Podcast 4: The Secrets of Marketing Spending

On the podcast, Al Keck welcomes Steve Robinson from Omnicommerce. They delve into the secrets of marketing spend and what strategies they suggest in trying to optimize those with a longer-term view on marketing investment.

Host: Al Keck, CEO, Infinity Nation 

Guest: Steve Robinson, Omnicommerce  

Voiceover: At Infinity Nation and Beyond we look at the status of your digital landscape and how it affects the growth and profitability of your business. On the show we will be talking to business leads, partners in the E-commerce world, as well as some of our own specialist team to give you actionable insights and find solutions to help you on your growth journey today. We will consider new ideas, stretch our mindsets beyond the status quo, and in the process discover how to gain an edge on the competition and drive some great results. 

Al Keck: Hi, on today’s podcast we will welcome Steve Robinson from Omnicommerce. We will delve into the secrets of marketing spend and what strategies we suggest in trying to optimize those with a longer-term view on marketing investment. Steve, welcome, how are you today? 

Steve Robinson: Very good, thanks. 

Al Keck: Good. Before we begin, can you tell us a little bit more about Omnicommerce? 

Steve Robinson: Yeah, so we’re about 18 months old, my background is retail predominantly, for about 30 years, I’ve had a number of different roles over that time, finance director of Argos, customer director at B&Q. Director at TESCO, and had a couple of CEO roles along the lines, smaller businesses. But what I brought through all of that, one thing that I’m most obsessed about is insight and how businesses use insight to create a greater amount of value. And so, for the last 18 months I’ve been building out Omnicommerce, which we have some SEO insight solutions that get you to the same place that a blue chip would get, within hours. 

We do some consulting and I guess, the general premise is it doesn’t matter how good a founder you are or the strength of the board, if you’re not using insight to the extreme you’re leaving some money on the table. So, we help people close that gap, really. 

Al Keck: Man after my own heart, I think, it’s absolutely key, isn’t it, in the way in which costs of digital marketing are going. The auctions and cost per clicks have to become smarter to drive that profitable growth, and to know we’re backing the right horses or going after the right types of customers. It’s absolutely vital. And I think it was Clive Woodward that once said at a talk I went to, he said, “He who wins the technology race wins,” And that’s his belief. He’s always believed that. He was the ones to bring the whole GPS tracking, et cetera, in the visualization software for that very reason, no one else was doing it. 

So, our topic was, and I know we are both passionate about is, businesses that both you and I often look at, seem to be heavily weighted towards acquisition. I’ll often see a business that’s probably 80%, 85% all about driving new customer acquisition. So I suppose for me, I’d love to hear your view on why do you see things like customer lifetime value being so important and such an integral part of the puzzle when looking at profit margins of growing an E-com business? 

Steve Robinson: Well, the crazy thing is I forgot to mention I’m an accountant by training, and accountants are typically obsessed with very finite periods of time and they certainly don’t look over multiple years. And there’s many public businesses that it’d be very difficult to go out to the city and say, “Look, actually, we’re going to lose a load of money this month to acquire some customers that are giving us a five-year return.” They’d murder you if you’re not hitting your numbers. So, there’s a lot of pressure in business to focus on that short term. 

But the reality is if over a period of time you’re going to achieve returns for your investment, whether that’s your own money or other people’s money, it’s only going to happen if the customer lifetime profit exceeds the marketing cost to acquire the customers. It sounds overly simplified, but I’d say 95% of businesses that I go into aren’t even considering it. And actually, it is there. You don’t exist unless you’ve got that because it’s how you create value for shareholders, how they get a return, how you pay dividends or how the share price goes up. So even though there’s lots of businesses out there that I don’t think will ever make a shareholder value return there are worth quite a lot of money, the principle is that if you don’t exceed your marketing cost then you’re not in the game. 

And the reality is most businesses out there, with the exception perhaps of dignity funerals, you’re going to be making more than one purchase on average, probably. And then, if you’re not focusing on how much money and basically the return on that money, how much money you are investing at any point in time and how you’re allocating it, then I don’t even think you’re doing a proper job. And that sounds a bit extreme, but it’s so important, and there’s so few businesses doing it right now. 

