The holy grail for Amazon advertiser is establishing a solid Flywheel effect for their business. What is the Flywheel effect you might ask? When products are generating more orders, it ignites a positive feedback loop called the “flywheel effect.” To get the flywheel moving faster, you must add another input: advertising.
But Amazon ppc can get expensive quickly. That is why we partnered with Zentail to bring you this webinar where you will learn:
- What is the Flywheel Effect?
- How to leverage advertising and keep it under control
- Evolving your workflows and what it means to be a brand on Amazon
- Spotting measurable KPIs to manage your flourishing business
Watch the replay:
Don’t miss a full transcription of the webinar below!
Hey everyone, this is Mike Indigaro from Teikametrics. Welcome to today’s webinar with our partner, Zentail. I’ve got Daniel on the line. Daniel, are you there?
Yup, I’m here. Mike, Thanks for having me on the webinar.
Absolutely. So we’re a minute before the actual kickoff. We’re going to pause for a few minutes here, let some more folks come on, and then we’ll get going. So stand by.
All right, so we are one minute past the hour. We’re going to get going here. So welcome again everyone. My name’s Mike Indigaro. Thanks for joining today’s webinar. We’re joined today by Zentail, our amazing partner. I’m going to introduce Daniel shortly here, who’s the founder of Zentail.
A little bit about myself. I’m the director of agency development here at Teikametrics. I’ve been working with brands exclusively for the last four or five years, and recently developed our agency channel where I’m helping advise agencies that are also working with brands on advertising, inventory management, multichannel growth, et cetera. So I’m very excited to be here, and without further ado, Daniel, do you want to introduce yourself?
Yup. Thanks very much, Mike. It’s great to be here on the webinar. I’m definitely excited about what we’ll be covering today. So just a short bit about myself. I’m mainly focused on helping growth stage and enterprise brands and authorized resellers leverage our platform to implement smarter workflows that reduce costs, grow revenues, and the all-important concept that we like to focus on is diversifying sales channel mix online.
Awesome, and can you give a little bit of background for those that are maybe not so familiar with Zentail? What do you guys offer?
Yeah, absolutely. So Zentail is a commerce operations management platform. We like to think about Zentail as sort of like an operating system where you can essentially manage your product information, inventory synchronization, pricing strategy, and delivering great experiences to your customers, quarterbacking orders to the right fulfillment centers. It’s really that central e-commerce brain to help grow your business.
Awesome stuff. So, today we’re going to talk about a lot of topics. We mostly talk about the flywheel over here at Teikametrics, but we want to go a little bit deeper. We want the flywheel to really help build a foundation of… There’s so many different parts that go into it, one of those things being advertising. A lot of what Daniel is going to focus on today is what it means to actually be a brand selling online.
There’s a lot of different definitions of e-commerce workflows, and he’s going to give you some guidance there. We’re also going to talk a lot about KPIs and how you should measure them, which ones you should consider, and then we’ll round things out by talking a lot about advertising, looking at a couple of different advertising types, like sponsor products and sponsor brands, when you should use one versus the other. Then we will finish with tying it all together.
So, let’s start with the flywheel effect. Very basic. The concept is you want to be thinking about inventory and advertising as a holistic part of your business and not just thinking as, you know, my advertising and the metrics that live in my seller central campaign manager are separate from my inventory management solution. You really want to think about the cause and effect of all of those.
The Amazon flywheel effect is basically this picture, and we come into this a little bit with the data science aspect, but the whole theory is the more sales that you get, the higher sales rank you’ve got, which means you get more organic traffic and more data. Then when you pour on advertising, you get to increase your sales rank. You get to get more reviews and increase your traffic because you’re adding more traffic, you’re getting more eyeballs on your pages.
This is a really good topic because it’s going to help you drive total revenue. If you’re an advertiser out there and you’re using sponsor products, sponsor brands, you’ve got to be thinking about how do I use advertising to generate total revenue and not just advertising revenue, and that’s what we’re going to talk about today, and some of the work that Zentail does.
I’ve shown you the basic flywheel effect for your whole business, but for the PPC flywheel, you really want to start with understanding your business metrics, study product level metrics. That’s going to help you set marketing goals. Once you have those goals and you know which products to advertise, then you can actually go ahead and launch. We really, uh, suggest using automatic campaigns to explore. You then move those keywords over to the manual campaigns. There’s all these different targeting types and strategies that you can use that will go through using automation and strategically bidding on keywords, gather more data and repeat.
All of this is really helpful and useful, but what you don’t get in here is, okay, well if I’m advertising so much, how does that actually impact my bottom line? Or how does it actually impact my inventory? If you’ve got only a set amount of units left in inventory and you know you don’t want to stock out, which should you focus on? Should you focus on using advertising to move those units, or is it more profitable to sell through those units organically? So those are all the things that we’re going to talk about today.
