Podcast transcript
James Dihardjo
Alden, thank you for joining me in your afternoon and I think my very early morning. Why don't you kick off and tell us a little bit about yourself before we get into the guts of LTV, about yourself and your Adverio.
Alden Wonnell
Sure, sure. Yeah, I think before we do that, I just want to say it's great to reconnect. I think the last time we saw each other was here in the Bay Area at the infamous Wayfair Tavern.
James Dihardjo
So yeah, that's right. That's right.
Alden Wonnell
Legendary burger there. But yeah, happy to kind of dive in. So again, Alden Wonnell, founder of the e-commerce agency Adverio. And I originally got into the Amazon selling space around 2013. So this was like right around the time when FBA was becoming big in the space and allowing a lot of new sellers to come into the space. So around that time, I was working full time in finance, but I decided to kind of give it a go and launch my own brand or product really in the photography space.
So it was really, to tell you what it was, it was a selfie stick. And what I actually did was just, I saw that fad was kind of on the rise around then. And all of the ones that were in the market were just garbage, except for GoPro, maybe. And so I just looked at negative reviews. I made it better. I did better packaging, all that kind of stuff. And eventually it became a best seller in the category within about three months.
So ended up being number one for the term selfie stick and other related terms. And that was a wild ride. So again, that's kind of how I got started and then kind of by way of that went into consulting, I was part of a network of other e-commerce entrepreneurs, and they started coming to me for advice. So that's kind of how things started. But I was still kind of like afraid to jump ship. And then, you know, fast forward to 2018. I left my job at the San Francisco startup. That was it actually ended up being boring. I learned a lot. But that kind of gave way to me starting Adverio in 2019. So that's kind of how I got into the space.
James Dihardjo
Got it. And why don't you tell us a bit about how Adverio is different to other agencies? At least I feel like you guys kind of have a different service, different kind of offering compared to the rest of the market.
Alden Wonnell
Yeah, I mean, I'd like to think so as well. I mean, we are very leading edge, very technology-focused, always kind of trying to push the envelope. At this point, starting in 2019 to 2024, we've grown into a 25-person omni-channel marketing partner. I really kind of hate the word agency, but we really see ourselves as strategic partners in the space primarily focusing on Amazon, and Walmart, but also serving Target, Shopify, Instacart, and other channels that our brand partners want to sell on.
And in that space, we really found our stride with mid-seven-figure to mid-eight-figure brands, specifically with large catalogues. And You know, it's interesting because when we first started up, we were emerging sellers, six-figure brands. But one of our first brands was a mid-seven-figure brand. I think we just struck that by luck.
But pretty soon after that, we took on other mid-seven-figure, low-eight-figure brands, and we kind of noticed they all had the same issues, right? They all had these same issues with scaling where they had gotten from like zero to seven figures, mid seven figures, and then they just couldn't scale past that. And, you know, most of those issues were around, like, trying to use the same strategy to get to seven that they were to try to get to eight. And as you probably know, from growing your business, and, you know, just from hearing others in the space, like the strategy has to completely change, like there are some fundamentals that stay there. But, you know, as things grow, you get a larger catalogue, you know, it just gets exponentially more complex in every place.
So we basically, in 2021, decided to really just focus on scaling technology, scaling tools, etc. And, in areas that address every part of the business, so advertising, SEO, catalogue optimization, pricing optimization, at scale, and it's been massively successful. So we're regularly seeing like double digit, triple digit growth year over year. And it's really about like implementing these tools and strategies that have gone by the wayside and giving these brands the resources that they need, the strategy that they need.
And it really ties into like a lot of these strategies tied directly into our topic for the day, which is LTV. And guess what? Like when we fix all of these issues, these brands typically see their LTV skyrocket or at least make a significant improvement. So it kind of all ties in to the topic for today.
James Dihardjo
Yep. Yep. No, for sure. So just on that, so I guess from here on out, we're really talking about LTV, right? So why don't you give, give us some background on LTV in the context of Amazon.
Alden Wonnell
Yeah, sure. So what is LTV? I think let's start with that question because some of the listeners might not really know what it means. It is your Customer Lifetime Value, or some people call it CLV, some people call it CLTV. Let's just go with LTV for today. And there's a number of different calculations to try to find that out. The most simple calculation is really just your average order value or customer revenue times your average number of transactions per year, times your customer lifespan in years. What that gives you, James, is it gives you their total top-line revenue in terms of a value of the average customer. Does that make sense?
