Welcome to the 2X eCommerce podcast. I like looking at myself. This is the final episode of 2023. For me, this is a special one. This is an episode more around the lessons I’ve learned as an eCommerce operator and as a head of marketing in our small portfolio of brands. We have three eCommerce brands, 2 in 1, and another brand.

What have I learned? What good habits would I be repeating? What habits would I not be repeating and how can that benefit you as a 2Xer? That’s what it’s all about. I’m going to reflect and I’m going to share some of our wins and some of our L’s. Hopefully, you’d gain 1 or 2 insights from my long list. I’ve put together a list and let’s go for it.

First thing is first, I want to start out with contribution margin, a term thrown about a lot in the eCommerce social media but it’s an important metric. I’ll give you a brief definition of what contribution margin means and then we’ll take it from there. It’s a key financial metric that represents the amount of revenue from a product that is available to cover fixed costs and contributes to profits after variable costs have been deducted.

What are variable costs? You have things like your cost of goods, you have your shipping, you have your payment processing fees and variable overheads, and your revenue, which you make off the back of it. Your contribution margin is when you take those variable costs from your revenue and that’s what you do. What we’ve done when we want to execute on contribution margin in our eCommerce stores, it’s maximizing average order value. The key way or the most successful way I’ve come to see increasing average order value is bundling, combining, bundling, and presenting value.

If you think about it this way, if you’re selling chocolates, you have people who sell cocoa. With the actual chocolate bar, you’re adding more value to it. In your eCommerce store, you could sell a solution based on a combination of products. I’ll give you an example. Let’s say you’re selling beauty devices. You could say, “If you buy three of these devices, it’s going to be a fantastic gift idea. Give it to the ones you love.” You’re speaking to an emotion there. All of a sudden, it’s not just something for you but it’s something to share.

This is like alchemy in the sense that you’re not necessarily manufacturing more but you are presenting it in a way that feels good to some of your customers. Not everybody is going to take that offer. What we’ve been able to do with one of the brands we acquired, the AOV was $135 and we don’t get that many repeat customers. This past four months, we have increased AOV to $190, meaning that we don’t have to do too much heavy lifting to grow the business. For that one customer who’s spending $60 more, our contribution margin is being maximized off the back of that.

The takeaway I want you to get from this is to go to your stores, do an audit, do a self-check, and see if you can increase average order value or retention. If you can increase the frequency or the time between purchases, reduce that fairly well because a customer could be worth a lot more over time as they continue to patronize your band. Everything is dependent on what you sell.

Everything I say here is nuanced. If you’re a CPG brand, there are different sets of rules for you. The core is, to increase contribution margin as a CPG brand, you want to increase purchase frequency, you want to see how you can still deliver that value where people are spending slightly more than they used to, and increase that revenue so that your variable costs remain the same and your contribution margin increases. I hope that makes sense.

This is stuff I learned in 2023. Lesson number two is growth comes at a cost. Yes, I said that. This is from the author of a book called E-Commerce Growth Strategy. Why does growth come at a cost? If all you’re looking for is growth, you can grow. You can spend on advertising and grow your business. Keep spending on advertising and grow your business. Here’s the thing, if you keep spending on advertising and advertising is now accounting for a significant portion, parts, or percentage of your cost, are you really growing? That’s a big question.

If you then put in the perspective of retention, if it’s a long game you’re playing, that could be something you should consider in terms of growth. You need to understand that growth does come at a cost and it requires a lot of cash burning. If you do not have the capacity or the financial flywheel to deliver that growth, it might just come to a halt.

There are other aspects of growth where you need to be aware of where you’re spending on marketing and you’re generating that demand for your products and if you have any supply chain issues, all of that momentum that you built flatlines and starts to decline. People talk about pre-sales, pre-sales do work, but the conversion rates and pre-sale websites or product description pages are nowhere near when there’s a vulnerability because people want things right away.

If that is the case, you need to orchestrate the supply chain with what you’re doing from a marketing perspective so things don’t come to shit. Growth does come at a cost. I’ll give you an example, Amazon business. We’d been growing the business revenue month and month. We’re growing the revenue but we also had all the financial commitments and it came at a cost.

You have to understand the ramifications. You need to scale up other parts of your business as you scale up growth. Scale up production, scale up operations, scale up your systems, and scale up your supply chain. Even scale up your market and get it more intelligent to start to get that momentum that grows and maintains rather than one that bleeps up and then falls down. Growth does come at a cost and you need to be cognizant about the other aspects of your business that are affected by growth. That’s my point there.

My third point loops back into point one, which is that bundles improve AOV. We made a few tweaks on some of my product description pages. We put in discounted bundles and it was wild how people take those offers. We also have $50 upgrades in some of our products and it’s wild how people take them. At that point in time, they’re like, “Should I do this or not?” They take the plunge and do it. You need to start thinking about bundling AOV and the reason why you want to do that is longer term with bundling, your customer acquisition cost is starting to reduce as you increase your AOV, particularly for first time customers. We’re increasing AOV way before they even get onto our landing pages.

