted to see.

On one side, paying your salespeople too high of a base salary might result in their doing only as much to not get fired. (You already have this issue with most employees.) On the other side, if you pay 100% commission, that might mean too much financial stress for your folks. In fact, I’ve seen businesses put their sales reps on $500 per week for the first 3 months just so they have some income coming in. But it’s not so unwieldly that it’s a massive risk for their org. And then I’ve seen these same companies have some high 6-figure and 7-figure earners from their sales department.

To be clear, there is no right answer. I have some friends who will argue for hours that any commission is a bad thing. That the best way to get people to deliver their best is by paying only a salary. Others see that as the worst thing you could do. You need to find the model that works for you.

My goal here is simply to raise some considerations to help you think through different structures.

As if there was any doubt, sales is a brutally hard job. More than 50%, possibly 90%, of the time, you’ve just got the wrong person in that role. And it has nothing to do with comp structure. There is only so much you can do with the comp structure if you don’t have the right people in the right role.

But if you feel like you do, figure out how to craft a model that works for them and the business.

4. Technology

I’m intentionally steering clear about specific tools or technology partners. Those choices are too business-specific. Instead, there are a few processes I’ve seen have great results regardless of business type, technology partner, or otherwise.

The Ask

Last month I was a conference where one of my friends negotiated $7K in monthly savings from 2 different partners – his ESP (email services provider) and his ecommerce platform partner. Better yet, he got those reductions simply by asking.

Whether or not $7K per monthly is a rounding error for your business or a significant part of your take-home, that’s $84K in real savings. And this was a reasonably low effort way to reduce costs.

My point here is in some ways the same as elsewhere – you should take a regular review of your partner fees. And sometimes it’s just as simple as asking for a reduction.

Auditing

This is going to sound so obvious, but I can’t tell you how many times I’ve seen it make it a big difference.

On a regular (at least once a year), audit of your technology expenses, particularly those with a monthly plan on a credit card. It’s likely you signed up for some service (or seven) that was a trial that rolled to full price (you’re familiar with that model, right?). Or someone who is no longer around put one in place. Regardless, if no one is leveraging that tool, it’s a waste of money.

Some of these services may be $50 per month, some may be several thousand per month. For starters, if you’re not using something, cancel it. Just as important, doing this type of review is a healthy way to reinforce to the rest of your organization that you don’t tolerate waste.

(I’d also suggest doing this with your personal credit card. I’m guessing you have a bunch of similar types of services that you continue to pay for but haven’t gotten any use in months.)

Post-Mortems

This is by far the most difficult of the three, from almost every possible perspective. Ultimately, this is about looking back on where you’ve made technology (or frankly other) investments. Ideally, you evaluate ROI, or at the least, examine how the final costs of certain projects and what you got out of them, even if qualitatively.

Whether in a startup or in a billion-dollar plus organization, people complain about IT. Tools don’t do what people want. Everything takes too long. Projects go over budget.

So why does that the adage of “what gets measured gets improved” not seem to apply to IT? If you’re a performance marketer, then measurement is a hallmark of your business. And yet so often, whether quantitatively or qualitatively, rarely do we conduct a look-back on IT projects to see what went well (or didn’t) and what, particularly process-wise, can be done better the next time around.

At the least every quarter, sit down with your teams to conduct a formal review conversation. Leave ego, blame and excuses at the door (I know, easier said than done). And have some honest and service-driven conversations about how you can maximize your investments in IT, arguably one of the more important enablers (or inhibitors) of your business.

5. and 6. Shipping / Fulfillment

If you don’t ship a physical product to your customers, then by all means jump to the next section. But I’m going to lump both of these items together here.

A few questions to start.

If you do ship a product, do you know:

Do you know your average per order shipping cost?
Assuming you ship different products or different configurations, do you know the cost by these subsets?
Given that shipping rates are grouped above certain weights, do you know your tiers and have you looked to see if there is a way to decrease the weight of your higher-volume packages?
If you ship product to Alaska, Hawaii, Canada or anywhere else internationally, have you examined shipping costs and/or customs and duties fees. It’s possible that customers in these regions are not in fact profitable to the business.

With your fulfillment partners, do you know:

The average cost of processing your product through your warehouse partner is?
If you have multiple items in an “typical” order, have you explored whether it would be cheaper for your warehouse to pick and pack each order real-time versus “pre-kitting” those orders beforehand.
What about storage costs? I’ve got a couple products that I keep at the freight-forwarder at the Port of Los Angeles because their storage fees are so much cheaper than the warehouse’s (or Amazon’s). I didn’t think storage fees were that big a deal until I got an unwelcome buzz-kill from an invoice late last year.

Or how about something super simple – what percent of your net revenues are shipping and fulfillment?

I’ve got some folks in the physical products space where shipping is ~7% and fulfillment is ~3% of net revenues. This is such a bad number to compare to because there is no context of their business. But do you know your numbers?

Getting a benchmark is always the first step towards improvement (“what gets measured gets improved”, right?). Then, just like all the other parts of your business, it’s a matter of identifying leverage points and working to chip away at them. Whether it’s changing the way you all operate internally or getting more out of your vendors, you have to put some focus towards these areas.

Even then, sometimes your partners don’t respond.

One of my recent clients had gotten so frustrated with their fulfillment partner that they began in-depth conversations with several alternative vendors. When they came back to their current partner to talk through why they were seriously considering switching vendors, what became clear was their 3PL’s pricing was actually pretty decent but that their service sucked. And that was in large part because their left wasn’t talking to the right. I’ll admit that typically a partner will jump to fix things and then service will fall off again in a short while. In this client’s case, their current partner, to their credit, has raised and maintained their level of service. Which is a win for both parties.

Many times, unfortunately, a change is in fact necessary. And as much as it takes real work to switch vendors, when you know it’s the right thing to do, it’s then a matter of getting it done. (The same can be said with any relationship.)

Yes, it’s frustrating to have to get to this point, but it all begins with someone having accountability for this part of the business, and then making sure that pricing, service, and anything else you deem important is at the level you demand. And deserve.

