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Podcast | The eCom Ops Podcast - How to grow your eCommerce business

    The eCom Ops Podcast

    In December, Rael Cline sat down to chat with Norbert Strappler, host of The eCom Ops Podcast. The pair discussed Nozzle's background, the fundamentals and challenges of founding a startup, and how Nozzle helps Amazon sellers grow their eCommerce business.

    Listen for yourself, or read on to find out why key Nozzle's metrics such as customer lifetime value, customer acquisition and retention rates are so essential to expanding any eCommerce business, Amazon and beyond!

     

    You can try out Nozzle's Amazon Analytics tool yourself - for free! 

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    Interview Transcript

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

     

    What is Nozzle?

    NORBERT: Tell us about your business - what exactly are you doing and what can people do with Nozzle?

    RAEL: Nozzle is focused on helping Amazon sellers grow their business and we do this in a very unique way. Our starting point is understanding your customers on Amazon. Who's buying from you? How often are they buying? What are they buying? We’re using that as a starting point to understand how to build a brand on Amazon. 

    Our view is that Amazon has lots of tools around understanding information about your product and lots of tools around managing advertising campaigns or market share and organic rankings. But an eCommerce business is ultimately about the customers that buy your products and trying to build a brand and the loyalty that goes with that. So we noticed a very big gap in the market.

    Nozzle's Analytics tool allows sellers to understand what their customers are doing and helps them determine what actions to take - how to tailor ad campaigns, for instance, to better target customers or to get them to buy again. Nozzle helps you understand the trade-offs of what products you should be prioritizing, highlighting which have the best growth potential.

    Find out more about what Nozzle has to offer here.

     

    Where did the idea of Nozzle come from?

    NORBERT: How did you get into eCommerce? What was the reason why you swept over such an interesting space?

    RAEL: That was off the back of my previous company, MediaGamma. MediaGamma was very focused on online advertising and specifically around building custom algorithms for online advertisers and online publishers. What goes on behind the scenes is a live real-time auction - a whole lot of buyers submit a bid in an auction, the winner gets chosen, and the ad gets shown to someone. You have to make a decision from a machine learning - data scientist - point of view as to what price to submit.

    We noticed that the most successful customers were the ones that were quantitative. Specifically, in mobile gaming companies, they were interested in what happened after the ad. Their customers downloaded the app - which was the goal - but then what actually happens after three days? What happens after ten days? They would be tracking what is effectively a profit per customer or customer lifetime value - and they were very successful. They noticed you could actually spend a lot more to acquire a customer.  These metrics were  fundamental to run your business.

    When I exited MediaGamma, this principle of tying the advertising to the retail side was very appealing.

    I thought who was uniquely placed to do this? Who has an ecosystem that has both a very big and growing ad business and has also got the retail data sets to join together, to get the full picture? You very quickly land on Amazon.

    Nobody else has focused on trying to tie those two datasets together and figure out what happens after that first purchase and specifically, what does it mean for my advertising strategy and tactics? So that's the genesis of what led to the Nozzle. 

     

    Expanding beyond Amazon?

    NORBERT: Is Nozzle something that could also extend to other eCommerce solutions or is it tied to Amazon? Is it something that you could pack into Shopify, for example?

    RAEL: At the moment we're just focused on Amazon. Still, the most popular question we get from customers is can I do this with Shopify or WooCommerce or another marketplace. For the short-term we’re just focused on Amazon - there's so much to do. But in the future, we would certainly look to expand beyond that. At the end of the day, we talk about understanding your customers and what they're doing and a big part of that is what are they doing across channels. The customer's universe isn't just Amazon, as much as an Amazon seller would like to think that. So trying to get the full picture is part of the bigger vision.

     

    Challenges of working with Amazon

    NORBERT: What types of challenges do you face when you work with such a huge platform like Amazon?

