The Most Important Equation in Retention (with Taylor Holiday)

Kristen: (00:40)

Hey Taylor, welcome to Playing for Keeps. Thanks so much for being on today. How are you doing?

Taylor: (00:46)

Doing fantastic Kristen. So good to finally get a chance to talk with you.

Kristen: (00:51)

I know, I'm super excited. Just before we get into the topic today which listeners is pretty amazing, it's going to get pretty deep today. Can you just give us a background on who you are, what you're focused on and a little bit about Common Thread?

Taylor: (01:04)

Yeah, absolutely. I'm technically the managing partner of what we call Dream Inc, which is the holding company for our whole ecosystem. My day-to-day is spent primarily inside of Common Thread Collective, which is our agency. It's a service based business focusing on consumer product e-comm between zero and 30 million. Our job is to help brands grow their revenue using paid media, as well as other brand e-comm retention tactics to help them on their journey from zero to 30 million.

Taylor: (01:34)

Then we also have in our ecosystem, a business called 4x400, where we actually own and operate our own businesses, as well as a small influencer marketing agency called [Kinship 00:01:44] and a cultural development service business called Tell Me Your Dreams. So, we got a cool little ecosystem here that is all focused on helping early stage businesses grow. It's our passion. Our mission is to help entrepreneurs achieve their dreams. That's what keeps motivated every day and we get to live and spend time with a lot of really cool rad entrepreneurs trying to accomplish that.

Kristen: (02:07)

I actually just talked to Matt from you guys. I talked to him about the Tell Me Your Dreams thing and he did the piano concert on [inaudible 00:02:16]. That was really cool. I loved that little program side-business that you guys have going on and I love how it doesn't just involve the entrepreneurs, but your team as well. Could you give a quick background on that? Because I think it's really a cool thing that the listeners would love to hear about.

Taylor: (02:33)

Yeah, this is really my heartbeat. I mean, when we started the business, we had to answer this question when you're an early stage business of, why on earth would anybody want to work for you? We can't pay more money and we had a crappy office, our clients at the time were not that awesome. The only answer that we could come up with was, we really believed that we could care more about our people than anybody else. When we threw that out, it's an easy thing to say but it's a harder thing to consider what it actually looks like to live into it.

Taylor: (02:58)

And so for us, what we thought of was this idea that if we were willing to consider the dreams of our people and actually invest in them, then they would be committed to helping us accomplish ours. And, we'd create this symbiotic relationship between us and our employees where while you're here at our company, you feel like you are on the path to becoming the person you want to be. That was really the premise, and so the way that we actually made that practical is, luckily, my brother-in-law is a marriage and family therapist. And so, we started by just giving our people an hour with him every other week to identify their dream for their life.

Taylor: (03:34)

Then from there, it became this full robust program where every employee we have goes through a two year journey. So it's a six month process of meeting with a licensed MFT, and we have now five of them that come to our office and meet with our people every day. You get six months to identify your dream, and then the first Monday of every month at our company is something called Dream Day where people stand up and declare their dream for their life. Then you go into these groups in what we call the pursuit phase and you have literally a definitive timeline to accomplish your dream. It's part of your bonus structure. It's how you stay in "good standing" in our culture. We measure the success of our company based on the number of our internal employee and client dreams that we achieve, so it's absolutely the central nervous system for who we are.

Kristen: (04:15)

I love it so much. The reason I actually wanted you to bring it up is because I think it actually draws a lot of lines between customer retention and also employee retention. I think there's-

Taylor: (04:25)

Come on, look at that transition. You're a pro, you are a pro.

Kristen: (04:31)

Got it. Because what I talk about a lot, and this tagline I think of the month that I've been saying is, invest in your customers and they'll invest back in you. It's the same idea that when you consider the dreams, and the stories and the lives of your customers, and you actually do something about it with your business and you're not just selling products to people behind the screen on the other side, then retention and loyalty and acquisition, and everything we're trying so hard to get, it's just going to naturally follow that flow. That's been my focus and that's why I wanted you to bring it up so I could do that clever, clever transition I came up with.

