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Ep 484: How to Track Lifecycle Metrics, Not Just Revenue with Jordan Gordon from Pilothouse and The World's Best Email and Retention Podcast
00:23:32
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- [00:00]
Podcast Host
Hello DTC listeners. Today we're doing something a little different. We're featuring an episode from our sister podcast, the world's best email and retention Podcast. Lovingly known as Twiburp. It's a must listen for anyone looking to maximize revenue from the customers they've already acquired. Twburp is where Jordan Gordon and the Pilothouse email and retention team break down the strategies that keep customers engaged in spending without relying on constant acquisition. In this episode, Jordan dives into a concept that huge brands obsess over but most DTC brands ignore, which is tracking your life cycle metrics, not just your revenue. In this podcast, he breaks down the three key life cycle stages, how to spot your margin erosion in your discounting strategy before it tanks your profits, and why a growing revenue line can actually be a red flag and what to look for instead. If you're serious about scaling your brand sustainably, this one's a must listen, hit play and don't forget to go over to the world's best email and retention podcast, TWA Burp, and subscribe yourself. Leave us a review we're going to be growing our podcast network in the coming months and we'd love to know what you think about our new property. It's worth it just for the podcast theme song alone. Hope you enjoy it as much as I do.
- [01:14]
Jordan Gordon
On with the show in the inbox.
- [01:18]
Unknown Artist
Late night glowing screen See the light. Everything feels all right.
- [01:31]
Jordan Gordon
Today we're going to talk about tracking your life cycle, not your Benjamin's. The life cycle is the path that people are going down. If all you're doing is looking at revenue, you're not seeing any of that. What is going to happen to your business? You can just see it in the numbers, but only if you crack open revenue and look under and look at the things that massive brands look at. You see your revenue going up. Is that always good? Not necessarily. Three different life cycles that you're going to want to track. Promotional Life Cycle Customer Lifecycle Category Lifecycle Follow these things to understand the quality of your revenue.
- [02:19]
Podcast Host
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- [03:24]
Jordan Gordon
It'S the world's best email and retention podcast and I'm your host Jordan Gordon. We are a member of the DTC Network of Podcasts and the philosophical home of the Pilothouse Email and Customer Retention team. Today we're going to talk about tracking your life cycle, not your Benjamins. We have gotten into a lot of really specific kind of tactical optimization stuff, layouts, landing page emails, etc. I also want to talk with you about how really massive companies think about their customer base, how they think about growing their business. Really massive companies. Like when you go and listen to earnings calls from companies on The S&P 500, it's an earnings call, not a revenue call. We have to understand that revenue is not the only game in town and the bigger you get, the more you have to have a larger basket of things you're paying attention to to make sure your business is on a stable path. What I will discuss here is three different life cycles that you're going to want to track. Promotional Life Cycle Customer Life Cycle Category Life Cycle how following these, while of course you follow revenue will give you excellent leading indicators to understand what's happening in your business as you grow and mature. Okay, first, just revenue. Let's just touch on the revenue. Like a great strategy for email is just max revenue. Just do whatever max's revenue. It is a solid strategy, especially if you're small. Just Max Revenue I've run just max revenue email programs many times. Many times. Okay, but how about nuance? What are things that can hide under that revenue that we could think about as life cycles? First, I'm sure you've all thought about this. Your discount rate. How much are you needing to discount to drive that revenue? And this should be, you know, a regular portion of any CFO's metrics deck. So if you're big enough that you got a cfo, you know, go talk to your CFO and make sure that you guys are aligned on this as you build your customer retention programs. Second, actual life cycle Stage customer life cycle stage. So is it a prospect? Is it a first time buyer? Is it a repeat buyer, Is it a stale buyer and like, you know, kind of long gone? Is it a recent buyer? And then finally the category life cycle, where is someone down your category? You've got a primary category or a hero product and then you've got additional categories that you want to introduce people to, to give them a reason to keep purchasing and also so that they don't just max out on your primary stuff and kind of be done with you. Let's just break into these three and talk about how they can hide under revenue and how you can follow these things to understand the quality of your revenue. First, this discount rate, I start with this one because it's so obvious, right? If you start doing, if you got a margin of 20% and you start doing 20% off every day, you're not making any money, right? So like I say, first place to go, talk to your cfo, but something you can also do, obviously, like stuff. There's a different way to do this with every platform. A lot of things that we talk about here are Klaviyo specific because so many brands come to us using Klaviyo. So you can go in and just create a segment in Klaviyo that measures the percent, that measures buyers for the month, and another one that measures buyers for the month who had a discount rate of greater than, greater than or equal to 11%. Why 11%? Okay, well, most people have like a 10% off coupon, you know, to get started. You don't want to count those against you. And so, you know, if you've got some other discount, whatever your discount is, just work this number so that it does not include those. So how many people were there that had a discount of 11% plus versus how many people there were, right? How many buyers? And that's something you can trend every month, at least every quarter, but definitely every, you know, I would do it every month. And you can chart year over year. Look at everything I do is month over month, year over year, by month, by quarter, by half and by year. Just the way it works, right? You should be doing those things for anything important so you can see the changing trends in the data. So you can steer the tanker in the right direction and then