Watch Rael discuss customer lifetime value with Krystel Abi Assi from Amazon Sellers Society (Middle East)

Rael and Krystel chat about all things customer lifetime value: what it is, why it's useful, and how you can use it to your advantage as an Amazon seller.

View the full video and transcript now.

Podcast | Amazon Sellers Society - Tips to Increase Your Amazon Sales

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    Last week, Rael sat down to chat with Krystel Abi-Assi, CEO & founder of Amazon Sellers Society (Middle East). Together they discussed customer lifetime value, customer acquisition and retention strategies - and why you might always choose to visit the same coffee shop, even if you hate the coffee...

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    Interview transcript

    This transcript has been edited for clarity and/or brevity.

    Introduction

     

    KRYSTEL: When you're selling on Amazon, you get flooded with different metrics; CPC, CPA, PPC, ACoS, and so many different metrics. What is the number one most important metric that you need to be focusing on right now? [Music] 

    Well, the answer is all of them. Everything. All of the metrics are very important, but in this video, we're going to be focusing on the LTV, the lifetime value. what is this metric? how can it actually improve your sales and your revenue, and help you make more money on Amazon? not only that, I'm also going to be interviewing Rael Cline who is the co-founder and CEO of Nozzle, a very unique solution for Amazon sellers.  

     

    We're going to be talking about that in a few minutes, but let's get started with LTV. What exactly is LTV? LTV is the lifetime value of the customer. so when you want to sell a product, obviously you're going to have to have a cost to acquire a certain customer to purchase your product. The cool thing about selling on Amazon is that the cost for acquisition is normally a little bit low because Amazon already has a lot of customers, and they're actively searching for products on a daily basis on the platform so that reduces your acquisition cost. But your acquisition costs can also be something like PPC ads because when you do launch a product you do need to do advertising even on amazon. It could be also related to the external traffic; are you doing social media ads? are you potentially working with influencers? Do you have people referring your product and are you paying them on a commission fee? All of those make up how much it costs you to actually acquire a customer. 

     

    To make it very simple let's just assume that you're only doing PPC ads, and let's assume that per product that you actually sell you're making 20 dirhams; because you're selling on Amazon in the UAE, you're making 20 dirhams in profit, and it costs you 5 dirhams in ads in order to acquire a customer - so it's costing you 5 dirhams. Great.

     

    Now that you know these numbers, lifetime value pushes you to actually think a little bit beyond that - what can you do to get that customer to order again from you. They can either order the same exact product again which is a little bit tricky if you're selling ordinary products like everyday products things that people normally wouldn't repurchase every single month, but it's also something related to how you build a brand, and having products that are very much not necessarily related but complementary to each other so that that customer can go ahead and purchase from your brand - that that way your lifetime value increases. 

     

    Imagine that you just have to pay five dirhams to acquire that customer but that customer purchases from your brand every single month. Now, instead of just making 20 dirhams on profit from that customer you're actually making 20 dirhams [for example] every single month for the lifetime of that customer (let's assume it's one year). Now that you put the numbers like that it makes a lot of sense for you to think "Well, what can I do to increase the lifetime value of my customer? How can I make my customer purchase again? I'm just selling standard products." [...] We're gonna answer all of those questions - and thinking a little bit outside of the traditional box, thinking a little bit long term rather than short term is something that maybe doesn't come naturally in the beginning, but it's something that can help you improve your sales and grow your sales better and better. 

    Interview

    KRYSTEL: Now to shed a little bit of light on that particular subject (and so many more), here's my interview with Rael, co-founder, and CEO of Nozzle.

     

    Nozzle is a unique software that helps Amazon sellers understand their customers, understand what their customers are doing on Amazon, what are they repurchasing (if they are repurchasing), understand customer behavior. Imagine if you would be able to do that how much of an advantage would that give you! 

     

    Let's meet Rael. So Rael, as you know, a lot of people nowadays assume that Amazon is making more money from ads than they are from actual real-life sales or even referral fees, so do you think that Amazon is, or has really become a pay to play type of platform? Can you no longer sell a product on Amazon without spending exorbitant amounts of money on ads? 

     

    Amazon competitors

     

    RAEL: It's a good question, an interesting one. I think it's become increasingly difficult to not spend any money on PPC. If you have to force me into a yes or no, my answer would be yes, it is pretty much pay to play. I don't think it needs an exorbitant amount of money to do that, there are ways to be a lot smarter with your ad spend and how to prioritize which particular products you want to allocate large budgets to, how much of it is using Amazon's own products, how much of it is off Amazon, driving traffic to Amazon, so there are all sorts of strategies to be smarter around this.

