"There’s nothing like being thrown off a cliff to make you discover that you have wings."
The Why, Señor y Señora. The Why.
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Amazing pivot story.
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Daily deals company LivingSocialâs recent troubles have been well-documented, but now its pain appears to be going international. One of South Koreaâs leading business newspapers has reported that …
All vanity metrics.
This post is part 3 of the analytics “coffee-chat” series. It was written as a prelude for digital marketing analytics course by Internet Marketing Institute Indonesia in collaboration with econsultancy UK in which I will be a trainer. This series is meant to be a brief intro on analytics: what it is, what it is not and why you should care. I hope you enjoy reading it!
I ended the last post by mentioning kaizen: the notion of ongoing improvement. And based on that principle, analytics should be done rigorously not just at the end of a campaign but also during marketing campaign itself. Whatever the campaign is.
"But I’m not a data person. I hate numbers"
That’s exactly why I’m writing this. I want to show you that analytics is much less about the numbers than you think of. It’s more of detective work than math. What I hope to achieve in this last post is that if you’re doing any marketing activities, you will eventually deal with and be asked questions about analytics whether you choose to or not. So you might as well start to learn it.
Analytics and Social media
Social media is currently the most searched-for skill in Indonesia. Many businesses are jumping into social media and this field is sizzling hot. So that’s good, lots of demand. However, the barrier of entry to be a social media person is relatively low. That is, almost anyone can do it. That leaves you some homework to figure how to make yourself better than the rest. That’s when analytics come into play.
Suppose that your business role is to generate more engagement. So what do you do?
First things first, what is the metric that best represent your business role? How would you represent engagement? To start, you can postulate that if your audience is more engaged with the business, they’d be more willing to give more likes on facebook, more comments, more retweets on twitter, etc.
Then you need to breakdown what are possible causes for your audience to give more of what you want? Verify and correlate the following possibilities:
If you have done the above, believe it or not, you have done analytics!
But suppose you want to take it further: now that you know how to improve engagement per audience on each post, you want to expand the number of people who are engaged.
Then your metrics need to change; maybe: the number of people who commented/liked/retweeted your posts at least once in 1 week. And then now you need to craft a creative strategy to boost this number. To start:
There are other nifty metrics to explore such as sentiment, influence score, etc but the above are good starting points. What’s really important are the questions that you ask because they give shape to the problem.
Analytics and SEO
Free traffic! What not to love right? Nevertheless, you can always improve what you get out of this channel.
Suppose your business role is to increase organic search traffic. You type in your brand name in google, you’re number 1. You then try typing in your product name, you’re in page 1. So what are your metrics?
To increase traffic from SEO, you depend on 2 things, ranking of your keyword (assuming you do your research and pick keywords with substantial search volume) and the CTR. Knowing that, you can then head over to google webmasters and check:
Let’s take it a step further: you want to increase sales from search traffic. You can start by checking the keyword report in your web analytics tool and look for those with conversion rate above average. Then pick those that you are not highly ranking for and focus your effort there.
Simple right? All the math is done by the web analytics tool. What you do is slicing and dicing the data to make it give what you want
Analytics and Email marketing
You got them as your subscribers or even as your customers. You now have one of the most powerful thing in the internet: customer data!
Suppose your business role is to increase recurring sales from your email campaigns. Why not start by mapping past campaigns with revenue numbers; find out which ones performed above average. Collect them and analyse the pattern in the content:
You could also analyse the users that repeatedly buy from your email:
Email marketing may not be the sexiest thing today, but it is definitely one of the most powerful in terms of segmentation and targeting. That makes it a very analytics friendly online marketing channel.
Analytics and Product development
This is the main challenge for all startups: iterating the product based on the data given by user input and behaviour.
Suppose that your startup is a social network and you want to increase the size of your user base. You can start by picking sign up conversion rate as your primary metric. Next, check different traffic sources that generate your user pool:
Six months later you may want to figure out how to increase active members. Your metric may then be monthly active user (MAU). Start by separating active users from non-active users. Check:
You can then direct new sign-ups to behave more like active users rather than non-active ones. At the end of your experiment period, say 1 month, go back to your MAU metric and see whether there’s really any improvement compared to last month (in this case, you need to normalise against total registered user).
