Gross Margin Dollars

Your business (and your marketing strategies) are determined by the gross margin dollars you generate per order. It's the primary reason I detest it when you decide to offer 40% off of your merchandise.

Want an example?

Here's a pair of trail shorts from Vuori ... priced at $78 flippin' dollars for a pair of shorts (click here).

Meanwhile, Northyard is selling hiking shorts on Amazon for $24.99 (click here).

Vuori is likely generating 60% gross margins on their products, +/-. Every time they sell a pair of trail shorts for $78 they generate $46.80 of gross margin dollars.

Lower priced items typically have lower gross margin percentages ... I don't know what Northyard generates for a gross margin percentage, but assume it is 50% (because they are selling at 20% off their list price). Every time they sell a pair of trail shorts for $24.99 they generate $12.50 of gross margin dollars. Then they have to give Amazon $2.50 for the luxury of selling the item on Amazon, so they're left with $10.00 of gross margin after paying a commission to Amazon.

Now, you're about to beat me up about the fact that one brand is selling low-cost commodity items on Amazon and the other brand is selling fashion on their own so I can't compare the two tactics.

Yes, I can compare the two tactics, because the comparison enables all of us to open our minds to the power of gross margin dollars.

One brand is making $46.80 per item. Then they have to ship the item to you, and that likely costs them $5.00 or more.

The other brand, selling via Amazon, is making $10.00 per item, then they have to ship the item to you at a cost of $5.00. Uh oh.

Which business would you rather operate?

Here come the comments again!

• "Kevin, did you injure your brain? I'll make $10.00 per item all day long as long as Amazon is driving all of the traffic for me. You obviously don't understand the power of different marketing channels. Let Amazon do all of the marketing work, let me benefit from the work Amazon does."

There we go.

One marketer (Vuori) has to do all of the marketing work, but gets to make a ton of money doing it. Vuori, I mentioned yesterday, was profitable before accepting nine figures worth of money to help them move along and pay off original investors. But this brand has to figure out how to market in a cost effective manner, protecting as much gross margin dollars as possible. Yeah, you'll strive for organic customer acquisition in this scenario. And again, this is the point where you start yelling at me.

• "Kevin, this forces Vuori to market to affluent customers. Poor people cannot afford their products. This greatly limits their market potential. Bad idea."

Well, yeah ... there are consequences to brand positioning.

One marketer lets Amazon do some of the marketing work for them. Now, this brand needs to do organic customer acquisition as well because so few gross margin dollars drop to the bottom line ... they can offset this dynamic by offloading work to a 3rd party (Amazon) or by employing high-traffic marketing tactics to generate a 5x increase in traffic to make the same amount of gross margin dollars as Vuori.

Do you see how important gross margin dollars per order is? Gross margin dollars per order dictate the marketing tactics a brand employs.

Organic Customer Acquisition

You know that I'm not sold on the content published by Retail Dive ... they seem to like making money by talking about retailers who "could" go bankrupt. But something in an older article crossed my desk on Friday. Here's the article. And here is the quote.

• Kudla said. “And so when a lot of our peers launching in this DTC era were out raising $20, $30, $50, sometimes $100 million, they could afford to be a little more aggressive from a customer acquisition standpoint.” Vuori went a different direction than most. The company focused on organic customer acquisition, which to Kudla required creating high quality, differentiated products, and building strong relationships with suppliers and customers. That strategy is part of why Kudla thinks Vuori has been able to achieve profitability, alongside an early start with wholesale partners".

"Organic Customer Acquisition".

I know, I know, some of you are about to send the hate mail ... "I know I ask you to send me examples, but their example doesn't count because they are fashion and their gross margins allow them to do things we can't do."

If you repeatedly find ways to discount the free advice you're getting here, maybe the free advice isn't the issue?

Tomorrow I'll talk about gross margins ... because gross margins are really important.

Attribution

Catalog agencies use analytical techniques designed to encourage you to mail more ... and for good reason! They make more money when you mail more often.

If you execute mail/holdout tests, you know the truth. It's usually a startling truth, because the truth is so different from the story told by our trusted partners.

For a retail brand, here are results of a mail/holdout test run against RETAIL ONLY customers.

Matchback analytics lie the worst. Just because a customer bought from your favorite retail brand on a Tuesday two weeks after receiving a postcard doesn't mean the customer bought because of the postcard. Taking the postcard list and matching against every customer who bought within "x" days and then assigning every order to the postcard is malpractice. Think about it this way. You need to buy groceries each week. You have to. If Safeway sent you coupons for Doritos and you purchased Doritos, should the entire $275 purchase be matched back to the coupon distribution? No, never. The coupon has nothing to do with the $275 purchase.

Attribution analytics are not a lie, but they are a guess, and that's just as bad. Your attribution vendor parses the $275 grocery order and allocates shares of the $275 to your marketing efforts, as if they were inside the mind of your customer. Sure, they're using "advanced AI or machine language", but that is meaningless if they aren't using mail/holdout tests as the basis for their analytical genius.

In the image above, we see that the segment generated $2.69 profit via matchback analytics, $1.13 profit (per customer) via attribution algorithms ... but the segment of customers lost $0.18 when measured incrementally via mail/holdout tests.

Can you see why your agency wants you to believe their matchback analytics or attribution analytics?

The mail/holdout results above commonly happen for retail brands mailing retail-only customers. The results commonly happen for e-commerce brands mailing lapsed buyers. The results commonly happen for catalog brands with 90%+ e-commerce sales penetration.

Think about how differently you approach marketing investment if you choose to prioritize the truth over the stories told by matchback/attribution analytics? It literally changes how you think about marketing. By the way, the same concepts apply to email marketing. And display. And geographic tests for paid search. And paid social. 

