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Now that we’ve heard from Karmaloop CEO Seth Haber on last week’s episode, let’s get into what Drew was doing behind the scenes as CMO to take the business from bankruptcy to profit in just 10 months.
It starts with an “operational” framework for growth, and a commitment to improving three key metrics…
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Hey everybody! Welcome to the Nerd Marketing Podcast. This is Drew Sanocki. We’re looking for new apartments right now in New York. It’s a very stressful time. It’s stressful when you when find several thousand, you know, $6,000 a year apartments where “two-bedroom” and the second bedroom is like a closet where my daughter’s going to live. That’s good times. It’s good times, and the realtors use the quote sign, the air quotes, when they say, it’s a two-bedroom, and you’re like, “Thanks, buddy. Thanks, buddy”
Sorry, daughter of mine. You’re not going to see the sun for the next two years. Anyway, this is what my life is right now. It’s an apartment hunt, which is never fun. Can’t wait till it’s over but in the meantime, let’s talk about growth. Let’s talk about karmaloop.com, so this is the retailer where I was the CMO. We sold it about a month ago, and a year ago, it was losing half a million dollars a month. We brought it to break-even within ten months.
I’m going to start telling the story about how we did that. I think in the last episode you heard from Seth Haber, who was our CEO and he told a little bit more of the merch story, the merchandise story about how to resuscitate a retailer. In this episode, I’d like to talk a little bit more about what I did on the marketing side. If you think back a couple episodes ago, we talked about operational frameworks for growth, right? We talked about a tactical framework, strategic framework, and then this operational framework.
The operational framework is the one that I adopt. It’s the one that I think is the most practical. It helps me think through how to grow a company. It’s the one that private equity funds love because the mindset is you’re going to go in and double this business in a hundred days. How are you going to do that? The math really works out and that’s as follows, so there are three ways to grow a business.
Number one, three and one three. Three ways to grow a business I should say. Number one, increase the average order value, average order size. Number two, increase the frequency of purchase. This is basically retention, frequency of purchases, the number of times acing a customer orders on average from you, and then number three, increase the number of customers, so that’s more acquisition.
Really, only those three ways, only those three levers to grow a business and if you increase each of them thirty percent, more than doable within a year, you’ve doubled the business, so the math is 1.3 times 1.3 times 1.3 is two hundred twenty percent, so can you increase your average order order value by thirty percent in the next year? Can you increase your frequency purchase? Can you bring thirty percent more of your customers back to buy again? Can you acquire thirty percent more customers or convert thirty percent more customers?
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I think all of those are doable in a year, and it just gets you some really nice growth. It’s a great mindset to have. It’s the one I adopted when I went into Karmaloop so first thing I did day one was think about those three buckets and examine the business and measure each one of those, where we are and how we’re going to get to thirty percent more in each bucket over the next a hundred days. We ended up not doubling the business in a hundred days but, you know, we came close. I mean it was basically from losing a half million a month to break-even, so that’s pretty incredible growth in ten months.
Let’s start with the average value. There are just a lot of ways to increase your average order value. Some of the things that worked for us at Karmaloop were number one, increasing pricing, so this is kind of a no-brainer. Usually only works if you have some sort of proprietary product and low competition but you want to choose an item where you got a fair amount of volume and so many retailers just don’t increase their prices when they could, when the market will take it. They’re sort of inelastic demand for that product. This is very common in SaaS, if you have a SaaS app or software product. A lot of developers have under-priced the value of their own product.
It’s no different in retail really. I remember T-shirts were key for Karmaloop, like our own blank T-shirts, we increased the price maybe twenty percent, another twenty percent and we’re showing these results at the board meeting and the board, rightfully so, is like, “Why don’t you keep increasing them?” We just kind of looked at each other like, “I don’t know. We just stopped because it seems expensive for a T-shirt,” but lo and behold, let’s keep increasing the price and, you know, it really didn’t impact sales volume enough to offset the increased margin we were making on those increased prices.
Another challenge with Karmaloop, a great idea is usually to do upselling and cross-selling to increase your average order value. We were a little bit limited in our IT stack so it was an IT stack that was a legacy stack that dated back to 2001. It’s not easy as slapping on a Shopify app that does upselling, and by the way, by upselling and cross-selling, I mean trying to convince that customer to either to bolt on more products to their purchase or to upgrade to a more expensive version of what they’ve already been looking at.
What I did in lieu of that, I just said, “You know what? We have an old IT stack, but we’ve got a great email solution.” We use Klaviyo and I am essentially going to create an email that does my upselling for me, so somebody orders a product and they immediately get hit with an email campaign that tries to upsell another product while we still have their credit card, essentially adds to their order. That one did a great job, increased revenue five percent the day I set it up and just made money day and night from then on.