a little optimization for that. You can also do who have been in the list who were created less than 365 days ago. And that's kind of interesting because now you've got a new customer cohort and an established customer cohort. And you can look at, okay, how are we discounting, how many customers are we needing to discount to get to purchase who are new versus established? You would want your established customers to be requiring less discounts. So there's immediate life cycle view. Obviously the longer someone's with you, the less you should be spending to get them to buy. And if you don't see that, if you don't see that improvement over time, that's a negative leading indicator for your business. Yeah. And if kind of this, if this rate as a percent of a percent goes up more than kind of your revenue, that's just a negative indicator right now. I mean that's obviously if you have a CFO who can just tell you, yeah, our margins, our margin for this channel is getting worse. If they've got the ability to do it by channel, great. If they don't have the ability to do it by channel, you got to get, you got to get scrappy, do it yourself. So just look at this percent and so is this percent. Is this rate increasing faster than my revenue is increasing as a rate? Okay, well then probably you've got, you know, a margin compression for your channel going on there. You know, assuming that repeat buyers are mostly influenced by email. I mean broadly speaking, when you look at buyer revenue, that's going to be your email and your SMS and other retention programs. If you've got a bounce back coupon that you're running where you put a piece of paper in the package that says, Hey, 20% off your next order, boom, that'll be your best coupon, by the way. That'll be your best one. So those would be under the email and retention program. So yeah, that's where, so when you, when you see for established buyers, when you track this, this, this rate, you're generally measuring your, your activities. Yeah. And so you could do that both, you could do it both. If you really wanted to get nerdy about it, you could split it up by greater than and less than 365 days. And you can split it up by one purchase overall time and two plus purchases overall time. So you can be analyzing your base. We're going to talk about your base in a second. So just keep in mind that's two different views time. How long have they. So that would be recent, stale and customer lifecycle stage, first time buyer or your base, your people who purchase more than once who are now who you can now rely on making further purchases. That's our first life cycle that hides under revenue. You See revenue going up. Does that mean, is that always good? Not necessarily. Right? Not necessarily. So big brands want to grow their base, right? Big brands want to spend as little on advertising as possible. So they want people who are likely to purchase without requiring a prompt. These are basically dedicated customers. They're your repeat customers. The simplest way to look at this, it's just your repeat customers. So if you've been listening to the world's best email and retention podcast, of course you are splitting your list up into prospect and buyer and maybe first time buyer and repeat buyer. So what would your base be? The people who are, who have purchased more than once, who are likely to repurchase. They have the lowest cost to acquire and also the shortest time to reacquire. They will make a purchase sooner right after a purchase than a first time buyer. They're just better. They're your customers, right? They're loyal customers. Well, anyone who's purchased in the last 365 and has purchased two or more times ever is your base, right? That's the number you want to go up. So let's talk about the ways that kind of the base can interact with your revenue. Okay. And let's think in the minds of these billion dollar companies, right, who don't like paying for new customers. I mean, we got to do it. Not saying ads is bad, just saying you want to have the largest amount of revenue coming from people who don't require ad spend, right? So if your revenue goes up but your base shrinks, right? So you do a big campaign, bunch of revenue, right. And then at the end of the quarter you look and you say, wow, our base is smaller. Look, this can happen, right? What are some reasons for that one? What are some reasons or outcomes of that? First of all, it suggests that your marketing costs will increase because a larger share of your list is going to be people who have higher acquisition costs. And you are going to have to spend for new customers to fill the gap that's left by your base. So here's what you do. Let's say you got 100,000 addresses in the list. Go and look at it. You're going to see you got like 5,000 repeat buyers. Your base is this fraction, right? It's this awe inspiring truth about customer retention, right. You know, 5 to 10% of your list is going to be repeat repeat customers. Most of the list, most of every list is garbage. And by the way, we have, we use segmentation that just treats that garbage as it is. Yeah. Then after that you're Going to have your customers, which would be total customers, would be maybe 20, 30%. And then the rest is just like bunch of prospects, something like that. I mean, if you look at your active list, probably half customers, you know, and 20% repeat, right? If we're looking at something a shorter time period. So your marketing costs will likely increase if your base shrinks. Very simple, because that's. Those are the cheapest people to reactivate. Second, it suggests you've got a strategy that's not building loyalists. If you increase your revenue and your base shrinks, you're just bringing in people and spinning your wheels. No one's actually hopping on the train and staying on the tracks, right? So that's a negative leading indicator. And of course, an exception to this would be, let's say you do a major product audience or brand pivot, right? Obviously, if you do this crazy pivot, your base is going to decrease because people are going to say, hey, this isn't what I signed up for anymore. And you're bringing in new people. You're building, you're building a new base. And in that situation, you might actually want to measure two different bases, right? A base. You know, look for basically the new product, people who have purchased the new product, the new hero, the new front line, and people who have not purchase the new hero, the new front line. These are your two different bases. And so, okay, you're going to have your base shrink. The other one's growing. What should be happening eventually is that you're reaching a point where you can see, hey, our new base is going to overcome our old base and