Decreasing Your Customer Acquisition Cost and Increase Your Customers’ LTV - Omniconvert | EP. #67
On this 67th episode of The E-Comm Show, our host and BlueTuskr CEO Andrew Maff is with Valentin Radu of Omniconvert. Valentin is a serial entrepreneur, data-driven marketer, CRO expert, international speaker, and the CEO and founder at Omniconvert–an eCommerce growth suite used by hundreds of companies such as Whirlpool, Orange, Avon, and Tempur Sealy.
If you’re a brand struggling with building a strategy for your paid ads or a newbie who has no idea on how to evaluate your metrics, then tune in to this episode with Valentin! Here, he gives a thorough discussion of how to leverage your data to decrease your customer acquisition costs, methods that will optimize your ad listings, and ultimately, how to increase your customers’ lifetime value (LTV) for maximum profitability.
Check out Valentin's Book "THE CVO REVOLUTION": https://www.omniconvert.com/CVO-revolution-book-valentin-radu/
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Decreasing Your Customer Acquisition Cost and Increase Your Customers’ LTV - Omniconvert
Andrew Maff and Valentin Radu, CEO
Valentin Radu, CEO
I am a serial entrepreneur, data-driven marketer, CRO expert, international speaker, father, husband, and pet owner.
Nowadays, I am the CEO and founder at Omniconvert, an eCommerce growth suite used by hundreds of companies such as Whirlpool, Orange, Avon, and Tempur Sealy.
I have spoken at over 100 International events over the last six years, including DMEXCO, Mobile Web Congress, SMXL, Growth Marketing Conference, Conversion World, Website, WebSummit, SemDays, Tech in Asia, Ecommerce Brazil, Iceefest, HowToWeb, etc.
It's a matter of deciding what was the model because, at the end of the day, you will do some trade-offs when you model your data.
Hey everyone, this is Nezar Akeel of Max Pro. Hi, I'm Linda, and I'm Paul, and we're Love and Pebble. Hi this is Lopa Van Der Mersch from RASA. You're listening to, and you're listening, and you are listening to The E-Comm Show.
Welcome to The E-Comm Show, presented by BlueTuskr, the number one place to hear the inside scoop from other ecommerce experts where they share their secrets on how they scaled their businesses and are now living the dream. Now, here's your host, Andrew Maff. Hello,
everyone, welcome to another episode of The E-Comm Show. I'm your host Andrew Maff, and today I am joined by the founder and CEO of Omniconvert Valentin Radu, how are you doing? Are you ready for a good show? Are you ready to do this?
Hi, Andrew. Yes, of course. Let's so excited
for this. So this is the first recording of 2023 for us. So I appreciate you being the person who will grace us into this new year. I love to do the whole normal thing kind of and pretend that no one knows who you are. And no one knows anything about Omniconvert. So why don't you tell us just a quick little background on yourself and about Omniconvert?
Yeah, of course. So I'm, I'm a founder I'm a serial entrepreneur from Bucharest, Romania, an export kid from Bucharest, Romania, as I like to say about myself, I found four companies. The first one is called Omniconvert. And now, we are helping ecommerce and retailers to improve their customer lifetime value in their business by leveraging the data that most of them are not aware that they are sleeping on it. They are sitting literally sitting on a goldmine beautiful.
You also started CVO Academy, correct?
Yeah, of course. So it's already, Yeah, one and a half years ago, We've teamed up with a few heavy hitters in the E-commerce, consumer behavior, and email marketing space, and we've built the CVO Academy. So that's a space for helping people learn about customer value optimization. So how to improve customer lifetime value, thanks to the knowledge because there are a lot of, let's say, learning initiatives about how to increase the traffic, how to spend more money on Facebook or Google ads. But there aren't enough initiatives around the customer lifetime value and how to leverage your existing customers.
So diving into this super excited for this episode, mainly because I know that your specialty is something that I've started preaching a lot more and more lately because of 2023. Now that we're finally in this new year, there are some theories about how this year is gonna go around, whether we end up in a recession or not towards the end of the year, how bad it might be, how mild it may be, whether we are in one or not. But either way, even though this is something that I believe every ecommerce seller should be aware of, one of the things that are going to they're going to want to be focusing on is making sure that they're doing everything they can to reduce their customer acquisition costs and focus as much as they can on retention. Because going through a recession, that's going to be the only way to survive. And I know if there's anyone to have on the show to discuss that. It's you. So obviously very appreciative to have you here. I'd love to just kind of dive in there on what your thoughts are on the best ways for, you know, sellers to kind of approach that over the course of the next year.