    RAEL: You can look at it both ways. Amazon, because it is so huge, is a very siloed organization. The advertising team doesn't speak to the retail team as much as people would like. And then you've got the API team, the backend team, and they're very different to the user interface in Seller Central. Trying to navigate those sorts of challenges is pretty tough, particularly from a data point of view.

    What is also quite difficult is trying to get visibility into the Amazon roadmap. We want to build something that is durable. Amazon is investing a lot in the APIs, which is fantastic, but we want to make sure that we're sufficiently differentiated. Amazon will give you a little bit of visibility of what's in the very near term roadmap, but when you build an enduring company - that's going to be around for a long time with lots of customers - that roadmap piece is pretty critical.

    So that's a risk, that's a challenge. You need to build it and have relationships with multiple people within Amazon. Those are some of the biggest challenges of working with one of the biggest companies in the world. 

    NORBERT: Yeah, absolutely. I know the pain because we're also connected to Amazon with SyncSpider.  If you need support, that takes time.

    RAEL: Yeah. 90 days - that’s very true in some cases. So how do you build the platform? How do you de-risk that? There are engineering challenges to think about as well - how you want to operate and build software?

    We're in a good position. We spent a long time building and integrating with all the APIs, trying to understand what each of them means, asking all the clarifying questions from various teams within Amazon. I think we're really well positioned - pretty uniquely positioned. 

    Much of our value proposition is about joining the ad side with the retail side. We've put in a lot of work so we know how hard it is, so we know it's quite difficult for others to do the same, or at least it will take a long time.

     

    Common mistakes Amazon sellers make

    NORBERT: What are the common mistakes that Amazon sellers make when they are trying to understand their customers?

    RAEL: A typical customer doesn't have much data. If you’re just relying on Seller Central, Amazon will give you some data, but you need to do a lot of work to make sense of it. So I think one of the most common mistakes is misunderstanding what the data means. That’s not the seller's fault - Amazon hasn't clarified what it means and how it's calculated. 

    A lot of the time they’ll have inconsistent definitions of what a repeat order means - it could be in this part of the brand analytics, it's calculated every quarter, but in Amazon's DSP as calculated every year. And if you're making big decisions off the back of repeat order rates being a target and you’ve got inconsistent data, that’s really difficult. So data reliability, and understanding what the data means, is one of the big challenges.

    It's important to use Seller Tools at your disposal to stay ahead. Find out about the 6 essential types of Seller Tools here.

     

    Repeat purchase rate

    NORBERT: When you calculate this once a year it cannot be correct because you have the seasons - winter, summer - that are absolutely influencing the products being purchased?

    RAEL: It depends on what you're selling, but seasonality will always have a pretty big impact on a lot of products.

    One of the things we do is measure the purchase cadence. How long does it take from the first or the second purchase, or the second to the third purchase, and that gives you a good feel for it.

    Some products are more obvious than others. If I'm selling supplements, for example, and it's a 30-day supply, somebody is buying again at 28, 29, 30 days etc.

    Some products are more difficult to say, such as hand cream. If you don't have a handle on the purchase cadence then it will affect how you’re going to sequence your re-marketing campaigns - when to send additional offers, when to implement sponsored display targeting. There are some very big pieces in our view that are currently missing from Amazon’s data and Amazon’s UI.

    Customer Analytics eBook

     

    The impact of AI

    NORBERT: Now you say that you're using AI - a buzz word in our times - and you help merchants and agencies optimize their sales on Amazon. How do you explain this to your customers? 

    RAEL: I’ll address the point about AI in general first: AI is absolutely a buzzword! I actually think that a lot of problems can be solved without AI. There's an overemphasis on ‘let's just solve this using AI’ as opposed to ‘there's a pretty decent analytics solution’. You could even do it in Excel and get 80, 90% of where you need to be - and to get that extra 10% requires a huge amount of effort on the AI side. In most cases it's not worth it. So the first question we ask ourselves is ‘is this even best solved using AI?’ - as opposed to some other solution that might be slightly less accurate but much quicker. 