Taylor: (05:04)

And this is the thing, right? We're going to talk about a lot of tactics today, but at the end of the day the general, the actual, genuine thing you have to examine is, are you trying to exploit the customers that you have, or are you genuinely interested in the experience that they're having? And that just flows straight out of who you are as a human. What you're saying is exactly right, and when you are somebody who actually deeply cares about the people that you're serving, whether it's in a service business or with your product, you are going to be relentless about finding ways to make the experience magic for them. That's where great LTV translates and comes from.

Kristen: (05:38)

Yeah, I actually have a great quote from you that is just going to follow this up really well and I think sums it up perfectly. I think you said it in another interview. You said, "Don't worry about trying to create branding. The most success comes from when there's congruence in the entire customer journey, meaning the promise you made in an ad is consistent with a promise they see on the website, which is consistent with the experience they have when they actually interact with the product."

Kristen: (06:00)

I think that sums it up so perfectly is what we're saying is, whatever promise that you're making from day one, it has to be coming out on the very last second that they're interacting with your brand. Same way that you're doing with your employees. You're saying, "Hey, when you come in here, we promise that we're going to deliver you great dreams, great personal and professional growth. Whatever you want to do we're going to help you get there," and then you actually do deliver on it, which makes Common Thread Collective an amazing team, then will make any e-commerce business a great e-commerce business.

Taylor: (06:30)

That's so right. I have this like little trigger. When I think about doing any marketing activity, whether it's an ad, an email, my unboxing experience, it's mission, magic, money. How does this thing that I'm doing reinforce the mission and the reason why I exist? How does it create a moment of magic or serendipity or unexpected delight for the customer that they want to talk about? And then ultimately, how does it lead to a financial outcome that's consistent with my goal? If you provide that filter to every step, whether it's customer interactions and scripts on your customer service teams, to your post purchase email flow, to your unboxing experience, it will be ... and you're relentless about holding that filter, you will just see a massive increase in the quality of the experience that your customers are having.

Kristen: (07:16)

I loved that, going to steal that for me. But ill give you credit. I'll give you credit.

Taylor: (07:20)

That's what we're here for, share it. It's not stealing when we're sharing.

Kristen: (07:23)

It's not stealing if it was shared with me right?

Taylor: (07:25)

Exactly right. You are the official, I guess maybe unofficial mayor of the DTC Twitter community, so whatever is mine is yours.

Kristen: (07:33)

Oh, okay. I didn't know that but I'll take that. I'll take the title. We're going to get into the meat of the article, the article? Kristen, come on. It's Friday.

Taylor: (07:45)

Content creators, so many mediums.

Kristen: (07:48)

So many mediums. We're going to get into the meat of our podcast interview now and if you guys have not checked out a lot of the work that Taylor and Common Thread has been putting out on LTV:CAC, it's something you need to go check out. I will link in the show notes all the videos and stuff they've covered about it before, but that's what we're going to dive into today. It's arguably the most genius that's come out of DTC in 2019. It's the biggest piece of data that's going to be valuable in 2020 and beyond. I mean, when I saw it my mind was blown and I was like, "This is the future of how we market and how we retain customers." So just to start off, can you give us the definition of what this LTV:CAC ratio is and what you're really looking for?

Taylor: (08:30)

Yeah. Let's start by just dealing with the acronyms because we marketers are just horrendous about our obsession with acronyms. CAC just being customer acquisition cost or what you pay to acquire a new customer, and then LTV being lifetime customer value. What you're looking at is just the ratio between what a customer is worth to you over a given time period, and then what it cost to acquire them. For a lot of people in our world, when I say our world, I'm talking about consumer product e-comm, they're dealing with ROAS, which is an evaluation of the cost to acquire the customer against your initial average order value. So, looking at LTV:CAC just expands the window in which you allow your customer to provide value back to you against that initial customer acquisition cost.