James Dihardjo
Yeah, totally.
Alden Wonnell
Yeah. And so, I mean, it basically it's a universal KPI for businesses. I think every business should be tracking this. Um, and it really, really, because it can dictate, you know, what you should be willing to spend to acquire a new customer, what your TACOS should be? What your ACOS should be? And we can get kind of like dive more into that.
But interestingly, from my experience, like brands that started outside of Amazon, especially in the seven, eight-figure plus range, they definitely know their LTV. It's a metric that they track consistently, they peg it to their industry vertical, et cetera. I'm sure, you know, being at Merchant Springs selling, you know, having a SaaS solution, it's something that you track as well, right?
James Dihardjo
Yeah, 100%. I think, like you said, LTV is almost universal in usage in business. Like, definitely for SaaS, I can see why it's important. And probably I can see why it's important for brands. But just on the brands thing, before we get into, you know, what's good and bad, do you think that the LTV stuff is relevant for all categories? Or do you think, like, how is it relevant to everyone? Or less relevant or more relevant?
Alden Wonnell
Yeah, I think I think there are categories. It's a great question. I think there are categories where it's more relevant. And I think there's categories where your LTV might just be a one-time purchase. But the idea behind this, like a category where it might be more relevant is maybe like food or supplements or cosmetics, because people these are consumable items that you would expect someone to purchase again and again and again.
Now, if we go to a sector that's, I don't know, let's talk about like industrial or tools, for example, I think that while it's less impactful there, maybe it's, it's still very important, because there's while you know, in cosmetics and every, I guess what I'm getting at is that there are things that they can do to increase their LTV by increasing the market basket, the checkout, you know, different items that they're coming back for.
And so I, I think that that's actually an area of an opportunity for those industries that may not think that it's like that significant for them. Um, I do, I mean, there's a couple of examples of brands that we work with that see repeat purchases all the time, uh, have super high LTV. And then there's, you know, a brand we work with that sells like oil pumps and grease pumps and gas pumps. And they think, hey, someone's just coming for a one-time purchase for their tractor, right?
James Dihardjo
Yeah.
Alden Wonnell
But that person ends up coming back for a service hose in their workshop. It's things like that that actually become unexpected in those types of categories.
James Dihardjo
Yeah. Yeah. Well, this is a good segue into, you know, what is a bad or a good lifetime value, you know, and I guess, how do you even establish, like, we were just talking about the differences, right? For different categories. Um, but how do you even establish what's good and bad for you as a brand?
Alden Wonnell
Yeah, I think, it's a good question. Akay, well, you, you want a good LTV is, the norm for a good or a bad LTV, right? A good LTV is typically when it's higher than your customer acquisition costs, right? So that means that, and at least being equal to your customer acquisition costs. So if your LTV is higher than your customer acquisition costs, that means that, you know, after you take out Amazon fees and your costs to acquire that customer, if that's positive, then that's that, you know, that's a good LTV, for example.
And in terms of a bad LTV, that's really subjective because it just depends where the business is at. So if your customer acquisition costs is higher than your LTV, then you're losing money. Right. Um, so that would be a bad LTV. And why I say it's subjective is that, emerging brands, startup brands, et cetera, they always have to spend more on acquiring new customers out of the gate. Once they become more established, have reviews, have a larger catalogue, et cetera, then things start to even out. But it's just like starting any business. You have to first start that flywheel, get customers in the door and then keep selling to them. Right. Um, do you have a different perspective on it?
James Dihardjo
No, no, I think that's pretty, I mean, it sounds pretty similar to the software space. So no, I don't actually. But what other metrics around LTV should a brand or even an agency be looking at? And, you know, we've just touched on customer acquisition costs. That's another metric that's relevant, right? What else is out there?
Alden Wonnell
Yeah, so I think, you know, profit margin, obviously. So, when you're looking at LTV, you're looking typically at a top line revenue number. And, you know, like I said before, you want to take out the Amazon fees or any fees related to COGS, manufacturing, logistics, whatever, Amazon, and then and then your marketing dollars to acquire the customer. So definitely want to look at your LTV after those costs, right, as compared to your cost per acquisition.