    So assuming that it is, then the AI is going to make some sort of prediction about something in the future. It could be recommendations, such as ‘these two products have been bought together X many times in the past, here's a variation of one of them. You should probably try bundling those things together’. 

    It could be something around what keywords you should be targeting - there's a similarity thing that AI can do. It will say ‘historically these have worked really well, here’s a new keyword that's rising in volume. It’s pretty similar to the historical ones that have worked, so you should go and test it out.’ 

    It's more subtle than ‘here's some massive decision that might make or break your business based on AI.’ It's a lower-level risk.

    One of the issues with these AI algorithms is that it's very difficult to explain how they arrive at a particular decision. And a lot of people don’t like that black box.. And rightly so - I don't blame anyone for that. When things are going well, that's okay. When things aren't going well, you can't explain it, and that's a big problem. 

    So we're very careful in how we use the AI. We don’t make big extreme recommendations that will have a big impact on your business in case it goes wrong and you can’t explain it.

     

    The difference between good and great ads

    NORBERT: Oh yeah. I can imagine that. Besides Analytics, you're also offering an Amazon Ad Management product? What's the difference between good and great ads on Amazon?

    RAEL: That's a good question. For us, Ad Management relies on the software. Again, our starting point is let's understand the customer. What is the person buying? If they buy again is it Product A then Product A, or is it Product A then product B? Is it 60 days between purchases? Is it 90 days? How profitable is that customer? 

    If we have all of that information, that allows us to do pretty differentiated and powerful things on the advertising side. For instance, you might have thought that your break-even RoAS or break-even ACoS was 20%. But we're saying: ‘Hey, did you know that somebody on average buys three times from you? Your break-even ACoS isn’t 20%, it’s closer to 60% if you factor in all the future purchases.’

    So we have that differentiated angle. When we're managing the ads, we have all that data to make those decisions. What makes good ads versus bad ads? Ultimately, it still comes down to the products. You can talk about the most sophisticated algorithms and data and the most beautiful pictures and everything else, but if the product sucks, the product sucks. There’s no substitute for that. 

    So it's always about the product ultimately. And it's about: are you connecting with people that you want to buy your products? And that manifests in multiple ways - what your text looks like, what you call your product, what your heading looks like, the visual elements, etc. Those two things are fundamental.

    NORBERT: Amazon ads have specific targeting. You can’t do much on the targeting side, right?

    RAEL: It is actually changing. On the PPC side, Amazon's main bread and butter product is sponsored products. You can't do much with that. But for a lot of Amazon's other products - DSP and the display side - you actually have the ability now to create custom creatives. There are a lot more opportunities to carve out what your brand is really about to connect with your audience and sell good products. It’s part of a bigger strategy. 

    NORBERT: Can you do more with the API when you create those ads than you can do in the backend?

    RAEL: Generally not - they aim for parity. I would say in Amazon advertising the user interface is probably maybe a little bit ahead of where the API is, but they're investing a lot in that. Credit where it's due - when Amazon does decide to invest in something on the API side, they can roll out new things very quickly. There's no doubt about that. So I would say it's parity between them. It’s the programmatic aspect, the automation aspect, that really really helps. Especially if you're using some of the feedback data to help make certain decisions, you can only do that with APIs and having the right data.

     

    We're winners of the Innovation Award at the 2021 Amazon Ads Partner Awards!

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    How to decide pricing 

    NORBERT: Let's talk about pricing. You offer two pricing plans - Essential and All In?  Can you tell us more about your pricing plans? How do you measure the pricing?

    RAEL: So the pricing you’re referring to is for the Customer Analytics tool - not Ad Management. This is an interesting topic and pricing itself is an extremely tough topic to talk about. We debated a lot around what the pricing strategy should be. We're a fairly new product on the market. The temptation is to offer a freemium version just to get it out there. It’s a very popular strategy with a lot of the Amazon tools in the space. We decided against that. We have a 14 day trial, but following that you pay the $77.