We prime our audience to the traffic we drive into our website from the ads we create to make them understand, “We have multi-buy options and it might be the best way for you to go.” Some people take that or seed that idea in their heads, all people do, and then some people take on that offer. Bundling is important. What I would say is present the bundle offers and the cost of the journey before they even get to your website.

Point number four is lean on being in the subscription business. I remember a podcast I listened to and it was about the founder of AG1 and his name is Chris Ashenden. If you know Chris Ashenden, please give me an intro to him. I would love to have him on the podcast. I was doing some research on him over summer and I was listening to all the podcasts that featured him. There were many podcasts I could get into. One of his number one rules is that being a subscription business.

The one thing we’ve been optimizing for our CPG business is just subscriptions. Whether it’s a subscription count on Amazon Subscriptions or Shopify, we are growing subscriptions. That enables us to get our CAC higher because we know that the quality of our products or the utility of our products comes to a high standard. We’re confident in our products and it’s getting people to commit to getting our products regularly. We look at churn rates.

There’s a good app, and this one is for Amazon, called Nozzle. It’s good. There’s a Shopify equivalent, I’m not quite sure of the name. With Nozzle, you can get first-purchase data, you get new customers, repeat customers, total sales, organic sales, ad sales, ad spend, CAC, and first-purchase profits. You have customer retention metrics so you know the number of customers who’ve ordered once over a certain cohort and the number of customers who’ve ordered twice. It gives you a percentage of the number of customers up to thirteen times so you understand what is going on there. There’s purchase interval data. There’s purchase analysis data and cohort analysis data.

Tracking this with the right tools puts you on the right footing to run a subscription business like a SaaS subscription business. Particularly, if you’re in CPG, you want to increase that frequency. You don’t want to be acquiring customers every now. You want to create that fan base that continues to get utility and continue to support your brand. You need to look at things from a subscription perspective in my humble opinion.

Point five is net profits. Every other metric is vanity. This is our 2024 ethos. We’ve grown our business. Our run rates when we acquired the business was around 60,000 or 70,000 and we’re over 100,000 now.  We want to continue growing but we’re putting a pause on growth until other aspects of our business are reinvent. The actual blood of this business is cash-free cashflows and that free cashflow has only gotten from net profit. What we’re optimizing moving forward for is net profit.

You might be in a similar situation in which you’ve grown or you’re growing and your numbers are showing that you’re growing but you’re not realizing the liquid cash you think you ought to be realizing. This might be the fact that specific aspects of your business are not necessarily catching up with the marketing or whatever is triggering the growth you’re experiencing.

You need to come back, take an audit, and understand where all your costs are coming from. Start to build efficiencies at that level so that your net profit starts to increase, which also increases the long-term value of your business and makes you more agile and resilient for any economic situation swings that come down your way. That’s simply it. That’s a key thing we’ve taken.

Point number six is to focus on feelings. What do I mean by focusing on feelings? We’re all driven by feelings. For those who celebrate Christmas, you celebrate your Christmas Holiday at home, with your extended family, or with friends. Everything we do is driven by feelings. I’ve been thinking about emotional hooks and the emotional benefits of utilizing my product and communicating the emotional benefits more and as early as possible in the customer journey of patronizing a product.

If you do that, you have a brand that sticks, the stickability of your brand is higher, you have a brand that’s memorable, and you have a brand that will be remembered. Everything I said is a synonym to brand recall. With brand recall, if you pair your brand with the right solutions with the right emotions, you will get more people vested into purchasing or patronizing your brand. The emotions also come with trust. If you find levels of trust out there, be it influencers or be it accreditations that back up and endorse your brand and you lead with emotions, you will see record amounts of performance you’ve never seen before.

A lot of this is qualitative data. I’ve been a quantitative data-type of person for a while. When I started to look at the qualitative, it was insightful. It’s like a third eye when you start to look at qualitative data and understand the nuance involved with why people make certain decisions off the back of that. I prefer to analyze qualitative data, one-to-one data, by observing rather than asking. There’s room for surveys and asking questions, no doubt. You get so much insight just asking the right questions.

Also, observing an individual person do certain things or take certain actions and recording it and seeing the pattern repeats over and over again is gold dust when it comes to optimization in this eCommerce game we’re in. I would say to focus on feelings and get that feedback loop from qualitative data. For me, it’s what we’re leading with in advertising or on our product description pages. Any communication medium we are, we’re executing it. It’s down to the feelings and the emotional benefits. Once you get that out of the way, you plug in the features, the more technical reasons.

Feelings are all from who delivers the message. If a huge celebrity like Taylor Swift, Kim Kardashian, Beyoncé, or whoever delivers a certain message over and over again or a few times or even endorses a brand once, people love them. Emotionally, they’re connected to them. Particularly, if what they’re endorsing is what they use on a regular basis, it influences others to want to take on that recommendation the influencer or person of influence has given.

My next point is to lean on AI. If AI is not in your workflow now, you need to get it. You need to utilize AI. I’m not just talking about ChatGPT. I’m going to record another solo episode around AI and the AI tools we’re using. If you haven’t listened to my last podcast, we recorded a podcast with Oren Inditzky from Wix. We talked about how to leverage AI to drive sustained ecommerce growth for your team in 2024. Read that episode. I have another one coming up with Depesh in January 2024. You want to get a stack and see how AI can help.

