Half Time Health Check

[00:00:00] Richard Gaffin: Hey folks, welcome to the Ecommerce Playbook Podcast. I'm your host, Richard Gaffin, director of digital product strategy here at CTC. And of course I'm joined this fine morning by Mr. Taylor Holliday, who is the CEO here at CTC.

Taylor, we're checking in at a halftime here on the year. It's July the 1st. And so yeah, well, let me first check in with you. How are you doing, man?

[00:00:19] Taylor Holiday: well, you can see my eye is almost completely healed up. So there's going to be a nice capsule in time. If you want to know how much content I make in a week. You're going to be able to determine it by how many videos you see with me, with a black eye. So almost entirely healed up. That phase is gone.

Summer's upon us. I'm getting that good vitamin D. I feel I feel alive, Richard feel alive.

[00:00:41] Richard Gaffin: Awesome. Well, yeah, I mean, and Hey, that's sort of a microcosm of the first half of the year has been has been pretty good so far, but I think like it's an important time to step back and take a bit of a health check, particularly because as we all know here in the e commerce industry, July begins the dog days of summer.

The Q3 doldrums when things tend to drop out as we prepare for the holiday season. So part of what we wanted to talk about today was what does it look like to take that halftime health check of your business and think about the second half of the month.

Think about reforecasting. Think about how it might look different than you thought it would back in January. So Taylor, let's talk about that a little bit. What do you, what's the approach that you think about taking? What's some context here?

[00:01:21] Taylor Holiday: Yeah. So it's very rare that you get opportunities to stop and reflect in our industry because every day there's so much to do. So my encouragement for you listening is that You've create space this week to do this, to stop and reflect on the first half, to figure out what you were right about and what you were wrong about so that you can plan to be more right in the second half.

For most of us, the second half is a bigger imperative than the first because Q4 is coming and all of the decisions that we make today are going to directly impact that result. And it's usually a bigger portion of our revenue. So I'm going to give you a few metrics that I would encourage you to go look at.

Today and see how you did relative to expectation on those things in the first half to make sure that you can build the best plan here in Q2. And then next week, I'm going to be recording. I'm going to be joining the operators pod to talk about the state of the industry in the first half. So I want you to go into that episode, knowing how you individually performed relative to expectation, and then to be able to think about how that fits within the broader context of the macro environment.

So you can get really clear. On how you were doing and what things that you can immediately go in action against to improve as you go into the second half.

[00:02:35] Richard Gaffin: Cool. So before we jump into those metrics, let's step back for a second because we talked a little bit up before we hit record here about specifically like our experience at CTC and maybe how that frames kind of how we think about forecasting particularly we thought the first half would go a certain way.

It went slightly different way. What does that mean for our second half? So maybe we can jump into that.

[00:02:54] Taylor Holiday: Yeah. So in all scenarios, when things are going really well or things are going poorly, you want to understand where things are different than what you expected because that Delta often is the key to the insight that you need about what the incorrect assumption was and how to better improve it going forward.

And so for us in the case of CTC, we. Over delivered on a number of metrics in the first half of the year. We had a really strong first half of this year. And one of those in particular that affects the future forecast more than others is around the amount of new business that we're able to generate. So if you think about an agency, the much light, there's actually a lot of similarities to forecasting e commerce and that the existing customer revenue.

Is the most predictable portion of the stack because we have contracts with commitments and we don't have a lot of variable expectation in our contracts because we've moved to a different structure. We have mostly fixed contract billing. And so it's really easy to go. Okay. The term of this agreement is six months.

The value is, you know, whatever it is, and we can apply that forward in a way that's highly predictable in the existing book of business. Now there's all sorts of exceptions. We have to make estimations around renewal rates when contract term ends, et cetera, et cetera. But for the most part, just like e commerce, the existing customer portion of our forecast is pretty accurate and we're able to do that.

Pretty well, the new customer expectation is a little bit more challenging because the pipeline value and the new business workflow in a service business is much harder to protect, even than e commerce, because you're talking about really big swings in one or two deals. The value per customer is really high.

And the lead times on these negotiations are really long. And so in the beginning of the year, we forecast out a new business expectation for each period. And we were wrong dramatically. We were, we overachieved against it. And the problem with that in our world, much like it is in again, e commerce is that we have an inventory problem too, when we get that wrong.

And our inventory is just people. It's resourcing. It's the ability to hire and plan against that expectation. And so as we got ready to look into the second half, we realized that we needed to increase our expectations of ourselves going forward, because otherwise we were going to be under resourced in a critical time.