A few other notes here.

Service Levels

Amazon has changed the game in terms of expectations on shipping. And yet, if you look at a lot of offers running on TV, they rarely tout next-day shipping or even 2-day shipping (which is considered rush). They can get away with several business days to get their product to their customers. In part this could be explained because the typical buyer of a TV-marketed product is a bit older, but that can’t explain everything.

Sure, these marketers are likely losing some customers in not offering Amazon-type delivery. But not everyone is Amazon. There could be financial, logistics, or technology reasons that limit your ability to get your product to a customer next day.

And you know what? That might be okay. At least for now. Because going with a service like Fedex Smart Post, which can take 3-6 days, might be more economical for you. Even when you factor in the impact on conversion, additional contacts to your customer service department, or to your brand. But you can’t always optimize for everything. And at the least, you should be intentional about what you’re doing and know your options.

Direct vs. Through a Partner?

At what point does it make sense to try to negotiate your shipping costs directly with a carrier as opposed to through your 3PL partner? Many folks manage their shipping agreements through their warehouse partner. At the outset, this is probably a good idea. As your volumes increase, it might make sense to explore what you can negotiate directly. (I’m assuming that you’re shipping outside of Amazon.)

As a somewhat arbitrary guide, I’d say once you are shipping several thousand units per week, it’s time to have these conversations.

What you may find is that your 3PL, because of the sheer volume they process, gets better rates than you can get. But it’s possible that:

You find that they haven’t negotiated their terms in a while.
You might learn about certain fees or services that you were previously unaware of
Building the relationship directly might allow you to resolve certain issues in the future, if only because you know the vendor directly. During my time at Beachbody, I cannot stress how important these direct relationships were, even when we continued to work through vendors or agencies. Simply being able to pick up the phone to avoid any game of “operator” saved us a ton of money, not to mention time.

The worst that can happen is the carrier says your volume isn’t high enough or that your rates don’t change. But hopefully at the very least, you’ve started to build the foundation for a direct relationship.

One Warehouse or Multiple Locations?

Here are some of the considerations to answer that question.

First you need to know the current geographic distribution of your customers.
Once you have that, then it’s a matter of understanding shipping cost by zone (how far away from your fulfillment center you ship to).
Does your current 3PL actually have multiple locations?
What is the net additional inventory position you’ll have to have in place, and what is the financial exposure of that additional inventory? (It’s never a matter of splitting up your existing inventory evenly into the new warehouses. And since inventory = working capital = cash, that isn’t a no-brainer decision for anybody.)

Multiple warehouses may not be applicable for all businesses, but it might be worth looking into. It might mean net additional inventory and some additional costs with your current 3PL. It might mean exploring a new partner. It also might mean lower shipping expenses and few customer service inquiries.

7. Product Costs

Beyond the “ask for a discount” point I’ve made arguably too many times, let’s talk about China.

Conventional wisdom used to be that manufacturing a product in China is cheaper than producing it in the US. I’d suggest that in many cases that is correct. But I’d also suggest that it doesn’t capture the fully-loaded cost of delivering a product to your warehouse.

In particular, it misses the cost of shipping your product across that big ocean over there. If you were one of those unfortunate folks who got caught out when the Port of LA workers went on strike last year, it also misses the cost of being out of stock. I know of too many 8- and 9-figure businesses that lost millions in sales because their product was stuck in a container. They literally couldn’t access it even though it was in port.

In addition, when you manufacture in China, you have to consider a couple other items: 1) a month off for Chinese New Year (sure, it’s not a month-long holiday but the effects are at least that long); and 2) shipping via boat is a lot cheaper than via air. But it’s also a lot slower, so you’ve got a time-in-transit issues to content with.

Finally, know your customer. In some markets, being able to say “Made in the USA” can be an important marketing tactic. In others, no one is paying attention. Or maybe no one has suggested that the customer pays attention and it can turn into a competitive advantage for you.

If there’s one theme that has resonated throughout here, it’s to make sure someone has done the diligence to explore alternatives.

8. Customer Service

Let me start with here with a sampling of metrics with which to manage customer service:

Customer Satisfaction (CSAT) / Net Promoter Score
Contacts – phone, email, chat
Total costs
Cost per contact, cost per initial order
Calls offered / Calls Handled / Abandonment rate
Speed of Answer / Avg. Handle Time / Avg Talk Time
Calls answered within SLA’s
Disposition Reports – reasons for calling, reasons for cancelling
- Wizmo (“Where’s my order”), refund request, continuity cancel, escalation, etc.
Cancel-Saves
AG / BBB complaints
Revenues / Margin generated and vs. costs
Reship rate

That’s a lot there. But I find that customer service is one of those areas that needs a particular form of structured metrics to best manage it. Not to say that the numbers are the only way to manage customer service. But when you look at that list above, you realize just how much specific information you can have about the performance of your call center. And that makes identifying areas of improvement that much easier.

Sales vs. Care

Perhaps one of the most important points I can make about customer service is that reps who are great at customer care are not the same ones who are great at sales. Sure, there may be those edge-case examples of reps that can do both great. But it’s crucial to approach the call centers differently.

Everyone should be customer-focused. Everyone should have a sensibility for brand. Everyone should be aligned with the company values.

But make no mistake. A sales floor and a customer service department are fundamentally different environments, with unique cultures, and frankly with entirely contrasting personalities.

So much so that you may want to change how you funnel certain types of customer service calls. For example, I’ve tested sending continuity cancel calls to sales reps instead of customer service reps. And found that in most cases, the sales reps do better. Even after factoring for follow-up calls, discounts, and refunds.

At the same time, if you put a sales person on a customer service floor, 99 times out of a 100 they will not succeed. This isn’t a criticism, nor a character flaw. Plain and simple, it’s about putting people in the right roles.

Final Thoughts

I’ll go back to what I said at the beginning. Without sales, cost optimization is generally moot. But once you’ve achieved a certain level of scale, your business demands it.