There are a range of AI tools coming in for forecasting or for eCommerce operations. I haven’t yet evaluated them that much but it’d be interesting to see what’s on offer with that. I’m going to be researching that and I’ll be testing it. I’ll be using our businesses as a guinea pig for that. Where we’re seeing a lot of AI growth is generative AI, which is more in your marketing stack. How are you coming with your hooks, videos, voiceovers, or the streamlining of content for social media?

There’s a plethora of tools. I’m testing some tools now. In 2024, we have to be an AI-driven company. because what AI does is it adds members of staff that executes on your strategy and context is everything with AI. Once you build that context foundation in AI, it’s able to execute magical things. The key reason some brands are failing with AI is context bits, they forget the context bits.

With ChatGPT, it has enabled us to create our own GPTs with a knowledge engine on there. You can create a lot of siloed contexts that do specific things. You could create context for your social media post. As an example, you can create context for your top-of-funnel ads. You could create context for what your email is going to look like based on tone of voice and based on the segment you’re trying to get. There is a plethora of options. There’s a plethora of opportunities to execute on that.

I’ll implore you to explore AI in 2024. We’re doing that and you will expect to hear more from me on AI moving forward in 2024.

My last point is to lean on experts. I’m taking a self-prognosis here. The two major instances where working with experts didn’t quite work the way I expected it to work is where I have been emotionally over excited about what they claim to be able to do. I’ve seen some of their case studies and I was happy about it. It’s a subject I’m not particularly conversant about. I’ll give you an example. We’re looking to ramp up our TikTok. A lot of our brand activity for this particular brand happens to be on Instagram and we’re like, “TikTok is the next big thing, if not the, the big thing.”

Looking at TikTok and looking at their performance, I found an expert who had gone on Twitter and he reached out to me. We had a chat with him, I was like, “Can you do this?” I made a quick decision. He said, “What’s it going to cost?” I said, “$6,000.” He said, “No problem.” We started to work together.  When things started to go funny with him was when there was no activity. I didn’t hear anything. I was like, “What is going on?” He wanted to bring us into his own Slack and that’s fine as long as you deliver your result. It was a terrible experience. What they did didn’t deliver.

My takeaway from that was the over excitement and not doing my diligence as much as I should have. I must say that with some other experts I’ve worked with like our landing page designer, it has been amazing. Our coder has been phenomenal. If you’re reading this, you guys are amazing, and you guys are fantastic. I’m grateful for our internal team. With external teams, you can move forward. To make progress, you need to find the right experts and the right tools. With AOV, we worked with two CRO experts and each had their take on it and we’re using both takes on it and they’re both working.

I would say to lean on experts. You don’t know it all. For me, it’s tough because I was an eCommerce expert and I don’t even want to associate myself as an eCommerce expert although I’ve written a book about eCommerce growth. Finding specialists that are good at what they do can make a difference in 2024 for you. That’s what we found in 2023.

Finally, you need a data person close to your business, someone who can give you the single source of truth on your data and who can crunch your numbers. You can tell a story. You, as a founder or an operator, should be able to tell a story. What I mean to tell a story is there’s the emotional story bit but there’s also a story out of data. If the right data isn’t dug, you can’t tell the story. I remember when I was working for an eCommerce brand and we’re in the automotive space, the one thing that they appreciated with me was my ability to churn out data and they were able to translate that data into business insights and make better decisions.

I remember the first time I worked with them, I worked with them on the Black Friday campaign and I was able to come up with average order value. I was able to come up with transaction volume. I was able to come up with conversion rates and I did it year-on-year. When I presented that, I even got great insights about the business. Once I gave it to the founder who wasn’t data literate, he was able to say, “This makes sense. I see why this is happening. This is how we’re going to change our strategy moving forward.” That’s it.

I’ve been going on a solo trip here and hopefully it’s not too long. Hopefully, you’ve gotten some juice off the back of this. I thoroughly enjoyed this. It’s therapeutic in my opinion. I’m going to recap everything I’ve said. Contribution margin is important. Growth does come at a cost and you need to be aware of cost. Bundles improve AOV. Lean on being a subscription business, particularly if you’re a CPG brand. Net profit and every other metric are vanity. Focus on feelings, emotional hooks, and emotional benefits. Lean on AI. Lean on experts. You need a data person close to your business.

I hope all of these tips have been useful. If you enjoyed this episode and you want to hear more of my voice, I haven’t done enough just showing myself up on this podcast. I’ve made empty promises in the past. If you did enjoy this episode and you want to hear more from me directly, shoot me an email on Kunle@2XEcommerce.com.

If I get twenty or so emails, I would start recording more regularly. I’ll do one of this at least at the end of every month or at the start of every month, for sure. Enjoy the rest of the holidays and I wish you the best 2024 ahead. I also wish you huge challenges that you overcome. Life shouldn’t be sweet. Sweet things never yield immediate good outcomes or long-term good outcomes. May your journey be challenging but may you overcome moving forward. That’s it. We’ll wrap this up and cheers, guys.