And so that's really this exercise today is to understand where on your revenue stack you were right or wrong. And to be able to then make adjustments to your inventory, if necessary. I know we have big POs coming. We always talk about this, this time of year, because many of you are about to write the biggest check you write all year, which is for Q4 inventory.

And so this is a really important time to do this exercise.

[00:05:28] Richard Gaffin: Yeah. Okay. So then let's, let's jump straight into it. And it's obviously kind of maybe already touched on what some of the metrics are going to be particularly new and existing customer revenue inventory management, that type of thing. But let's, let's, let's jump into the specifics around like what this looks like for e commerce.

[00:05:41] Taylor Holiday: Yeah. So there's a, there's a metric we care a lot about that. You've heard us reference before. You've heard us talk about it in the shrinking sponge metaphor, but it's this idea of your active customer file. Or in the first half, did you grow or shrink your net active customers? And this is a visual that is represented by the amount of new customers you added each month over the amount of customers that churned or lapsed, which basically in e commerce is not ending a subscription.

It means they reached a point in their life cycle where they have exceeded our denotation is 80%. The average time between first and second purchase at which 80 percent of customers would rebuy. So let me restate that. Cause I think that was a little confusing. If you were to plot out every order that occurs between a customer's first purchase and their second purchase, how many days it was between those, you would get sort of a bell curve, right?

They have an average time between those purchases. And if you were to draw those into percentile ranks, when a customer exceeds the 80th percentile, meaning. The amount of days have passed where 80 percent of the customers, if they're going to repurchase have happened, we consider that a lapsed customer.

And every month, some customers lapse and some customers are added. And that net change, whether you added more new customers or more customers lapsed results in an increase or decrease of your active. Customer file. This metric is really important as a predictor of future existing customer revenue. So right now, as you think about your Q4 forecast.

The ability to predict it and whether it's going to be higher or lower than it is presently has a lot to do with the size of that active customer file. So what I would encourage you to go check the first metric I want you to go look at is did we grow or shrink our active customer file in the first half of the year?

And how did that relate to our behavior? So that's the first thing to go and check on is the net change to your active customer file in the first half versus the second.

[00:07:40] Richard Gaffin: Okay. Well, so then let's keep rolling. What's the, let's, let's move into the next one. I

[00:07:45] Taylor Holiday: second thing I want you to look at is the composition of your sales by skew. So, and this is really a message primarily for larger enter or eight figure and above brands that have multiple skews. One of the biggest things that I see drive A lot of businesses are tracking their revenue. They might even be tracking their profitability, but the question of what you're selling and is it what you want to be selling is more insidious.

It's harder to get to all the time because what I have not seen many e commerce brands do is forecast expectation of unit volume sales every month. Now this is the next level we're getting to in our forecast. Many customers is getting down to, we don't just want X millions of dollars. We don't just want Y contribution dollars.

We actually want it on a specific subset of products relative to the demand plan and inventory position that we have. And so what I would go encourage you to do is to go look at your unit sales by product or category relative to expectation and inventory position in the first half and use that. I'm sure you're doing this in many different ways, but to really think about the Q4 composition.

But here's the part that I want you to make sure you do. Okay. So you have a demand plan. You understand that inventory composition, you understand the unit sales. Now go look in your ad account and your media plan as far out as possible. Think about what creative production you have scheduled and ask yourself, does the ad account.

Map to that inventory position. In other words, are the ad account, are the campaigns that are driving most of my volume and success consistent with where I'm seeing my demand plan and my inventory position be the highest. We have had these cases where, especially again, apparel brands, lots of skews where suddenly.

Some newer skew takes off, starts grabbing a disproportionate amount of the ad spend, and you're left with this large inventory position in one of the skews that might be one of the older ones, and it's getting left behind a little. And so you have to rebalance that forecast going forward. You have to re imagine some of the creative investment into some of those categories because something hot and new, maybe grab the disproportionate share of attention.

So the step two is check your balance sheet, check your media plan. Are they intimately aligned in the way that you want them to be?

[00:10:04] Richard Gaffin: was going to say this may be a good opportunity to, to rehash something that we've talked about almost probably a year, year and a half ago, maybe, which is like, so you mentioned the sort of idea of like, are the, is the skew makeup that you have ordered at least what you, what you want it to be. And then you mentioned, okay, you have to map that against the media plan, but then there's also the additional layer of, are the things that are selling in the media plan actually.

Like there's a certain, you know, it kind of goes in the other direction too. Like, are they the actual best sellers? Are they the actual highest contribution margin skews? Like there's maybe talk through that

[00:10:39] Taylor Holiday: Yeah. Yeah. So once you get clear on that, the question is, is that what you want it to be? And what opportunity do you have to maybe alter it in some way? So I'll give you a very practical example of how this is playing out for us right now. We have a brand, I keep using this example in the podcast.

