The Most Important Step In Strengthening Product Market Fit In eCommerce

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Lori Tells Ronin That Customer Personas Are The Bedrock Of Business

Today, we speak with Lori Appleman, the co-founder of Redline Minds, an Austin based eCommerce agency.  Redline Minds focuses on designing, building, and growing eCommerce stores. She covers the most important step in growing your eCommerce business revenues, the most important eCommerce metrics to track, and how to vet an eCommerce agency.  

Summary:

  1. Step One In eCommerce – Build Your Customer Personas (Avatars) Before Anything Else
  2. Look at the Four Pillars of eCommerce and Determine Which Is Easiest To Improve – Traffic, Conversion, Average Order Value, Retention
  3. Experiment With Channels That Are Gaining Traction In eCommerce (Text, Voice, Chat-bots, Etc.)
  4. Understand How To Budget For Adwords As A Small Business – First: Understand That It’s Not That Simple
  5. Calculate Lifetime Value Of A Customer The Right Way – Watch Out For Gross Margin Mistakes
  6. Watch Out For Digital Marketing Agencies That Hijack Your Google Analytics Account – How To Make Sure They Don’t Leave With All Your Data
  7. Track The Most Important eCommerce Metrics Monthly Or More!
  8. Vet an eCommerce Agency The Right Way – Use References, Data, Gut Feelings, and More!


Interview:

Chris: Can you tell us where a business owner should even start when they are trying to get up to speed on eCommerce?

Lori: I think it starts with your customers, specifically, their avatars.  In fact, I like the Digital Marketer Avatar Worksheet so much, I tend to use that to get started with a new client.  Twenty years ago, you could build a website and there were so few competitors, you would be found.  These days, you have to create a unique presence and you have to know who your customer is and where they spend their time online. To know who your customer is, there is a ton of groundwork that needs to be done.  eCommerce is not easy and you can’t just open a shop on Shopify or BigCommerce and just wait for the sales to come in. Unfortunately, a lot of marketing agencies sell this dream and we really don’t like marketing agencies, so we decided to become one.  

Chris: A lot of business owners get caught up in, “Which shopping cart app should I be using?”  Can you help us with this?

Lori: We are shopping cart agnostic and can work on all of them.  There is no perfect shopping cart and they all have pros and cons.  Ultimately, the goal is to find the best solution for your situation, which usually includes a finite amount of money to spend.  So we are going to look at features and budget and find the best combination.  Most people hear from a friend or a one off conversation or a post on a blog that they need to switch to X platform or they shouldn’t use Y plugin anymore and the founder makes a knee-jerk reaction.  There are consequences to all the decisions you make in eCommerce.  

As a warning, if you switch to another platform, there will almost certainly be some SEO fallout. 

This is why it’s important to work with someone who really understands eCommerce and SEO, if it’s a traction channel for you. Sometimes switching to a different platform will lead to a higher conversion rate, outweighing the negative SEO effects.  You also have to consider that when you do any sort of restructuring, it’s important to follow very specific steps so that you retain your back-links and your SEO for each of your product pages.  

Chris: When is it time to switch shopping carts?

Lori: Ultimately, it’s time to switch shopping carts when you are hitting a technical limitation.  Most of these technical limitations are related to the quality of the APIs you’re working with, how many calls can be made, and what information can be pulled.  These metrics as well as being able to easily access them with a rapidly growing catalog and/or sales volume become the most important tools for the ongoing performance of the store.  For example, if you are open source and on Magento, you can do almost anything with that platform. However, WooCommerce is going to hit a wall. It’s just different levels of sophistication and when you find yourself trying to patch and wire and do work arounds that your platform wasn’t mean to do, it’s time to upgrade.  Eventually, all that patchwork is going to cause an ERP, Inventory Management, or Multi Sales Channel Management software error. The patchwork will also slow down front end performance of the store on desktop and mobile. Slow site speed is going to destroy your user experience and you’ll also be punished by Google.  I worked for a company once where the founder got onto Dr. Oz, and the site went down almost immediately because of patch work and the sudden spike in traffic. That wasn’t a great time in the office.  

Chris: How did you learn so much about eCommerce?