     

    KRYSTEL: Now, before we jump into it, we decided both of us that we're going to be talking about strategies of how sellers, no matter which marketplace they're selling in(obviously we're talking about Amazon but by marketplace I mean country, so if they're selling on Amazon in Europe, right here in the Middle East, in the US), what are the strategies that they can follow to increase sales, but most importantly to maintain those customers, or to try to resell to those customers that they've worked so hard and spent money on to acquire, to begin with. Now your company, the company that you founded, Nozzle, well you are essentially - you know - you're making this very easy for us to be able to [...] cheat! You're letting us cheat but definitely without breaking any rules and regulations! 

     

    RAEL: [laughs]  We would say 'unfair advantage' 

     

    KRYSTEL: Yeah absolutely!

     

    RAEL: So yeah it's interesting, you know, we very much take the approach where [...] if you can't measure something, you can't improve it at the end of the day. It's all very well saying " increase sales" or "increase profitability", but if you don't have a way to measure the levers that you can pull then it's very very difficult to improve. You can't even attribute, you know, I took 'this' action and it resulted in 'this' particular thing, and so for us, it's always a measurement first approach, right? We can have really good ideas of things we want to do but we can't really measure it properly, and we don't end up doing them just because we need to be very sure that I did 'this' and it resulted in 'that'. 

     

    We very much focus on...in fact our starting point on Amazon is very different, we start with the customer like: 

     

    "What are your customers?";

    "Who buys from you?";

    "What is their behavior?";

    "What are they doing?";

    "How often are they coming back to buy something?"; 

    "when they buy something, is it the same product?";

    "is it two months between purchases?",

     

    ...and off the back of analyzing their behavior, we can recommend a whole lot of growth strategies. Roughly speaking, sellers that we work with fall into two camps:

     

    Number one, they want to just grow as quickly as possible, for instance growing top-line revenue, getting market share, those sort of things. 

     

    And the other category is more sort of profit-focused sellers and they're more focused on 'let's shift our resources onto those products that are the most profitable to help with cash flow' and it's not really about just growing revenue or growing market share. 

     

    Either way, it always comes back to the basic principle of understanding your customers and measuring what happens to make decisions off the back of that.

     

    [...]

     

    RAEL: If you're used to, for instance, selling D2C on Shopify or, you know, any of those platforms, a lot of these things you're actually used to. These are kind of...table stakes, perhaps, strategies that you would do, but just in the Amazon universe has been extremely difficult to do, and that's obviously where we come in. 

     

    Brand-building on Amazon

     

    I guess as well just maybe providing some context on the wider environment now on Amazon; it's only going to get a lot harder to be successful on Amazon in the future, right? And so a lot of us talk about are you selling products? Or are you building a brand on Amazon? The difference is: "I just want to ship as many units as possible, I don't really invest much in building loyalty or recognition" you know, those sort of things. Whereas sure it's more difficult, it requires a much more long-term mindset, it's gonna cost more ultimately in the beginning, but building a brand is just fundamentally different. If you want to set yourself up for long-term success, you need to be thinking about how to build a brand as opposed to just shipping as many units as possible. I guess what's accelerating this trend is a bunch of things. Some of these things are going to be from Amazon, and some of them are just sort of external factors. 

     

    On the Amazon side, you've got things like certain marketplaces Amazon's actually putting up the referral fees in January of next year, and so they've held them sort of constant for quite a while. There's all the kind of code-related stuff etc. happening but they're actually increasing those so it's becoming more expensive. 

     

    Number two, definitely is what we've just spoken about, is the advertising component. That the pay-to-play cost per clicks have been increasing universally, anywhere from - we were at 25 percent year-on-year, we've even had a doubling, we've had 100 percent increases - so it's just getting more expensive from that point of view. 

     

    Next, some of the external factors - supply chains, obviously, right that's top of mind for everybody now! It's very, very difficult to secure supply chains and get consistent shipments in. Ship freight, air freight pricing is all over the place with volatility so it's really, really tough. 

     

    And you've got a lot of what's called the aggregators, where you've raised a whole lot of money to come in and buy a lot of these seller brands and buy and scale them up. So what happens, for instance, if one of your competitors has just got bought by one of these aggregators, how do you compete? How do you respond? And so it's getting a lot more difficult to sell on Amazon will continue to do that for the next few years, so the approach that we (not just us of course) will advocate is to start thinking more strategically and more long-term here because if you're just focused on selling as many products as possible, short-term volatility around freight costs or CPCs can easily wipe you out.