And as the business grows, presumably you are bringing in specialists to focus on various parts of the business. Task them to set benchmarks and then to work to improve their business area’s performance. Just as you would for the seemingly sexier parts of your business, like media and revenues.

When I read the book “The Millionaire Next Door,” I remember one big lesson loud and clear. That there are two components to a P&L. Revenues. And Costs. Ignoring the latter can make all the front-end work you do go for naught. Not to mention, managing the latter can mean less pressure on the front-end.

And managing both revenues and costs?

That’s where scale really happens.

Next Level Media Management for Performance Marketers

April 25, 2017 by influexwp Leave a Comment

(This is the third in a 3-part series where I share some of my “secrets” to scaling a performance marketing business. Here are part 1 and part 2, if you missed them.)

This post is specifically titled “next level” because it assumes the first level of media management is in place. That means having the basics of Customer LTV as well as having a working unit economics model. You can see my posts here and here if you want more info.

The question then moves to, “How would you feel about paying 3x what you currently for customers and being really happy about doing so?” Because it’s likely that you could already be doing so.

The basis of this possibility comes from the fact that customers from different traffic sources, or from different targeting options, are likely worth different amounts. You may have one ad set on Facebook where the average customer is worth $100 in gross margin and another where the average customer is worth $200. But if you are managing both ad sets based on the same target CPA, then you’re missing out on additional opportunities. If your unit economics model is based on an overall average, then you’re also likely overpaying for the lower-value customers.

This is the key to next-level media management: moving beyond a single target CPA.

How do you do so? Start segmenting customers into different buckets – that might mean Google vs. Facebook at the outset. Then it might mean different campaigns/audience targeting for Facebook. You might find that creative differences drive different customer values. As a small side note, it’s important to look at the full funnel – so you may have a segment with a really high LTV but also a very low clickthrough rate, which nets out worse than a different segment with an LTV that isn’t the highest. You can’t just look at things in a bubble. A holistic view is important.

But if you net out with a ROAS (Return on Ad Spend) that is significantly different from one segment to another, you may want to consider shifting how you manage these segments. In terms of how you define ROAS (a term I hate; just a bit more than EBITDA…), you can look at day 0 as well as the lifetime gross margin (net revenues less variable expenses) of those customers relative to the cost to acquire them. Day 0 average order value may be a proxy for lifetime, depending on what happens on the back-end. Or you may need to layer on more info. Each business has its own dynamics.

The broader point here is that you likely have customers who are coming from a certain place (station, platform, ad group) that are worth a different amount than another segment. As such, you should be managing how you evaluate those media sources based on different target metrics.

In a best case, your highest-value customers are coming from a channel that you can scale dramatically higher with a new target CPA/ROAS goal. Or you might discover that because of these differences, you should limit the rate to which you’re expanding spend. At a simplistic level, imagine you thought Google and Facebook customers were worth the same when in fact Google customers were worth far less, but you could only scale Google – well, it might take some time to discover that error, and that time and mistake might’ve cost you a lot of money.

Executing on this approach requires solid analytics, which I know is the bane of everyone’s existence. Facebook and GA have different attribution methodologies, so you end up having to triangulate across a couple different approaches. But you’re likely having to do this already. So, making sure you’re sending the right order values back to Facebook and Google, for example, and having a UTM structure that is robust and consistently used across all channels are the foundations to tracking and being able to do the necessary analysis.

Then, it’s a matter of having someone pull the numbers and then managing the media appropriately.

Which leads to one more point. The actual managing of the media.

Meaning, if it’s an agency, then how do you work with them, and vice versa. Or if done internally, how does the internal team operate. I don’t have a rule of thumb on either. I’ve seen agencies work and fail. I’ve seen internal teams work and fail.

In a world where there are a massive number of people running paid traffic, online and offline, it is shockingly difficult to find partners (again, whether internal or external) who can really nail paid traffic. That’s not being rude or disrespectful. If you ask a group of top-notch marketers who they would recommend to run paid traffic, it’s usually a very short list of folks, which the group probably wouldn’t agree on anyways.

That’s because paid media is really hard. Especially when you start scaling. And that’s not simply because of the supposed diminishing returns of scale – I’ve actually seen results improve upon doubling of spend, and at 6-figures plus of weekly media.

Paid media is really hard in part because of a number of factors:

a) Reporting and tracking – as I already mentioned above, systems disagree. But it takes a rare company that fully understands the differences and gets confident with what they (and you) are really looking at.
b) The difference is in the details – As spend increases, the number of campaigns, ad sets, stations, and placements increase. At scale, all those little variances, errors, or anomalies that used to be ignored really start to add up. At Beachbody, I’d often say how crazy it was that we had an internal team managing an agency, who had both a client services person and buyer, who then worked with someone at the station. From one perspective, it was absurd to pay someone 6 figures internally when you have these external partners, but when you’re running $100MM of media, just how much do they need to improve to more than ROI their salary and bonus? The answer was enough to justify having them on board.

That’s what happens at scale – minor changes really add up. You can be annoyed, or you can acknowledge the reality and then manage through it (and if you can solve the original annoyance, then great).

c) Too many people accept the easy answer – I’ve been on so many calls where a hard question was answered with something other than facts. But it sounded really good. For my part, I learned some of this rigor in a Stanford Business School class taught by Andy Grove, founder of Intel. That guy wouldn’t accept a single statement in the class without facts, without data. Answers that sounded nice but didn’t have solid facts to back them up weren’t tolerated. And yet, most businesses operate this way. What sounds like a good explanation only is one when everyone is looking at objective information. Not to say that subjectivity comes into play. As we use to say, “The numbers don’t lie, but they also don’t tell the whole truth.” Clearly, this is a point that transcends media management and into the entire organization, but it’s a particular issue here.
d) Especially in the digital world, the platforms have a ton of nuance and are constantly changing – TV media management has its particulars and challenges but the number of ways that Facebook has changed, the minor little differences that can happen with targeting differences, and the fact that the people who really understand the platform are likely a handful of engineers who have no exposure to the sales team nor marketers – all these can make TV media management seem like a breeze (it isn’t – I’m just trying to make a point here…). Those changes and subtleties require a close eye and real digging into what’s happening (see a, b and c above).