Lori: I started in finance for a large firm and became a regular contributor on America Online personal finance regarding mutual funds.  I started responding to comments and kept answering questions and posting and posting. Eventually, I got some people’s attention and eventually I had a weekly chat and a column on investing.  The finance company was purchased by a company that was then acquired by Reuters. During my time at this company, I was in charge of creating a content strategy and going head to head against huge publications that were pumping out content.  I was able to see what strategies worked with driving conversions and what didn’t. Eventually, I came to the conclusion that this business didn’t need to be making content and told my manager that it was time to let me and my 70 person team go.  

After that, I began working for another company that had noticed me online.  They were building an online platform for managing your portfolio and communications between all of your professionals like your lawyer, your CPA, your financial advisor, etc.  Very quickly, we ended up grappling with the ethics of data mining. We had to decide if customers would be upset that we looked at their portfolio performance and offered help when they were struggling.  

Ultimately, I spent a lot of time writing, capturing people’s attention in a short amount of time and keeping them engaged.  Before SEO, we called it copy writing. It was about creating a good user experience and then designing sites that led people through a logical, intuitive path to purchase.  It’s all the same stuff now just with different names.  

After all this content writing, I took a job with a company called Human Solution.  It was the eCommerce fantasy company.  It started in a bedroom as a part time side gig and the founder, Jon Paulsenm was an Ergonomist.  He had some keyboard and mice and some big furniture that was all drip shipped. All the inventory was high margin and MAP controlled.  He was doing probably $1M in sales when I joined.  I helped him scale it to about 5x that over the next three years.  I got to be involved in everything: SEO, User Experience, Content Writing, Product Listing, Pricing.  One of the big things I learned at Human Solution was the power of writing really thorough product descriptions.  

Chris: Where does the name Redline Minds come from?

Lori: My co founders, three gentlemen, are obsessed with cars.  They like to go out to Circuit Of The Americas and raise their sports cars. So it’s all about how far you can push your engine without destroying it, an analogy for eCommerce.  

Chris: Coming back to the topic our readers want to learn about, how do you know you have product market fit and it’s time to grow?

Lori

All businesses require a business plan.  And one of the integral parts of a business plan is your customer personas.  A persona is a fictitious person that describes in as much detail as you can creatively come up with, who your target customer or customers are.

It’s okay to have more than one persona but most businesses start out with a primary persona.  You can’t be all things to all people. So figure out where you’re most likely to have a win. What’s your primary persona’s age, gender, marital status?  Are they parents? What do they do for a living? Where do they shop? Where do they hang out socially and online? This is a painful process but it’s really important because it informs all your other decisions. 

You want to know if you have a shot at product market fit? What are your primary persona’s needs and wants and does your product address these points? If you do hit those needs and wants, can you do it at a price point that they are willing to accept and still be profitable?  Finally, is your primary persona going to be aware that they’re going to want or need your product? If you have to create a market through education first, it’s going to be a much bigger budget.

Chris: If I’m an eCommerce brand and I’m doing between $100k-$5M in revenue, when is it safe to say I have product market fit?  When can I just pour fuel on the fire or when do I need to go back to persona and customer journey work?

Lori: At the beginning, when you are just starting, it’s absolutely a must.  But if you have had some success and clearly have hit some market fit, I would still go ahead and take a look at the customer map, and create customer personas.  You may learn something that can be applied further down the chain to grow your organization. Your personas determine your messaging needs, where you should be marketing, and how you should be marketing.  It can also point to some needs that are synergistic with your existing catalog that you aren’t currently providing solutions for. An easy lay up here is with On Site Search.  Most shopping carts will track this if you’ve set up Google Analytics correctly.  You may find that your customers are searching for something over and over that you aren’t selling.   

Chris: What are all the ways that someone can go about scaling their eCommerce business?  Let’s say they are stagnant growth wise, and you’re in this smaller market; you do the customer personas/avatars, then what?

Lori: Growth is going to come from one of the major pillars of eCommerce.  The first one is traffic, however, traffic is kind of useless if it isn’t targeted.  People need to be interested in what you have to offer. The second one is conversion rate.  What percentage of people that come to your site are actually converting into customers. The third pillar is average order value.  The fourth is retention rate which determines customer lifetime value. How many people are purchasing from you more than once? Basically, any of these pillars can cause sales growth.  So the first thing to do is look at which will be easiest to make improvements. Pick that one and work it.

