Customer Retention Is the New Customer Acquisition
More people are shopping online than ever before. Shocker!
In 2018, e-commerce sales represented 14.3% of total US retail sales, up 12% the year prior, and 11% from 2016. Consumers spent ~$520 billion online within the US in 2018, up 15% from the previous year. More D2C (direct-to-consumer) brands than ever before are launching as a result of increased online consumer spending and the ability to sell directly to those customers. This streamlined and direct relationship cuts out intermediaries and contributes to higher profit margins.
In theory, this sounds great. However, with the rising cost of online advertising (due to a greater demand on ad unit inventory) brands are struggling to economically acquire online customers for less than the cost of the product they’re selling, which dramatically reduces potential profits. Is there a solution?
Strategy driven by LTV
D2C e-commerce brands must DEVELOP and IMPLEMENT a pre and post purchase monetization strategy that achieves the highest customer lifetime value (CLTV) thereby combating the rising cost of acquiring customers on paid online channels.
Long-term, your customers could be worth 10X what it costs you to acquire them if you implement a CLTV strategy on day one.
Simply put, your brand’s acquisition strategy should focus on the lifetime profitability of your customer not the upfront marketing cost it takes to acquire them.
I know what you’re thinking: “On day one I, as a D2C brand, need to be profitable to cover my fixed and variable expenses and use the remaining money to re-invest and scale.”
Who am I to tell you?
In case you wonder what I do, I am an Account Executive at Jumbleberry, a full service performance marketing network. We work similarly to an AOR (Agency of Record), however, we work off a CPA (cost-per-acquisition) model. Like a traditional agency, we still create the content, determine your brand’s paid media strategy, and drive traffic to convert customers, BUT unlike a “regular” agency, we only get paid based on the number of new customers we help your brand acquire. That payment is a fixed amount per purchase and is called a “CPA”.
Now you must be thinking: “Oh! Now I see why he wants D2C brands to stop focusing on short-term front-end revenue because he wants as high a CPA as possible.”
CORRECT. And I’ll explain below the steps that all D2C brands’ need to take in order to dramatically increase long-term revenue and profit.
Why are your campaigns in the red?
A brand's paid media strategy is often expensive to run and results in a low return on ad spend. The reason being, D2C brands want to crack the code of getting the lowest cost to acquire a customer online and, therefore, sacrifice revenue growth and long-term profits.
For example, Facebook charges for advertising space using a CPM model (cost per 1000 impressions) which is based on the number of times your ad is displayed to the target audience. A similar model exists across the majority of paid online advertising platforms. To save money brands spend weeks trying to reduce their online advertising costs, resulting in wasted time and loss of revenue.
There are a few ways for brands to work smarter and not harder. These include control of what happens before, during, and after a customer makes a purchase.
“Fine,” you may say, “I’ll spend the money upfront to acquire a customer on day one, but then I am in the red as I have just spent $60 on Facebook acquiring a customer who only paid $60 to purchase their product. How do I develop a customer lifetime strategy to make that 10X return?”
3 Ways to maximize your LTV
Here are three questions you should be asking yourself:
1. Have you added a subscription option that provides more than just recurring billing?
Of course, there are exceptions to this question if your product or service does not warrant a subscription model. However, research has found that subscription models are 217% more profitable for businesses than a one-time payment model. Taken from a report done by McKinsey and Company in February 2019, 15% of online shoppers have signed up for one or more subscriptions to receive product on a recurring basis.
People are interested in the ease of subscriptions, but do not necessarily have an inherent want for them. Therefore, rather than just providing recurring billing on your product, consumers want a great end-to-end experience that gives them tangible benefits such as financial incentives like discounts, or personalization that becomes tailored for the user more and more over time.
Make it all about the experience!
Now you have spent $60 to acquire a customer but they opted in for a subscription on that $60 product because it was offered to them at a discount of $50 today. You are even more in the red on day one, however you will make a minimum of a 100% return on your first subscription rebill. Next, you should be asking yourself:
2. Have you built out a pre and post purchase upsell sequence that provides complementary value to the product/service your customer has just purchased?
Once a user has bought your product, their inhibitions and purchasing fear flies out the window. Their adrenaline is high, and this is your time to strike with a fantastic upsell. If planned correctly, the upsell offer can become the highest converting click in your entire sales funnel. According to Shopify, D2C e-comm brands with post-purchase upsells can help increase revenue by 10-30% . Intriguing, right?
So, what is an upsell? Let’s use an example of someone who has just purchased a laptop. Immediately after selecting their laptop, the customer is presented with the option of upgrading their processor to make the laptop even faster. The upgrade is presented to them at a discount compared to the normal price of the processor upgrade as an incentive to purchase.
It is shown that upselling drives over 4% of total online sales and is essential for any and all D2C e-comm brands to consider when determining their customers buying journey. Make sure the product makes complementary sense with your ‘hero’ product and offers a special incentive that if they don’t purchase now, they won’t get the same deal again. Things like scarcity and rarity can be used to further your point.
Now a customer has opted in for subscription on the $60 product because it was offered to them at $50 if they subscribed today plus you provided a worthwhile deal where they also purchased an upsell worth $20. Now you just broke even on day one, but how do you make a profit? This leads me to my final question which is arguably the most important.
3. Have you created the most intricate and high performing retargeting sequence you can?
When I say intricate, I don’t mean just post purchase email retargeting. I am talking about paid media retargeting, customer service calling to upsell, and pre/post purchase email targeting.
a. Lead Re-monetization
The lead customer information generated by D2C brands, whether that be an email address or information on where a potential customer may have dropped off along the funnel, is GOLD. Brands should always have multiple sales funnels they are able to retarget customers with.
For example, consumer A was ready to buy your product from a Facebook ad but dropped off when they hit the checkout page due to high product price. In this scenario, you should have a second discounted product price funnel that you direct the user A to. Also try retargeting them on other platforms in addition to Facebook, e.g., on a Native platform or via email, highlighting the discounted deal. If they don’t purchase on that funnel either, have a final third funnel that you can retarget that user with. This funnel can include both user testimonials, as well as an even higher discount as an incentive to purchase. Not only you are retargeting a warm lead, you are providing them with more value than ever before increasing the likelihood of the customer converting.
Working smart to monetize the thousands of unconverted warm leads is where the real revenue lies.
b. Customer service (CS)
On top of paid media lead re-monetization, if a user lands on your site, fills out their information, and does not purchase, have robust customer service agents reaching out to clients via phone or email with special deals and specific promotions. These agents are able to personalize calls/emails using names and the data they have collected to tailor your product directly for the customer, resulting in a much higher likelihood of purchasing.
c. Post-purchase remarketing
The customer journey should never end with the purchase! Follow-up with your customers on how they are enjoying the product, provide post purchase value (e.g. useful tips), remind them to replenish products purchased and more to keep your brand on top of their mind and make them come back and purchase new deals, complementary products, and/or subscribe to your offer.
Google, Facebook, and many other online platforms are getting stricter with their advertising practices and policies resulting in more difficult and expensive marketing. D2C brands must spend the money it takes upfront to acquire the customer and become profitable through point of purchase, post purchase, and retargeting tactics that will allow D2C brands WIN BIG.
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