And again, because I am very practically engaged with this business Like at CTC, all of us are in the work. Everybody does client work, myself included. And one of the clients that I'm engaged in is Born Primitive. I've used this metaphor before. This year, they launched a shoe and that shoe has taken off.

It's been an awesome product for them. But what that means is that suddenly a novel or new shoe, Product category is grabbing a disproportionate amount of the budget. So if you have a million dollar media budget every month, and all of a sudden, this new thing grabs 40 percent of that, then what happens is that there's some legacy category that may not may suddenly be being underserved as a result of that.

And so you have to take a step back and go, okay, wait a second. We have to either increase the total budget such that leggings or sports bras or whatever gets their actual dollar allocation necessary in order to move the inventory position that we had, or we have to decrease the spend on the shoe, and that's a choice that you have to make.

And likely it requires collaboration between the team doing the purchasing and the media accounts go, okay, this month, where do we want to spend on? And this is, this is really why I really believe that the, the reason that Meta sort of misses the complexity of e commerce as it relates to the ad account by talking about account simplification and sort of trying to get everybody to move to one ASC with everything sort of bundled in it.

Is this problem is that I actually don't get to just allow meta to choose the most efficient Route across all my products. I actually have to sell leggings and I have to sell sports bras and I have to sell specific products at specific volumes. And so I think that we have had to take a step back and regroup and go, okay, the shoe thing was awesome and let's not lose that, but let's now re imagine layering on additional volume.

That we got from the, the shoe launch, how are we going to make sure we maintain our commitment to leggings and sports bras and jean shorts and all the other things that we have to do and not just go chase the shiny thing where suddenly the account grows. Another way that I see this happen is with international.

This could happen from a product category. This can happen from a regional standpoint where you have an international campaign that suddenly takes off and it's grabbing a disproportionate amount of spend. And now the U S market is being underserved relative to what you initially wanted to do strategically and what is important to the business.

And so you have to take a step back and go, okay, this international thing is awesome, but we now have to go. Reinvest or rebuild the amount of volume that we needed in the U S. So I think this is just like, is the media dollar flowing to the business objective and the product and strategic mix that you want as an organization?

[00:13:37] Richard Gaffin: Gotcha. Okay, cool. So, all right, I'm sure we'll revisit that later, but like, let's let's jump into the next sort of set of metrics or thing to think about.

[00:13:44] Taylor Holiday: Yeah. So the third thing I would look at is related to. Email and SMS as a channel and it's productivity for you. And I would try to look at the email, send an SMS, send schedule that you have in the last half and ask yourself if it's sufficient for the objectives that you have and make sure that you are really challenging yourself to ask, okay, if we bet, go back and look, how often were we sending sends related to specifically trying to drive transaction, how effective were those transactions in terms of categorical cross sell or promotion or whatever the offer may be that were purely transactional?

How often were we building brand and story and narrative into that? And is it the right balance? And I'm guessing you could do more in almost every case. I see that brands are underserving the opportunity to create transactional imperative with email and SMS. What does that phrase mean? Transactional imperative.

There is a reason to buy your product in July and August and September and October. That is different relative to the seasonal moment relative to the surrounding cultural narratives, the colors that are important, the trends that are going on. All those things create novel stories. That you could use to drive more transactions through that channel. The other thing I would layer on top of this is, so really we're thinking about how to make sure we maximize retention in this conversation. So we talk about email and SMS. The next thing I would ask is, do you have the right allocation in paid media to retention? More and more. I am finding, especially, and again, I'm, I'm speaking right now to larger brands, more mature e commerce businesses in the eight figure range and up is that they are underserving their existing customer base with paid media, because it has been such a principle to hard exclude existing customers for so long and to really drive on new customer acquisition.

It's important, not saying to neglect that, but for large businesses that maybe have hundreds of thousands of customers, it is really important to recognize that some of those customers don't engage email and SMS and to show them the new stuff and to bring them back to the brand. You need to be allocating into that channel.

And so what I see is that brands often have a lack of clarity or ambiguity on the efficiency expectation that they would be willing to scale into their existing customer base with paid media. And so I would just, I would check on these things is that, or is the tactical strategic. Roadmap related to maximizing the value of the customers that I have as buttoned up in as tight as it could be on, on that side of things.

That's the third thing I would go look at.

[00:16:19] Richard Gaffin: Gotcha. Yeah. I was going to say like one, one thing that's maybe a little overlooked in. That conversation about squeezing the sponge. I mean, oftentimes the message that comes out of that is, is don't remark it too heavily to your existing customers. So it's interesting to hear that it's sort of maybe being underserved.

