Dave Bayless is a co-founder of Human Scale Business, a strategy consulting firm that helps founders of growing companies that make original products sold online. HSB uses visual modeling techniques to help founders develop a better understanding of the interactions among their product mix, marketing channels, supply chain, and cash flow so they can make better decisions about their businesses.
With customer success retention and value, a lot of emphasis these days is been placed on retaining your current customers and getting the maximum value out of them. And so and that's what we're going to be talking about and you are definitely an expert on that. And so before we get into the topic of today, why don't you tell our audience a little bit about yourself how you got to where you are today and a little bit about your background? Sure, it's been an indirect Road.
I've been around long enough to have had a variety of experiences. I've played several operational and administration roles in business, but my real strengths are in strategy and Analysis and I started out in the buyout Finance world and I think what I got from that was a 30,000 foot view of businesses a system of interconnected Parts somewhat serendipitously that led to.
Working in a series of startup companies kind of on the other end of the spectrum and it was a combination of technology-based businesses as well as consumer products companies and it was with the ladder that I got to really dig into the world of product development and that gave me a really complementary grounds up view of how marketing and Manufacturing and logistics for example interconnect.
Okay. And I think you know that that consumer products experience and a long-standing interest in technology. Not surprisingly led me to e-commerce Sellers and I'm also very interested in smaller companies. I like working with small companies and one of the things that's emerged in the last decade as you well know is that these very small e-commerce sellers are inherently.
Complex. So the tools and the concepts that used to be the exclusive domain of big companies are now appropriate for small businesses including Concepts like customer lifetime value. Yes, definitely for sure. Yeah, you could kind of say that the king keys to the kingdom have been provided in a rebel to everyone else.
So it is your right to a lot of these things that would before only. To some of the larger medium and larger size businesses are applied to to every business and you can really take advantage of that as well. Now what you're doing day to day at your business the human scale business what you tell me a little bit about what you guys do on a day-to-day and what's what are your core area?
Sherwin and I think the the meat and potatoes is helping people understand how much cash they're going to need to grow their business at a certain rate. So anybody who is sold a tangible product understands that money gets tied up in working process and finished goods inventory. If you're selling through a wholesale or other indirect Channel, you've got accounts receivable so growth tends to require cash sure.
So we help people. Figure that out. And we do it using again a set of tools that used to be sort of exclusively available to large companies. It's a category of visual modeling tools called System Dynamics. Okay, that makes it easy for people to really visualize how their business works together and and what the inherent trade-offs in business look like gotcha.
Gotcha. Yeah, those those things are definitely something that an e-commerce business definitely needs to know and you. Any given time really but I think a lot of what you said and what you guys are doing is can definitely directly be tied to you know, tournament determining the value at any given time can definitely be tied to you know, their current customers they have on hand.
And so the main thing that a business will want to do is figure out you know, how they can effectively retain their existing customers and then, you know pump the most that they can out of. So with that average your e-commerce business, what do you think is the most important thing that they can do to try to retain their existing customers while I'm going to cheat and actually say a couple of things one is to to think about the leverage that's available in extending your customer life before you really sort of jump into things and secondly to examine your product mix to make sure that you really have something to offer.
People over time. So when I think about leverage, you know, I certainly have a biased toward emphasizing customer retention because I think most businesses even today tend to undervalue customer retention relative to new customer acquisition true in some ways. It's a lot more fun to sell it a new relationship and.
Some of the elements associated with retention are just not as visceral that said investing in retention isn't unambiguously a good thing from a financial standpoint it cost money and maybe more importantly for an e-commerce seller. It takes time and attention. So like so many things in business.
There's this contradiction investing in customer success and customer retention can increase your customer. And value but it also costs money and resources which tends to decrease your net customer lifetime value. So it helps to start off by thinking about how where am I today, you know before you before, you know how to get to where you want to be you need to understand where you are.
So what's the average duration approximately of your current customer base and then think about sort of what's the potential life, right? Is there really room for growth? I mean. Customers have a finite life and depending on what kind of category your end is going to vary widely. For example, if you're a maker and seller of baby products Max a customer life is going to be measured in a few years.
Mmm. People just don't need diapers anymore. If on the other hand, you're selling fly fishing gear. You might have a customer for decades, right? So depending on where you know, it's important to sort of pause a minute. And think about where where is their Leverage is there room to improve or are you already about at your maximum and that it doesn't get out.
The other thing is to think about again with my strategic orientation. I think about the product mix if you've got a durable consumer product. Hmm. It might be something more like a one and done. Relationship and you really have something in your mix that you can offer to somebody on a recurring basis when I think about Industries or businesses that have adapted over time, you know the Auto industry used to be all about selling cars.