Yeah, for sure, Andrew, as you as you've just said, the economic environment is not as friendly as is, as it is in 2021. For instance, for online retailers. And we are seeing that direct-to-consumer brands are now focusing on achieving profitability. So the good old days of five 7x ROI is a stupid metric, by the way, because it doesn't consider the net margin and the gross margin and anything. So it's purely focusing on revenue and whatever. So what I think is going to happen this year is that retailers, first of all, will not throw money on all sorts of initiatives. So even the shiny new object syndrome will not be that present anymore. Another thing that will happen is that retailers are going, besides the fact they will be more cautious. They will look at their data because I think shifting their attention from products and ads, the words, customers and needs, and the behavior of those consumers is the key to achieving profitability. And as Jeff Bezos famously said, The one winning the market is the one that can pay the most to acquire customers. So, if you don't even measure how much you are paying to acquire a customer, how can you know that you are paying the most? Or if you are leaving money on the table or the opposite, you are burning money in vain. So this data-driven approach this, let's say, rigorous, focusing on the data that you have on things like customer acquisition costs, customer lifetime value, and the balance between the two of them, and then coming up with strong initiatives to make the customers stick around and buy again and advocate for your business. Because word of mouth is still the cheapest way of growing a business. Because even though I'm not a fan anymore of Elon Musk, we can see we can appreciate the guy, right? So he hasn't spent a dime on advertising or marketing. But he achieved then he built an empire. Thanks to word of mouth. So we have to be aware of these things. And I think this is the year when companies will be more aware of their data about their own KPIs and things like customer lifetime value and customer acquisition costs.
So let's, let's start with one of the first things he mentioned about, you know, doing what you can to reduce customer acquisition costs. That is, I've even started saying it a lot more lately. Like, that's got to be a big focus this year, just because of, you know, the potential like economic turmoil. However, I'm sure a ton of people are listening to this episode going, Oh, wow, I have to reduce my customer acquisition cost. What a new idea. Like, yes, that's something that obviously, we should always, like, be doing at all times. But what are your theories around the best ways to do that, and like, obviously, I know, you've mentioned, you know, really leveraging their data. But, you know, depending on the size of the business you're speaking to, some of them may not have as much data to work with others. They might have the opposite problem where they have so much data that they can't figure out how to read it. And they sometimes go through like what I refer to as like, you know, just like this data like, like, like a wormhole of I have so much to look at. So how do you decipher? You know, what's the best way to reduce those customer acquisition costs by leveraging the data?
Yeah, so what I suggest is first, starting with the blended customer acquisition cost, so not worrying too much about the customer acquisition cost by channel. So the first thing let's focus on is the unit economics of the business. So if it's a smaller business, the whole idea is to know what my unit economics look like and what is the context because data is meaningless. Without the context, it doesn't matter if your customer acquisition cost is $20. What matters is what's your customer lifetime value. Because if you, if you're making $40 on each of the customers that you acquire, and you're paying $20, that's a ratio of two to one, which is not fantastic, but it's good. However, if you pay $20, you acquire a customer, which provides a $20 In margin for you, then the situation is pretty grim for you. So the first thing is to understand the CAC to CLV ratio. And once the context is kept going up or down, NCLB going up or down, because if you look at these things, then it's very important to see what how these are looking in q4, in q3, year, over year, month over month, this type of trends, these are crucially important because if those things are going down, then you must act on it. So you must. You can't afford to be agile in this environment. The next thing to decrease the customer acquisition costs is to look at the best customers that you have and see if you can spot some anomalies. For instance, are there any products that, if those are being bought the first in the first order, are increasing the chances to place another order for those customers, and which are those products from which categories because that means you can afford not to pay less, but even to pay more to acquire this type of customer? So that means your bidding strategy will be different for those brands, those categories, and those products. Another thing that you can do to not decrease by to optimize customer acquisition costs because, again, it's not about how much you pay to acquire a customer. It's how much you get you gain from a customer. So you can even increase your budget, maybe you can get alone, maybe you can, whatever. So the whole idea is how to model your business according to the data that you have at your disposal. So another thing you can do is look not only at the anomalies based on the products, but the anomalies based on the customer segments, for instance. There are, there is this methodology that I'm a big fan of. It's called RFM recency, frequency, and monetary value segmentation. So that means, instead of looking at all the customers like they are the same, you look at the customers according to how recently they've purchased. So how many days there are since their last purchase, how frequently they bought and what their monetary value is how much they've spent, according to this, you will end up having some fantastic groups, which I call the golden goose, let's say the one who is giving you the golden eggs. So those customers are behaving differently than the others. So from our data, for instance, we have data from more than 3000. Retailers, we've seen that those customers, which we call the soulmates or the lovers, yeah, the best ones, make more than 80 times than an average customer. So basically, one of the soulmates equals the value delivered by 80 normal customers; you can't afford to know those customers. So one thing that you can do with them is to pick up the phone and call them. Or you can do thorough research, or you can run some surveys, or you can understand not what they are not only what they are buying, but also why they are buying and why they are so stubborn, let's say to come back and buy from you over and over again. Because despite all the barriers that you put in front of them, they come back, and they buy again from you. So you want your mind. You have to know who they are. You want to know who they are. So basically, that's another way to decrease the customer or to optimize the customer acquisition costs by knowing who's your target because once you know what the what are the reasons behind their purchase, then you know how to build your creatives, how to build your landing pages, they are going to write the copy for you literally. Yeah, which is way better than using chat GPT for that. So basically, you pull up the right words, the simple words, from your existing customers, but not only from your existing customers, from your best customers that are behaving like the best customers that you are.