Let’s wrap this up
I hope I have shown you that all misbeliefs about analytics are wrong: analytics is not purely number based, analytics is about asking question rather than giving answer, there’s no formula to a good analysis, it is also so much more than just a report at the end of the campaign as it contains insights that can improve your effort overtime. And lastly, analytics is fun!
So why don’t you join me in IMII’s Digital Marketing Measurement class, 27th & 28th of August? There will be a lot of tips, nifty tricks and insightful discussions. I promise you that it will be an amazing experience overall, especially if you are working in digital/online marketing.
[There will be a free preview session where you can join the class until lunch time for no money down. If you decide to take the course, you can pay to IMII and stay for the rest of the day and the next. If you don’t that’s fine too, but please be fair not to eat the meal :)]
I’ll see you there!
I believe in the following axiom: product capability is the ceiling for marketing the product. Thus, in the long run and assuming basic rationality, you only lose your marketing dollar when your product fails to deliver your marketing promise.
For any poor marketing result, you’ll see that product capability and marketing promise are not in sync.
Meanwhile, sustainable businesses are built on top of good products that are in-line with good marketing.
And the best businesses over-promise on their marketing while their product over-delivers.
And on top of that, the best of the best businesses also make sure that their marketing is integrated into the product such that marketing messages are conveyed as it is being used. It is very hard to lose your dollar in this case.
Why do you think Apple put its logo at the back of their devices?
Almost all US Internet companies failed in China in the last 10 years. Yahoo entered China by acquiring 3721.com (some argued it was a keyword based search engine that dominated the space before
I’d say the same for Indonesia too. Except maybe not as extreme.
Riot-y times no?
With so many to cover, I’m picking at the newest dude in the hood. IMHO, multiply did not close because of not being profitable, but because there’s not enough historical growth PLUS it has sustained negative cashflow for a while.
First, investors want growth. If there’s not enough growth, they’d better put their money with some fund managers who can grow their money at 30-150% annually, so that’s your benchmark. They want hyper growth company that can beat their fund managers. If they can’t get it from you, they’re going conventional. They’re not ruthless, that’s just how the world works.
But remember, however beautiful a hockey-stick growth is, if historical and projected cashflow is bad, you’re eventually going down. We can break down cashflow problem into 3 interrelated critical factors:
What follows is the story of how they interrelate.
Cashflow = LTV - CAC > 0
If you’re in ecommerce, you better know your LTV and CAC like you know the location of your birthmark. Any sustainable business operates on 1 condition: cashflow > 0. It is not different with startups.
What is LTV?
LTV is Lifetime Value. Basically, this is a metric that calculates how much income a customer generates for you as long as they become your customer. This is mostly affected by your gross margin and your product retention rate.
This is what killed ecomom when they focused on the top line and went daily deals frenzy. Low gross margin (if positive, at all) and low retention rate (daily deals users are not the most loyal of all. That is, the collective LTV from these customers does not justify the CAC.
So if an ecommerce consistently gives discount, that should be a red flag for any investor or journalists alike. #kode
What is CAC?
CAC is Customer Acquisition Cost. Basically, this is a metric that calculates how much do you spend per customer. The simplest way to calculate:
CAC = marketing spend / # of users
This metric is mostly affected by how good your online marketing team is and the marketing gimmicks that they run. Any marketing expenditure will accumulate into CAC.
Positive means money going into your business, negative means money going out of your business. And this is where many ecommerce startups in Indonesia fails. Let’s break it down:
Cashflow = LTV - CAC = f(retention rate, gross margin) - g(marketing spend, customers obtained)
Using the above metrics, I’ll rate a few startups from what I see, assuming the following overly simplified mathematics:
The rating value will be relative and out of 5. This is not meant to be objective and bias does take into account:
Berrybenka: retention rate (1.5), gross margin (2), spend (2), customers (1.5) = 2.25
Belowcepek: 1.5, 1, 0, 1 = 1.5
Maskoolin: 1, 1.5, 0.5, 1 = 1
Zalora: 1.5, 1.5, 5, 1.5 = (1.5 x 1.5) - (5/2.5) = 2.25 - 3.33 = -1.08 (!)