No way back when there were people that bought a new car every year partly because they were just notoriously poorly built right? With time and increase competition auto dealers have changed their revenue mix and emphasize ongoing recurring services. So there are a lot more tuned to customer retention than they used to be a little closer to home.
And in terms of e-commerce companies several months ago. I got as a gift a very nice leather portfolio from a company called Colonel little. Okay, and it had branded sort of Note Paper inside of this portfolio, which at first struck me as something kind of odd. I thought wow. This is a company that makes really high-end leather goods that typically cost hundreds of dollars.
Why are they messing around with with paper? Right and it slowly dawned on me that I kind of like their their form and I would go on their site in order from time to time and every time I touch them, You know, they sent me this paper. Of course, they're making no money on the paper. Right? But it exposes me to their product on a recurring basis and I really appreciate the cleverness of that of how to add an element of recurring need to.
Increase the likelihood that people like me will you know one day by one of their more expensive products and really make it worth their while yeah, if for sure and I see this model on all types of businesses these days, I mean if you look at. You know the major retailers the Amazons and and in just even some of the smaller companies that have a pretty established web presence the whole subscription model.
I mean it in these days can almost get be integrated in any product company because basically what you're saying with the way most of these subscription models work is you know, you know that if let's say you sell a food item or I'm thinking of a let's just say like a protein type bar. You know, those are the types of.
Things were of course, if somebody purchases at one time, they really like it and let's just say they are a somebody that works out consistently, you know, they're going to keep working out. So if they find something they like they're going to want to reorder it and so a lot of businesses that are not only just food companies but items that are consumable, you know that, you know, when somebody finishes or it'll run out or has a fixed life they're going to have to do some type of reorder and so with these subscription models do is you kind of get.
On the hook to do an automatic reorder where you'll capture their billing information and have them commit to let's say do a monthly reorder or a quarterly reorder. However, you have it. And so I see a whole lot of that these days and that's that's something that you know, really can, you know can really help out as far as retaining those customers and getting.
You know committed on a long-term, you know commitment. So yeah, that's you know, another thing that I would I would add to that now, you know, a lot of the listeners here on the podcast are you know various e-commerce businesses private providing a variety of different products or services and you know, as we know these days there are literally millions and millions of tools out there that someone could use with regards to customer retention.
Do you know. In could you share any specific tools that can assist a typical e-commerce business with retaining customers a category thought that really appeals to me and that is automating transactions, but not relationships, you know that this challenge of how do we cut through the noise and you know for a small e-commerce seller a great strength is the personality of the founders and the sense of actually developing a relationship.
Chip that is just not possible to do with a very large business, right? But so how do we use technology intelligently to actually cultivate that sense of relationship and I think a company that's doing some interesting work in that area is called bonjour. Oh, okay. Are you familiar with with them?
I am not. Yeah if you can so the onj Oro okay, they're out of London and Sydney and what it does is allows you to very easily make. Personalized videos okay for customer. So imagine it being used in to welcome a new customer in a way that is clearly personal but it uses technology to automate and streamline all the fiddly bits.
Okay, so you're not messing around trying to do this, you know from the ground up in a bespoke fashion. It has a peer Integrations I could tie into your. CRM system, so it's a slick tool for you know, trying to cultivate that personal connection in an efficient way. Gotcha. Gotcha. Yeah. That's that's that's awesome.
Yeah, I hadn't really heard of that and I was just taking a quick look at their at their website and it seems like yeah, that's that's really and that's what kind of sets a lot of businesses apart because you know, there's these days when somebody's purchasing something, you know, there's you know, a million and one different avenues that someone can go to.
Purchase the product, you know, of course, you have the Behemoth Amazon where you know, you're dealing with a lot of different Sellers and then of course Amazon directly where if you're purchasing, you know, it can be a little impersonal even though the Amazon sellers can communicate directly with the with the buyers it you know, it's a little impersonal but if somebody's purchasing directly from a smaller seller and they are able to form a connection like you said through a customized personalized video, I would say yeah that definitely can.
Long way whether the video is from, you know, maybe the founder or you know, maybe the head of customer support something like that where they were they kind of immediately know that while this company is really taking that extra step to form a connection. I think that that is like that's one of the main things that can help pull in a customer because you know these days what I see is there's not a lot of loyalty people are really just looking to.
Get the most value for the least amount of money, you know, everybody is financially conscious these days most people are and if they find a cheaper solution and have a solution or a product that has a better value, you know, they're going to they're going to jump ship. But if you're able to form that connection, I think people will.