So a lot of what you just mentioned really kind of ties into the paid advertising side. So obviously, you know, your traditional customer acquisition costs, a lot of people are starting to look at more kind of organic approaches building, you know, the brand or the website into more of an asset. So whether it's something more around like community growth on social media, or if it's building out their SEO and, you know, starting to develop more of like a content creation sort of thing. How do you factor what those costs of getting that type of assets together? Into the customer acquisition cost?
Yeah, so So basically, it's, it's a matter of deciding what were the models because, at the end of the day, you will do some trade-offs when you model your data. Because let's say you're building a community, you're paying for being freelancers; you're doing a lot of stuff, which is helping the brand are we which is making you insecure, increasing the awareness, those things, you must decide if those are retention costs or acquisition costs. Most of the time, these are acquisition costs. So and I think the trap is to continue to invest without knowing what the return is because, yeah, in theory, everything should add up. But this is something which I think Christopher Lochhead, the guy behind the play bigger book, which is a fantastic book, by the way, status, peanut butter marketing, right, let's put some peanut butter marketing, let's market, let's put some marketing there and there and then you have a lot of initiatives. And at the end of the day, you don't know how to measure. So, respecting the fundamentals, I think he's the key to 2020 free because the smaller you are, the fewer channels you need to tackle. Yeah, you need to be fantastically good at one to three channels maximum and then expand once you've hit the ceiling and you know that you can't optimize on those channels anymore, but there is a lot of room to grow on your existing customers. And one important thing you hear is about leveraging email, a right channel that is underutilized by the because once you do the RFM segmentation, you can build different email campaigns, right you will end up having your best active customers. Which you want to nurture. But you also have customers slipping away, and you want to stop that churn. And you can do that with prevention campaigns. And you also have newly acquired customers, and if you know the reasons behind purchasing your best customers, you can onboard differently. And I can give you plenty of examples if you want over here because we've applied these methodologies We call the CVO customer value optimization methodology. You start with customer research. And for instance, we've worked with a company selling microbiome products. And they've found out that there are three main reasons why people were buying those products. But the main reason was around helped me look normal. So it was it; it was a pain, right? So the struggle behind the purchase was real. It's not like it wasn't like a vitamin product. It was a painkiller for the customers. And based on that, they used the query survey at the end of the purchase. So they've tagged the customers according to the reason behind the purchase. And then, they onboarded them through email and made them consume the product. Because if there is no consumption, you can't expect retention. It's crazy. Nobody's going to buy again, a product which they are not getting value from.
One of the very pertinent things, almost everything you mentioned, is knowing the customer lifetime value, right? And while that should be clean and clear to everyone in any business, it was very often something that I find that ecommerce sellers struggle with to figure out what that number actually is. And one of the reasons I or at least one of the questions I had for you is, so we talked about reducing your customer acquisition cost, I believe your example was, well, you spend $20, but they eventually you spend 20. Eventually, they spend 40, your two to one, and you're in a good spot. But at what point? What's the timeframe for that? Right? So we're sitting in 2023, you want to reduce your customer acquisition costs, and yeah, they'll spend $40 with you over the customer's lifetime. But what if that second purchase for another $20 is normally two to three years out? In which case, you're now focusing on reducing that, so at what point do you say like, Okay, this is the lifetime value of a customer, but you can only afford to bring in so many because it's going to take that much longer to get that revenue back ends.