To be honest, nail this part first (the basics of media management), then get to managing to different CPA’s. Not that it’s an order of magnitude more difficult, but rather it’s necessary no matter what. Very few people are actually doing it well. There’s a skill to managing, be it vendors or employees. None of us is perfect so asking questions and pressing (respectfully) can uncover something that isn’t being optimized.

To summarize, the media part of scaling is about a few things: 1) knowing what a customer’s worth and managing to certain performance metrics; 2) segmenting your customers and traffic to see how and where you should be managing to scale more efficiently, and 3) managing your media partner (agency or internal) tightly.

Everyone wants to reach their “next level.” Hopefully, this 3-part series has helped shed some new insights (or reminders) on what it takes to do so.

(If you have any thoughts on any part of this 3-part series, please leave a comment below.)

3 Pillars for Ensuring Your Company is Built for Scale

April 18, 2017 by influexwp 2 Comments

(This is the second in a 3-part series where I share some of my “secrets” to scaling a performance marketing business. If you missed part 1, you can find it here.)

Scale doesn’t happen unless something is working. It sounds obvious, but the reason I start with that point is that if you don’t have a working offer and channel (again, you can see Part 1 of this series), then this post would be moot. Thus, I’m assuming you have something that’s working.

The next step is about making sure attention is put in the right places. Some is foundational work, some is true operations. And whether you’re at $5mm, $50mm or over $100mm, it’s a bit of a relative question about putting in the foundations for the next level of scale.

So, what constitutes building that foundation? Well, fundamentally, I’m a believer that focusing on the below 3 areas can dramatically increase the chances of scalability and sustainability of a business.
1. Customer LTV
2. Brand
3. Operational Excellence

Customer LTV
I’ve written about the importance of knowing the value of your customer and having a robust unit economics model numerous times. I walk thru the actual model here and go over some additional basics here.

I’ll hit only the key points now:
1. There are 2 primary reasons you need to understand customer LTV and your unit economics model:
a) to manage your media. If you’re running paid media of any form and don’t know the value of a customer, you’re headed for trouble. You need to know how much you generate from a customer, what your goals are (% margin, breakeven by a certain day, etc.), and then that helps you back into your target CPA.
b) to identify the key levers in your model and where to deploy resources for improvement, testing, etc. Knowing your baseline metrics and goals is one thing. Great companies believe that they are never fully-optimized and so have a constant testing program. But everyone is resource-constrained, so knowing where to deploy resources is crucial.
2. Someone on the team must be accountable for maximizing customer LTV, and as a result, the target CPA. That doesn’t mean they do so at the exclusion of the brand (see the next main section), nor does it mean they do everything on their own. But someone must “own” customer LTV. You’re not going to get better at the pace you want if you don’t do so.

3. Customer LTV is a combination of revenues AND costs. It’s more fun and sexier to focus on the former. But if you reduce the latter, that goes straight to more dollars you can put to customer acquisition. Here’s are a couple of my posts about optimizing revenues and costs.

4. G&A, investments, capex, etc. should NOT be a part of your unit economics model. The point of the model is to capture the revenues and marginal/incurred costs associated with those revenues. You don’t need to hire a new person for each incremental order. Sure, at some point, you do need to make those types of commitments, but that doesn’t mean they should be included in that model.

5. Who has checked the data that is behind the assumptions in your model?

Brand
If you want to build a business that is scalable and sustainable, you need to focus on brand. Again, look at the patterns. There will always be exceptions, but I’m a believer in playing the odds when it comes to things like brand. And more great companies have put attention towards building theirs.

Having a brand mindset also provides the necessary counterbalance when you are driving so hard on Customer LTV. It can be easy to be so exclusively focused on Customer LTV that you lose sight of what truly serves the customer.

I’ll give you an example from my early days at Beachbody. In one of our offers, we sold 3 bands with 2 handles. In my supposed genius at the time, the math said that if you pulled out 1 of those handles, we’d save money. The math isn’t rocket science. But the move entirely ignored the customer experience – it’s not easy to switch handles from one band to another. Now, I doubt that this decision had a significant impact on the brand experience, but it’s a simple example of how an action might save you money and increase customer LTV while being pretty crappy for the customer. My bad….

I’ve become so much more focused on brand over the past couple years because it’s been noticeably absent from conversations I’ve had with performance marketers (another area I’ve posted about previously). Ultimately, the “brand” conversation is about customer experience. How are you serving them, how do you treat them, what experience does a customer have of your business? As much as we want to drive what the brand means, our customers are the ones who have the final say.

Brand is not simply a logo, fonts, or an ad you run. Your brand reflects the values and perspectives you stand for. The logo is simply a representation of those values, but the logo isn’t the brand. It’s easy to get these mixed up.

A strong brand means a higher company valuation. It means connection with customers, which leads to more repeat customers as well as word of mouth (which is another term for a $0 CPA).

At the same time, the difference is telling in the way that performance marketers vs. traditional brand folks look at brand and sales. Performance marketers believe that sales drives creation of the brand. While traditional brand folks believe that you create the brand, which in turn drives sales. I can’t say for sure who is right and who is wrong. But many people can’t afford to build the brand while ignoring sales.

Which is why the term “branded response” has gotten in vogue. The phrase reflects that it is no longer either/or, but “and” – brand and performance need to be built concurrently. We’ve seen this become particularly prevalent as e-commerce players have used video – Facebook and TV – to build their businesses. The goal is to drive response, but without feeling like the ShamWow! (Btw, Vince made 8 figures off that product, so there’s a good measure of respect behind what might’ve felt like a jab at the ShamWow…)

At the same time, especially if you’re in a consumer business, and a subscription one, the quality of your product and service can be a huge difference in how your customers experience and think about your brand. Just as many marketers ignore brand entirely, too many ignore the importance of the quality they are delivering, believing that good marketing will always win. True, good marketing is helpful. Good marketing + exceptional product – that can be a game-changer.