Al Keck: Why do you think the business lose sight of, as you said, a pretty basic, a pretty simple ethos, in terms of profitable return versus your marketing spend? Do they think they just get caught up in the hype of growth or they just lose sight of it in the deluge of data that is at their disposal? 

Steve Robinson: I guess that if I had to have a view on it, I would have, don’t forget, especially in the E-commerce businesses, it’s still a quite young area of excellence or expertise, and it’s quite complex. And so it is easy to get bogged down. There’s a lot of talented founders that I work with and boards, they don’t know everything. We forget that. They might have an amazing idea they’re probably executing really well. They’ve got passion, they’ve got energy, but they might not just have that expertise in customer lifetime value and how it relates to marketing investment. And so, they just probably are getting by on momentum and energy and not necessarily doing it in the most insight smart way. So, I think it’s an element of expertise actually, in general, is not many businesses have that insight around that intrinsic into what they do. 

Al Keck: Yeah. I think it goes back to that point earlier. It’s almost easier to go and spend money on the search engines to achieve revenue. I think, as you and I probably both know, and that’s the reason you’ve pulled together on E-commerce is trying to understand who the good customers are, and what their touch points are, and why they buy them more regularly. That’s why they have a stronger lifetime value. Isn’t easy to get to, but I’d love to hear your view on why again, why that’s so important for them to do. 

Steve Robinson: Well, let’s consider. There’s a couple of things there. So, the first one is look at the sort of things that can have a change in, let’s call them cohorts, groups of customers, in a change of differential of lifetime value between them. So, the time of the year you acquire them. The time in your evolution. Often when I see businesses they acquire their best customers first, and certainly in individual geographies and then they get slightly worse. So, you need to understand that. The type of product they buy first. Where they’re located in the country, their demographic. The channel you acquire to buy. So, all of those individual things will have a variance in customer lifetime value, or it’s likely to. 

And then if you combine all those together, you’ve got millions of combinations. So, if you’re trying to find a sweet spot of the customers that have got the highest, or cohorts that’ve got the highest customer lifetime value compared to their acquisition cost, that’s a lot of insight expertise that you need. It’s generally what we help with. Yeah. So, it’s quite a complex thing to do, especially if you haven’t got the skillset. And how some of the businesses we work with might not even have an analyst, for example, so they’ll probably never get there. 

Al Keck: Well, that’s an interesting point on skillset. How many of the clients that you see or deal with do have an analyst in house? Because it’s few and far between, in my experience. 

Steve Robinson: I think there’s probably let’s say less than 50%. I mean, I’m not going to go around besmirching fellow professionals, but the fact is if someone comes out of university and has got a data science degree, or if they’re a one or two year post qualification accountant, those sort of people, they’re not cheap. They’re like what, 40, 50K a year or something? And actually, they’re not that practically experienced. I know I was that person 30 years ago, or 25 years ago, coming out of university young. I didn’t know anything about … I didn’t even know half the terminology that was being banded around a Superdrug when I joined. So, how could you possibly expect them to do, the best job for you, they’ll do a good job maybe, but that’s quite a lot of money for a small business.  

So, I guess that’s why we’ve got a bit of a business model where we say, for a fraction of that, we’ll get you there tomorrow. We’ll do it in what I would hope is a world class way and we’ll do it cost effectively. Cause there is certainly a gap there. 

Al Keck: I think it’s a vital gap and I think if you go back to the business owner, the understanding of that customer lifetime value and the profit, and what does that mean for them in enterprise value. I often feel once we’ve got the types of insight that you provide, empower them and the board to then have a different view on how they might be prepared to invest today, but for a return in years to come, do you have any view on that? 

Steve Robinson: Absolutely. So, there’s a couple of things there. So, one is you can absolutely model the based on the behavior of cohorts, the future benefit and investment and often when we work the company, we’re saying, “Look, you’re making too much money right now.” The balance of everyone’s KPIs will be slightly different, but the interrelationship between average order value, repeat spend and CPA margin and cost of ships. So, if you look at the sort of the breakdown of how you make profit per customer, everyone’s slightly different and there’s certainly businesses out there that have amazing metrics that are not chasing after it, as hard as they could. So, often we are trying to give them that confidence to say, “Look, this is an amazing business and you’re under potentializing.”  

