The Most Important Commerce Metrics: An Interview with CEO & Co-Founder Harish Abbott
The interview was originally broadcast Sirius XM111 Business Radio from the Wharton School on November 3, 2014 with Dave Reibstein and Bruce Brownstein.
Dave Reibstein (DR): Welcome to Measured Thoughts on Sirius XM111 Business Radio from the Wharton School. I’m Dave Reibstein and I’m here with Bruce Brownstein and today’s guest, Harish Abbott, CEO and Co-Founder of Symphony Commerce.
Harish, what type of data and analytics does Symphony Commerce provide to its clients, and from their perspective, what is the most essential part?
Harish Abbott (HA): It really boils down to two fundamental metrics for a commerce business.
The first one is the customer acquisition cost (CAC).
Businesses spend money across many different channels, whether that is Facebook or Twitter or Google or search engine marketing or remarketing or emails or promotions. Great businesses have a handle on what the CAC is across these channels. If you spend a $1000, and you acquire 100 customers, then your CAC is $10. It is total spend divided by total customers.
DR: Sure. How do we know what caused that acquisition?
HA: I think that is what distinguishes good platforms. Good platforms and applications are able to do multi-level attribution analysis to a customer journey or prospect journey to become a customer.
So typically speaking, a person would have many touch points with a brand and web site before they buy something. They may see an ad on Google to come check out the product, then they get a retargeted ad somewhere on the web, they click on a promotion that is appealing to them on the website (but only enter their email), then we may send them an email at the right time and convert them into a customer.
And the ability to say: this user’s path was across these three touch points, and for these three touch points, we spent this many dollars, and be able to aggregate that is very, very, powerful.
DR: You’re talking about attribution. Do you end up assigning equal weight to each one of those channels? What’s your rule?
HA: We try to do the last 30 days attribution, and assign equal weight on that.
Some businesses only give weight to the last click, and attribute everything to that. We have the philosophy that it is not the last click; it is the series of touch points that help you acquire a customer. You pick an arbitrary time, and if that is 30 days, you can attribute everything equally during the last 30 days.
DR: So you’re tracking the information, so you can give the brands that estimate for the cost of acquisition. What’s the second metric?
HA: The second key metric is lifetime value (LTV) of a customer.
Once you’ve acquired the customer, the customer may be active for 1 – 2 years (depending on your business). During the time they stay with you, what is the net profit that the customer generates for the business?
Obviously, you want the LTV to be higher than the CAC for a healthy business. But how much higher, and how fast can you recover your cost of acquisition is very, very important for cash flow reasons for businesses.
DR: Do you look at the LTV by channel of acquisition?
HA: Yes, and that is one of the things that I want to highlight. LTV is a predictive measure. You’re getting better in your prediction as the business ages and you’re getting better with the age and experience of your spend in each channel.
DR: Are you getting better because you have more data and you can estimate it more?
DR: But I suspect that that changes over time. If you have an abundance of data, some of it is no longer relevant over time.
HA: That’s true. So the way to counter changes in channels is to weight average the most recent data more heavily, and the older data less heavily. This gives you a progressive view of the LTV of the customer.
Platforms like Facebook are a big marketing channel for a lot of our brands and partners. These platforms change over time. Sometimes they make it really easy to target people. Sometimes they make it very easy to get organic traffic. Depending on the platform and the changes, the value of the same customer on Facebook changes over time.
It’s actually important to know that if Facebook worked for you 3 months ago, it may not work for you today. You continually have to monitor these numbers and change them.
Bruce Brownstein (BB): Harish, you talked about the importance of sending the email at the right time during the customer acquisition. That’s true post sale if you are looking at the LTV of a customer?
HA: It is incredibly important, and I’ll give you some examples.
Our view on marketing, and the way we advise our clients, is that only half of marketing is acquiring the customer.
The best and greatest companies then actually use their customers to bring in new customers. These brands deliver an amazing experience to their customers across the entire lifecycle, so the customer ends up referring more customers. That is the most powerful way to grow a brand, and it is also why the most cost effective way to grow a brand is to service your existing customers.