Where is brand created? The answer, for good and for bad, is that our brands are created everywhere. At every touch point and interaction. Pre-purchase, post-purchase, in the product, name a place. That can be daunting but it’s also the reality. Alignment across the company of what the brand stands for, how you expect to treat customers, vendors, or stakeholders, is crucial if you want to have a consistent experience at all the touch points. And to build something that is defining and long-lasting.

Operational Excellence
To scale, you need to build a machine that runs as effectively and efficiently as possible. At scale, the organization needs to run well so that it’s no longer a couple people getting things done, scrambling to take care of those last customers. Similarly, no longer is everyone in the same room nor even same building. Which means building out the org, internal processes, systems, and beyond.

It’s at this point where the importance of bringing in people who have “been there and done that” is so important. In a company’s early days, you can figure things out real time because often the scope of the issues that arise is manageable. But as the business becomes more complex, sophisticated and expansive in scale, it’s just not practical that the original team can manage these issues.

Not to say that people can’t evolve into these more expansive roles. At the CEO level, Bill Gates and Mark Zuckerberg provide great examples of founders who have transitioned into professional CEO’s of huge entities. But a) they are the exception, not the rule; b) you must be honest about different members’ real strengths; and c) simply because of the expanding scope and needs of the business, new people will need to be brought in no matter what. And if the existing folks on your team aren’t delivering with the new needs, it doesn’t serve anyone to hold them in those roles too long. I’ve seen plenty of examples where those people continue at the company and have a great career. And I’ve seen times where the culture shifts, their ego gets in their way, or there’s just another dynamic that they exit the company.

Operational excellence is such a broad phrase, but here are a handful of questions I ask clients when evaluating this area of their business.
• How well is the company led? (It sounds simple, this gets to the heart of building a business.)
• How well does the company run? (This is different than the first question – I like asking it because if there is supposedly good leadership but things don’t run so well – that’s a disconnect to investigate.)
• Can each functional area in the business point to improvements they’ve made in the past 12 months when it comes to vendor pricing or new / redundant vendors?
• Can you point to certain areas where things used to break but no longer do (increase in order volume, technology issues, quality of data, new hire onboarding, financial statements being produced more quickly, etc.)?
• When something breaks and a flood of customers call to find out what’s happening, do they a) get thru; b) get a reasonable answer with reasonable expectations. (I like a customer service question, especially when something breaks, as it goes to how front-line employees and workers have been communicated to, trained, etc. on what the brand stands for.)
• Is there a single person accountable for the different areas in the business, and do they and their teams have specific KPI’s / performance targets they are trying to hit?
Just asking these basic questions can start to reveal areas of opportunities.

Even if you keep your business focused in certain areas, but as the business sees financial growth, the number of moving parts increases. That could be as simple as more customers buying the same product (which has operational, technological and customer service implications) or more products you sell (the same as the prior issues, but you get to add product development, sourcing, etc.). It can also include new services, new geographies, or new partners, to name a few.

Regardless, each time the business changes or grows, it comes with its own issues. Some of these appear over time and may require step-function changes. At some point, your technology platform may require an overhaul, your office space may no longer be sufficient; or you may need to add a location with your fulfillment partner.

Operational excellence comes with a methodical and organized approach to breaking down the business, assigning specific people to be accountable for those areas, and then setting targets for them to achieve.

Typically, the break points for growth happen at $10MM, $25MM, $50MM, $100MM, and $500MM. Not to say there aren’t challenges along the way, but those levels are when a lot of businesses run into challenges. Knowing they are coming, planning for the next stages of growth, and then managing through as it’s happening are all just components of growth. The good thing is that it’s likely that others have gone through similar issues, and there’s a lot you can model off.

And really, much of this approach of focusing on Customer LTV, Brand, and Operational Excellence, is based on seeing what has worked (and hasn’t worked) at many companies to formulate an approach towards managing scale.

Stay tuned for the final part of this series, where I’ll focus on Next Level Media Management. It’s an area dear to my heart and allows me to share my learnings from managing over a half a billion dollars at media spend. Regardless of your scale, my goal is to provide some actionable insights.

As always, please let me know any thoughts or comments you have on the above.

Why Your Marketing Strategy Should Mirror Warren Buffet’s Investment Strategy

April 11, 2017 by influexwp Leave a Comment

(Note – This is the first in a 3-part series where I share some of my “secrets” to scaling a performance marketing business.)

My friend Joshua Lee just published a book titled “Balance is Bullshi*t”. It’s about people, work, and all that fun stuff. But it could very well be about marketing and building a business.

In our normal lives, many of us think we want “balance” and believe that balance means having a lot of a bunch of things. The problem is that it’s very easy to hold that perspective but not go hard in any one thing.

In business, just as in life, it can be easy to be lured (read: distracted) by the shiny bright object of the day. (I’m talking to you @GaryVee and your obsession with telling people to allocate 5-10% of their time to Snapchat when for most of your audience, that’s a valuable percent of their time. Not to mention, that doing so, pulls important mindshare away from their core business. Plus, is it ever really 5-10% when it’s something new, fun, or cool? Never.)

It’s also easy to feel the need to be master of a bunch of areas. Or that just because other people are telling you that you’re missing out on a channel, that you should put resources there. The “answer” is that sometimes you should listen. And sometimes you should ignore those folks.

In fact, when I look at a business and see 4 traffic sources that are contributing equally to the business, I don’t view that as a positive. What that says to me is that one of those channels very likely hasn’t been fully-exploited. Instead, someone is trying to do a bunch of things. And thereby not killing it in any one channel.

In my experience, the companies that have achieved real scale have done so with one or two channels driving the vast majority of success. Not 6 channels all equally contributing.

