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Digital Marketing News & Best Practices - Adlucent Search Pros(e)

Generating Cash Flow and Investing in Rebound Based Demand: A Plan for Retailers

Posted by Laura Russell on April 15, 2020

Adlucent and Google are working together to support retailers as the impact of COVID-19 broadens. Adlucent’s SVP of Strategy, Jason Roussos, and Google’s Chief Evangelist, Nicolas Darveau-Garneau, compiled the common challenges we see across our clients’ business and created a list of suggestions to optimize cash flow and improve business longevity during times of uncertainty. Their proposal ties in tips on how to start investing now to prepare for the rebound. The duo originally presented these key insights in a co-hosted webinar on April 9th, and we have summed up the plan here for those who could not join us. 

Generate More Cash Flow in the Short-Term

This comprehensive list of proposed tactics ranges from goal-setting to marketing plans to logistics and provides recommendations on how to quickly reduce costs and improve cash flow. Many of these tips can be implemented mid- and long-term as you prepare for the rebound as well. 

1. Assign a centralized executive with a fast-moving team during a crisis

      1. Appoint one person in charge to ensure accountability and alignment across all teams
      2. Create this fast moving team with the skill sets you need – marketing, data analytics, legal, etc. with daily stand-ups – which can perform cross-functionally
      3. Remove conflict between teams (ex.: web versus phone sales), streamline promotions and sales, eliminate conflicting goals between marketing channel managers, Amazon versus ecommerce, etc.
      4. Get C-suite involvement or alignment, so everyone is looking at the same formulas, so you’re all going in the same direction and stacking hands-on decisions

2. Understand, and get alignment on, the exact cash flow formula that matters to you right now

    1. Create a specific profit formula based on:
      1. What metrics matter the most to you
      2. Alignment from internal teams
      3. Input from your digital advertising agency 
      4. Running this exercise again when things get back to normal, probably over the lifetime value cycle
    2. Create a live cash-flow dashboard 
      1. Track whatever formula you care most about
      2. Index it if you aren’t comfortable sharing specific profit numbers with your agency or teams
      3. The goal is to get aligned and make sure you’re optimizing together and going in the same direction

index-daily-cash-flow-graph-googleads

3. Then, pivot the KPIs you’re managing your digital campaigns to, specifically paid search:

a. Find your “sweet spot” ROAS

      1. What is the right ROAS that maximizes the formula you really care about?
      2. Figure out the right ROAS to aim for by testing different spend amounts and the returns
      3. Based on gross margin calculation, what is the actual sweet spot on ROAS that is most profitable? 
      4. Companies that do this well can significantly improve their cash flow as a result of their digital advertising program

 

ROAS

Revenues

Investment

Profit at 50% GM

3X

$125,000

$42,000

$20,500

4X

$100,000

$25,000

$25,000

5X

$75,000

$15,000

$22,500

6X

$50,000

$8,333

$16,667

 

b. If budgets permit, slowly increase spend while maintaining that ROAS to scale 

      1. Once you find that ROAS, you want to get maximum volume at that efficiency
      2. You’ll hit a point where you can’t maintain that ROAS anymore
      3. Helps you find the maximum budget and maximizes profit formula 
  1.  

Day

Budget

Revenues (4X ROAS)

Profit at 50% GM

1

$10K

$40K

$10K

2

$12K

$48K

$12K

3

$14K

$56K

$14K

4

$14K

$56K

$14K

...

...

...

...

 

c. Switch to a margin ROAS 

      1. Optimize to margin, not revenue 
      2. Adlucent can ingest margin data in Deep Search to do this 
      3. Invest more by bidding up on customers where transactions have better margins 
      4. Margins can be shared by category, sub-category or SKU level, but SKU level will have the biggest impact

Customer

Revenue

Previous bid at 4:1 revenue ROAS

Gross margin of product sold

New bid at 2:1 margin ROAS

A

$100

$25

$70

$35

B

$100

$25

$30

$15

 