I’ll skip ahead to you Daniel. A lot of people think about brands a little bit differently on Amazon. You’ve got brands that are native to just getting started on Amazon and creating a private label business. You’ve got other larger brands coming on and using Amazon as a channel. But I mean, what comes to mind when you describe to stakeholders or customers of what it actually means to be a brand?
Yeah, absolutely Mike, and thanks for that overview. So, when we think about branding, we think about what it means to define your brand. We really believe that your brand is what people say about you when you’re not in the room, right? So, let’s think about product reviews, feedback rating, things on social that people are discussing about, about your brand.
Are your products as advertiseD? Are you setting the right expectation with your product information that you’re listing and the product that’s being received? Is there something remarkable about your brand? Are you differentiated? And so consumer expectations are increasingly difficult to manage. If consumers don’t get what they want when they want it, they’re increasingly vocal. That ties into those product reviews and feedback reviews and social chatter.
One example here is, we’re speaking with a premium lingerie brand that has a major inventory management issue that’s causing overselling and premature stockouts. I can’t wait for us to help them because right now their customers are saying something along the lines of, “Great products, but…” fill in the blanks, right? Is that going to result in a long customer lifetime, sorry, a high substantial customer lifetime value or is a brand going to be moved on from and replaced by another brand that does things operationally a at a higher level?
Yeah, it’s so spot on, and I love this next slide around the internet is a terrible place to sell. It’s a great place to buy. I mean what does this mean to you, Daniel? For me, I’ve got to take a step back and actually understand what you’re actually saying here. But you know, as a brand, obviously this is a crazy statement to know that selling is actually very hard and it’s super complex, but from my perspective, and just being an Amazon customer the Internet’s made it so easy to buy. I mean, what’s your perspective on all this?
Yeah, absolutely. So, let’s think about this for a second. The Internet is a terrible place to sell. It’s a great place to buy. You know, when was the last time someone from the Internet came and interrupted you for you to buy that premium lingerie for example, right? You and I probably don’t wear lingerie, but you got the point here. You have to be where your customers are when they’re ready to buy, when they’re researching, right?
Consumers definitely have the upper hand now. It’s super convenient to buy anything without leaving the couch. We can price match. You can discover, you can learn, you can compare. Now more than ever, you need to be where your customers are when they’re browsing and when they’re buying. And for this, you need, again, the right price, the right inventory, the right product listing copy, the right ad. That’s exactly what we’re talking about today.
And Daniel, do you often talk to brands that maybe have a large retail or brick and mortar presence that at are feeling threatened by this pressure to buy more on the Internet? And if so, how did they handle that exponential growth on online and trying to balance it with retail sales?
Yeah, a lot of it comes into establishing really efficient workflows, and why it can imply a lot of change within the organization. In many cases, we work with great agencies that help these brands and retailers navigate multichannel, e-commerce, and Amazon specifically.
That brings us to our next topic of establishing e-commerce workflows. I think one of the biggest ones that we’ve talked about in preparation for this webinar is just poor workflows in general, but order defect rates being such a big issue on Amazon. What should sellers be aware of, or brands be aware of here?
Yeah, absolutely. Symptoms of poor workflows, we believe are order defect rates, and we’re talking about things like late shipment rate, cancellation rate, return and refund rates, customer feedback. The order defect rates can vary across channels, but as we discussed a few moments ago, Amazon has conditioned the consumer to have very high expectations. There’s minimal margin for error, and that margin is decreasing. Rapid growth, attributable in this example to sponsored product advertising can amplify workflow inefficiencies, which further exacerbates your order defect rates.
It’s really important to implement work flows that allow you to scale and handle increased order volume, increased sales channel, increased catalog size, and that’s sort of our core focus. I would say we obsess about workflows.
And so order defect rates, the things like customer feedback, cancellation, those are all… I’m just trying to tie this to Amazon specifically. Those would all be categorized under order defect rates?
Exactly. I would say 1 to 2% of all of your orders can have something along these lines going wrong before you’re in a position where you could have your selling privileges at risk, or at the very least you can lose ByBox clout. So it’s really important to be on top of your workflows, make sure that you can manage them intelligently without needing to throw more people into the mix as you scale, because that obviously can introduce a lot of challenges and room for error.
Yeah, you definitely started to talk a little bit about it, but the advertising piece is important because you could have… There’s so many shortfalls with advertising, and a lot of that does tie back to order defect rates, and if you already have a cancellation rate that’s slightly higher than normal and then you start to expedite your sell through rate, obviously if everything remained the same, your cancellation rates can then grow, and you’re almost adding more grief than you really signed up for.
