Here’s what I learned this week

I’m noticing a few trends that are troubling in the ecommerce world.

Consumer entitlement -

I’m seeing a lot of “I feel like you should make an exception for me” type of tickets coming through when this wasn’t the case a few years ago.

With commoditization of products, there is no brand loyalty anymore.

With a lot of brands struggling to keep growth going and profit, we’re seeing more and more sales happening.

The DTC space is fairly dead to VC investment these days too.

As the Cost to Acquire Customers ramps up and growth stalls with the pending doom by a slowing consumer demand, I think a lot of businesses are going to go under.

Last week we covered the changing trends across DTC, but there’s going to be a knock on impact to all the services that support them.

SaaS, Services, Consulting, it’s all going to be impacted.

When times were good agencies were able to set their own rates more or less charging huge fees for the work they were doing.

That templated email that brands are getting billed $500 a month per for is starting to look more and more like a waste of money.

Good article here: WHY DTC BRANDS ARE CUTTING BACK ON AGENCIES

The problem in DTC is that everyone expects to not pay any money for things, they want free tools, they want the best services at the lowest prices, they need to want these things though because margins have been steadily shrinking for the last 10 years.

When things contract like this we start hearing “wisdom” from people.

“Contribution Margin” as a term has been making the rounds like it’s something new.

It’s business 101.

Before all these stupid business made up terms of accounting like ebita we had fundamentals.

Sale price - (Cost of goods + cost of labor + cost of running the business) = Profit

Somewhere along the line we started removing the cost of labor and other expenses to make the numbers look better.

It gets worse, brands have started assigning a value to themselves as a brand.

WeWork famously did this.

But all this accounting fails in the long run.

I can’t wait until we start valuing companies with a measurement for how much money they can save on staff by using ai - this is 100% going to happen.

I Love the Hindsight Posts

This one comes from Ashvin Melwani CMO of Obvi.

I love this take, it works super well if you have a team and a large budget.

It’s not possible without a team to do this properly or at scale, else everyone would be doing it and finding success.

This is my problem with a lot of the advice that people provide, it’s vague, not tactical and doesn’t really include the real stuff.

I get it’s a LinkedIn post but this stuff isn’t helpful to anyone reading it.

How long is it going to take to create the list of influencers?

How do you find influencers with audiences that will align with your products?

How many do you need to talk to about gifting product?

How many of those that you gift will actually post about your product?

What product are you leading with?

What is your Minimum Order Quantity for the seeding?

What is your Minimum Order Quantity for the traffic surge to have product available?

What is the cost store the product?

What is the cost to ship the product?

Is there product spoilage?

What does it cost to setup the website?

What does it cost for product photography?

How do you approach making sure you have authentic reviews?

Here’s a lesson in finance for you all.

You're just shifting your allocation of cost. It's still going to cost you a lot of money and relative time to pull this off, more time than you think and a lot more money than anyone is being honest about.

The above assumes you already have gone through the costing of creating and perfecting a differentiated product, we’ll get to that later.

First Cost - Shipping the Product

Let's assume you have a great product that is 1lb to ship, USPS says $9 for priority mail, let's say you get it down to $6.

Odds are with product seeding of a low value item your shipping is actually more than the cost of the good.

(reread that bit, it’s important)

You’d be better off throwing a local event and inviting people to it with other brands and doing gift bags.

A long time ago I discussed the economics of getting an email signup of quality.

With the average signup costing about $10, you could buy someone a tablet, get them a tee shirt, have them walk around and just interview people about their current products, give them an actual product, collect their information, and still be more efficient than the $25-30 to acquire a customer on paid media.

No joke, there.

The product itself costs $5 and you sell it for $30 which is a good markup for ecommerce.

OK so now you need to hit MOQs and have enough stock to support your outreach and traffic, so now you have to raise your orders to factory, then you have to store this somewhere, then you have packaging costs, software costs, etc.

So let's say you see 100 influencers with your product and 20% of them post about it, because you never know who's going to do what.

You've just spent 100x5x6 = $3000 in hopes that 20 people talk about your product and go to a website with no reviews on it.

Not all of them will be successful.

I haven't even talked about product photography yet.

And the amount of stock that you had to purchase to support and uncertain demand?

Let's say it's about 5,000 units or around $25,000 in raw product plus $5k in shipping plus.

I like how you end with breaking even because although this might give you the best chance, this isn't a silver bullet.

And might not work for your brand at all if you have zero credibility.

Remember people like to be paid upfront these days.

What I’m learning about AI

I talked with a CDP/ESP (customer data platform/email service provider) last week and it was a really interesting conversation.

There’s a few things that stood out for me.

The guy came back to this company after working at another company that was trying to use 1st party browsing data to build predictable models around intent.

Guess how that turned out? It didn’t go so well.

This might be a topic for another newsletter actually, because there’s lots of people that are using pixels, and trying to leverage 1st party data to tell you who is showing more intent, it’s actually similar models that people are using to show popups at the “right time” to people.

None of that stuff is real. It’s a lot of noise masquerading as something special.

Here’s an analogy of how that works.

It’s like trying to spell a word in a bowl of alphabet soup. You can trick yourself into seeing patterns that are completely random. Sometimes you’ll guess correctly, but most of the time you’re just guessing.

But the conversation was interesting for another reason, they weren’t interested in the act of data collection, their issue was how to use and leverage data.

They don’t have a good way of doing it.

Turns out most CDPs are only really good at cohort analysis, their predictive models aren’t based on anything more than basic algorithms but they lack real-time intent monitoring that’s useful.

They also had “ai” all over their website.

So here’s the real deal, if these products worked as they promised than in theory any brand would be able to install them and have massive amounts of optimized success.

Right now in DTC though, very few brands are massively profitable and successful.

We keep looking to technology to solve for these issues but the product designers at a lot of these companies don’t actually understand how to collect and leverage data properly to produce the breakthroughs that they are promising because the underlying assumptions aren’t real in a lot of cases.

There are often systemic problems within a business the largest being wasted resources on things that don’t matter.

The biggest problem in business as I see it today is sourcing resources and resource allocation.

More on this in a few weeks.

The Takeaway

Anyone know an ESP with an API to create segments?

This seems like a feature that should exist but doesn’t.

Join the slack

Have a great week!

-Jon

Catch up on past posts: https://ecomwithjon.beehiiv.com/

You can learn from me: jonivanco.com