Of course, we don’t want to be exposed if something happens to a traffic source, and there are definitely times you want to be in multiple places to catch the overflow from one channel to another (see my post here where I talk about the effect re: Facebook Video Ads). It is scary to be all-in, but that’s part of what it takes if you want real success. It’s the very rare marketer that can build a business working 4 hours a week (not that Tim Ferris actually meant only working 4 hours); no, you must go all-in to make great things happen.

I mentioned Warren Buffet in the title of this post. Let’s look at his investing strategy for a moment. His has not been a big diversification play to achieve his wealth. Sure, Berkshire holds a bunch of different stocks, but did you know that 75% of the value of Berkshire portfolio is held in 7 stocks. Don’t believe me? Check it out

Source: http://www.cnbc.com/berkshire-hathaway-portfolio

Buffet and his team make big picks. And this even with his “Don’t lose money” rule. They don’t do what the public is told – diversify your portfolio, pay that 1% management fee to the mutual funds (which by the way can add up to 30-40% of the value you should’ve had in your bank account), and don’t be too concentrated in where you put your money.

If Buffet and Berkshire were just a one-and-done example, it would be easy to point fingers and say they were asking for it. But nope, their financial performance is well-documented. They are concentrated with the bulk of their portfolio’s holding, and they have managed their risk. They do their homework, have their rules for investing, and when they find something that matches their criteria, they go all-in.

The reality is that there are HUGE societal pressures not to go all-in in pretty much anything we do. Most entrepreneurs don’t succumb to the traditional risk issues associated with starting a business, but that doesn’t mean that same pressure doesn’t affect how you manage your businesses. It seems logical to be diversified in how you run a business, doesn’t it? Diversification is what we are told repeatedly.

But when you actually look at successful companies, you’ll find many more instances of concentration and focus, as opposed to diversification.

With all that, then what do you need to scale a business?

Two offers. Two channels.

That’s it.

Two offers. Two channels.

(Of course, there are numerous aspects to scaling – I’ll touch on those in my subsequent posts.)

Don’t just take my word for it. Look at the businesses you want to emulate. Those who you wish you were like.

Apple – 60%-70% of its sales come from the iPhone

I’d argue their channels are their retail locations and then carrier partnerships. They don’t really dominate in a direct-to-consumer, e-commerce model.

Guthy-Renker – Proactiv was a billion dollar brand for them. And as much as they were in kiosks and on radio, TV was their primary channel.

AOL – you might not remember it, but the ISP grew because of those CD’s they mailed to everyone.

BioTrust – they have focused on supplements and grew heavily on the backs of affiliates and their excellence with email.

The list goes on and on.

When you find success, go hard after it. Don’t look at your other channels and offers and feel bad that they aren’t performing. Instead, lean in to success. That leaning in might help you to fund those areas that aren’t as successful. But remember this, when you are really exploiting an opportunity, that’s at the “expense” of something else. You need to give disproportionate attention to certain parts of your business. Outsiders will tell you that you’re missing out on other opportunities. So long as you’re scaling something that’s working, then take that criticism as a good thing, as a sign of putting your head down to focus on something that has legs.

Business can be personal. But your offers and channels are not your children. They aren’t your students. They aren’t your patients. Their feelings are not going to get hurt when you ignore them.

As silly as it sounds to make those comparisons, it’s very easy that just as we endeavor to treat those around us fairly and equally, that same mindset can be damaging to your business.

Getting focused on and in your business doesn’t only mean giving it its due time, effort and mindshare. Being focused means that time, dollars and resources are put into the highest-leverage, scalable opportunities.

Just as your friends may criticize you for not “having balance” in your life, or for not doing the same things you used to do (read: the things they want to do), you’re going to face those same types of comments when it comes to your business.

We all must get over it.

And need to go find those two offers and two channels.

Remember, concentration and focus, NOT diversification, are core aspects of the success you’re wanting to create.

(Join my newsletter here to get notified of Parts 2 and 3 of this series.)

How Subscription Companies are Losing Customers who Don’t Proactively Cancel

March 10, 2017 by influexwp Leave a Comment

You may have decent metrics in place. When people ask you what a customer is worth, you confidently say a figure.

You may even have a quick response for what the average stick rate for a customer is – “7 months,” you might utter.

“We lose about 30% in the first month, 20% of those remaining in month 2”, and so on.

Just knowing these metrics is a lot more than most folks. (See here https://goo.gl/Pln3vU for my post about Customer LTV if you want a better understanding).

But let me ask this question – do you know what percent of those who dropped out did so proactively? Because the answer is NOT 100%.

In fact, depending on your business, it could range from 60% to 95%. Which is a MONSTROUS range. Said a different way, 5% to 40% of those people who dropped off as paying customers didn’t take a proactive step to do so.

Which begs the question, “What happened to them?”

One of the primary reasons that customers who didn’t want to cancel got cancelled was that their credit card didn’t process.

Yup. That annoying part of the business. The one you can never get a straight answer about. The one whose fees range from 2% of revenues into the double digits depending on your business’ risk profile. Because remember, it’s not just processing fees; it’s chargebacks, refunds, and a bunch of other little line items that add up.

Merchant processing is the bane of many a marketer’s existence. Sure, there are more partner options than ever before – Paypal, Stripe, Amazon, not to mention the “traditional” folks like auth.net, Vantiv, EasyPay, and so on.

(A small point of clarification before we get too far – subscription is the same thing as continuity, auto-ship, auto-renewal, or any other label where customers are billed on a recurring basis. I’m just using the term “subscription” for simplicity here.)

Insufficient funds, wrong expiration date, and reported lost card are some of the top reasons why credit cards decline on recurring billings. Oftentimes, these customers would like to continue being customers. But unless you are a utility or Amazon or Netflix (I’d argue that those latter two might now be considered the former), customers can be lazy, forgetful, or just too busy in taking steps to make sure their subscription stays active.

The next question is, what are you, as the marketer, doing about it?

Let’s get some grounding first.