So, for those listening, definitely recommend, like these are the types of things that you want to be doing before building out an advertising strategy just to know that when you do advertise, you can hopefully assume an uplift in more sales, because you’re putting more placement out there on to Amazon, so important to have all of these things tied up.
So, workflows matter. Tell me how… A lot of this stuff’s new to me. Tell me what’s going on here and what we should pay attention to.
Yeah, absolutely. So, this is basically an e-commerce stack, and what we’re seeing out there is changes happening fast, right? The breadth of work to manage even one online channel is becoming overwhelming. There are changes with Amazon’s policies that are leaving a lot of people scrambling and we’re seeing a lot of news leaking around first-party vendors moving to third party. That might even be affecting a number of the people on this call today.
Now, let’s start to multiply that complexity across even more appealing channels that are emerging like Google and Facebook that you see at the top of this workflow diagram. Your brand reputation is definitely at stake again with order defect rates. As you grow, are you able to handle that growth?
Our recommendation is something we call a commerce operations management platform. This is a one-to-many management concept. One interface to manage many channels to manage all of the core functions within your e-commerce operations from product information management, inventory synchronization, pricing strategy and syndication, all of that is handled by Zentail, right? It plays extremely nicely with all of the best of breed complimentary systems.
For warehouse management, CRM, accounting, shipping, advertising management with Teikametrics, we can go into the next slide here and talk a little bit about… Many of the people on this call might have a little bit of a different technology stack in place, right? Maybe NetSuite or Oracle or SAP is your ERP system, but you want to augment that system and make it more intelligent for e-commerce, better able to handle product information, listing across the different channels. That’s where Zentail can come into play for merchants and retailers and brands that already have large enterprise resource planning systems in place.
There’s really two different ways to implement your work flows, but making sure that data flows seamlessly, reliably from the channel through every area of your operation.
I definitely want to pause there. We do have a poll. I want to remind the audience there is a question and answer part of the webinar. We typically leave that towards the end, but if… Daniel, you’re going through a lot of good stuff, if you’ve got a question, feel free to type it in the chat in the GotoWebinar panel, and we’d love to answer some questions live.
In the meantime, I’ll launch our first poll. How do you feel about your current workflows and now that Daniel has shared sort of the ideal workflow, and again, it can vary across different channels, what does yours look like? Is it perfectly optimized? Is it good but not great? Is it manual and causing problems or my workflows are hurting my business, aka you probably don’t have any. We’ll wait and see what everyone’s got.
There’s a few perfect out there. Seems like they might be as Zentail customers, Daniel?
Let’s hope. I was going to make that joke, but it’s cool to see the data coming in here.
So a lot are good but not great. That’s a good sign. People are definitely thinking about workflows, but they’re maybe not fully optimized. I mean, Daniel, I want to spend a little bit of time here, I want to be a little bit selfish, and me not knowing too much about the workflow side and the integrations, but what’s your recommendation for someone that is just evaluating this for the first time? How do you even begin? How do you understand what integrations to set up, what metrics to track?
Yeah, absolutely. My favorite thing is visiting retailers and brands on site, just peering over their shoulder in their e-commerce department. What tabs are open? What are the things that they’re doing manually that they don’t need to be doing at all that a computer could be doing, right? How could they be using their time better? How many clicks do certain things take?
Now when you look at picking and packing and fulfillment, if fulfillment is in-house, what does that look like? Are there ways that you can automate the sorting of orders for more intelligent picking? All of the different components of listing a product, all the way through receiving the order and getting it out the door ties into the workflow, and then also providing after sale customer support, so really pay attention to your team and to the different teams that you interact with to get a better sense for how manual is it, what can be automated? Where are there things breaking down where you have order defects that are associated with those certain functions that might be able to be improved?
And what’s the recommended stage of the company or even stage of the products that would require a company to say, “Hey, we really need to adopt this workflow.” Is it before the business is set up, and you’re getting those products to market, or is it reaching a certain SKU count or monthly revenue? How do you think about readiness for adopting maybe a more complex workflow like this?
Yeah, so that’s a great question. We’re definitely from school of thought from Y Combinator. I’m not sure if anybody here is familiar, but it’s a very successful early-stage technology investor and they always impart the following feedback. The founders, the early employees of the company should be doing the things that don’t scale in figuring out how to perfect them and automate them, right? As you’re just getting started, if you’re still scaling up to a million, 2 million, $3 million in revenue and you’re only on one channel, you don’t really need to have a tremendous amount of technology and automation in place, but certainly before you start investing heavily in advertising, before you start committing to expanding your channels beyond Amazon, you really need to have automation in place and really refined workflows so that you can scale without risking your existing channels and the sales performance on them.