The probably think a little bit don't think twice before Jumping Ship. So I think that that's that's another thing that I think can help with a solution like that. But yeah, that's um, that's definitely interesting. I'm glad you mentioned that I had not heard of that particular product and I think that's a great resource for our listeners now, you know, we talked a little bit about.
The variety of ways, of course these different types of businesses and how they're selling and I know it's it really varies depending on the product being sold and thus in the or the service being offered as to you know, how you determine the overall value but how does an average e-commerce business these days selling, you know particular widget or whatever it is.
How do they really determine the lifetime value of a customer? What's what's the 101 in doing that? Well without drilling way down into the Kiki wait, I think that we can say a few things. You know one is that I would advise eCommerce sellers to spend a little time to make sure that they understand the complete customer lifetime value concept and I'll come back to that in a moment a second piece of advice.
I guess which shares its don't get hung up on the math. There's ways to to get value out of the concept without doing a lot of number crunching at. Front and along that lines is to think and he's at least initially with broad averages. The concept of Cl TVs is you know can be applied at a fairly abstract level.
You can apply it to an entire company or a distribution Channel or a product or customer segments or you can drill all the way down to individual customers or. The product level where it's appropriate you can get really really narrow but I would start sort of Broad and conceptual and see what you can get out of the framework before you worry about too much about implementing at it at a real detailed level.
So what what I mean about the you know, the complete customer lifetime value concept is that lifetime value in the way that I'm using the term moves Beyond cumulative Revenue. Understanding how much revenue you get out of a particular customer or channel is a great place to start. But what CLTV does is really offer a kind of a comprehensive notion of profitability.
So it's much more inclusive than revenue or even gross profit. It looks at the the customer acquisition cost, right? Which is that goes up, of course your net value goes down. It looks at customer contribution on more comprehensive measure of profit. So not only the cost of goods sold, but also the repurchase rate the direct marketing costs associated with your existing customers and your direct support costs.
We've talked about the expected lifetime of a relationship other factors equal the longer the relationship the higher the value, right, but it but it also takes into consideration the. The truth that a dollar today is worth more than a dollar tomorrow. So distant future revenue is discounted to the present.
So you take all these things together you come up with a single number and it's either less than 0 0. Greater than 0 right and of course higher the better but anything north of zero means that by engaging in the relationship. You're actually adding value. Yeah over time. Yeah, exactly. Yeah, as long as you're not, you know, you're in the negative and you're not, you know, they're not the customer is not costing more than they're worth and fewer than your there's a positive there, you know for sure.
So what do you think are, you know a lot of. Maybe kind of a term or I guess the phrase that people hear all the time, but you know, you always hear companies say when they're talking to customers. They say, you know, your success means my success and you know, even though it's a little hackneyed when you hear that it I mean it is true ultimately if a customer of a business successful, ultimately the business is going to be successful and if they have a lot of customers that are successful, you know, vice versa because you know, the more success means they're going to.
Either purchase more that businesses products and use more of their services. So more people their Network expands and you know, it just becomes exponential but what do you see are some of the ways in which an e-commerce business and I know that this can vary depending on the niche of business, but what are some ways that other Ecommerce business can ensure the success of its customers.
We absolutely right there. The tactics are going to be context specific depending on your customers your product nature budget and there are people I'm sure. That you've interviewed over time that have a lot more domain knowledge and some of the tactics than I do, but I've seen a couple of patterns that I think are worth paying attention and you touched upon one earlier in a conversation, you know, when you referenced software as a service businesses, I think a lot of us can learn.
From what the SAS folks do and I think one of the lessons that I kind of glean from from that world is to demonstrate value in context in use so show people how your product fits in their life and I can think of a couple of companies off top of my head I think to do a particularly good job of that in the e-commerce world one is a business not far from my home called red ox and they make.
Really rugged gear bags there. I think some former paratroopers that make these really really rugged bags and they spend a lot of time and effort doing videos of their bags, you know out in the world and and and really interesting and demanding environments another. Company that I'm a fan of based in Atlanta called WP standard again is a company that that makes really nice leather goods and a growing line of apparel and Ryan bar who owns that company does a particularly good job of using photography with his products and providing people and engaging people in kind of what's coming, you know coming down the road so he does.
Sneak peeks of new products and does a really fine job with this photography. But again demonstrating that value. I think another General sort of bucket of tactics is kind of what you're doing right now and that is underwriting the conversation, you know, being valuable to the people you want to serve with your products right by engaging people in conversation.