     

    If you think more strategically long-term around brand-building, chances are you can enjoy a whole lot more. What do I mean specifically around that, around brand-building? I mean, some of these things can be measured around, you know, do people recognize your logo, or recognize the name or whatever it is, but one of the areas that we focus on the most is effectively customer loyalty. It's one thing someone recognizing your brand, but it's another thing for them to continually just buy your products over and over again; that's the ultimate expression of a brand, and a brand is only made up of customers ultimately - and loyal customers particularly. 

     

    When thinking about how to increase your sales, or how to increase your profitability and thinking about your brand it's really also about thinking about what sort of products you want to be selling in the first place, what products lend themselves to repeat orders for instance. If you think about it, I advertise to get someone to buy a product, but if they buy again from me, if they buy two, three, five times for me in the future, I don't have to pay to acquire that customer again they're just going to do that out of loyalty. If you compare that scenario of someone who makes repeat orders four times ( or whatever it may be), to a scenario where I have to pay to acquire four different people to buy the same product then obviously scenario one is just a whole lot better, it's much more profitable. You're building a brand. We think really hard about what sort of strategies to employ to get people to buy again depending on your goals and time horizon.

     

    Customer retention

     

    KRYSTEL: Rael, what would you say to someone that is currently at the phase where they are expanding their business, they're doing quite well, what strategies can they follow in order to retain customers? For example, other than looking at the data points, what strategies do you see with the businesses that you're working with that they're doing in order to retain customers and potentially lower any costs?

     

    RAEL: Yeah, retaining customers traditionally on Amazon is quite difficult. They're very strict on terms of service in terms of what you can and can't do. But I would say again - I'll say this many times, I guess - there's no substitute for a good product that lends itself to repeat purchases or a good brand that you've built up. But let's assume you have those sorts of things to get people to buy again, you need something that's creating a habit with the customer, and so one of the other metrics that we measure very closely is what we call customer retention rate. So I have, for instance, 1000 people who bought this product, and 100 of them bought, twice meaning my retention rate is 10% from purchase one to purchase two. And let's say 50 out of 100 bought three times so that means my retention rate is actually 50% from the second to the third purchase. What's really interesting for us is that typically the biggest drop-off will happen from the first to the second purchase - that 1000 to 100, 10% stuff - but from the second to the third, and the third to the fourth it actually jumps, and actually - so I said for instance 100 became 50 which is a 50% - for us a lot of the focus is getting people to buy twice because after they've bought twice the chances of somebody buying three times or you know or more are just much much much higher. You want to get to that habit-forming piece. 

     

    How do you get people to buy twice? Some of the strategies around that would be advertising related, so you could remarket to people, buy a sponsored display or another product which is more expensive, but also the other tool is Amazon's demand-side platform (the DSP) so you can target people who've bought your product in the last 30 days or the last 60 days, show them an ad to go buy again. Clearly if they sign up to anything like subscribe and subscribe and save then that's super useful, but there's always a question on - okay it's all very well saying 'show me an ad that I bought your product' but when should I show you the ad? In some cases it's very clear; if I'm selling supplements and I sell a 30-day supply, I expect someone to buy 28 days, 30 days later, that's when they should be buying again so maybe that's when I want to show the ads to that person. For a lot of other products it's very difficult to know when people buy again - is it after two months, is it after two and a half months, or whatever it is. So that's one of the other things we would measure is to say, when are people actually buying again, because a lot of the time it's just not obvious. I outlined the supplements case which is obvious, but most of the time it's not as easy as that and so thinking about when you want to show someone ads to coincide with when they are most likely to purchase is certainly going to help you get from that first to the second purchase. That's one way which is on the advertising side. There are other methods of trying to get people to buy again that are non-ad related - you definitely need to be careful to remain within Amazon's terms of service - but giving them an incentive...

     

    KRYSTEL: That's exactly what I was thinking! 

     

    RAEL: ...yeah! Or extending the warranty or giving an ebook on how to use your product...giving them a reason to give over some details, etc. Clearly, if you need to send any offers you need to send it back to Amazon [...] you can't o anything that's against the rules, but again, you can only do that with a good product in a good brand like 'why would I want to extend the warranty' or 'why would I want to download an ebook' if there's no real use case for it, so it really does come back to that fundamental thing, but I'd say those are the two strategies to try and get people to purchase again. As I say, we know we've got the data to say what happens afterward - the chances from the second to the third purchase are much much higher than from the first to the second, so we advise our customers on really trying to push for that second purchase.