Hmm. I like that. So jumping into the next topic: KPIs we think more people should care about. We’ll, we’ll start with the first one here: Revenue per SKU. I think of revenue per SKU as obviously the basics of how productive that SKU is on the channel. What context can you add to this? Can you give us a few examples of maybe why is revenue per SKU something that should be tracked?
Yeah, absolutely great. Great thing to talk about here, Mike. So, I’d ask the following question: Are your SKUs generating enough profit to cover your investment of resources, time, money? Your revenue per SKU really should vary based on your gross margin, so there really is no perfect answer on what should that target revenue per SKU be.
With the exception of the clothing category, the most successful brands that we see tend to have focused catalogs and annual revenue of upwards of $100,000 per SKU. They tend to kill the SKUs that are not on track to meet this benchmark, and then revenues per SKU is going to be lower for authorized resellers, as low as $1,000 in annual revenue per SKU, since there’s lower underlying costs. You’re not creating new products, you’re not controlling the marketing of those products. You’re simply listing those products, so there’s a much lower threshold for it to be worthwhile to have a SKU in your catalog.
Then certain concepts like kitting and bundling help to optimize your revenue per SKU and your average order value, and so Zentail allows retailers to virtually kit and bundle their products that are then picked at the underlying SKU level wherever they’re being fulfilled from. This makes it really easy without having to preassemble your kits, to experiment with different comment combinations or your kits and your bundles that offer more value to the consumer. Those two concepts of kitting and bundling tie in really nicely into optimizing your revenue per SKU.
Cool. And then, the next one here, you’re managing revenue at the SKU level, but then this one is revenue per employee, which to me is something that really measures efficiency of the company. How is revenue per employee impactful on maybe decisions that are made at the company, and how do you manage it? Maybe if you can give us an example of a company that has tracked revenue per employee…
Yeah, absolutely. Again, you hit the nail on the head. This is a perfect benchmark in my opinion, for a company’s efficiency. Take your annual revenue and you divide it by your number of employees, it’s that simple. If you’re a much larger company, maybe you divide it by the number of employees that are in your e-commerce operations from products creation and product listing all the way through fulfillment and customer support. This number will certainly vary greatly based on how you fulfill your orders for example. $500,000 in revenue per annual revenue per employee is a good number for companies that operate their own direct-to-consumer fulfillment that obviously a lot more employees in that type of a workflow. And $1 million is a good number for companies that outsource their fulfillment.
An example that I’m really excited about is a company that started using Zentail when their revenue per employee was at about $320,000 per year. That was an $8 million business with 25 employees. They were doing their own direct-to-consumer fulfillment, so they really weren’t at that $500,000 threshold that we like to see. Today they’re an $18 and a half million business, probably will hit 20 million before the end of the year, and they have 30 employees. That’s over $616,000 per employee now in revenue per employee. That means they grew 131% while only growing their headcount by 20%. That’s really the power of efficient workflows.
And is there… As I see revenue per SKU and revenue per employee up there, do you do typically get challenged with what other accompanying metrics really add context to the situation? I mean, when I go through these things, I say, “In a revenue per SKU is really good, but if my margin is negative 25%, then I’m less concerned about revenue per SKU, right, because I’m actually losing all that money.” Are there accompanying metrics that give context to revenue per employee that you see?
That’s a really great question. I think you definitely hit a nerve there with margin. Commoditization is happening rapidly across product categories driven by just the way Amazon is forcing us to operate, right? So, if you don’t have positive gross margins and net margins it’s hard to justify doing what you’re doing to begin with. In order to strengthen your margins, increase your margins and really get that flywheel running to be more competitive, even if you need to lower your prices slightly to have more efficient workflows, more efficient operations, will support those margins without having them compressed too sharply.
Hmm. And the next two I really like customer lifetime value and customer acquisition costs. My favorite is customer acquisition cost and that one’s going to be pretty imperative to some of the work that you’ll do on the advertising side. How is customer lifetime value typically measured from your perspective, Daniel?
Yeah, absolutely. I’m excited to get into customer lifetime value. I think a lot about this, probably more than I’d like to admit. It’s kind of fun to geek out on, but how much does each incremental customer contribute to your business over their lifetime, right? This is on a profit basis. The calculation here back in the napkin is the number of orders over the number of unique customers equals your orders per customer. Multiply that out by your average order of value and multiply that by your gross margin. That equals your customer lifetime value.