Occasionally we say to businesses, actually, you’re out of control and you need to reign it back in a bit because, until you can sort perhaps your marketing efficiency out, you’re basically, you’re destroying shareholder value with every customer that you bring through the door, which is a frightening conversation. And then I think the final piece in that is if you were to ask, a hundred businesses, how many of them are budgeting the future based on customer KPIs. I think it would be a handful and I still come across businesses that are budgeting based on sessions, conversion rate and not taking to account that future benefit of stuff that you do today, because almost without exception that whatever you spend in this year is going to have an impact the future years. And if you’re not building that into your budgeting, how on earth can you be doing anything that’s going to make any sense. 

Al Keck: And do you see a penny drop when you say that? Cause I mean, I think that’s a really interesting point that you say a lot of people will be given a budget today, say, this is how much you can spend on your marketing. This is the revenue we expect you to achieve this year, but and then they’re like, well, you need to hit this cost of acquiring a customer. You need to hit this return on a ad spend, but you say there’s no one really considering, well, once we’ve acquired that customer in the first 12 months, what does that customer spend it like in year to two year, three year, four year five, are you able to help people with that modeling and do you see sort of a different approach from them once they’ve done it? 

Steve Robinson: Yeah. For sure. I mean I describe it to people as being a bit like in the movie The Matrix where at the end of the first movie, he suddenly sees everything in zeros and ones and it’s that moment where you realize that there’s another world that you just haven’t been involved in, or even aware of that there’s this level of sophistication that you need to be taken into account. And absolutely I have had the sort of moments from people where they’re like, “I didn’t realize that this was out there and existed as an expertise.” And so, one of the things that we do is, and it sounds simple, and it is in reality. 

So, every cohort of customers starts off in their first month with one or slightly more than one orders, right? Someone might repeat the first month, but it’s going to be slightly higher than 1.1 or something over five years on average, that cohort will have a multiple of that hopefully. Just depends on it could be two, five, 10, some subscription businesses higher. The reality is you can draw a line between those two. It’s never a straight line because you’ll always have a natural tailing off. So, the fact is it’s a curve [00:15:30] that curves between one and whatever your number is five, and we can model those curves. They’re slightly different in shape some businesses, a nice steady curve, others accelerate away and then tail off quite quickly.  

But you can model those curves. And if you can do that, then you almost have got within a few months, perfect visibility over of the five-year trajectory with a huge amount of confidence. And when we sit down and show that, and the fit of those lines that are basically standard curves to people’s businesses, again, it is a sort of, oh shit, moment that you are basically telling them the trajectory of their business over the next five years, probably within five, 10% accuracy. And invariably when we go through that exercise with people, the one thing that they’ve normally got wrong is the quantum of marketing spend.  

So, it’s either too high because they’ve underestimated or so overestimated what they’re going to do with that money. And they’ve sort of underestimated how their existing customers are going to take off or it’s too low, it’ll always be wrong for sure. It’s very rarely that when we put the numbers through our model, that the marketing cost is correct. 

Al Keck: So, do you need a certain amount of data then for the tool to be able to help you with this prediction? Is there need to be like a two or three years’ worth of trading or? 

Steve Robinson: No, literally just a few months, you’ll see the trajectory because we know for a fact got all our clients and haven’t seen one yet. The only down, if you’ve got a client that’s got a very small number of transactions per day or someone who’s selling stuff that is much higher price point of less frequency. The lines can be more sort of jagged over that time period. And it is exactly, but for most E-commerce businesses, with a decent level of transactions per day, it’s almost a perfect curve you can model and you can do it after maybe sort of three or four months. 

Al Keck: Cool. That sounds really good. So, would you have any advice for anyone looking to diversify their marketing approach that hesitant or unsure how to do so, in your opinion, what sort of percentage of marketing spend should be used to acquire customers versus encourage customers to repeat? 

Steve Robinson: So actually it is another thing that we measure is unfortunately without a whole ghost of extra tagging. And obviously some of that stuff’s got more compare anywhere recently, but on a last click basis, we can absolutely identify which customers through which channels are new and existing, which is quite a step forward. When again you demonstrate that to people that really didn’t expect that say 25% of their even their shopping campaigns are bringing in repeat business. It can be quite an eye opener. I guess one word really visibility. So, it’s only by getting visibility over all of these things, can you then try different things, whether it’s different channels. So, we connect to TikTok, Snapchat now, LinkedIn. So, we help businesses through some of those. 