Taylor: (09:10)

This is a much more common metric and variable to look at in SaaS or any subscription business, but consumer product e-comm tends to neglect it, and there's a couple of reasons for that. One of them is because cash flow in an inventory based business is so hyper critical and LTV tends to be a metric that is not actually that useful, because it reflects a subjective period of time relative to how long your business has been around. And so when any business says LTV, they're indicating a different period of time which, when you're having general marketing conversation is not that helpful for consistent comparison.

Taylor: (09:47)

So, one of the things that we really care about to do with this ratio, and I actually really dislike the phrase lifetime value, because what is a lifetime? What does that phrase actually mean? We tend to really focus on trying to help businesses understand what we call their cash multiplier, which is a metric we're trying to put the flag in the ground on, which is about your 60 day customer value. After they purchase, what are they worth to you within a 60 day window?

Taylor: (10:11)

That's primarily because from a cash flow standpoint, especially early stage businesses where we play, that's about as far as they can wait to realize profitability without running into serious constraints from a cash perspective. So we really want to understand LTV in specific time windows. Some people call them payback periods, how long do you take to make your money back? There are different ways to look at it but the point is, what is your customer worth to you in different time windows relative to what you paid to get them?

Kristen: (10:40)

I love how you're talking about LTV. There's this whole thing around LTV where it feels like it's like this is your number one metric, this is how you measure retention. But when you really look at it, you can't really measure retention with one specific data point. Because, not only is it okay, well what is a lifetime? If you're comparing against a company that's been around for five years, their lifetime value is going to be a lot higher than a company that's been around for one year. It's just the lifetime definition there, it's going to be different.

Kristen: (11:10)

On top of that, there's also the issue of, if you're looking at a lifetime of a customer and you're looking at a year long lifetime of a customer, there's a lot that's going into that LTV. It's not just what product they bought or what experience they had on the first purchase, you're trying to figure out, okay how did we make a year long LTV this valuable when it could've been ... How many social posts went out in a year? How many emails did they get? All of these things and you're looking at it and you're like, "Cool, I did really well by this customer," but it's not really actionable to look at LTV in that way. That's why I love this, because it gives brands and actionable like, "Okay, I see this in 60 days. What can I do about it then?"

Taylor: (11:50)

Yeah, absolutely, and that's exactly it. In your article Kristen that you wrote where you gathered a bunch of quotes talking about this, one of the core themes and it was something I hit on is that one of the reasons that people don't approach LTV is because actually impacting numbers on that time horizon are actually, it feels unapproachable. It's like, "What am I going to do? Try a strategy and find out if it works a year later?" It becomes when people talk about LTV, then they discard the whole concept because it feels like, "Well, how am I going to actually know if anything's working? I'm just going to go back to the front of the funnel because I can find out right away if it's working." When you give them an entry point into 30 or 60 days and you go after specific portions of how they're getting there, it actually becomes really actionable and you can make really meaningful difference in pretty quick feedback loops.

Kristen: (12:35)

Yeah. So when you're making these cohorts, then what are you looking at? If you're looking at 30 days past the first purchase, what are the signs you're looking at, at 30 days, 60 days and 90 days to see, okay, are we doing good on this pay back window or are we needing improvements here? What are the flags you're looking for when you're looking at data?

Taylor: (12:56)

That's a great question. When we start, we're always going to start with what we call a new customer acquisition cohort by time. This is basically taking new customers that were acquired in any given month, and then looking at their value over the subsequent months. That's the initial entry point, is a time based cohort analysis relative to LTV. What we want to see, now, super caveat here because there's people out there that are sitting there with one skew and it's a single purchase product of massive AOV and LTV means nothing, or there's products that your LTV should be massively high within a week later. There's all sorts of models here, so we're seeing in generalities. Just understand that, that you have to apply this specifically to your business.