The other thing to look at would be your average order value. So, if you can get your average order value to increase over time and do that by basically supporting multi-packs, supporting size, color, variations, cross-selling, up-selling accessories, for example, that's something brands should look to do and kind of naturally happens if their brand is merchandised well. So that's another thing to look at is your average order value.
Other things to look at, uh, would be repeat purchase rate, right? So if you, you know, there is a metric for this in Amazon. Um, it's, we can dive into it more if you'd like, but it can kind of give you a baseline LTV, but really it just tells you what percentage of your sales and orders are repeating from one time period to the next. And typically, quarter over quarter and especially year over year, you want to see those repeat purchases at least staying the same, but ideally increasing. There's really three ways to increase LTV. It's increase your average order value, increase your repeat purchases, or increase the retention of the customer over a number of years. If we can get them to purchase more times in a year, then the LTV goes up, right? So basically, that's your like subscription rate or your turn rate if you want to talk about it in SAS terms.
James Dihardjo
Yeah, yeah, got it. Now I'm on the same page. Just a quick question. How much interplay do you see between like, This is Amazon specific, so how much interplay do you see between subscribe and save programs and driving a better LTV? Did you see much of that from your clients?
Alden Wonnell
Yeah, that's, I mean, it's pretty, it's pretty big. And I would say the places we see that mostly are in the in the food space. So, food and cosmetics, as I mentioned before, it, I mean, in some, you know, we have a there's like a hemp brand, a protein brand, cosmetics brand, they all have super high repeat purchase rates. We work with a couple of supplement brands that have somewhere around a 50 to sometimes 60% repeat purchase rate.
So for those brands selling consumables, yes. I mean, that like having subscribe and save and the fact that Amazon just like basically created an auto enrollment program for it. I mean, it's a huge contributor to LTV. But again, not every product can be on subscribe and save. Right. Those that can see a massive benefit from it typically.
James Dihardjo
Yeah, got it. OK.
Alden Wonnell
Yeah.
James Dihardjo
So, coming back to a bit of an agency angle to all this, as an agency, how do you educate your clients on all of this LTV, CAC, AOV, subscribe and save? How do you actually educate them on all this stuff?
Alden Wonnell
Well, hopefully, they'll watch this webinar. No, I'm just kidding. So, I want to go back to something I was saying before, which is I've noticed that brands that start off of Amazon know their LTV typically like 90% of the time. But brands that started on Amazon and came up on Amazon, that's where they found their success before branching out. They don't know their LTV a lot of the times or don't think it's really important.
And I think that's a function of Amazon just making it very, very difficult to actually come down to that number or calculate that number and not that, you basically have to take a bunch of different pieces and put them together and then like, you know, and get that number, right. Or you have to have a third party software. There are indicators that Amazon gives you from the repeat purchase dashboard from the customer lifetime dashboard. Um, each of them have interesting insights and tools, but they like, don't give you the whole perspective.
And so back to your question about. You know, how do you educate them? It's kind of a learning curve for them because their focus, you know, most brands are focused on ACOS and thankfully that is shifting towards TACOS, right? Because every agency is talking about TACOS now, which is, I think is a good move because most brands use a percent of revenue model to fund marketing and not an ACOS or efficiency metric. So that's a good move.
The next move is to LTV, right? If it's really applicable to them. I think it's applicable to every business. And so that is the next shift. And why it gets kind of some pushback is because almost always the answer is, hey, you've got a really good LTV. You should spend more money on marketing. And that's the last thing they want to hear. Right. So it's it's really push and pull. I think with some clients, some brands, they get it right out of the gate. But the majority, it takes it take it does take education.
And the way that we do that is like before we even take on a brand, we do an LTV analysis for them. Then when we do take them on, we run it quarterly, you know, every quarter after that to track how things are going. We also do that because you lose customer data every month that you can't really get back unless you're pulling it into a data warehouse.
But that issue aside, once you start tracking it and showing them these reports, they kind of start getting, oh, this is an interesting metric. This isn't just a one-time thing that you showed me. I'm seeing this increase over time. Maybe I can invest more in acquiring a new customer. Maybe I'll have more cash flow because of this, you know, to launch a new product down the line. Maybe I'll have more, more dollars for tentpole spends down the line. And so it is, you know, generally, there are some receptive, very receptive brands, but in the most part, it's kind of like crawl, walk, run, if you will. Yeah.