    What it comes down to is speaking to your early adopter customers and figuring out what is the value of the product for them? What is the most valuable thing for them? Then the pricing itself is a product of those sorts of discussions. 

    A lot of companies decide on a price - more art than science - and then leave it alone for a year or two. The pricing is actually something, especially early on in the life of the product, that you need to revisit very quickly - I'd say every three to six months.

    When I say pricing, it's not just the same set of features. We’re releasing new features all the time as well. How do we package or group certain features together and put a price on that? 

    That's morphing more into traditional software as a service or SaaS tool where you can pick and choose what suits you, what sort of features etc. At the end of the day, it's definitely more art than science, especially in the beginning. You've got to put a stake in the ground and iterate.

     

    The Essentials vs. the All In plan

    NORBERT: Your essential plan - for really good analytics and a possibility to grow - for $77 per month, is really cheap. On the other hand, the All In plan goes from $500 per month. From what I can read on the pricing this includes a personalized growth plan. So you’re not only a software, but also a service. You can take your user by the hand and help them to identify growth opportunities.

    RAEL: That's the critical difference - absolutely. You will get more data, more charts and more information in the ‘All In’ plan. but the critical difference is you're going to get a monthly call with our growth specialists who are going to understand your business and apply this data and how to move the needle for your business.

    That’s the very big difference between the two plans. We see loads of businesses everyday. When somebody comes in with a customer retention rate of 10%, we know what the average is. We know what good looks like, and we know what it means to go from average to good. We’ve seen those success stories. 

    The benchmarking is a critical aspect. I'm using customer retention as an example because we did a study. Typically, for the first or the second purchase on Amazon, the retention rate is about 15 to 20%. If I have a thousand people buy the product, about 150 buy twice. What we saw is that if you increase that by literally 1% - so 16%, or 160 people buy twice instead of 150, your actual profitability goes up 7%. That's a seven-x multiplier at that point. It’s not just the 10 extra customers you're getting - it’s the probability of those extra 10 customers buying a third and a fourth and a fifth time etc. If you model that out, it makes a material difference to your business.

    So yes, the growth plan is trying to understand what are the priorities in your business? Are you very growth focused - it's about market share etc.? Are you very profitability focused? Just going according to your goals and figuring out how to use these metrics to translate to success.

     

    How to get funding

    NORBERT: Cool. Now you are also a funded company - you have an investor. You raised 2.6 million last year?

    RAEL:  Last year and this year, yes.

    NORBERT: That's cool. How do you utilize these investments? How do you get the customers? What goes into development?

    RAEL: At the end of the day, it's helpful to work backward and figure out where you want to be in 18 months' time. What sort of numbers do you need to be hitting? Is this business suitable for external funding? Do I need somebody else to put in money? 

    Then there are the different types of funders. There is the venture capital route. There are individual investors. There are strategic investors. You can get other companies to invest in you etc.

    Going down the specific venture capital roots - there are specific expectations that come with that. If a VC is going to put money into a business, they need a particular return to their investors. You can quickly model out where you need to be interesting to a venture capital investor

    For us, we want to raise another round of money next year. Where do we need to be? How much traction do we need? How many customers do we need? What does the revenue need to be like? What are our churn rates?

    We talk about customer retention for our customers, but we also need to think about our own customer retention. All of these metrics become really important. 

    Being a SaaS company - a technology company - typically means you need to invest a lot of fronts in the technology. And what that means is people - you need to hire people. Engineers, data scientists, operations, salespeople, whatever it is to get you to those milestones. In any early-stage SaaS company, I would say that the biggest cost is going to be individuals. It's a big upfront investment that will hopefully pay off further down the line.

    Check out our wonderful team on our About Us page.

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    How do you find your customers?