I mean, it’s amazing how, especially the smaller businesses, it’s amazing how many of them are on being, and tends to be 10% of spend and 15% conversions in most benchmarks that I see. So they’re leading 10% on the table by not being a thing, they’re so easy to do it. You just copy the campaigns over, most of them aren’t on using TikTok, Snapchat, some of them aren’t even on Instagram, but on Facebook but it’s only really by getting the visibility over that, that you have the confidence to go and test it, because otherwise you’ll just be spraying money around quickly, really right.  

And just jump into the next best thing. And so that’s what we try and help people with is improving that business. Because even it’s not just about acquiring that customer, it’s spotting quickly again, predicting the health of that customer once you required them. Cause there’s no point you suddenly finding that TikTok is an amazing channel for you. If it’s just bringing in a load to really poor-quality customers, you want to spot that up pretty quickly. 

Al Keck: Yeah. And you mentioned sort of recent changes in terms of data, I mean, I assume that you’re alluding to the iOS 14 updates, have you found or identifies ways around that? I mean, be interest in your thoughts.  

Steve Robinson: Yeah. So, well sort of, so it’s hard. I mean, obviously it sort of screwed with the algorithm that they use or were using to bid ironically, it looks like the cost per clicks have gone up. And so I don’t know how incentivized Facebook are to fix it. Cause actually they’re making more money. There’s an irony in it. I mean only for so long, but then for some of my businesses I work with it. So, it’s their lifeblood. So they don’t really have a plan B. And so absolutely it’s like a weird thing that there’s just no incentive for Facebook sort of to fix it. Cause in the short term they’re making more money or at least they’ll drag their use a bit, he one thing that … Go on? 

Al Keck: So, I was just saying, on that point, if you’d seen any correlation of data of those on an Android versus those on an iPhone and is there any data to learn from there. 

Steve Robinson: But now you’ve said it I’m going to spend the whole weekend looking at it. Probably it’s the sort thing it’s sort of I haven’t looked at that yet. So that’ll keep me awake tonight and I’ll be tomorrow morning. 

Al Keck: I look forward to the text. 

Steve Robinson: Yeah, definitely. Now I’d say the one thing that we have done that we did think of. So, big believer in basically using location to create control groups. So, one of the things that we do is make it easy for businesses to ring fence locations and basically test things. So, we certainly worked with some clients to say, “Look, actually, if you’re not convinced about the benefit of Facebook still, for example, let’s just turn an air of the country off that’s representative as a control group and just see what it does to new customer acquisition or something.” And there’s the old-fashioned methods of testing stuff of, if you don’t believe the first party sort of data and try and find other clever ways to justify it or work it out, we’ve certainly done a bit of that. 

Al Keck: Yeah, we’ve done that test. Not, I suppose we’ve done it within a country where we know there’s been no PR or the no catalog and just tested to see what amplification fact it brought. Okay.  

Steve Robinson: Yeah.

Al Keck: Yeah, absolutely. That would be really useful Steve, thanks so much for your time. Where can we learn a bit more about Omnicommerce? It’d be great to chat soon and pick up some more tips. 

Steve Robinson: Yeah. So, we’ve got a website omnicommerce.co.uk there’s a couple of blog posts, white papers on there about how we think about things which go through that customer lifetime value stuff in a bit more detail. And also, how the maturity of insight within organisations and general views that I have. We actually look at people’s data for free. So, if you’re out there and you’re interested in, it’s part of our sales cycle, because we’re so confident in what we do that it’s not wasted time for us to invest loading up your data and showing you what we can do with our tools. Cause we’ve got a really high hit rate from that. So, we’re happy to do that. So you can sort of worst-case scenario, get a free view on your business and how we see it and a bit of coaching. Like I say, it all turns into a sound for us. So, but more happy for people to reach out to me, steve@omnicommerce.co.uk. 

Al Keck: Brilliant. Steve, thank you so much for your time. Great to catch up. And I look forward to getting the text tomorrow on the android, iOS split. 

Steve Robinson: No, worries. Thanks for having me. 

Al Keck: Thanks a lot. 

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