James Dihardjo
Yep, I hear you. Just quickly and I'm going to blast through the next set of questions in the interest of time. Just on the agency angle, how do you think measuring, maybe measuring and like talking to the clients about a, I don't know, maybe a target LTV they want to get to shapes their whole strategy? Like how do you see that you know, if you've measured that the listeners here are all agencies, how do you see, how do you think that this can help shape their client strategy?
Alden Wonnell
Yeah. Okay. So let's, I guess in the, I'll try to speed through this, but like, let's say that, your client wants, or the brand, if you're a brand watching, you know, you want a 10%, ACOS, right. You're willing to spend $10 to get a customer that's going to spend a hundred dollars with you. And you're basing that off one purchase, right. You're not taking into account that they're going to come back a number of times.
Well, let's say that that person on average, or your customers on average purchase two times a year and their average lifetime is two years, right? So, two times two is four times a hundred. We've got $400. Now you should be willing to spend $40 in the same light, that 10% to acquire that customer. Now, what that's going to do is, you know, what you do is invest more in marketing and top of budget and top of ad, top of search ad placements.
And you potentially, you know, you take those customers on potentially at a loss for that first, for that first purchase. But you know, within a defined time range, like three to six months, they're going to have way more profit down the line. So, it's really about funneling these new customers and for a future payoff, and typically a relatively short term payoff in the terms of, you know, business growth year over year. So that's the first way.
The second way is to basically use it to forecast for cash flow, to finance inventory, new product launches, like I mentioned before, tentpole ad spend. Because that's the other thing. It's not just, hey, we're going to be way more profitable, but what do we do with those profits once we realize them? Now we have more money to grow faster in operations and other areas, not just more Ad spend.
And so those are kind of the, those are two that those are kind of the two main places. But I do want to mention this because it's a, it's a really intriguing way to use LTV as well. And that is the avoiding price discounting and a price wars essentially or discounting. So, if you think about this, why do brands discount? Well, they discount maybe to get rid of inventory. That's not selling through. Um, But they also discount to acquire a new customer ahead of one of their competitors, right?
Well, what if you don't want to lose your brand integrity? What if you don't want to price down? Now, if you look at it in the terms of LTV, if I was going to give a 20% price discount, maybe I'll just spend 20% more on acquiring that customer and keep my price the same, right? That way you keep your brand integrity level and you don't have to participate in that price war, which always ends badly, right?
James Dihardjo
Yeah. No, that makes sense. That's a good take on it, especially for people that are all new to this. That is a very good take. Yeah. Jumping ahead, like I guess this is more of a measurement theme and how do you actually calculate these crazy numbers? You and I were talking about new tools available in Seller Central.
Alden Wonnell
Right.
James Dihardjo
Can you tell us more about that to start with? Like tools to calculate this natively?
Alden Wonnell
So natively, not really much. Okay. There's the repeat purchase dashboard that let's talk about how you might calculate like a very raw calculation with that. In the repeat purchases behaviour dashboard, which is in brand analytics. What you'll do is if you pull up the last year, you'll see kind of what your, uh, repeat purchase rate is. I like to look at it by the year, but you can look at it by the quarter. You can also look at it by the week or month. Um, let's say your average purchase, your average AOV again is a hundred dollars, but you know, the dashboard tells you that 50% of the customers that purchased last year purchased again this year. Right. That means that that customer last year spent a hundred dollars and then half of those customers came back and spent, you know, $50. Right. where half of them came back.
So essentially what you can do there is you could say, well, my lifetime value of that customer is $150. So not just a hundred, but it's 150 because 50% of the people are coming back and buying the next year. Now that's a very kind of like rudimentary baseline pulse. It doesn't take into account like market basket analysis, like product level LTV. It doesn't take it. there's a lot that it doesn't take into account. Not to mention it doesn't take into account multiple years of a customer being a customer. It only takes into account the last 12 months. That's one way and that can get you a baseline. But there's a couple of other tools that can be used as well.
So, the other tool that's available in Seller Central was just launched in October, and it's called the Customer Loyalty Analytics Dashboard. And that's also in Brand Analytics. And this is kind of a step in the right direction, but it's still the layout, the UI, it's confusing at best, I think, for most people. And what it does is this offers a segmented cohort analysis of LTV. Again, only this year versus what they think is going to happen next year. It uses predictive LTV, an RFM model.