At Symphony, we believe that happens through different touch points. All the way from delivery of the product on time, to getting feedback on the product you just delivered.
A very simple email actually goes a long way.
We found that if you map when a product is delivered to when the product is used or consumed, you can send very targeted emails. For example, if the usage of the product takes 7 days to get familiar with it, on the 7th day we send an email asking the customer for their feedback. The focused timing of this email actually makes the customer more likely to purchase another product.
DR: Why 7 days?
HA: 7 days is arbitrary. It depends on the product.
For a candle, it may be 2 days, because they can start using it right away and experience the scent and get a sense of how good the candle is. For a bed sheet, it may take 7 days for them to have the information to comment on the product.
When you reach out to a customer to get feedback needs to be customized on a product by product basis.
This is what I mean by the entire lifecycle of the customer. The marketing does not stop when you got a click, and the customer made the first purchase. We actually believe the marketing campaign starts at that point. The customer’s offsite experiences have to match the onsite promises your brand made – all the way to the delivery of the product. That’s what makes a good marketing campaign.
DR: One of the components of customer LTV is customer retention. I assume you’re tracking customer retention for your clients and looking at those components that contribute the most to customer retention.
HA: Yes. That is very, very important across the board. As an example, Symphony offers subscription infrastructure, so brands who have consumable products, like coffee, can use our infrastructure to sell subscriptions.
One of the important attributes of subscriptions is: when does the person churn?
In the beginning, the customer has committed to get the product for 12 months. However, after a few deliveries, if the customer doesn’t feel good about the price or the product, they are likely to churn.
You’re better off knowing that the customer is more likely to churn after the third delivery and fix that to increase your LTV, as opposed to just running a machine that requires more customers to buy subscriptions.
DR: That makes sense. It’s a little easier when you have a subscription model, compared to infrequent purchases where you don’t know when a customer drops off, like the candle example.
HA: You don’t know when they’ve dropped off, but you start to get a sense because they stopped opening your emails. We track all those events. I sent a promotional email and they didn’t open it. They didn’t open my last three emails. That means they are losing interest.
DR: We’ve been talking about the metrics that are important to your clients. What metrics do you use to measure if your work is doing well and Symphony is doing well with its clients?
HA: We use very similar metrics.
We use CAC. Our cost of acquisition is very lengthy, given that brands have to trust us to run their entire business on our platform. You have to track the total spend whether that is going to trade shows or creating a lot of content around the topical problems commerce companies have. You have to build trust from people reading that content on blogs or case studies or whitepapers. And then nurture them with email campaigns so they start to build trust with Symphony as a brand before they start to use any one of our commerce services. Aggregating all of that spend and figuring out what is our CAC is super important for us.
DR: I love the answer that you use the same metrics as your clients. I assume you are also looking at the LTV of your customers.
HA: We look at the LTV and retention rates. It is very clear if some of our brands stop logging into our tools: it means they are not getting the value that we expect them to get. There must be a mismatch between their expectations and what our commerce infrastructure platform delivers to them.
We need to get on top of that immediately. We assign a dedicated client success manager to each of our clients. One of the core responsibilities of the client success team is to make sure that the clients are getting the benefits of the platform. If we see metrics that the clients are not logging into our tools and our admin, we would call our clients immediately to understand why.
BB: When Charles River Ventures invested in you, did they look at the same metrics?
HA: Yes, they did. And it is really CAC and LTV.
The other metric that some investors look at is customer happiness. For us, as an early stage startup with less than two years under our belt, customer happiness may or may not get fully reflected in the numbers right now. This is true because clients may only have a few months on the platform.
So the investors call the clients to find out if we are solving the right pain points. Are they happy with our performance? Ultimately, the investors are getting to the same metric through different means. When the data is not available, then the investors call to get anecdotal evidence that those numbers will pan out the way they expect them to.
Get more insights from Harish Abbott in Commerce as a Service: An Interview with CEO and Co-Founder, Harish Abbott.
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