Maybe we’ll send a follow up with this very basic formula, but your customer lifetime value is optimized the remarkability of your brand and your product. Is this something that people are going to clearly want to buy multiple times? It’s optimized by margin expansion through more efficient workflows, because customer lifetime value really should be thought of from a profit basis. If you have more efficient workflows, you have reduced overhead, you have higher margins, you have higher customer lifetime value.
You can’t really leave out at all the importance of marketing efforts. Once you acquire that customer, if we’re going to talk about customer acquisition costs, how are you marketing to those customers consistently with the right message, the right frequency, to get them to engage with your brand and buy more over their lifetime? That’s really what optimizes your customer lifetime value.
Without knowing your customer lifetime value, you really can’t properly implement an advertising strategy, because you won’t know how much you can actually spend to acquire them in the first place.
That’s a great way to put it. We just got a question. If you want to answer this, Daniel, customer is asking, “How does customer lifetime value work with consumables SKUs? You can really market to those customers directly per Amazon’s rules.” I’m not sure if you understand the question.
Yeah. I think I understand this. I think it’s really important to respect that Amazon views the customer for whom you’re fulfilling their order as Amazon’s customer, not necessarily your customer, right. That customer, we can assume, is probably comfortable buying on Amazon, and we want to make sure that every time they buy that product on Amazon, they’re buying it from you. Then over time, through the use of marketing inserts, through the use of maybe the way you’re packaging your product and the experience of unpackaging it, maybe that customer will decide, you know what, I want to buy this directly from InkCartridges.com instead of from Amazon, and that’s perfectly acceptable.
I think customer lifetime value needs to be considered based on where are these customers going to be purchasing from, and obviously every time they’re purchasing on Amazon, the profitability of that customer is probably going to be lower than if they were to come back time and time again to your Shopify site, because you’re not paying that 15 or so percent commission. You’re not advertising again and again and again to reengage that customer.
And all this of course ties into what I’ll jump into in a little bit here, which is you could even have… When you talk about different types of searches on Amazon and how you’re actually finding, or consumers are finding your products, I mean you can even get as granular as understanding how much are you willing to pay for someone searching for your own brand versus a generic search? Like ink cartridges versus HP ink cartridges, and someone searching ink cartridges, you’re likely willing to spend more to acquire that sale because you’re capturing a customer that doesn’t have any recognition towards your brand versus, maybe you are HP and you are selling those in cartridges. Maybe you’re willing to spend a little bit less knowing that that person is already coming to find you. They have your loyalty. You just need to be more efficient in capturing that sale.
I’m excited to go in, but customer lifetime value is so important. Then customer acquisition cost is huge with advertising, but how do you go about setting customer acquisition cost, and how does it actually relate back to customer lifetime value?
Yeah, absolutely. Once you understand your customer lifetime value, you can safely and confidently set your target customer acquisition cost or CAC. If your customer lifetime value is $100 in profit, and a customer acquisition cost of $20 is reasonable, assuming that the payback period on the customer acquisition costs doesn’t leave you low on cash, it takes you a really long time to get that customer to buy again and again and again from you, then you need to be careful about how much you’re spending now to recoup later.
If your customer lifetime value is $20, your maximum acceptable customer acquisition costs will be a lot lower. Optimizing customer lifetime value is really the key to expanding your ability to acquire customers by investing more money. This all affects your advertising strategy, but to really calculate customer acquisition cost on a PPC basis, how many clicks does it take to get a conversion, right? So your conversion rate influences your customer acquisition costs. If you have really high conversion rates, you can bid higher on a per click basis. You have really low conversion rates, you have to bid much lower on your per click basis.
Now you’re speaking my language.
A lot of this is tied into building brand awareness, and a lot of brands coming to market on Amazon, they’ve got to build awareness in a few different ways, and there is a cost, right? I mean, you’ve got to figure out what that customer acquisition cost is and what your acceptable tolerance is. Then on the flip side of it, you’ve got to know, okay, if you’re willing to spend that much for the customer, what’s that payback period and how much are they actually going to pay you over a lifetime? So, I’m excited to go through some of these topics and especially, Amazon advertising is massively outpacing retail growth and this will be passed around in the webinar recording. You’ll be able to see this article.
Essentially Amazon’s a really great channel as a first time brand, especially to build a brand on. We’ve seen many brands that I’ve worked with that have come to Amazon, maybe with one or two SKUs to really start their brand, and it’s given them this platform to really grow from there. We’ve got one of our earlier brands opened up their first brick and mortar retail store in New York City, so really exciting to see this wave.
From an advertising perspective, what you’re now getting is a toll road. Essentially Amazon is charging you for that brand awareness and specifically on Amazon, most of those dollars are coming through on the search side of the platform. So, you’ve got sponsor brand ads, you’ve got sponsored product ads, you’ve got product display ads, you’ve got product attribute targeting, but there is a cost of discovery and you need to be able to manage that efficiently.