If you’ve got some sort of subscription business, hopefully you have a version of the report below – where you are tracking customers by cohort. In the below table, it’s by month, but it could also be by traffic channel, offer, etc. And really the goal is to measure how long people stick around at each rebilling period.

Notice that the report is broken down by cycle (which is the frequency you bill – monthly, quarterly, annually, etc.); by gross vs. net (of returns); and by units vs. dollars in the top and bottom sections. Each of these sections have value, and it’s important to look at your metrics in a couple different ways.

One of the ultimate goals is to know for every person who begins, how many total billings do you get from them. In the above case, this might be a free trial offer that rolls into a paid subscription. We want to track how many people bill in Cycle 1, 2, etc., and then roll that up to what I refer to as “Turns”. Obviously, we lose people each month. Tracking those people and laying out as in the table above, helps us to see exactly how many.

For the month of January, there’s a value of 1.4x in the Gross section. Which means that for every person who starts their subscription, on average, we bill them 1.4 times. And then because of returns, we net out at 1.31 times.

How far you carry out this analysis out depends on a few factors – how much info you actually have (# of cohorts and over what period of time), the risk you can tolerate when there’s a good amount of revenue generated in later months (and clearly later months is subjective based on your business and risk).

You can see that there are then calc’s on the percent of people who are still around (simply how many people billed relative to the # of starts) – this is labelled as “Retention,” again both calc’ed for net and gross. The “Dropoff” section is what it sounds like – what percent of the people who were still around dropped off for the next cycle.

Whether you have a lot of volume or a small amount, if you’re running a version of a subscription model, this is a crucial bit of analyses to have. To begin with, you need to know your numbers and this is one of the best ways I know of to understand what’s happening, at least from a purely quantitative side. It can provide a sense of how long people are sticking around, when more people are dropping off, what types of refunds people are asking for, etc.

Depending on how you allow/ask people to cancel, you should try to marry this data alongside “reasons for cancelling”. The info won’t be perfect – call center agents may make mistakes or customers may not click on the right button, but you should get some directional info on why people are cancelling. The most common reasons are things like, “too expensive”, “not using it”, “found something better”, “don’t have the time,” etc. Now, if you start to see a whole lot of “your product stinks”, “it doesn’t work as you described”, etc., then there might be something you need to address with the marketing, the product, the onboarding, or something else.

Once you have all this info, then it’s a matter of figuring out if something’s broken and where the key levers in the business are. That analysis leads to action (translation: testing) or fixing something that might be broken (don’t worry, you’re not the only one who has things break…).

The Part Many People Miss

So, you may have the raw reporting and analytics in place and you might have the reasons for why people cancel, but do you know how many people intentionally cancelled versus how many people actually dropped off?

These are “Unintended Cancels.” People who did not take a specific action to cancel, but you are no longer billing them.

So, what to do here?

Some ecommerce systems might provide you reporting on credit card processing issues, but assuming yours doesn’t, it’s time for some forensics.

The first place I’d start is with your merchant account, which, depending on the size of your org, might mean you need to pull in help from accounting or finance. Or it might mean you need to dig out that login info and do it yourself. Obviously, different merchant processing platforms have different levels of reporting. And how easy or not it is to know which declined orders are for your continuity, you try to dig in to see what is happening. You might have SKU-level info in there or you might have to use price point, for example.

All this to say, get to the bottom of what’s happening with your credit card declines.

What are the reason codes associated with those declines?

And then what are you doing about it?

Which should then lead to a combination of both a retry process as well as a dunning process.

The Retry Process

This could be manual or automated. But the point is that you are trying to charge a credit card where you received an error code. I get tired of saying this, but different platforms have different levels of reporting. Ideally, you’re only retrying those cards where you have a chance of success. For example, if you received an error code associated with a lost or reportedly fraudulent card, you have a 0% chance of success. It makes no sense to retry that card.

The vast majority of decline reasons are associated with insufficient funds. Whether it’s a $9.99 charge or $999 charge, a lot of customers’ cards decline for insufficient funds (which is why 1-pay or annual contracts have value – but I digress). There are a host of other reasons: expired credit card (more below), need to call the bank for some reason, etc.

The strategy you employ to retry cards depends on multiple factors, such as the fee you pay to attempt a charge, the margin your business nets on a success transaction, and your tech/merchant processor’s tech capabilities. You may want to retry the card every week for 4 weeks, you might want to retry on Fridays, which is payday for many people. Or you might have another strategy that you test into.

Here’s a link to a great write-up of an automated retry process – https://docs.recurly.com/docs/dunning-management – note that recurly is a vendor that I’ve heard some folks work with. I don’t have first-hand experience. But at the least, the info in that article is helpful and can provide a sense of the different ways you can approach the retry process and how you can use segmentation to try different strategies.

(I also want to make something very clear – as with all things, if your marketing is deceptive or if your product truly stinks, any strategy can be used for “evil” purposes. But I’m assuming your customers like your service, they know what they are getting, etc. – and the fact that they don’t reach out to fix a declined card can be as much the busy-ness we are all a part of as opposed to their not wanting the product. That’s why I have no problem describing these methods. I believe in integrity and ethics. And believe that if customers want to cancel, you should allow them to do so without jumping through massive hoops.)

Presumably, you’ll test a few different strategies, do the math on costs vs. the additional margin (not simply revenues) you make, and find something that works. Even if you can’t figure out an automated way when you first start this process, find a way to do it manually. Remember, these are customers that you’ve paid for who have stopped billing. These are real margin dollars.

By the way, you can also communicate with the customer directly. Which leads to the next section.

Dunning Process

This is basically another way of saying, “reach out to your customers proactively to fix the situation.”

The tactics you use to do so can include email, phone calls, FB messenger, or whatever other ways you have approval to reach out to people. Let them know their card has declined and that access to your product or service is going to end unless they fix it. Whether they can fix it online or they need to call a customer service rep, it’s always best to give people options so they can choose the way they’d prefer. It goes without saying but particularly when it comes to credit card info, it’s always important to stress that you know and follow the rules on how you collect and store credit card information.