Taylor: (13:37)

But the idea for me is that what you want to see is after a customer purchases a product, over the next 30, 60 and 90 days, what do you want to happen? That's the first question I always ask is, what is the consumption rate? What is the ideal re-engagement for you? And, is that happening? Some general rules are that in healthy e-comm businesses, ones that are growing and seeing their organic traffic and revenue continue to match their paid side, we're seeing customers increase in value a minimum of 30% within 60 days, and they double in value within a year.

Taylor: (14:11)

Those tend to be signs that you have good brand engagement long term, that people like your product, that you have a high repeat purchase rate in general and they're giving people a reason to come back. So, what we want to see is a linear line that's moving up over time from 30, to 60, to 90 to 120 days. Then we want to see how high we're actually getting it and how quickly. And then you're always looking for anomalies, right? You're looking through the data to say, is there some weird outlier where some subset of customers became massively more valuable than others?" That becomes the initial entry point.

Taylor: (14:46)

I always teach our people that when you're looking at data, you should treat it like being an investigative journalist. You're looking for things that are threads to pull on, but you should really, really avoid the temptation to jump to the conclusion about why. What you're just looking for is something weird or odd or out of place, and then you begin the hunt to try and understand it, and this data gives you so much cool visibility into that stuff.

Kristen: (15:09)

Just going back to this, I think you tweeted about it really recently, the rule I think you called it, of 30 and 100, that minimum 30% increase in LTV within 60 days. Your cash multiplier, that's really that first buyback window. To me that feels like that is a really strong signal of a product and first product experience. Things like the first unboxing going to go into that but if your product is not great, they're not going to come back in 60 days. It feels like that's a sign of okay, how's your actual product doing? Is it serving this customer, this customer type, this customer demographic?

Kristen: (15:45)

Then on the other side, minimum 100% increase in LTV within a year and you define that as brand connection. That's your product is good, but have you actually connected on a deeper level that even a year later they're going to keep coming back? That's a really good sign of, I think long term growth. It's a nice way to look at ... I think it balances that fear of looking at LTV because you're like, "I can't wait three months to figure out if this helped at all. Far less, can I wait a year?"

Kristen: (16:15)

This balances, you're looking at a month, two month, three month, that feels a lot more comfortable for brands that are growing. But you're also still having a number that you want to look at in a year that you can measure and say, "Okay, we're doing it really well in this short span of time but in the long term, are we still doing really well? Are we still building a brand that has longevity to it?"

Taylor: (16:36)

That's exactly right. And it's funny, when I put out that tweet, there's always some snarky comment. Someone responded back like, "Or you could just build a brand like Gymshark and not try and build an arbitrage paid acquisition machine." And I was like, "Whoa, whoa, whoa, hold on a second. Those signals, the 30 and 100 are actually the signs that you are building a brand." That's not about arbitraging paid media at all. That's the signal that the brands like Gymshark and others will have that shows that you are building an actual deep connection to your customer beyond the initial product purchase.

Kristen: (17:10)

Yeah, and I love that because I feel like on this podcast, all I'm ever saying, and on Twitter, and on the blog, everywhere is build deeper connections, find the stories or customers are living, get closer to their customers. But it's hard to actually put that into a tangible number that you can feel. In e-comm, we really love data and we love our metrics. I understand that, so being able to have somebody come on the podcast and say, "Okay, yes Kristen talks about all this, but this is how you look at it and this is the number that will tell you, are you actually doing this really well?"

Taylor: (17:41)

You're setting me off into my, this is now my thing that for this next year, my contrarian viewpoint here is that one of the number one things everyone's going to talk about in 2020 is diversifying their media mix. This idea that they're over-indexed on Facebook, and therefore I have to find other acquisitions channels to de-risk my platform risk by being over-indexed on Facebook, et cetera, et cetera. What that to me reflects is, that is actually people and brands that are thinking about just building arbitrage paid acquisition machines.