A lot of the brands that may be coming to this call today are already advertising, but if you’re not, the first way to, or you would want to advertise, is to actually boost brand awareness. Going back to that flywheel, think about launching a SKU for the first time on Amazon. I know all of you have done it. It’s rank is in the millions or not ranked at all. You have no reviews and no one’s seeing your product. And especially if you’re coming into a competitive space, you may think your product is much better, and it likely is, than others, but no one’s going to know until they actually buy it. One of the ways to have people buy it is to actually advertise.
There’s so many different things here that you can do, leapfrog organic listings because you’re paying to play. You can highlight seasonal items. You can increase the number of ByBox conversions. You can target qualified high intent traffic. That last one is where I’ll spend a majority of the time today going through because there’s so many good ways that you can actually see the traffic that’s coming on, and that’s one of the great things about Amazon advertising, is they give you that customer search term and if you can identify and you know your customer acquisition costs and how much you’re willing to pay, you can then become really segmented in how you run specific campaigns.
So, two of the big ad types, sponsored products and sponsor brands, these are really going to help drive brand awareness. Sponsored brands is that top of the funnel, awareness-driven, can help drive traffic directly to detail pages or your brand store. This is a good asset to have if you are a brand on Amazon, and you want to showcase a few products, but you want that link to go to a store of maybe other sizes, other colors, other lines of a bigger assortment. It actually helps you build some more brand loyalty to show you’re just not another private label seller, but you’ve actually got a legitimate brand with equity.
Sponsored products is definitely easier to get set up. It’s completely driven off of the ASIN. You don’t need creative assets like you do in sponsored brands. For both, ByBox eligibility is required for sponsored products. Brand registry is required for sponsored brands. And then one of the things I love about sponsored brands, in recent months, is new to brand metrics. That is really helping measure first time buyers to your products, and that’s going to really help capture customer acquisition costs.
Our next poll, I want to get a sense of who’s using sponsored products, sponsored brands. Do you use a combination of both? I’ll cue up that poll now.
So, let us know. Maybe you don’t use Amazon advertising yet. Maybe you only use sponsored products. Maybe you only use sponsored brands, or you use a combination of all, Daniel, what’s your perception on advertising over the last few years? What have you noticed? What are some of the things that you’ve seen sellers talk about as being great things about advertising, or maybe some shortfalls of Amazon advertising?
Yeah, I think the slide that you showed at the beginning of this section where everything above the fold is a sponsored product… If you’re a brand, advertising is increasingly important. If you listened to the Amazon earnings calls, advertising is really a major focus. It’s not just Amazon, Google as well. Challenge anybody to do a basic Google search, either on desktop or mobile, and find an organic result that shows up above the folds without having to scroll down. It’s unfortunately just a price of doing business now, but it’s also a huge asset if you can do it better than your competitors.
Absolutely. So it looks like 52% of you only use sponsored products, and then the other half give or take uses a combination of all ad types, so that’s really good. No one in the sponsor brands only bucket, which is good to see. So, I’ll go ahead and hide those results, and moving on to topic six.
So, segmenting campaigns by audience search terms. This is now really getting in to building campaigns that are highly intended towards certain audiences. Again, like the comment I made earlier, Daniel, about your customer acquisition costs is so important, and I think on the advertising side you can get really crazy and knowing the search terms of your customers, and then how to target and maybe even set up a customer acquisition goals, not even at the product level, but even at the search level or audience level.
A lot of the work we do here is helping on more advanced strategies, but whether you’re building sponsored product campaigns or sponsor brands, you always want to make sure your campaigns have themes. Advertising on Amazon is a really great resource, but it forces us to get out of thinking about products, and more so thinking about campaigns, and as entrepreneurs that are building up a brand, we only live in this world where we think about our products, and now Amazon’s telling you, “Hey, set up these campaigns and ad groups,” and you know, it becomes really confusing.
What you want to think about is go back to that product mentality and thinking about your products, and that’s going to help you set up your campaigns more efficiently. When in doubt, always go back to this sort of guide, which is group your products by similar attributes. Then you want to group them by gross percentage. Then you want to group them by price, and then goal and objective.
I’m going to walk through an example here, but this is really going to help you manage the costs associated with advertising by products of the similar attributes and similar price, so that you know, okay, if I have a group of products that has a hundred dollar price point, and my CAC is $20, that’s a lot easier calculation to keep under control versus imagine telling yourself I have a cost per customer acquisition cost of $20, but I’m advertising products in a campaign that have a $40 price point, a hundred dollar price point, $500 price point. Now your customer acquisition cost is going to be maybe too low in some instances and too high and others, so really important to break it down.