I won't go into all the details there, but You basically got top-tier clients, you've got promising customers, you've got at-risk customers, and you've got hibernating customers. And it gives you some details about what they spent this year and what they think they're going to spend next year. And from there, it allows you to launch promotions to those cohorts or segments using brand-tailored promotions. So very limited in terms of like what you can do with the data.
It is a little bit more comprehensive and it's a cohort-based LTV analysis. So again, you've got these two dashboards that can kind of help you, but again, they still do not give you kind of the full picture that you need. So that's kind of, that's what's available now. It's a good start, I would say.
James Dihardjo
Got it. I did, I was just looking at my notes and I just made a note earlier to ask you this question. How do they get access to this? Like, so you mentioned, let me go here, brand analytics and then customer loyalty analytics. By default, does every seller account that has a brand in brand registry get access to this or is there something else they actually have to do?
Alden Wonnell
Well, as far as I've seen, yes, I think that all the brand needs to do is get access to brand registry. And then for an agency or a user to get access to it, you actually have to go to global permissions and user permissions. So not only do you have to have access to, you know, Amazon keeps updating user permissions, but, in regular permissions, you have to get access to brand analytics dashboard. And then the owner has to go to global user permissions and enable the brand, all those brand analytics features. As well as other promotional features like brand Taylor promotions. So, in terms of access, that's, I mean, we haven't worked with a brand registered brand that hasn't had access to it. So.
James Dihardjo
Got it. Okay.
Alden Wonnell
Yeah.
James Dihardjo
Cool. Yeah. I just thought I'd ask cause some, you know, sometimes Amazon can be slightly different region to region as well, like in terms of what's available in there. But yeah, thank you for clarifying that. Two more questions. So now we talked about natively managing it inside Amazon. Now, imagine like now we've got the metric, right? So how do you actually leverage that in your e-commerce business? This is more from a brand perspective now, as opposed to the agency angle we talked about before.
Alden Wonnell
Yeah, well, I think what we do is a little bit different. Um, we don't use a third-party tool because, you know, three years ago, four years ago, I think now at this point, we created our own tool, our own LTV tool. Um, and it's just a spreadsheet based tool. We're actually building it into our proprietary dashboard right now. But, um, Essentially, what you have to do is just download the customer order data and you basically pivot it in a number of different ways. Look at different cohorts. Within that, you can look at product-level LTV. That's how we do it right now.
It's a manual but very productized process that we're able to pull it on a regular basis. Again, we'll look at it. We'll look at it throughout the year. We'll talk to the customer about it or the brand. And there are certain insights there, certain times of the year when certain products sell better or have more repeat purchases. So it makes sense to maybe push those products during those times of year.
So, there is some seasonality factor. you know, pushing bestsellers versus, you know, accessory items or cross-sells upsells and how we can build that into things. Uh, and that's basically how we leverage it in the business. Um, but I mean, when a brand realizes that, Hey, I could actually, I should expect to get this much more revenue from my shoppers, at least testing it is something that we typically do. Um, and it usually pans out in the right way. So, I don't know if that answers your question, but that's how we've been. There's other tools that we've tried, but they've all been missing something. So, we just created our own tool.
James Dihardjo
Yeah, it makes sense. I do have a question for everyone. So that tool you mentioned, the free tool, you're going to provide us with a link, right, to share that to everyone who registered for this webinar, yeah?
Alden Wonnell
Yeah, yeah. We have basically like a free Amazon toolbox that goes over like 12 different tools in Seller Central that are basically overlooked by you know, the majority of the time. So, it goes over like how to access those tools. There's education, like blog articles and videos about those tools. And there's actually our own proprietary tool for each one of those 12, you know, those 12 seller central features. So if you want it, it's free. You can go to adverio.io/merchantspring to go and grab it, grab your free copy. And if you need any help with it, we're here to help. So, we're hoping that people give it a try and really find some value in it.
James Dihardjo
Yeah, cool. All right. Well, look, we've just hit 30 minutes, which I think is the max anyone wants to listen to.
Alden Wonnell
Oh, no.
James Dihardjo
But look, thank you very much for making time and talking about that. I think if anything, I think it hopefully just keeps fueling that shift in what people are talking about and focusing on their clients. So yeah, really appreciate it.
Alden Wonnell
Yeah, I think I really do think it's the next big shift. And, um, yeah, it's a pleasure as always. Thanks for the time and reconnecting again.
James Dihardjo
Thanks, Alden.
Alden Wonnell
Thanks.
