The 3 Million Dollar Question

The Client

With the e-commerce industry showing explosive growth, many people have been rushing to capitalize on the trend. The industry has proven itself to be one of the few that can regularly make millionaires. Many startups have been flooding the market with all kinds of service offerings and gaining major traction in a wide variety of customer niches. A retail startup formed by a group of serial entrepreneurs knew they wanted to get into the industry but wanted to make their mark in their own way. They saw what everyone else was doing, but they didn’t want to have a heavy operation. They wanted to see if there was a leaner way to get in the game.

The Problem

With no connections to major brands, retail is a hard space to gain traction without a significant investment of capital and time. Many companies have spent millions of dollars trying to figure out a solution only to end up with nothing. Our challenge was to find a path to success that fit their incredibly strict criteria. With so many restrictions, we knew that delivering for the client would not be easy. Nothing in marketing is guaranteed, so we needed time to find a winner. However, there was no time for extensive testing because that would require too much money.

Capital Restrictions

It is very easy to lose money in retail. The client was not interested in spending millions and slowly scaling a business over years. They did not want to build out, maintain and support a whole supply chain infrastructure. They wanted a relatively small launch with a gradual ramp up. They needed to avoid sinking too much capital into low-return efforts since they had other projects that were taking up all their time.

Volume

It is easy to get a return on $100, but it is much harder to get a return on $1,000,000. This is the common problem of scale that business owners face. There is normally a limit to how big a company can scale its sales activities. They wanted to push this limit much further which is why they wanted a leaner model. If able to prove the concept, they were willing to spend millions on marketing. But first, they needed to see some serious volume.

ROI

Retail is a space well known for low margins. It is not uncommon to see $1 million in revenue and no profit after overhead and marketing expenses. They saw no point in scaling to high revenue without seeing returns along the way. They wanted to see ROI from the start and as they scaled. This would give them the confidence to justify ramping up spend indefinitely.

Potential

They knew that this could be just some cash grab, but they wanted to go for something greater, something with lasting power. They needed to make progress toward a market position that was more defendable. They wanted it to be easier to extract more value from the venture organically instead of needing continuous investment. This would create a much larger passive potential and allow the project to fund other larger projects.

The Solution

Drawing from our extensive research in marketing, we knew that the answer lied in finding the right marketing channels and optimizing specifically for those channels. Most other companies try to do it the other way around: they build something and then throw it into channels trying to find the one that sticks. This takes a long time and a lot of capital to do.

We knew the different kinds of channels, the kinds of users that were easy or hard to find in those channels and how much volume they could bring. For example, on search channels, it is easy to get volume, and it is somewhat hard to find buyers, but it is very difficult to find buyers with volume. On social channels, this problem is amplified because users are in a social context, not a shopping context.

We built a basic storefront prototype in a month to test user purchase affinity across different marketing channels. Taking into account seasonal shopping trends, we did extensive testing using little budget on popular items and quickly found a winner.

Design

When selling online, conversion is king. You can have the most beautiful site in the world, but if it doesn’t get users to buy, it is useless. People think that all it takes to convert is a good looking site, but that couldn’t be more wrong. This isn’t something you can casually do; there is a specific science to it that requires data. From our vast experience in e-commerce, we knew the conversion optimization techniques that would help drive sales. With highly converting pages, it is easier to scale up marketing because your spend isn’t wasted so much on non-converting users. After testing targeting and design optimizations, we were able to get a 20% conversion to sale by focusing solely on winning products and the demographics that loved them.

Volume

We analyzed trends in our data to find a few products that were outperforming the rest with some profit. With early positive signs, we doubled down on those campaigns, and the results were spectacular. We were able to drive over 500,000 clicks a day profitably.

ROI

We could not drive so many clicks if the ROI was not scaling with the volume. The beauty of retail is that the sales cycle is short. You can instantly see how your campaigns are doing because you know when someone buys and how much you made. With this information, we could keep scaling the spend without fear. In our campaign, we spent $70k and generated almost $3 million in the first month.

Potential

Other firms would look at such a marketing breakthrough, see the dollar signs and stop there, but we saw something greater. Revenue is great, but that money can easily go away if you do not have a defendable market position.

We saw a great opportunity with our current campaigns. One of the hardest parts of growing a business is growing its customer base and retaining them. This marketing breakthrough was not just a way to make money, but a highly scalable way to grow a customer base that is also profitable. This customer base could also be remarketed to in a way no one else could compete because they are first-party buyers. Other companies could not just steal them away.

While sales are great, having a captive audience of buyers is what makes companies extremely valuable. Those kinds of companies can extract incredible long-term value from their customers organically. Another player in the market was offered a $70 million buyout for their community of 150,000 active shoppers. They hoped to do the same using the strategy we created for them.

The Results

$3 Million

Sales Generated

20%

Conversion to Sale

$70,000

Marketing Spend

1 Month

Custom Storefront Build Time

1 Month

Marketing Campaign Length

The Lesson

The Right Technical Advisor Can Make or Break You

Like many other markets, the retail space is tough to break into. Hiring just any firm to take your project can be a death sentence. Other firms would have been happy and willing to take the clients money, spending months “testing” with little results to justify the time investment. This would have been easy cash for them. The client knew this and wanted to avoid it at all costs. They needed someone who was high level and knew how to deliver.

The 3 Million Dollar Question: How Much Is Your Technical Advisor Worth?

People often wonder what the value of a technical advisor is. These are the cases where technical advisors show their real value: in the money they save you and the money they make for you. They hold the key high-end insights to understand your business at a deeper level and save you precious time and money. Besides being great as double insurance, the right advisor can make or break your company. Quite literally, it is the difference between losing millions versus making millions.