Taylor: (18:16)

Facebook is the greatest ad product ever built in human history and it's not really that close. And so if you're sitting here telling me that the problem with your business is the platform with multiple billions of users that's still cheaper to acquire customers than any other platform and that's your growth problem, you are dead, you are dead. Because what everyone thinks they mean when they say diversified media mix is, they think they mean, "Oh, I'm going to go find another channel that outperforms this current channel," and that's just not happening.

Taylor: (18:48)

So instead, my thing when I think about diversifying, and I was sitting with two guys from a apparel business out of Colorado, these super smart young entrepreneurs. We were just rapping about this, is that when I think about diversifying and diversifying your return, what I think about is how many places in your customer journey can you take your available resource dollars and go out and generate a positive return? One of the main ways that when I think about diversifying media, I think about just diversifying media dollars is if my ...

Taylor: (19:20)

I was talking to a business, there's a consumable product. They have a 14% repeat purchase rate within 60 days on average and I'm like, "If you do not solve this problem, you can diversify the top end all you want, you will die. Take your available marketing dollars and if you can take that 14% to 28%, whatever amount of dollars you need to allocate against it, the return will be massive." And so, there's all these ways in which ... Like your existing customers, you started this podcast by talking about them.

Taylor: (19:47)

We have this idea that we're playing around with. I was sitting with again, the same entrepreneurs and they were telling ... from the apparel business. They were told me how great their customer service business is and I was like, "Okay, that's awesome." So one, people tell me this all the time. They care about their customer so I would say one, I'm going to challenge you to prove that. This is another great way to use cohorts, is you can use cohort LTV analysis to explore anything, not just time.

Taylor: (20:12)

Let's say you have this theory that when people talk to our customer service department, they have an incredible experience. Well awesome, let's prove that. Let's take everybody who's ever spoken to your customer service department on the phone, and let's look at their LTV relative to the general customer set. Because if that's true, let's say it's a 20% higher LTV when you get them on the phone, then guess what your new marketing tactic is? Getting people on the phone with your customer service department because that will arbitrage growth and you can create more value there.

Taylor: (20:41)

We have this guy, a mutual Twitter friend Patrick Coddou. Freaking awesome entrepreneur and really loves his people. He was telling me that he's had this deep passion for his individual interaction with customers and the same is true for our business, Bambu Earth. Amber the founder is just this, she's an incredible woman who really freaking cares about the women she's serving her product to. And so, we are always trying to think about, how do we put them in front of more people?

Taylor: (21:11)

One of the awesome ways from a retention standpoint is, take your existing customer set on Facebook still. We are big proponents of do not run Facebook advertising to your existing customers because that reduces the value of the LTV, because then it's just an AOV game over, and over, and over again. Here's what I want you to do. I want you to make a video of you the founder great interacting with your customers, and I want it to be set to a time window when you know people will receive the product. So, let's say it's five to eight days. You're going to build a customer group that's five to eight days after transaction, and it's going to be a video of you saying, "Hey, I know you just got your product. Here's the five things that I love most about it. Here's how to have the best experience and if you leave me a comment or question below, I'm going to answer it within 24 hours."

Taylor: (21:53)

And you run PPE, so pay per engagement on a video at like $5 a day is all you would need to that subset of users, and then after 30 days you evaluate the LTV of that cohort versus a different one. Now you are diversifying your media in a way of figuring out how to extract more value. But everyone wants to turn off the like magic Facebook button and go find some other crappier channel without doing any of the things that are available to extract more value, and there are so many ways to do things like that to increase that 60 day value of your customer.