It’s overly simplified but I’m pretty confident it aptly reflects their current condition. And just to be blatantly obvious, yes I am saying that I believe Zalora is most likely at negative cashflow for every transaction they make.
Now you can easily rate any ecommerce startups with these 4 questions. Investors to-be, dig deep and do your homework. Ecommerce startup owners, look at yourself in the mirror and stop fooling yourselves.
At the moment, my most favorite ecommerce startup is tiket.com. I’m not saying they’ll end up with the highest net worth or they’ll have the most extravagant exit, but they’re likely the most sustainable ecommerce startup currently. I like building sustainable companies, so I’m inherently biased :)
Another of a rising star for me is burufly.com. Their team is solid and their product roadmap seems great. Their first priority is validating their business model but once that’s taken care of, they should take off. (Disclaimer: I was a part-time consultant for burufly.)
It’s a very simple concept: a novel establishment sets an internal threshold that we will be pre-disposed to when similar happenstance re-occur.
Suppose you are doing consulting and your first ecommerce client is willing to pay you $5000 for 5 hours of consultation. Would you do consulting for another for $2500 for 5 hours? Most likely not, because now you have established the belief that your consulting rate is $1000/hour. Why would you want to do it for half less?
Take this concept to e-commerce: if an ecommerce startup has regularly given discounts to their existing customers, what do you think will happen to their retention rate once they reduce/remove discounts?
For some startups, this has become a dug-hole-too-deep-now-i’m-fucked situation which stems from:
Twisted business strategy
Have you ever wondered how can some startups keep giving discounts left and right and most importantly, why do they do it? These startups have to subsidize the burden in order to get attract first-time buyer and repeat buyer to their site. The strategy behind this commonly used tactic is to make their customers belief that the startup can give them the biggest bang for their buck; the startup gives them whatever they want (feature, fashion items, whatever) at the (close to) lowest price in industry.
This idea is the origin of a concept Mark Suster calls “deflationary economics”. However, this idea does not and should not entail having negative cashflow. What startups all over the world recklessly do is embedding deflationary economics onto their startup without regard to their cashflow plus establishing psychological anchoring on top of it.
They have too small margin, they give extra discounts that makes their cashflow implode and by doing that, they’re implicitly telling their customers that “we’re cheap, come buy some more”. Now do you see how some Indonesian ecommerce startups have essentially shot themselves in the foot, tumbled over into a river and got carried into a falls?
These days ecommerce have low barrier of entry, but it does not necessarily mean it’s easy to execute profitably, let alone remain profitable while having rapid growth. Here are 3 small lessons that I think every startup, not just ecommerce, needs live and breath by:
Pick 1: growth or profitability. But know the limit and do balance things out. If you pick growth, make sure you don’t set traps for yourself along the road. Also make sure that you know, with a great degree of certainty, when are you going to start being profitable. You can’t simply state that ecommerce startup generally takes a long time to show its value. I call that being ignorant & irresponsible because you can prove your startup’s value 6 months into operation. Know your payback period and segment it into cohorts.
Becareful with your marketing gimmicks. At first, they may create a rosy perception that your business is doing really well, your metrics are over the top, you get that hockey stick growth you’ve always dreamt of. But in the long run, they can put you into a hole so deep you can never get out of because now you have installed a habit and a predisposition so hard to erase from your customers expectation.
Lastly, learn from online gaming. I have quite a bit of experience in this industry and I have to say that this is probably the best online business in Indonesia. Inventory in bits means gross margin is approaching infinity, built in viral mechanism means CAC is approaching 0, and built-in retention rate, what more can you ask for? No wonder VCs flock to these guys. Figure out if you can figuratively (pun intended) integrate aspects in online gaming that make it such a lucrative business into yours.
learn from the deaths of your industry fellows. The news may not say so, but 99% of the time there are good, rock-solid reasons behind it. If you don’t, you will be the next to fall.
Caveat: You may ask: “how did you get the number in your cashflow calculation rating?” The short answer is: I infer. The longer asnwer is just as short: I have had experience in many different startups involving LTV and CAC, so I can confidently infer.