If you are already doing $1M+, your site is probably doing O.K. with content and navigation.  That doesn’t mean there isn’t room for improvement. And if you have enough traffic, you can start doing A/B testing on conversion rate optimization to figure out what affects your conversion rate.  A 10% bump in the conversion rate means 10% more sales.  

A lot of people look at this first, but the next thing I’d look at is your customer retention rate, or your repeat purchase rate.  What can you do to improve this? Can you create a referral or loyalty program? How tight is your email marketing? How targeted is your messaging?  Is it customized to different audiences in your email list? When you go to Amazon, the entire home page is customized to your behavior. Can we copy at least a bit of that best practice in our email marketing?  Are you using email campaigns and if so, what flows are you creating? If they are buying a fishing pole, are you following up with related accessories like rod and reels in similar price and quality?

Then I’m going to look for interesting opportunities.  If you go into your Google Analytics, you can see where your traffic is coming from.  It’s important to be looking at that occasionally to see if you end up having a new or interesting referral channel that you didn’t think would produce results.  For example, I had a client selling knives that ended up getting a ton of traffic from Pinterest, which we wouldn’t have expected.  

Chris: What are some overlooked or interesting things that you’re seeing eCommerce companies use to scale?

Lori: We are seeing a bunch of new social channels. 

Everything is a test and that’s how we approach it.  Start with a small test, keep tweaking it, and if it starts working for you, turn on the throttle. 

We haven’t even had time to look at Tik Tok yet but it’s super hot and it skews to a younger demographic.  So it’s not going to be for everybody but it’s going to be important. LinkedIn is expensive, but if you’ve got the right product, LinkedIn can be lucrative.  Reddit is weird because there is an art and science to doing marketing on Reddit without doing paid advertising. If you do it right, it kills; if you do it wrong, you get banned and down-voted from subreddits and it can go really bad if people decide they don’t like you on their subreddit.  The most important part of this question is learning where your customers are hanging out online. Another channel we are seeing a lot of traction in is text message marketing.  The open rates are north of 90%.  We are starting to see chat bots pick up.  Take a look at the Macy’s Bot.  You can ask questions and it will direct you to the product you’re looking for.  This obviously opens up the idea of getting into the Alexa and Google Assistant catalog of recognizable brands and terms.  

There is power in capturing the questions your customers are asking when they are on your site, whether it’s through voice or text.  These become questions that you can answer in your content and drive SEO while also creating better Q&A for your products to increase conversion.  And speaking of SEO, if you’re trying to do it in-house, I’d recommend using something like SEMRush and their writing assistant. They help articles score and perform really well.  

If you want to learn more about how your customers are behaving on your site, take a look at something like Lucky Orange Software.  It will let you see how people move around the site with dynamic heat maps.  This qualitative data can help you understand your user experience once people are on your site.  

Chris: How much does a business need to spend to test performance marketing / paid search?

Lori: The name of the game is getting adequate data to have a statistically significant result.  The amount this costs is all dependent on the keywords you’re buying. The reality is that you probably need at least 100 clicks and that would be cutting it THIN.  It would have to be close to an instant hit for 100 clicks to be enough data. If it’s a normal product, you’ll need more than that. Each click costs money and each keyword has a different cost per click.  If your keyword is averaging $5 per click, then that’s $500 to see if that keyword even has potential.  

But, before we get into the math, we have to remember that most people don’t know how to operate Adwords.  Most people just pick “broad match” which means anything that’s even similar to the keyword being targeted, which completely ruins the experiment.  

When you do start an Adwords campaign, you’re going to want to start with a product that is popular and high margin so you have some budget to spend on more advertising when it starts to work.  With a low margin product, if you don’t have a high average order value, then it may never be profitable. And if you are going to give Adwords a go yourself, then I’d suggest trying “smart ads” that will take whatever products you feed it and generate dynamic text that will populate with your product name and feed to that product page.  You can run multiple ad sets inside of smart ads and see what resonates but it’s a great way to find out if Adwords can be lucrative for you.  

If you end up wanting to use an agency, the hardest thing about running ads is that you have to overcome the cost of management in addition to the cost of ads.  Also, most small businesses are completely unaware of their lifetime customer value because the shopping carts and Google Analytics aren’t properly implemented to provide this data.  

Chris: For calculation of lifetime customer value, are you using 12 months or will you use multiple years?  And do you use revenue or gross profit?

