Profit Killers
B2C eCommerce Marketer: Hello, I’m grappling with a significant challenge. The cost of acquiring new customers is rocketing, and while I suspect we’re squandering resources, I struggle to pinpoint where. Traditionally, our focus has been on revenue growth; profitability was never a primary concern – at least for my department. However, the landscape has shifted. I’ve been reading about your performance pricing model in martech which can boost profitability, and I’m intrigued. Can you clarify how it would be beneficial to us?
Martech 2.0 Vendor: I appreciate you reaching out and seeking clarity. To start, let’s delve into the issue at hand. The majority of brands, and I’m sure you’re no exception, allocate around 80-90% of their marketing budgets to adtech, primarily aimed at new customer acquisition. Interestingly, retaining an existing customer holds much more value than acquiring a new one. Studies indicate that customer acquisition costs are five times higher than retention costs, and a mere 5% increase in customer retention can elevate profits by 25-95%.
Let’s talk about AdWaste. Our data suggests that only a third of adtech spending is effective. Another third goes to “bad” spends – where there’s an immediate drop-off post the click or app install. The remaining third is allocated to “reacquisition” – retargeting inactive or dormant customers on adtech platforms rather than reactivating them through your owned channels like email. Half to two-thirds of this bad spend and reacquisition spend can be eradicated.
A dual strategy focusing on maximising sales from existing customers and curbing wasteful ad spending can massively amplify profitability. Here is an illustration of how Martech 2.0 can elevate profitability through a couple of examples: a profitable company (on the left in the table below) could potentially see a 140% profit surge, while a loss-making brand (on the right) could transition into profitability.
To actualise this, we must first identify the key profit killers in your business.
Marketer: I’m eager to learn more about this promising opportunity.
Vendor: Typically, there are three major profit killers in a B2C/D2C business. Firstly, the potential of your app and website might be underutilised due to insufficient data collection on existing customers. This occurs due to isolated point solutions not sharing data, which obstructs effective personalisation. Furthermore, an ineffective onsite search engine might fail to showcase products that your loyal customers are likely to purchase. Such shortcomings impair customer experience on your own platforms.
Secondly, push channels are often used merely as broadcast mediums, lacking interactivity. Generally, the expectation is that customers, attracted by the message, will click through to the website or app. However, as we know, push channel open and clickthrough rates are usually low. These push messages are the most cost-effective way to lure customers back to your platforms. But, if your customers become unresponsive, you’re left with either expensive branding campaigns or retargeting via adtech platforms.
Finally, a substantial portion of the acquisition budget is squandered due to AdWaste, as I touched upon earlier. Shockingly, almost 50% of the advertising expenditure proves to be ineffective. While optimisation strategies for ad spending might seem like an attractive solution, they only offer a minimal reduction, typically around 5-10%, which is insufficient.
Cumulatively, these profit killers can wreak havoc on profitability. Fortunately, we have solutions to mitigate these issues!