Kristen: (22:28)

Yeah, it's just people go in that thing of, I'm going to expand our channels. We're going to be everywhere our customers are, but they're thinking about it in terms of acquisition only and first purchase only, that conversion is a flat thing. If we get more of this flat thing, then everything else in the back end is going to work, but not the case at all. It's so interesting to think of ... I'm with you on the, don't advertise to existing customers when you can do a lot better than that.

Kristen: (22:54)

You can give a lot more personalized experiences than just another ad about a product. But also like you said, you're cutting into the profit that you've made out of that customer or haven't made yet. You're giving yourself a harder game to play in the end, so breaking it down and saying, "Okay, we've already brought these customers on, how can we get the most out of them based on what we know they're going to go through?"

Taylor: (23:17)

Exactly, and what is the ... I always think about this in terms of SaaS. The legendary story of Twitter is when they found out that once you follow 10 people, then you never left the platform. That was the inflection point for reducing churn? Buster, there you go. So my question is always, what is the version of that for your brand? Is it once they follow you on Instagram and talk to a customer service rep then they're a fan for life? There is some combination of engagements for your brand that will make customers stay disproportionately longer than others.

Taylor: (23:51)

One of the things I think about is that on Facebook, the most expensive form of advertising is going to be conversion objective advertising to your existing customers. But if you think about things that are really, really cheap to do, like if you're trying to run for traffics of click, or video view or PPE. Again, if you thought about three different hypotheses, take your best blog that you think is just a freaking awesome read and run one subset of customers, say take 500 of them and you're going to run ... Once they purchase, you're going to run a traffic campaign to that great blog, and you're going to measure the value of that group. Then the second one, you're going to take your best brand video. The one that you think pulls on the heartstrings and really just shows off how awesome you are. Then we're going to run video view to a separate cohort.

Taylor: (24:37)

And then the third one, you're going to run that PPE engagement with your customer service department. And then you're going to compare, okay which one lead to a deeper connection amongst those customers? And you just constantly think about, "What is the set of engagements I need someone to have that make them disproportionately more valuable than everybody else?" Because the answer is out there, but yet the amount of time, energy, money and resource that we put to the front end of the funnel relative to what we do on the back is like 98:2 in terms of dollars and time. It's just so disproportionate and it reflects a real miss of opportunity in my mind.

Kristen: (25:14)

Yeah, it's really interesting because I actually when I joined Churn Buster just about two years ago now, we were starting in SaaS marketing. I was doing a lot of SaaS writing, talking about churn prevention in the SaaS world. This idea of proper onboarding is something that I constantly talked about, is that your onboarding has to be ... It's the number one thing for churn reduction if you don't get them to incense, co-activate. You're sending like, "Hey, get into your account, try this, do step one."

Kristen: (25:43)

If you never get the customer to go into your tool and activate something and get that, I think it's, [Appcues 00:25:51] who coined this term, the aha moment, which is really that moment the user does something where they go, "Oh, I get the value of this tool. This is going to change my life," or "This is going to impact my business." It's just that trigger of being like, "I get this," and now you're a step more bought in. And I've talked about onboarding emails a lot before and DTC, but it is a new concept. It's not something a lot of people think of that when you make a sale, you're not just making a sale, you're trying to start a relationship.

Kristen: (26:22)

And so, what you're talking about is really finding that, and maybe it's a combination of aha moments, but being able to pinpoint, what does a customer need to do in order to get that connection past just the product but to say, "Okay, I want to buy from this again," because either the customer service was great. That's why I've been a Chewy subscriber for three years because their customer service is great. I would never go anywhere else. That was the aha moment for Chewy.

Kristen: (26:47)

Is it because of the way you produce content? Is it because of how you educate customers? These little things that you can point out and find, and that's what ... Going back to the LTV:CAC analysis, what I'm hearing you saying is you can actually take this structure, this template of looking at it by first purchase product and actually applying it to every campaign you want to run.