Also increasing average order value, another great tactic to experiment with, just free shipping threshold so at Karmaloop, we must have moved that free shipping threshold up and down five or six times in different tests to assess the impact on sales volume, AOV, revenue, and before finally settling in on one that maximized those things. Some ideas there to spark your thinking. There are just plenty of ideas on how to increase AOV, plenty of tactics, but those are some of my favorites that worked for us.
We didn’t get our thirty percent but we got close to it on AOV, and then it was time for us to move onto frequency, so frequency of purchase. When I first started at Karmaloop, customers weren’t coming back that much, so you see a frequency of purchase of one, which means on average, customers buy once and they’re gone, one and done.
The goal is to increase that and again, numerous tactics, numerous ways to do this. In particular, merch plays a key role here. If you carry the right merchandise, you’re going to bring your customers back to buy it ’cause they want and think of like a flash sale site, right? That’s the extreme example of launching new merchandise in order to increase frequency. Customers go back to try to find out what else they can buy, but a little bit more on the marketing side, this is where you get into win-backs, anti-defection campaigns. Win-backs being, “Hey, I’m gonna go back to all customers who purchased in the past year but haven’t purchased in the past three months,” I’m going to send them some offers to pull them back to buy again.
I think we did ten different win-back tests before deciding on a few to lock in and automate. This is also, I know I talk about trip-wire marketing a lot and behavioral marketing a lot on this podcast. This increasing frequency is where your trip wires are really going to play. You basically want to look at the average time it takes any customer to buy twice and if the customer has not … If customers are not buying within that average time, you start rolling out some promos and incentives to pull them back to buying again.
More on that in a future episode, but long story short, we were able to really drive frequency through the roof in particular because we were heading into the holidays and we more than got our thirty percent there in retention.
The last big category then is the number of customers. Usually people define the number of customers as I got to out and acquire more, but much easier than that is increasing your conversion rate if you think about it. A company like Karmaloop has, I don’t know, a million visitors a month. It’s just they don’t need more traffic, like you don’t need to be acquiring more, and so what I did on day one is I noticed, “Okay, it’s a conversion-rate problem. It’s not an acquisition problem.” We got more than enough kids on the site all the time buying or looking for what to buy. We just need to increase the conversion rate.
What really played well here for us were certain automated marketing campaigns that we stacked on top of each other and created essentially a conversion rate system, so customer comes in. They buy or don’t buy. If they don’t buy, they get hit with the opt-in request to get them on our list, you know, on the list they immediately get hit with a welcome sequence that tries to sell them on a product. If they default and don’t go through any of this, we’re hitting them with our remarketing campaign, so you just … The idea with conversion rate optimization is stack as many campaigns on top of each other to create a true system.
There’s a lot more about this on my blog but that’s the approach you want to take and it does a great job in really driving conversions through the roof. When this was all said and done, I think we over doubled our conversion rate, so in particular via email, we probably five-X the average conversion rate on the site.
Last but not least, we did do a bunch of old-school traffic generation. In particular, we were very active with influencer marketing, on Instagram, on YouTube. We had a great guy in house, Matt [Seremba 00:10:37] who is just a stud on socials and did a great job of repairing the damage that had been to the brand when we when into bankruptcy, and co-opting the right influencers to push our product again.
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All in all, you take that number one increase in average order value, number two, increase in frequency of purchase, and number three increasing the total number of customers, we did it in a short period of time with some key tactics, and we were able to not double the business, but come close in ten months. It was all gravy. I want to say there wasn’t a lot of cost involved with any of these, which really changed the economics of the business, and enabled us to sell it in a short amount of time, shorter than I think anyone expected.
If you want a review of this episode, go to nerdmarketing.com/ the episode number, I believe it’s twenty-one or twenty-two. I’ll check that right now. It is twenty-two, nerdmarketing.com/22. You can download this show notes, and in this case, in those show notes, I’m just going to put a quick recap of this operational framework I used to grow Karmaloop, one that you can adopt, as well as some of my top picks for tactics within each operational bucket.
If you’re just thinking about getting started in e-commerce or just getting started, check out nerdmarketing.com, go to Start Here, download my free tools and Zero-to-One Million cheat sheets. They’ll really help you launch your business and be a little bit more successful I hope, increase the odds of success.
If you already have a successful e-commerce business and you’re doing seven or more figures per year, then you might interested in my Growth Machine Mastermind, so in the Growth Machine Mastermind, I walk through this exact process I took at Karmaloop and we take a year to go through how to double your business. We go through it together. You can find out more information about that at the nerdmarketing.com/mastermind. I think it’s huge. If you’re in zone, I would encourage you to check that out because it’s the exact process I’ve used at two or three really big retailers to achieve some great growth.
Lastly, for those of you on a mobile right now, text NERDME to 44222. Again, that’s NERDME, one word, to forty-four, two hundred twenty-two. I’ll text you back with all the freebies I mentioned in this episode. Thanks for listening. Talk to you next time.