Business Hacks

DIRECTADE BUSINESS RULES SERIES: AN INTRODUCTION

A small leak today....

A small leak today....

By Jason Solano

“Beware of little expenses. A small leak will sink a great ship.” - Benjamin Franklin

We joke that Direct-To-Consumer and Subscription Business Rules aren’t particularly sexy. They’re complex and often technical. Rules that work well sometimes can’t be easily tracked on a dashboard. Like most things in Direct Response marketing, rules need to be tested and measured over time with accurate data. Rules can’t be maintained by a single marketing or finance department - and they definitely require IT support.

Business Rules might be seen as barriers to orders. Or tiny cents compared to thousands of dollars in sales. This assumption would be dead wrong. Every order in your company is touched by dozens of business rules.

At first glance, Business Rules are a bit like plumbing in your house. It’s there, you don’t think about it, but you count on it everyday to work seamlessly. Small leaks are annoying yet seemingly inconsequential to your budget. A big leak can cause some damage and be fixed in an afternoon. And yet the plumbing in your business is completely different than the plumbing in your house. This plumbing needs to be reviewed and monitored regularly. By the time you spring a big leak, it might be way too late.

Think of how much effort goes into acquiring an order. You’ve spent money on design, on product, on your staff and your website. Not to mention the media expense. Taking an order doesn’t mean it will ship. Just because you’ve acquired a member with an expected Lifetime Value of $250 doesn’t necessarily mean you’ll ever net a dollar. Many, many Business Rules will apply to orders that you’ve paid and captured; your media cost is sunk! So good news: any improvement can flow right to your bottom line.

Optimizing your Business Rules requires a lot of questions. So that’s what we’re going to present - questions and perspectives than can help you become fluent in DTC and Subscription-related rules.

Many of these rules contain questions you’ve asked before. Some of the rules have questions you may not have considered. Many rules should come with that irritatingly famous slogan "You think you know ... but you have no idea.”. Some rules might be better for your bottom line at the expense of your customer. We urge you to be careful and be fair. Some of these questions may not apply to your business. Some of these questions might be connected to federal or state laws - so it may also be a good idea to confer with your legal counsel.

Check back next week for our first of many business rules blog posts. We’re kicking off at the top of your funnel with some thoughts on credit card authorization.

 

WHAT’S THE NEW DEFINITION OF A ‘SUSTAINABLE BUSINESS’ IN 2016?

Winter is coming this spring to Silicon Valley

Winter is coming this spring to Silicon Valley

By Rob Reynolds and Jason Solano

A ‘sustainable business’ has been defined as a green company dedicated to a minimal impact on the environment.

Now a second definition is beginning to circulate in Silicon Valley and other venture-centric hubs: a ‘sustainable business’ is one that can simply remain cash positive over time. This is somewhat of a pivot for The Valley, which was prone to shovel loads of cash at a business based on its speculative potential, not its P&L sheet.

One company taking pre-emptive, responsible steps is Optimizely.  Last October they received $58 million in Series B funding which brought their venture total to $146 million and a $585 million valuation.  Despite these impressive numbers, Optimizely laid off 10% of their workforce last week.  In a letter to employees, co-founder and CEO Dan Siroker tied the cutting of staff to the necessity of reigning-in costs and a promise for the company to be more profitable. Dan wrote “Destiny, which means controlling the path we are on as a company without having to depend on anyone but ourselves. In order to do that we must build a business that makes more money than it spends. We set a goal of getting to cash flow breakeven and we have made tremendous progress toward this goal.”

Companies in the Direct-To-Consumer and consumer subscription spaces are not immune to this emerging trend. In the first quarter of 2016 there are increasing media reports of layoffs at startups across the DTC spectrum including Birchbox, Sonos, Fanduel, Nasty Gal, Motiga and LivingSocial.

Outside of headcount reductions, what can today’s DTC and subscription startups do to build a sustainable business that will continue with steady growth and deliver responsible profits?

Directade has five suggestions:

1) Know your LTV at an offer (not just brand) level
Not only does LTV lay the foundation for your financial planning, it also enables brands to right-size their media spend to maximize new starts. It is essential that you de-average your LTV calculation at an offer level before you invest too much in an aggressive offer that doesn’t pay out on the backend.

2) Dust off and formalize your Business Rules
Subscription-based brands can protect as much as 18% of their profit by implementing optimized Business Rules in areas such as Credit Card recycling, billing and dunning processes, and guidelines for the velocity of claims and returns.  We love Business Rules and will cover the topic in depth in a new series of upcoming blog posts.

3) Protect your pricing strategies by not giving away the farm
Continuity businesses should offer trials and coupon codes to get new starts, but an overreliance on these offers to drive growth can destroy overall brand value. Challenging your teams to innovate through fresh creative, offers featuring new products and gifts, and new emerging media channels should take priority over the “Free Trial” easy button.

4) Balance retail one-offs vs a direct relationship
Consumers should have many compelling reasons to buy directly from your website.  Not just one, but many. Make sure your direct customer is sacred and preferred. Fostering an ongoing relationship with your customer is more valuable than any retail one-off sale.

5) Buy Flow Optimization
You’ve invested a small fortune on advertising to get people to visit your website.  Advertising may even be your largest expense.  Reap the full return on that investment by making sure you follow two deceivingly simple objectives.  

You’re most likely already focused on the first objective: conversion rate optimization. Capture every potential customer.  Easier said than done? Sure.  But, there are tried and true approaches which many websites don't follow.  The majority boil down to creating a low friction buying experience.

Fewer companies focus on the second objective: maximize your customer's LTV (Lifetime Value) starting with that first sale.  Retention marketing has it’s place, but in our experience we’ve seen the biggest boosts in LTV by changing the approach at the point the customer starts. How to do that? Not all customers are created equal. They often have different needs. Some potential customers are more engaged with your brand, have specific motivations or have more disposable income. Develop and offer them product configurations that meet those needs. They will be happier customers (who will stick around longer) and often those new products will increase how much they are spending.

In Summary
On the surface these five suggestions are simple to follow.  But they also take years of experience to master.  It’s also good to keep in mind that some of these approaches can work against each other.  That is why it is so important to manage your business with a testing mentality and go heavy on the analytics. Taking the time to find the right balance is always worth the effort.  Invest resources behind these approaches and you’ll go beyond being a ‘sustainable business’. You’ll bring your company to new levels of profitability.

Reach out to Directade for more detail on these ideas, and others, to ensure the stability of your DTC business.