Taylor: (27:10)

Yeah, you can look at cohorts in any way that you want assuming you have access to a way to sort the data and get visibility to it, which again, your hypotheses, it's really important that you're creating hypotheses and testing ideas relative to your ability to access the data in response to it. That's just an important caveat to think about is, don't test things you can't find out if they worked, but yeah. The first product purchasing was one of the big unlocks for us at Bambu Earth. And, it's one of the major things that I think in 2020 is one of the biggest errors brands are making on the acquisition side, is this idea that you have a single account ROAS target.

Taylor: (27:46)

This drives me absolutely insane. This idea that every product purchase and customer purchase yields the same net result for me as a business is just fundamentally false. Every one of your products has a different margin, every one of your customers is worth a different amount to you. And so, one of the big themes that we're working with our clients is to deeply ... And another big one, another underrated thing is the return rate of each product, especially in apparel categories.

Taylor: (28:11)

We were just going through this for one of our fitness apparel brands yesterday. There is a delta between two of their top selling skews, where one has a return rate of 7% and one has a return rate of 3%. If it's $100 AOV, that 4% represents a big delta in the CPA that you would actually be willing to take for each of those products. So if you're running campaigns in Facebook and you're saying to me, "I need a $25 CPA against both of those products," it's just not true. You could take a $29 CPA on the one with the lower return rate and still put the same net amount of dollars in your pocket.

Taylor: (28:50)

That level of specificity and understanding ... And that's before we even begin to examine the value of the customer on an LTV basis, which we have found, and this was the big unlock for Bambu. We found that depending on what product they purchase first, there was a massive difference in their 60 day value toss. And so this idea of, what is the ideal acquisition product and what is the ideal retention product, are really important questions that most brands because it's been such arbitrage against AOV have never had to wrestle with. But now that is the absolute key to understanding how to continue to fuel growth and that's where I go, like, "Stop with the diversification of your media."

Taylor: (29:27)

Until you understand the answers to any of these questions, you are sitting on the most powerful tool and you're going, "Well, this tool is not working anymore. I'm going to go find a better tool," like there is. Instead, figure out how to use the tool better. There are so many opportunities to use this incredibly incredible resource to continue to grow your business in the next year, and people are going to go off and chase crazy Yeti ghosts of this idea that there's another magical arbitrage out there. Maybe someday it'll come along and we'll all be there when it does, but the point is that there's so much you can still do by having a deeper, more sophisticated understanding of your products and people.

Kristen: (30:05)

Yeah, and I love how you finish that with a deeper understanding of our products and people because it's one thing to know your products and know which one most of your customers like the most. A lot of brands like Kopari has the hero product, they have the deodorant. They know that most people who come in through the deodorant are then going to try something else. It's their starter product, but it's also knowing your people. It's not just which product is the best, but which ... Because, sometimes you may think that, "This product is probably the best one. It's the first one you created. It's what a lot of people ... It's has the most reviews."

Kristen: (30:39)

But you might go into one of these analysis and find actually most people start on this other smaller product, then they get connected to the brand, and then they're bought in to buy the bigger product. Another thing I find really interesting about this is, you've talked about it allows you to spend more intelligently on Facebook. Also, if Facebook is telling you, "Hey, you're going to lose money on this, you're losing money. This isn't a great ad," you might actually be able to say, "Well, maybe it's not the greatest ad right now but because I've advertised this and somebody bought this, in 90 days this is going to make me a lot more money."

Taylor: (31:16)

This is exactly the thing, is that ... I'll use the Bambu Earth example because it's ours and I'm comfortable sharing the data, is that we acquired this business in March. In June of this year, and it was a very small business. They had done $100,000 the year that we had acquired them. In June of this year, we spent $6,000 in the ad account and we got a ... We were getting about 1.6, 1.7 to one. And when we looked at the numbers, and this is a very common thing that entrepreneurs do, they go, "I spent $6,000, I made $10,000. After my cost of goods and what I'm paying my people, the net result of the month is I lost money, therefore this business is failing and I quit."