Test and do the math to figure out what works (translation: where you are ROI positive).

Account Updater

I referenced expiration date issues above. And Account Updater is something I’ve discussed previously and falls under the retry process, whether automated or manual, above. The short version is that some banks provide a paid service to update the expiration date of a valid card but one that has simply gone past its expiration date. It’s an extremely rare customer that will call to update their expiration date. The beauty of the service is that you only pay per successfully-changed card. You send the info for cards that have this expiration date issue to get the date updated. Depending on your partner and your status, you can get charged anywhere from $0.06 to $0.18 per updated credit card. Now, no matter your price point, that shouldn’t be that hard to ROI.

There are only certain banks that participate in this service, so it won’t be 100% of the expired cards, but this can add meaningful dollars to your bottom line. You should reach out to your merchant processor or gateway provider to discuss how to implement this.

In Closing

Business can be tough enough as is. But when you have paid for customers that you lose for an annoying reason like their credit card not processing, it’s that much more difficult.

Go get that margin. And keep those customers.

Why Big Data has Become a Big Mess for Marketers

January 31, 2017 by influexwp 2 Comments

The buzz phrases sound so compelling.

Big data. Predictive analytics. Machine learning.

If you aren’t building at least one of those into your business, you’re already behind, right?

Wrong.

This isn’t to say that the concepts aren’t important. Nor that marketers should ignore them.

But the fact is that in practice, most, if not all, of them are really, really hard to execute. In addition, in trying to execute on them, key resources (time, dollars, and people, to name a few) can be drawn away from higher ROI opportunities.

The reasons for these misses can be caused by those key resources – unrealistic time expectations on how long a project can take, not enough dollars being allocated, and perhaps not having the appropriate people assigned to a task. There are plenty of other reasons – wrong strategy, bad execution, etc.

And one topic that unifies all of those above ideas is data. And typically a lot of it. You need data to make more informed and robust decisions. And then as a business grows, there’s just more data.

The problem is that most marketers don’t have great data. There’s no such thing as perfect data. Data integrity is a pain point for pretty much everyone. Which isn’t to say that you don’t work on improving it.

But capturing, aggregating, and then processing data is a lot harder than most of us would expect in 2017.

We all want data to help inform our business decisions. Okay, maybe not everyone wants it, but the idea of using data is probably something most everyone would agree is a good thing.

Getting decent data, however, even when it’s not “Big,” is shockingly difficult. Data integrity is tantamount if you’re going to use it to make better decisions. While bad info doesn’t always mean bad decisions – sure, everyone can get lucky here and there – it dramatically increases the chances of making bad decisions.

Even in the world of digital where everything is supposed to be tracked, tagged, pixeled, and so on, anyone who has run any semblance of campaigns has seen that there are always discrepancies when comparing between 2 systems.

10%-15% variances are the norm.

Think about that – that’s a good-sized difference. And when you consider that tests are sometimes called at 90% confidence, or when the differences are less than 10%, that can become problematic. (I’m oversimplifying a bit, but only by a small amount.)

Explanations of these variances can range from different methodologies, customers deleting cookies (I read one study that said up to 30% regularly delete their cookies – which I find crazy high, but still), timing differences (I love it when one system is based on eastern time and another is western time. And I still can’t remember what GMT is…).

At the same time, it can be easy to think that with big data comes better data. When you have more data, then averages and trends should appear more clearly, right? That’s part of the Law of Large Numbers.

But again, this all presume data integrity.

Which rarely happens.

And so issues are exacerbated. Not resolved.

Let me make a comparison from my crew days back in college.

Our coach constantly emphasized that if we couldn’t row well at a lower rating (strokes per minute), that we would be in worse shape at a higher rating. We discovered pretty quickly that he was right. If we weren’t in sync at a low rating, we were a thrashing mess at a higher one.

And in fact often moved the boat slower at a messy higher rating than being cleaner at a lower rating.

That same analogy applies to data. Trying to reconcile and make sense of messy and larger datasets is a total nightmare. It usually leads to massive amounts of time spent trying to reconcile what’s happening. And at worst, bad decisions. Oddly enough, these bad decisions are often worse than had you focused on more simplistic and higher level results.

To be clear, I’m not saying to ignore the data. And I’m not saying ignore how to leverage bigger data.

What I am saying is that it’s much more important to make sure your core info is in place first. That if you don’t have the simple reports, the basics, the fundamentals, in place first, then you need to focus there before going after Big Data.

Not to mention when you hear about companies doing all these things, getting featured in supposed case studies on vendor sites, etc., it can feel like you’re behind.

But take this in:
Beachbody grew to over $1 billion in revenues without a true CRM.
Dollar Shave Club, which was acquired for $1 billion, used MailChimp as one its ESP’s.

Sure, each of them might have missed out on some lost revenue and margin opportunities, but they are also proof that you don’t always need the biggest and best of tech to succeed.

My suggestion before trying to figure out how to get Big Data to work in your organization is to see if your current data is decent. That’s a low bar, but start there. And then how much is your company actually looking at and using your data. Are you leveraging analytics and insights, not just reports.

Get the basics working and the teams and processes dialed in first before going after the big and sexy tech.

From personal experience, I know it’s no fun when you don’t have a CRM. It’s no fun when people outside criticize you for what you can’t do. But I’d also say that when those critics made their comments about Beachbody, there was also a lot of envy with the size of the business.

And frankly, I felt the same way when I rowed crew. Sure, our stroke rating wasn’t as high as some other boats, and it might not have looked like we were going that fast. We didn’t win every race, but we moved our boat well enough to win a few (let’s be realistic, getting a few wins for the MIT crew team was a challenge when the Ivy League teams were recruiting). And that was better than some of our competitors who thought they were doing better with a higher stroke rating but never came out on top.

We all have to be comfortable with messiness in our lives. And in our businesses.

But if we can avoid some of those messes and get real value from the more simplistic areas of each, then isn’t that preferred over never making progress?

Analytics

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