So at the end of the day you become. To Central to that were world. You don't have to be the center of it all the time, but you can build an association with Community with a niche right? So I think those are two areas that two broad areas that I think can be applied and a lot of interesting ways to help actually be valuable to customers and help them be sort of successful in their lives with your product.
Yeah. I'm glad you mentioned that because when you said these companies really kind of. Out of their way to show I guess you can say real world applications of you know, best uses of their particular product. Unfortunately, I don't see a whole lot of that. I'd like you said there's some companies that do a good job of it, but I don't see a whole lot of it.
I there's a lot of e-commerce businesses a lot of sites I go to wear if it's a particular product that I'm not familiar with. You know, sometimes they have a hard time communicating. All right, what is this use for? How was it used? And if that's not done early on when somebody, you know upon first entry or at least do some initial engagement whether that's through an email newsletter.
Your mailing list or what have you then you're going to lose people because you know people these days they're so busy. They may know they have a need or think they have a need for your your product or service. But if they're not able to easily or quickly see how it can apply to their life. They're you know, they're just going to move on their you know, their lot their eyes will glaze over and they lose interest.
So yeah, I think which said is very important for sure because if that's not done you do have to do a fair amount of hand-holding. And let people know okay, these are some things that you can do, you know, and it's not, you know, it's not taking the intelligence of your care of your customers for granted because you know, everyone you know has a fair amount of intelligence.
You don't necessarily have to I guess you could say baby these customers and tell them okay, you do this with our product. This is step one step two. It's not that it's like I said, it's the main thing is people these days are just so overwhelmed. So much coming at them, there's so many distractions.
We've got the social media. You've got all of these, you know platforms to purchase products, you know, you've got to really just make it clear and save people time and I think that's really what it does is it saves people time and really, you know becomes really thoughtful about how you think your your product or service can apply to them?
And I think that's that's really very key now, you know to kind of wrap things up. We talked a lot about customer retention. Which is very key as far as you know, contributing to the overall lifetime value of a business. What do you think is one customer retention strategies that our listeners can Implement today?
And and really just I'll be really start seeing them, you know results if at all possible. Well, I think the starting point is to you know this afternoon take a first stab at calculating customer lifetime value, you know across your company and. What that does and every time I've done this with a client is it helps bring to light make visible a lot of the assumptions that were making about our business every time we say for example that my customer acquisition cost is.
Two hundred dollars that has embedded with it a lots of assumptions about what you believe your customer lifetime value to be so looking at your business from that structured approach helps make your assumptions tacit and then it puts everything back into the. Of choice it it starts to create variables again.
So and it helps you identify really where the drivers might be. So if that's something for example, if you're not if people in the audience aren't familiar with it, you can send me a blank email at CLTV at HS B Dot online. And I'll send you a couple of resources to get you started little white paper and a little Excel calculator.
Okay, and it's something that you can look at it and spend 15-20 minutes, you know, just using your best guesses and. It's likely to do is to either challenge you to think of some new approaches to customer lifetime value and in some cases. It's going to reaffirm what your suspicions and your intuition already are which is useful information to yeah.
Definitely. We are definitely appreciate that Dave. Yeah that I know would be, you know a great resource for our listeners and you know for those people that aren't you need a little bit of help figuring out how to set that up yet attics and exposed. An Excel spreadsheet would be would be very helpful.
So Dave well again, thanks for joining us here today on the e-commerce marketing podcast a one thing. I want to mention because I'm always looking at providing as many resources as possible to our audience. You had mentioned that you guys are going to be developing a series of free videos that feature visual model of customer lifetime value and you gave me a link that I will include in the show notes.
So for everybody listening you look at the show notes to the transcript on the e-commerce marketing podcast website, you'll be able to get the link to that so that that sounds like a great resource and I see that you also have a lot of resources on your site as well, which is a human scale business dot-org.
So if any of our listeners out there, you know want to connect with you and get in touch with you. How do they do it? You can go to human scale business dot org, and my email address is there or you can book a time too. Beep iPhone right on the website. Okay. That sounds awesome. Well, thanks again Dave.
We appreciate you joining us here today on the e-commerce marketing podcast. All your information was a great help and I know it will be a benefit to our listeners. Thanks for having me. Thank you for listening to the e-commerce marketing podcast. You need to get more feedback and reviews from your customers and improve your customer retention.
We have made it easy to do all of this with our Advanced customer feedback software just visit get OS i.com forward slash feedback and sign up for a free trial today. That's get OS i.com forward slash feedback.
Co-founder of Human Scale Business