We’ll start with this basic catalog of teddy bears. These are the five teddy bears that I sell. You first want to identify the price. We know that our gross margin before advertising is these percentages and then your goal. So, what are you looking to get out of advertising? What dollar amounts do you actually want to contribute to that cost of acquiring your customer through a paid search? And so, these are definitely… These can be augmented to what you want, but the basic ones we see are, do you want to be profitable? Are you just launching? Is this a product that you’re in high growth mode, high sales velocity?
Once you do that, then you can take those SKUs and you can identify them by similar attributes. So you don’t want to build one campaign for every product if you don’t need to. You might have a catalog that’s wildly different, and you might have a hundred products and all hundred are the same. That’s going to be a lot of work and pretty unfortunate situation, but anytime you can cost buy similar products together, definitely do that. What we’ve done here is we’ve grouped our panda bears with our black teddy bears.
Next what we want to do is from there, we now have identified that our panda teddy bears are all in the same grouping, what’s their gross margin? Now you can start to see that some of the pandas are going to be different than others in terms of the quantitative aspects, like margin, price. So you can see the first one is 25%, the last one’s 50%. Then you’ve got to layer in price. A price point of 9.99, you’ve got 59.99 and I’ve got 24.99. So the top two pandas have a close gross margin, but their prices are very different.
You’re going to want to separate those pandas into two different groups, because, again going back to that customer acquisition cost, you might actually be willing to spend more in the cost of acquiring a teddy bear is different than maybe a CPG brand where you’re trying to potentially get more up front because that customer is going to have a longer lifetime. Think like detergent, you’re coming back and you’re ordering detergent every month, you might be willing to spend a lot up front to acquire that customer. But the same goes here, where these teddy bears have very different prices and if this is likely a one-time purchase and you have a price point of $9, how much are you willing to acquire that sale? You’re definitely going to want to spend more on the $59.99 price point because you have more margin to work with.
Then the last step here is now these products should have their own goal. Now within their you see that the top to have profit goals, but still their prices are very different. So even though they have the same goals, they still have a different price points and profit, which is going to really affect cost per acquisition.
So, what do the final groups actually look like and what do the campaigns look like? This is the last grouping. You’ve got all the different teddy bears. You’ve got their campaign identifier, their goal. Now we can look at the options. This is a good option. Group one, you’ve got that small panda for 9.99, the mom panda and the light gray panda have been put into their own groupings because they’re different in margin and price, but take a look at the black bears. We’ve, we’ve put them into the same campaign because they’re both black bears. They’re both 19.99 and they’re both around 30% with the same objective of growth.
Good campaign, but what about option two? Group four has now become group four and five, and although they’re very similar in margin, they’re slightly off. So, better option might be, hey, let’s break these out because they have different costs associated with them. Now you get five, what seemed like very similar products in your first slide that we went through, is now five campaigns, so putting it all together, you would have five campaigns. We recommend a mirrored campaign structure where you have an automatic campaign, you use it to explore, and you would then have a target there, like how much are you willing to spend for launching a product versus profit? You might be willing to spend 50% when launching as a customer acquisition cost versus the large panda where you’re willing to do 25%.
Here’s where I think it gets really fun. And Daniel, this goes back to some of the intent stuff, which is now you can really start to break out audience search. This is very imminent if you’ve got real brand recognition, instead of breaking your campaigns down by a basic automatic to manual, now you can have several manual campaigns that feed in different search terms. That, again, goes back to that CAC calculation, which is on my branded keywords I already know the intent is there, and I know people are searching for my products, I might actually be willing to spend way less there than I would to capture competitor searches and my cost. How great would it be to steal a sale away from a teddy bear, a manufacturer that I’m in competition with, right? You might actually have a different cost associated with that.
Then generic, you know someone that’s just typing panda teddy bears, cute panda toys for kids. That’s someone that isn’t coming to market looking for a specific brand, and you have the opportunity to win them over, maybe with a slightly aggressive cost structure to actually win that sale. That’s really the basics of that strategy and how it relates to a customer acquisition costs. Daniel, any remarks there? I know I whipped through it.
No, I love the point that you just made on the generic side of things. It’s a great opportunity to position yourself to acquire mindshare. Think about the last time you purchased anything on Amazon where you weren’t sure what brand, you just knew you wanted to get it. My wife asked me to get her slippers for the house and I had no idea what I was looking for, so I typed in like house slippers, or women’s house slippers, and you know, some brand I’ve never heard of won my order, and my wife loves them. I’ll probably end up buying from them again, or I probably won’t but Mike will.
Buying for yourself?