Now imagine how your marketing efforts change once you know that what is displayed above happens across all of your marketing efforts?

Think about it.

P.S.:  Yes, you guessed right ... I'm going to get hate mail from two sources ... agencies ... and hardened 55-year-old-plus professionals who chose to believe agency stories (matchback/attribution) because it allows them to keep doing what they love doing. This blog has been active for nearly seventeen years, and the same cast of characters always berate me after I write this content. It's almost like politics ... if you tell lies long enough your viewers/customers believe the lies and run with them. There are "true believers" who adore matchbacks and flawed attribution analytics ... they will berate me and they are not the people who this post is written for. I'm writing this for you, the open-minded professional who wants to do the right thing for your company.

P.P.S.:  Here's a tweet from yesterday (click here). Yeah, he's correct.

Still Time!

Guess what? We're gonna set a record here in October, as this features the most Elite Program participants in program history!

Existing/Prior Elite Program participants pay just $1,000 per run, new participants pay $1,800 for the first run and $1,000 thereafter.

You get my typical rolling twelve-month analysis, you get comp segment and comp new/reactivated customer reporting, and you get an annual view of repurchase/spend activity. In this run, I'm going to determine how many "loyal" buyers you have.

I know, the program is virtually free ... and by the way, this is the 8th October run of the program (it began in October 2015) ... and it took a full seven years to break the record for participants set in the first month of the program.

Think about that for a moment ... the program started strong, then slumped, then treaded water into COVID, then modestly improved ... and is now setting a record. See, you don't have to be successful at something right out of the gate ... this program is a success seven years in the making.

Had I quit the program during the early days of COVID when the program was about half of where it was, I wouldn't have hit a record this month.

Keep that in mind when you try different customer acquisition activities that don't work right out of the gate.

Anyway, there's still time to participate.

• Five Years of Purchase History 10/1/2017 - 9/30/2022.
• Data Due by 10/15.
• Payment Due by 10/15.
• Writeup Delivered to You by 10/31/2022.

It Has To Work Now

You get emails from people. All sorts of interesting feedback.

One of the common ones goes like this:

• "I need a tactic and the tactic has to work right away. It has to work now. What can you share with me? What are other people doing?"

Two things. First, I cannot share what my other clients are doing. That's not right. Second, why must it work now?

There was a time, long ago, back when website redesigns had significant impact on conversion rates. A large brand completely rebuilt their website from scratch. Here's what happened to conversion rates by time.

• Two Months Prior = 3.0% Conversion Rate.
• One Month Prior = 3.1% Conversion Rate.
• One Month After = 2.5% Conversion Rate.
• Two Months After = 2.8% Conversion Rate.
• Three Months After = 3.0% Conversion Rate.

What would this company (a large brand many of you know) have done if the new strategy "had to work now?"

Whatever you are trying, it's unlikely it will "work now".

And I realize that frustrates you. You are being paid to execute ideas that work now.

Look to sports for comparables ... the NY Jets have been a hot mess for years. When they hire a new coach, does it "work now?" Most teams that hire new coaches struggle for a period of time ... then they acquire the right players and the system eventually clicks (or it doesn't).

Here's the thing. If you do enough "things" you'll get to a point where "some" of the "things" work out. If you do enough of these things, some of them will work quickly.

I worked with a company that executed thousands of online tests per day. Thousands! Guess what? Some of those "things" worked, and some of them worked right now.

Feeder Program

I know, you're not going to watch a podcast about the business of pickleball, so by all means please don't click through this link.

But if you do watch part of it, around the 7:00 mark Tyson talks about his YouTube training videos being part of a "feeder program" to get players into his camps (where they pay $$$ ... where he makes $$$).

What is your "feeder program"?

I keep hearing how hard it has become for you to acquire new customers, and the data you send me mirrors your comments.

But again, what is your "feeder program"?

What is the program that you offer or employ to create awareness so that customers eventually purchase from you for the first time?

If you cannot answer the question in five seconds, you don't have a feeder program (paid social is not a feeder program, FYI).

What is the product you feature in your feeder program? Who is the person(ality) who cannot stop talking about the product in your feeder program (this person(ality) is not the influencer you pay to talk)?

What is your "feeder program"?

P.S.:  Pay attention to the comments that follow ... after he set up his program, crickets ... nothing happened for three months, causing a LOT of anxiety. And then ... then ... it worked. I know you hate to hear that stuff, because you want everything to work eleven seconds after launch. Life doesn't happen that way, does it?

P.P.S.:  In the 12th minute, Tyson talks about how the owner of one of the three entities in professional pickleball (Major League Pickleball) offered Tyson a "home" so that he could play in Austin. The guy is a billionaire, so that certainly helps, but he purchases homes and lets the best players live in those homes (in Austin) so they can play together, train, improve, and thereby improve his product (Major League Pickleball). What are the ways that you bring your customers together to improve your customer base and ultimately improve your "brand"?

Costco Hot Dog

Here's the tweet with the quote you should read (click here).

It's a $1.50 for a quarter pound hot dog and a drink and a free refill of the drink.

The combination of the end of the COVID-bump, the challenge of finding new customers, the (for catalogers) inability to get paper to even execute marketing tactics, the implosion of Facebook paid social thanks to Apple ... it results in a lot of emails being sent to me, asking for "strategies" to find new customers ... with quotes like "What is the next thing that worked as great as Facebook did for so long?"

That's a question ... there are better questions.

Like ... "what is our version of the Costco hot dog?"

This is where I start getting complaint mails from some of you in the studio audience ... "that won't work for us, we sell widgets, we're unique and we're special".

If you are that unique and you are that special then you have a version of the Costco hot dog and you should get busy promoting it so you can find new customers at an exceptionally low cost "and" be known for something "and" Facebook-proof your customer acquisition efforts.

Get busy!