4. Revisit marketing priorities for immediate cash-flow 

      1. Focus on middle of funnel
        1. In a downturn, a lot of competitors exit the auctions, so while demand could be decreasing overall, CPCs are also, so your brand can actually leverage this to get a strong return. It’s best to keep running search, PLA and Amazon
        2. Lower funnel channels like affiliate and remarketing often drive little incremental demand and double-count conversions from other channels. Test turning these off to save costs and measure the actual impact on your revenue 
      2. Switch to rules-based bidding 
        1. Make decisions faster by leveraging your data and utilizing automation to drive immediate impact. Manually evaluating daily or weekly may not be quick enough in a fast-changing crisis environment 
        2. Leverage machine learning through Adlucent’s Deep Search ABM or Google tools like SmartShopping to pivot in real time
      3. Increase repeat purchasers
        1. Retention efforts will have an immediate impact on your bottom line because your customers already have brand loyalty. Use matchback to streamline your customer data across channels and devices to better understand your true retention rate
        2. For example, take your existing customer base and match back any new orders against that customer base, then merge in data, such as name, email address, shipping address, and phone, and you’ll find your true retention rate. Doing this regularly will show you you’re probably getting more revenue from existing customers than you think
        3. Then, once you have this data, you can:
          1. Make your promotions bigger and more impactful with these loyal customers
          2. Share useful and informative content with them, and then retarget people with a discount who have engaged with that content
          3. Find look-a-likes of this loyal group of customers for future customer acquisition efforts
        4. If you’re fulfilling Amazon orders yourself and have their names and shipping addresses, you can then engage these people with direct mailings or by creating custom audiences in your digital channels, like Facebook
      4. Improve conversion rates – some low-hanging fruit in conversion rate optimization that can be done with little development resources: 
          1. Create a sense of urgency with sale end dates, and promote them with a site-wide banner
          2. If you have product in stock or offer fast shipping times, make this clear on your site. So many retailers have issues with out-of-stock and slow shipping right now, so if this is something you can overcome, communicate it clearly
          3. Use exclusivity for items low on inventory or out of stock, or offer pre-sale
          4. Shopping cart improvements:
            1. Make the guest checkout login or signup process more seamless 
            2. Show coupon codes directly underneath the coupon field, so people don’t need to search or go to an affiliate 
            3. Remove header in cart, so the shopping cart shows higher up on the page to focus on it
          5. Improve load time and site speed by using a CDN like Cloudflare, which distributes  your content to local hubs to deliver it faster
  1.  

5. Evaluate logistics expenses

      1. Understand expenses for packaging, high-damage items, and claims, and incorporate this data into your profit formula. For example, if you’re running a 25% defect rate, you must factor this into your margin to understand expenses
      2. Dedicate resource or third-party for damage claims processing with FedEx, UPS, and LTL carriers. If you are persistent, you can get paid, and there are third-parties that assist with this and take a percentage of the money they help you recover. Damage recovery is a big way to improve cash flow
      3. Identify shipping zones with high defect or damage rates. Usually, the farther away you ship, the higher your damage rate. Look at damage rates by region, and consider having a surcharge for zones that have high defect or damage rates
      4. Consider delivery experience management, such as Convey, to communicate where a product is throughout the journey to avoid customers potentially canceling orders or tapping your customer service resources with delivery questions
      5. Sell extended warranties wherever possible. Having an upsell process and a dedicated resource to contact customers will result in immediate incremental cash flow

6. All hands on deck: leverage internal resources

      1. In times of crisis, you may need to ask teams to support in non-traditional roles, such as having your marketing team help pack orders. Utilize your merchandising team, who may be slow right now, in your call center or customer service channels to help preserve jobs and maximize revenue
      2. Prioritize sales calls. Customer service is important, but when cash flow is needed, sales take precedence. So, route sales calls in the queue first to get them to a representative before customer service calls
      3. Incorporate call center revenue data into your paid search bidding rules if possible
      4. Maximize your chat support. Chat representatives should answer in 10 seconds or less, or the module should be deactivated. If you can still run chat support, incentivize that team with commissions on sales they drive

Invest in Rebound Based Demand

1. Incorporate store data into digital marketing

    1. Build data streams to pass back store revenues to your paid search agency now, so when things rebound and people start shopping in stores again, you'll have this ready
    2. Bid your paid search campaigns based on both online and store revenue for maximum results 

Customer

OnlineRevenue

Store Revenue

Previous bid at 4:1 revenue ROAS

Gross margin of product sold

New bid at 2:1 margin ROAS

A

$100

 

$25

$70

$35

B

$100

 

$25

$30

$15

C

 

$100

$25

$50

$25

 

2. Acquire high lifetime value customers for free 

    1. Optimize beyond a short-term ROAS, and focus on lifetime value 
    2. Create a simple lifetime value forecasting algorithm. The goal is to estimate whether that person will be a top 20% customer. Separate customers into the general buckets of top 20% and the other 80%
    3. Set different bids for the top 20% and the other 80% 
    4. The goal is to identify great customers going forward and get more aggressive by bidding more on them, knowing you’ll make a strong ROI because they’ll have a high lifetime value 

Customer

Revenue

Previous bid at 4:1 revenue ROAS

Gross margin of product sold

Top 20% LTV customer?

New bid at 2:1 margin ROAS

A

$100

$25

$70

No

$35

B

$100

$25

$30

No

$15

C

$100

$25

$50

Yes

$50

 

3. Measure holistically across the full funnel as you prepare for rebound

    1. If you are still investing in the entire funnel, keep in mind demand may have declined during the crisis. You need to create demand by scaling the entire funnel, not just bottom of funnel
    2. Measure the ROAS, profitability, or whatever metric you care most about, of Google holistically. Don’t measure return on Youtube only, paid search only, etc. You can do the same for other channels like Facebook, Instagram, and Amazon
    3. Have a point of view and measure how much you’re making overall, which will result in more revenue without channel conflict 

If your large retail or ecommerce brand is looking for support as you adjust your marketing strategies during this time, Adlucent is here to help.

 

Topics: ecommerce marketing, Featured Post, Google advertising, retail, retail industry, strategy, marketing investments

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