But also like, there's that idea that like a lapsed customer that's been reactivated or one that is within the, or about to lapse that becomes reactivated is just as good in some ways as a new customer. And that can be maybe in the easily neglected pool of customers or something along those lines.

[00:16:49] Taylor Holiday: Well, and there, and this is a thing where I think we just, we don't have a good enough set of strategic principles being executed against on the media buying side, because there's a lot of narrative right now around ASC is driving too much bottom of funnel action or existing customer base. And the answer is, yeah, that can definitely be true in some case, but it's really important that we have.

Expectation around both of these areas of our business, where we have expectation of how many new customers do we want and how much existing, how much revenue do we need from existing customers? And to ask ourselves, where are we missing? And if we're missing on the existing customer side, then there's a set of behaviors that, that flow into improving that if we're missing on the new customer side, there's a set of behaviors that flow into that.

And so part of the thing that I think we could throw out is like, Almost a priori to the last two things I gave was like, where, if you, if you missed in the first half, where did you miss new customers or existing customers? And then you can sort of flow into a set of strategies that would apply against that.

[00:17:47] Richard Gaffin: Yeah. I mean, do you feel just like generally that, Existing customers is where people are missing. Cause I was just, this is interesting. Yeah.

[00:17:53] Taylor Holiday: I, bigger businesses. Again, this is as we've moved up market. I am seeing that in some cases, the gap is coming from productivity out of their existing customer base. Is that there is a lack of that. Now there's a part by which we play in that, which is to say that we have been so relentlessly focused on new customers that maybe it's a pendulum adjustment for us uniquely as an organization where our bent has been so rigid on new customer acquisition that I think we're having to recalibrate ourselves a little bit for some of these larger organizations.

So that may be unique to us. I don't, I'm not speaking about that as a market problem. I am saying that for CTC. Against these large businesses. We have to make sure that we aren't neglecting, especially for brands that are injured apparel is a category in particular. I think a lot about this where you really have to make sure that you're showing them the new stuff all the time.

That's important for your existing customer base to do. So they were, I heard Mike Beckham having a conversation about this, talking about simple modern, where he was talking about how whales make up a disproportionate amount of the value. Like people that own 20 cups. Right. And so you really want to make sure that you're always keeping your whales aware of the new things that you're doing in the process.

And so just don't leave those people behind in any way. And then the last thing, what is the Q3 moment that you're going to manufacture? Cause it doesn't exist on the calendar. So I would just ask yourself, okay, ahead of, we know Q4 is coming. Okay. But let's not rush there. Look out at August, September, and October.

These are dreary months as it relates to e commerce. What story can you tell? What can you drive? We've got back to school. We got the Olympics. We've got, you know, I don't know what else is coming. Oh, prime day is, you know, here in two weeks. What moment can you manufacture as we get into these doldrums to create an imperative to get more new customers, to get more emails ahead of that biggest moment of the year in a way that might create some action.

So if you haven't leaned into driving a revenue peak, Mhm. I have a great Twitter thread about the five P's of doing that. We talked about that on the last episode. Go look at those and ask yourself, could we manufacture something in September or October to give ourselves a headstart on driving the best Q4 ever?

[00:20:13] Richard Gaffin: Okay. So here's, here's a question I have for you then, like what in your experience, maybe I'll go big with this. What's the most effective Q3. Campaign that you've seen. Cause I'm curious about this. There's not, there's not a lot going on. So what, how have you seen this really work?

[00:20:27] Taylor Holiday: Yeah. So I think what's hard right now is that You probably can't do this with a product development, right? So you can't come up with something new to create and sell likely into a Q4 or into Q3, because it's probably a little late for that. So product is usually always the answer to that question, but in the absence of being able to do that I'll, I'll give a couple of different examples of things that I think are viable solutions to this kind of problem.

One. And I've used this example before is that Ridge gives away a car every year in Q3. So they use, they take an item that is actually unrelated to their direct product. Right. And I think they do like a Land Rover or Range Rover. And so if you think about it, it's like 50, 000 financed at a pretty low interest rate, you could get away with doing this pretty cheap.

And they give it away through a sweepstakes where they garner tons of emails they connect it to, you know, Purchase to entry plus other ways to enter, go follow sweepstakes law. Don't take my advice on exactly how to do that. But again, it's just sort of like a made up idea that how could we generate an exciting narrative or interest in something we're doing?