Lori: It depends on the buying cycle of the product.  If you have really good retention over four or five years, then you can use multiple years but just remember, that adds risk to your business by increasing how much you’re willing to spend to acquire a customer.  If lifetime value changes, you are exposing yourself to that risk. This is another good time to bring up persona characteristics. Knowing your customers well can increase the accuracy of the calculations.

In terms of value, I look at both revenue and gross margin.  The problem with using gross margin is that most small businesses don’t accurately calculate their gross margin.  They are often not taking payroll into account that should be booked as a COG instead of OpEx.

But assuming you have a rough estimate of gross margin, if I have a customer that is going to net me $1,000 in gross profit over the year, then I should be perfectly fine spending $200 to acquire that customer.  You can think of this as a sales and marketing salary and commission to a salesperson. If your product doesn’t have the gross margin to be able to spend 20% in sales and marketing, then you need to re-think what you’re selling or you need to think of a different acquisition strategy.  

Chris: Anything to look out for when working with a digital marketing agency?

Lori: A lot of agencies will report their Return on Ad Spend (ROAS), but they will calculate it on ad spend and not include their agency fee.  This is unrealistic because even if you brought it in house, someone would have to manage those campaigns.  

Chris: What are the most important eCommerce metrics to you?

Lori: We need to track targeted traffic, because traffic alone is worthless.  We need to track your revenue, how much your selling of each SKU, and what channel those revenues need to be attributed to.  We need to know transaction counts by product. We need to know what your key pages are for leading to a conversion. We need to track email subscribers and how engaged they are with open and click through rates.  We need to watch shopping cart metrics like abandonment rates – this tells us who is getting all the way to checkout and then changing their mind. We want to keep an eye on site speed both for UX and for SEO. We also want to track how happy your customers are.  By having customer support integrated into the site, you’ll be able to track the questions your customers ask, and also track how satisfied they are with the product. This helps with SEO content generation, like I mentioned earlier, and it helps you iterate on your product.  Ultimately, great customer service is one of the major ways that you can compete against Amazon.  We also want to track your refund rate.  How often is stuff coming back? 

We need to track your retention rate.  If you have a really high retention rate, it means you’re not adding new customers and eventually you will saturate your audience and lose revenues.  We need to track cost per acquisition and customer lifetime value. We also need to track average order values to learn about bundling opportunities.  

Chris: How do you vet an eCommerce agency?

Lori: I think it helps to do a lot of homework to understand if they know what they’re talking about.  You should pay attention to not just their answer, but also how they answer you. You won’t get enough from gut feel but it should go into your decision making process.  Do they seem to be in tune with your needs? Have they taken a look at your site and come to you with some immediate ideas? Have they taken time of their own accord to learn what you’re doing and to figure out what is probably already working well for you?  Don’t get fooled by buzzwords on a PowerPoint presentation. Are they answering your questions and showing that they understand your business and your goals? Most small businesses don’t have the budget to waste time with a broad stroke approach to digital marketing.  They need something that will move the needle fast and keep the gross profit flowing for more marketing spend.  

Be aware of promises in the contract that you are presented with.  Make sure that you can get out if you are not satisfied. And make sure that they don’t take over your Google Analytics and Search Console.  If it’s done on their accounts, when you lose them as an agency, you lose the data.  The data can be transferred but most firms will tell you it’s not possible. Get Google Analytics in place on your own Google account first, and then tell them it has to be done through your account.  

Chris: Who is the ideal client for Redline Minds?

Lori: Our strength is in SEO and conversion.  We do some on site conversion optimization and some partners that can dig into bigger companies.  We are really strong in designing the technology stack and designing websites that actually convert.  We aren’t the most expensive but we aren’t the cheapest. When we build your website, you get my 20 years of experience and understanding what users do on a website.  We also have serious tech knowledge and design chops. We can answer questions like, “Which inventory system should we pick?”, “Which chat should we use?”, and “Which email software should I be using?”  Most of our clients are between $1M and $5M in revenues with some clients on either side of that range.  

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Christopher Sica

Christopher Sica

We are passionate about helping business owners feel confident so they can enjoy the journey of entrepreneurship and create value for themselves and their communities. Understanding the steps required to scale a business helps empower business owners. That’s why I work in finance now. We are here to help in any way we can. Check out one of our workshops where we can help each other down the path.

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