Yeah. And welcome to the bridge between the finance world and the marketing world. Yeah, this is what they're stating. So, what do you do if your cash flow doesn't allow you to wait for two years to get back those $20 On the second or the third purchase? And the answer here is you break the CLV down by certain intervals that you can afford, so CLV, 40, CLV, 60 days, CLV in the 90 days, and once you know those things, you try to optimize and look at the average days between the purchases, right. So basically, it's called the ad btw, which is why you need to go more in-depth into the data to know your ecommerce inside out. Because you can't find those things in Google Analytics or Facebook ads, you can find Eygpt in Shopify; you need a proper tool for that. And that's why basically, that's why we exist; we've realized because I'm a former ecommerce entrepreneur, I've realized that there is no such tool that allows you to leverage this kind of thing. So basically, you look at the average days between the transactions. You look at the ARV and the CLV by 6090 days. You look in your pockets, go to your bank account, and see how much you can afford to pay to acquire a customer. And then you decide. So one of the, let's say, mistakes that many entrepreneurs are doing is that one of the mistakes that entrepreneurs are doing is that they are too reluctant to invest more. So what I want to do there, basically what I want to suggest them what I want to invite entrepreneurs here is to look at their data because numbers provide clarity. And when once things are clear, you will not be reluctant or fearful when you invest in acquiring customers. It's all a matter of experimenting fast enough without endangering your business. And most entrepreneurs don't know those things. So what they end up doing is they look at their ROA s, play some agencies, and then they feel like they've been tricked by those agencies, they switch to another agency, but God forbid to look at their unit economics and understand their data. And I think in 2023. They need to know those kinds of things. You need to know the CAC payback period, which is the number of days you need from a customer to return your initial investment to acquire that customer. You need to know that without knowing that, how can you invest? It's crazy. But most of the market is still doing this over and over again.
And obviously, we touched on the retention side of things as well. So from a retention side, now let's say we've figured all that out, we've gone through, You know, all of the acronyms you've given us on the show so far that we're gonna have to do a dictionary for after this? What are your standard tactics? Every business is gonna be different every owner, every customer, every product line, and all that fun stuff. But what are your tactics in terms of focusing on retaining those best customers that you had mentioned, as well as the new ones as they're coming in, since you just worked so hard to actually get them to convert?
Yeah, so that's a great question. And being I always do this, no matter what the business model; I start with getting customer voice data. So basically, I started with implementing Net Promoter Score because it's a fantastic tool to understand if the customers are getting the value they're after. So no matter what you're selling, if you're selling anything, you're in the business of selling a promise. So you've sold the promise to the customers, and they've bought it. But you don't know if they've, you've delivered on that promise. And you need to know that. And that's why you need to know the NPS at two moments, yes, Net Promoter Score, what are the chances of referring our company to one of your friends, colleagues, and whatever. So once you deliver the product, and once you've got the money from the customer pre-delivery and post-delivery, you know, the NPS, and if the NPS is lower than 75, let's say, then you need to improve that you need to understand what should be fixed in the customer journey, because you can have one of those three problems. And those are the only three that you can have. You either have a product problem, which is the worst to have, which means you need to source different products or build, or wherever you have a marketing problem. So you weren't simply compelling enough or persuasive enough, or you have a customer experience problem, which means you need to look at the customer journey and understand how to improve customer service. Yeah. And to do so, you need to analyze the data from your customer. So that's the first thing I do, no matter what type of business. And after that, then that's they're giving you the roadmap for what you should be doing next. Because if you have a marketing problem, then talk differently about the value your products provide to them. If you have a customer experience problem, sort out your things. Yeah, so fix, fix the broken journey. And if you have a product problem, stop advertising and fix it because no amount of marketing will fix a broken product.
That's a very good point. Bouncing, you know a lot about all of this. And so, it sounds like you should probably be writing a book, and I believe you are correct.
Exactly. So I'm writing a book it was it was a hard effort. It was the most difficult endeavor in my entire professional reading church, if you know, because I've started too early to write it and, unfortunately, it is not that advanced, because I've tried to do to see if, if he knows a thing or two, but these are only shallow, shallow things. So I'm writing a book I started in January and will end in March. The first chapter is available for anyone that wants to read it. And if everything goes as I planned in April, we will launch it
beautiful. Well, we keep an eye out for that. Valentin, thank you so much for being on the show. I appreciate your time. Everyone else who tuned in, obviously, thank you. Balancing, I'd love to give myself a minute here and let everyone know where else they can find out more about obviously the book The chapter you said it's available more about you and Omniconvert, and we can call today
Yeah, sure. So you can find me on LinkedIn I have boosted the daily since 2017. I think I'm I'm sharing a lot of insights regarding my work. I'm always working with the brands firsthand. So besides the fact that we have our software as a service, we also consult agencies and ecommerce brands, and I'm doing this type this thing so that I'm still connected with the world so that we don't build a product that nobody can use. So feel free to find me on LinkedIn or drop me an email at Omniconvert
bounty, and thank you so much for your time today. Everyone who tuned in, thank you as well. Please make sure you do the usual rate review, subscribe to all that fun stuff on whichever podcast platform you want or on YouTube, or head over to you calm show.com to check out our past episodes. But as usual, thank you all for joining us, and we will see you all next time. Have a good one.
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