    NORBERT: As a SaaS application, you need that point where it kicks off - where you have enough traction that everyone is talking about your tool. How do you do that? Amazon doesn't have a marketplace where it presents partners that sellers could work with, so you are actually alone. How do you get your users? Where do you find them? 

    RAEL: Yeah. Great question. The product strategy is ‘we want to create something that is very, very valuable to a subset of users. In the beginning, we don't want to create something that is applicable to all 6/7 million sellers - you’re not going to create value for everyone, That's going to be a very mediocre product. So the idea is to say for a subset of customers - a particular type of customer - let's create something really valuable that they can’t get anywhere else.

    So we landed on the metrics around profit per customer or customer lifetime value. We landed on customer acquisition cost - how much you have to pay in ad spend to acquire a new to brand customer. 

    Now this isn't applicable to all Amazon sellers. You need to sell a product that has repeat orders - that's the qualifier. If you're just starting out on Amazon, this product is not going to be applicable to you either. So we're not trying to build everything for everyone. We're trying to provide for a particular type of seller some really valuable metrics that they can't get anywhere else and use that as the wedge to get in and to create the stickiness, create the community, create the evangelism for the product. And then we can branch out into other use cases that will involve people that don't have to have a high repeat order rate.

    But the point is to start small and focused, to provide a lot of value to create that initial base of people that really like what you're doing and expand from there.

    The Amazon community though - the seller community - is great. If you are genuine in what you're doing and you’re providing a lot of value and insights, then people are very open to having conversations, and maybe even promoting your stuff. That’s a very encouraging community.  So that’s how we have gone about launching and building.

    NORBERT: Yeah. That's really interesting because you said - it's a niche to be just an Amazon product and an even smaller niche to be relevant for those who have products that have repeat purchases.

    RAEL: Yeah. When we're pitching to investors, or somebody asks me, ‘what's the bigger picture for Nozzle?’ We're not a lifetime value or customer acquisition cost tool. We’re much more than that. As you asked me right at the beginning, we're aiming to go beyond Amazon. The vision itself is much bigger. It’s just when you’re just starting it requires that focus in the beginning.

     

    Use of automation

    NORBERT: Fully agree. Tell me a bit about automation in your company. Do you need automations? 

    RAEL: The short answer is yes. The slightly longer answer is - we're a technology company, we're a software company, so you ask an engineer and they say, ‘if I have to do something twice, I'm going to automate it’. That's just the mindset. 

    But there's more subtlety to that, which is when you're automating something, who are you benefiting? Are you benefiting the customer or are you benefiting your internal operations team? You've got to be very careful what you choose to optimize first. 

    There might be certain processes that take up a lot of time manually behind the scenes for Nozzle, so automating is nice, but the customer doesn't care - it doesn't affect the customer experience. 

    Also to flip it around, if you just keep prioritizing the customer, it's going to look terrible and you can't scale the company as you're gonna have to hire more people all the time. So it's always this fine balance around how you treat automation - who are you actually benefiting? What are the priorities of the company?

     

    eCommerce leaders

    NORBERT: Last question. Who has taught you the most about eCommerce in your career?

    RAEL: That's an interesting one. I think there's no substitute for doing it yourself, like trying to sell your own things. I wasn't particularly great at it, but I think that's learning the hard way. 

    In terms of other people, there's probably other sellers. I could easily just go and say Jeff Bezos, or Toby Luca from Shopify. But ultimately when you share your stories with other sellers - good and bad stories - you learn more from the bad stories or the bad outcomes. Being a part of those seller groups has been the most helpful.

    NORBERT: When you know so much about products, did it ever occur to you to put your own products on Amazon?

    RAEL: The short answer is absolutely not.  I think, firstly, it would compromise Nozzle’s vision and how we operate. And secondly, it's more than a full-time job trying to do Nozzle and also have two young kids and everything else. There’s absolutely no way I’d have any bandwidth!

     

    Thanks for reading!

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