Maybe for myself too, yeah. I wonder if they make a men’s version.
Yeah, so it’s such a good… I mean, why I was excited about this presentation is like the customer acquisition cost piece and just a lot of the work that we do as companies are so synonymous and you know, the big takeaway from the presentation today is thinking about all of these different metrics because a lot of the questions I had pressured you with, Daniel, is things like revenue per SKU. There’s always going to be other metrics or other things you’ve got to think about sort of in connection with those metrics that we do think are important. That holds true for a lot of the advertising work we do, which is what context is there to make decisions.
To wrap things up, creating more value together, how do these things intertwine? How do you use some of the advertising guidance that we’ve given today with the work that Daniel and the Zentail team do? From my side, I think the biggest piece is although Amazon advertising is this pay-to-play environment or this toll road, it’s a great toll road to be on. You talk about customer lifetime value, customer acquisition cost, and those really being Amazon customers facilitating business on that platform and not your own site, you’ve got to be able to make the best out of those customers in the way to do that, and I say this almost in every conversation, Daniel, which is Amazon doesn’t allow you to own much on the channel, but what they allow you to own is how the customer searches your product. Of course you’ve got to pay for that data, so it is very valuable data to be running paid search campaigns, and then have access to Daniel’s search results, which is slippers for the house. That’s a very valuable search to own.
It’s so valuable that that’s the only data that’s going to relate to your products and your customers. There’s a ton of tools out there that will help you come up with new keywords, but none of those keywords are actually tied to the specific metrics of your products. And so ways to beef up your product detail pages is continuously take out those paid search terms to improve your organic rankings.
Yeah, I love the way some our mutual customers are leveraging the suggested keywords they’re getting from Teikametrics and all of the insight that they’re getting from their advertising campaigns, loading those keywords up into our keywords field in Zentail and doubling down, using those great keywords that work really well on Amazon to place better on Google and other channels. It’s really super helpful.
Yeah, and the last thing we’ll leave you all with is just know the limitations of advertising, you know, low inventory levels. You definitely want to avoid stock outs. Speed up and slow down inventory, sell through rates with advertising. If you don’t have e-comm workflows under control, and you’ve got order defect rates already and you start to pour in advertising, things become a little bit more difficult to manage.
Daniel, one of the things we talked about in sort of like the speed up and slow down of inventories is what you refer to as smart reordering. I thought it’d be great to bring that up in this presentation, and I thought it was so interesting, but how do you control low inventory levels with smart reordering? Can you share again to the audience this time what that’s all about?
Yeah, absolutely. There’s a very fine line between having the right amount of inventory or having too much or too few units of inventory. The worst thing that can happen again is you have a high performing ASIN, you start running out of inventory and you’re not going to be able to replenish that inventory in time before stocking out, sales velocity declines, and all that hard work that you put in to get in that great positioning for your ASIN now needs to be rebuilt.
We have a new feature in early access called smart reordering and it takes into consideration a number of factors, most specifically, sales velocity to tell you exactly when you should be reordering your product based on vendor lead times, and being able to understand how channels outside of the Amazon are drawing down on your inventory as well, so as you add more channels, there’s more complexity to manage and getting it right on the inventory forecasting side, it becomes more difficult.
That’s such a good point. The CAC piece, to put an end to the presentation today, is so important. The one thing I didn’t leave out in my conversation was this really helps inform your tolerance for spend. If you find yourself in a position where you’re adjusting keyword bids for campaigns, this is where we see a lot of risk, and a lot of sellers blowing money essentially because they don’t understand what their CAC is or should be. Then they go to market, maybe spending $10, $12 on a keyword bid and by the time they know it, it’s costing $50, $60 to acquire a sale at a price of five bucks. That might be okay if you then know your customer lifetime value is the $60 that you spend actually going to be repaid by that customer over the lifetime.
All those things are very important to think about. We’re just at the end here, so I want to leave you all with a few takeaways from the presentation today. Daniel, thank you so much for jumping on, joining us today. It’s really great just spending time with you over the last couple of weeks, getting to know Zentail a little bit better. I think we’ve got a lot of good points here for brands to take away, so thank you again.
Yeah, thanks so much for having us, and before people leave this webinar, we have a special offer for anybody that wants to learn more about Zentail.
Yeah, awesome. I’ve got that pulled up here. I’ll drop a link in the chat, but it’s a Go.Zentail.com/Teikametrics-offer. That will be sent out in the replay webinar. Thanks everyone for showing up today. Really appreciate you spending some time with Daniel and I. Of course, if you’re interested in Amazon advertising, listeners can get a free 30-day trial.
So, thanks everyone. Have a great day. Thank you again, Daniel.