     

    One of the other interesting ways of doing it is to perhaps sell a trial version of your product, a miniature version of, for example, a pet product. It's only meant to last for five days or whatever, it's trying to introduce people to your brand, and then obviously you probably break even on it, you probably don't make any money off the trial version, right? But then the idea is to get people to buy the full version and so that's one of the other things we can measure is to say: OK, of the people who buy the trial version, how many go buy the full version? And what does the journey look like? Do they buy the trial, do they buy the trial again? Do they buy the trial a third time and then convert? Or actually, does it just go from you know one trial to full conversion? Again, that could be a nice sort of entry-level way of trying to get people to buy again for that second time. It's just offering a trial version and then thinking about the full version and being able to measure it. The crucial part is the measurement piece, you can usually go sell trial versions and you'll know you've sold a thousand units of the trial version but how many of them actually bought the full version? That's a much tougher question to answer.

     

    KRYSTEL: That's fantastic because you said so many golden nuggets honestly but it's very hard to potentially nowadays measure what makes a brand a brand. Is it just basically having a logo, does that mean that you're a brand nowadays?

     

    RAEL: If only it was that easy! 

     

    KRYSTEL: Yeah exactly, so it makes a lot of sense what you said because doing all of those things and thinking a little bit outside of the box can help you solidify that brand, and basically it's always the same people that are gonna just go to whatever they feel comfortable with. Like I always give the example of, you might travel the whole world or go to a brand new country, a brand new city, and then if you want a cup of coffee you're just gonna naturally gravitate to the coffee shop that you know most which is maybe Starbucks because you're just used to it. You know it, you know what to expect - even if you don't like it! But you know what to expect.

     

    RAEL: Habit formation. 

     

    KRYSTEL: Exactly, so what you're saying is very similar but do it on Amazon. You need to push the customer to try to create that habit whereby if they do buy the second time...and one thing to note is that we're not saying buy the same product, we're saying buy from the same brand. It doesn't have to be the same exact product. If you're selling a mug, for example, they're not going to buy a mug a second time maybe they're going to buy a spoon from your brand, who knows. It doesn't have to be the same product, so you don't have to be selling these types of products that everybody would like to sell like a coffee or supplement, or something that is easy for you to just replenish and sell it again.

     

    RAEL: Another good example of that: we have customers selling coffee, and for instance, they would bundle five different flavors into one ASIN, but they're always interested in measuring what the follow-up purchase is. So again, it's kind of like a trial really where you're sampling different flavors and the brand and all these sorts of things, but you know a) how many of them come back and buy and b) what are they buying; is there a particular flavor that people buy much more than anything else. We always will say...I don't know...your dark roast or whatever it is, is the winner here, that's the most common follow-up purchase. And then something else - your light roast, for example - is the least follow-up purchase, there's hardly anyone that buys that afterward. We've had people off the back of that information literally stop selling a particular ASIN because it wasn't selling well to begin with. It was in this bundle but really people weren't buying it after the bundle, so why keep that particular product. 

     

    KRYSTEL: Amazing because it shows that doing just a little bit extra work - even if you're not at the level where you can use a software like Nozzle -but doing a little bit of extra work can like give you a much bigger advantage when it comes to your competitors. Like an advantage that nobody else can see, people can see your ads, they can see what you're doing, they can see your prices, they can see your reviews...but those types of things that their competitors cannot know, what you are doing...this is great stuff.

     

    Finding your true ACoS

     

    RAEL: One thing I wanted to add to that. Typically when you're selling on Amazon you have this calculation on the PPC side around a break-even ACoS or a break-even RoAS, which is effectively your pre-advertising margin. One of the issues with an ACoS or a RoAS is the inbuilt assumption is that somebody just buys from you once. Alright, when you're working out that number you're just taking the selling price or the profit you make from that from one sale, and let's say that number comes out (in ACoS terms)[...] at 25% or something, that's my break-even.

     

    OK, that's fine, but that's kind of how all your other competitors are doing it as well and so you're all fighting in the PPC environment on a break-even ACoS roughly of somewhere in that region. Whereas if you had that information to say: turns out on average someone buys twice well what does that mean? It means that you can instantly double your break-even ACoS, it means now that becomes 50%, not 25%. And if your break-even ACoS is 50, and all your competitors are sitting around 25%, that is a huge difference. That means you can really be quite aggressive on the PPC side if you want to, knowing that you've got break-even ACoS that's a hell of a lot more than your competitors.

     

    KRYSTEL: Thank you so much to Rael for this very very insightful interview. You can find a little bit more information about Nozzle, I will leave their website linked in the description box below, and I'll see you in another video with more information.

     

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