So if you're a sports brand, could you give away a trip to the Olympics? Could you give away tickets to the world series? Could you give away something cool? Again, all trademark. Copyright issues withheld there, but is there, is there a way to create engagement around that? The second is to use the announcement of a partnership with a influencer or some additional giveaway From that community of people that's like a thing that people will often do is that we have a new partnership with person x Announced in that period ahead of q4, etc, etc On running, just did their big announcement with Zendaya in the middle of the summer.

I don't know, whatever it is, there's something there that is like, what story can you create to get people to talk about your business? Another one that happens a lot is charity. So you can use what are the thematic elements? Obviously, October is famous for this because it's breast cancer awareness month.

We used to do something with Calo in that month. We launched a Pink ring we had to give back in that period of time that was leveraging a very well developed cultural moment. Is there something every month has some theme from a charity element that is there something that aligns to your brand that you could tap into that you could benefit from distribution into communities in that way?

Et cetera, et cetera. We talked last week about Labor Day. What's what's what's Labor Day these days? What's that date? 

Um, it is September 2nd. So we talked about the quote, the, the mark of the maker campaign. And if you're targeting sort of blue collar workers, we came up with a campaign narrative that was tied around that moment where you're celebrating that specific demographic of people.

Is there something you can do there? That's like the end of summer sale moment, et cetera. So I don't know. I'm really, I don't know. I'm riffing here, but the idea

[00:23:14] Richard Gaffin: Sure. Yeah. Yeah.

[00:23:15] Taylor Holiday: again, the answer to this is always to think about how does your brand overlap with the things in culture that already exist, that you could amplify or connect yourself to in a way that drives disproportionate attention.

[00:23:25] Richard Gaffin: Yeah. I mean, though, it sounds like kind of the moral of the story is Q3 should be product launch month for

[00:23:32] Taylor Holiday: Ideally. Yeah. I really think that like the easiest way to build the four peaks calendar is to take. Mother's day, father's day in June and May and Q4, and then take the two open areas and use that for product or sale moment where you have a Q1 and you have a Q3. Those are where you create stories that don't naturally exist on the calendar.

And that's, that's generally the simplest way to do it is capsule launch. It's collection launch. It's something like that that really meets those moments.

[00:24:01] Richard Gaffin: cool. All right. Well, I mean, so that. I think that sort of like covers the four metrics that we want to look at. I mean, is there any other and then maybe we can like, have you give us a little sneak preview of what you're going to talk about in terms of the the state of the union for e commerce.

But I mean, is there any kind of other final context or final thought that you want to leave in terms of, of how to think about the second half of the year?

[00:24:21] Taylor Holiday: I think that, again, I just go back to the idea that reflection. Is an opportunity to understand where you missed or where you, and when I say missed, I don't just mean behind. If you beat, why did you beat expectation? Was it coming from new customers or existing customers? What products took off more than you thought?

What were underserved more than you thought? And to go and ask yourself, okay, is there any strategic change that I need to make relative to what's happening? Cause it's very easy in the middle of the year. Once you start to just. Exist in the rut that you've already created good or bad without asking yourself, is this what I want to be happening?

Is there anything that I could change proactively in this moment to go and make it better? And what i'll say is that So the data that we're getting ready to share is Is about relative growth, right? So it's about looking at understanding both in dollars and percentages, the year over year growth for different businesses.

And being able to look at across a few different categories, a few different brands, how much the percentage of growth has occurred year over year in our industry. And what's happening is that growth is solid across the board. We're seeing really strong numbers, not in like COVID levels, but the high.

Tens of percentage at like 30 to 40 percent across the board as a general expectation across brands for growth. And we're going to break that down in some of the industries that are really experiencing the benefit. But what I would say right now is that like, it's a pretty stable time for e commerce.

It's not wildly successful. It's not horrific. There's been a lot of narrative around you know, the economy and what's happening. But the reality is that, that. Stock market's solid. The job market's still good. Inflation's a little bit of an issue, no doubt about it, but people are still spending money in our space in particular.

And so we're going to dive into that in depth and allow you to think about where we're at. But by all indications, I think we have, barring the chaos that the election may or may not create we have an optimistic purview of the future for e comm.

[00:26:15] Richard Gaffin: Awesome. All right. Well, we'll look forward to that. And then also I want to say before we jump off here that if you want a partner in that reflection in thinking about that second half forecast, of course, that is what we do. So please go to com threat code dot com and hit that higher s button. Let us know what you're looking for.

And if you're, yeah, if you're in that eight figure range, we would love to work with you and think a little bit more about what your second half forecast looks like. Cool. Yeah, I think that'll wrap it up for us. Thanks y'all for listening and take care. We will see you all next week.