be larger than before. That's obviously, that's obviously the, the goal behind this. I mean, maybe larger than before when you multiply by AOV or something like that, right? So let's say your revenue goes down, but your base grows. So now our revenue's gone down, but we look at our base, hey, the base got bigger, right? Well, this could be because you're niching down, right? And there's lots, there's lots of good reasons to niche down. You can kind of control, you can really own a market segment. You can just go on YouTube. There's so many people talking about this. Okay? It could also be because you're simplifying your catalog. There's just less items to sell. So maybe you're getting less of these repeat purchases. And obviously simplifying your catalog can have all kinds of cost of goods sold benefits. So maybe you'd want. So in these cases, you're like, okay, we see our base shrinking, but this is okay, right? Because this is following a strategic decision of ours. And importantly, don't only think about your base as an absolute number. Did the base grow? Did the base shrink? That's your go to, it's the first place to go. But also your base, which is a special kind of repeat buyer. It's a repeat buyer who has purchased in the last 365 that can grow as a share of buyers even as overall buyers shrink. That can shrink as a share of buyers even though overall buyers grow. Right. And there's lots of different ways that these can be good or bad depending on what you're doing on your business. Right. So you know, some thoughts here. If you're doing a big ads push, a massive ads push, you are going to expect your base to shrink as a share of customers and it's going to be okay. That's what you're, that's what you'd expect thereafter. You would want to see that base grow. The base should grow. And I mean if you are a growth company that your base might always be dragging behind and that's not a problem. You know, you've got this really small base but you know, catching up. But like eventually you have to see this point where your base starts growing as a share of customers or you're going to be on an infinite hamster wheel of paying for new customers. Right. So yeah, there's, it's certainly okay for your base to shrink as a share of customers in some situations. Now how do we think about that kind of that catch up? Well, if you do this big ads push, you could end up in a situation where your base as a share of customers is down year over year, but it should pretty much always be up on a two year stack. Say that again, your base as a percent of customers, that percentage should be up on a two year stack. If it's not up on a two year stack, then you've been spending and spending and spending on new customers and your base has never caught up and it's not a good look. Right. Of course there are crazy high growth companies. I mean, if we talk about a company that started two years ago, that might not be the situation. But like if you're established, how can you be in a situation where you're pushing for two years and you haven't reached a situation where the base has grown as a share of the customers? It's just jet fuel, right? And it burns up. So there you can think about two year stacks, which is, which is A really interesting way to to think about your metric stack. Let's do the last one. We. I have discussed this kind of thing a bit with you before, but you've got your hero product and your core category and then you've got additional categories, the ones that don't sell as much. It's your category life cycle. Obviously people usually come in in the hero and they progress to the secondary category. And if you've got a main primary category and everyone just cleans you up for your primary category and you don't sell any of the other stuff, the accessories, the refills, if they just clean you up for your core stuff and never purchase any of that stuff, you just lost share of wallet. So you need to build a lifecycle marketing program that focuses on moving people down the catalog, not just cleaning out the primary one. So look at your percent of. I mean it depends on how you want to do this. Buyers. We're talking about buyers here. This is a buyers discussion. So just we can just do buyers. Buyers who have purchase secondary category versus buyers. Right? Or maybe the percent of buyers who have purchased your hero product as a percent of buyers. Just two different ways to look at it. So if the percentage of your buyers or base, I mean we are talking about repeat purchases. So this would probably be base who have only purchased your core product or your core category. If that is growing faster than revenue. It means you're clearing out your essentials and no one's discovering the rest of your business. So why would you want to have those additional product lines if people aren't buying them? Right? I mean it's just you're spinning your wheels with those additional product lines. You must sell them or clean up your catalog, which we discussed will decrease your base. We just discussed that. Right? Because there's less places for people to progress and experience more of your brand. So obviously the universe is true. If this rate goes down as your revenue is increasing, right. Whether you're looking at your base for repeat buyers, whether you're looking at all buyers. Right. And just saying who's purchased from one of my secondary categories, right. Out of all buyers. If this thing is decreasing and revenue is going up, it's pretty much always a good thing. Because you've got a higher quality of category. Your catalog is of higher quality. It addresses more of your customers needs. If this thing is going up and revenue is going down, I don't know, it could mean a whole lot of things, right? So yeah, track your life cycle, not your Benjamins. The life cycle is the path that people are going down, right? And you can just see it right in front of you. If all you're doing is looking at revenue, you're not seeing any of that. Look at all the things we just discussed that explain what is going to happen to your business. You can just see it in the numbers, but only if you crack open revenue and look under and look at the things that massive brands look at. Right? Okay. Entrepreneurs, executives and spammers, have fun spamming in the inbox.
- [23:00]
Unknown Artist
Late night glowing screen. See the light.
- [23:07]
Jordan Gordon
Email.
- [23:09]
Unknown Artist
Everything feels alright.
- [23:16]
Jordan Gordon
Hey entrepreneurs and spammers, remember you can't scale without email and the cheapest customer to acquire is the customer you already have. So please subscribe to the world's best email and retention podcast and learn how to make low cost revenue a big part of your digital ecosystem.