Taylor: (31:56)

That's where we were. We were like, "Well, we should probably shut this down. We can't crack it, it's annoying. It's not working, we're frustrated." Before we were doing that we were like, "Let's just build this LTV. Let's look at this." Because what happened was, I went on Shopify and I started looking at the customers. The business has been around a long time and I realized that there were women that had bought thousands of dollars worth of product. And so I was just like, "Man, there is something here. There are people that are deeply and intimately connected to this business and love the product." So I was like, "I got to understand more."

Taylor: (32:27)

And so, the theory that we began with was this idea that, well, let's look at the consumption rate of every skew. So, what we think the average use is and how long it will take them to get through it, when we anticipate them coming back, and let's see how many of them are coming back. Because, maybe this 1.5:1 is turning into two and a half to one and we don't even know it. So we started to do the analysis and looking at both skew and time, and what we found was that we were actually completely wrong about the customer journey.

Taylor: (32:57)

What customers were actually doing is, they were buying smaller orders, single skews as a mechanism for developing trust in the brand. Then within 30 days, the LTV was increasing by 50% because what they were doing was not waiting till the consumption of the product, they went through the product, they were actually using the acquisition as a mechanism for developing trust with the product, and then coming back and buying a lot of other products. Within 30 days, our LTV went up 50%, so that 1.8:2 is now a 2.7:1 within 30 days, and we were winning and didn't even know it.

Taylor: (33:32)

So without improving the ROAS at the top of the funnel at all, we spent in December $170,000 in the ad account against the same outcome and made a crap ton of money. But all we did was deep ... All we changed was our understanding of the business. We didn't actually change the outcomes on the ad account at all because the outcomes were good enough to make us win. That is the thing that I think is such the magic here, is that there is knowledge available to you that will create a better outcome for you without having to change anything, if you can just get to the data and understand it.

Kristen: (34:09)

Yeah, you start understanding the data and it's going to completely change the way you look at everything. The way you're analyzing every campaign, every product, every ad that you do, which is so ... I mean, it can be ... It sounds like a lot. I think a lot of listeners are going to be like, "Oh my gosh, this is so much to take in." But really when you break it down, it's not actually that much to take in. You're just analyzing everything on longer cohorts. Instead of saying one month, how did we do and feeling that grind for every single month, every month of metrics, let's weigh ourselves based on these three stagnant metrics. You're saying, okay, let's give the business a little more time because customers don't work in the same 30 day cohort that we look at everything. Customers work in life, which it doesn't always work out to match your metrics.

Taylor: (34:57)

Yeah, I agree. One of the, Andrew who runs 4x400, he always talks about how one of the things he doesn't like about marketing content is all it does is make him feel overwhelmed and behind. I'm really cognizant of trying to not make people feel that, so I appreciate the call out to think about the simplicity here. Let me give you a really simple entry point into a way in which you can think about this LTV:CAC ideology and improving the net result. I want you to go to a whiteboard, wherever you have a whiteboard in your office. I'm obsessed with whiteboard. I literally carry a black Expo marker in my pocket all the time.

Taylor: (35:29)

I want you to draw a line from one side of the whiteboard to the other, and I want you to put a point on each of those lines for every current interaction that you have with your customer from their first ad until the 60 day mark. So Facebook ads, put a bullet point, my website, put a bullet point, my abandoned cart email flow, put a bullet point, my purchase checkout flow, put a bullet point and my post purchase email flow, put a bullet point, my unboxing experience, put a bullet point. Map your customer's experience, and then look at the data around each of those bullet points.

Taylor: (36:06)

So, what is your current cost to acquire customers on Facebook? What is your current conversion rate on your website? What is your current open rate on your abandoned cart flow or your recapture rate, whatever you want to look at? What emails in your post purchase flow? What is the open rate, click through rate and revenue of each of them? What is my current unboxing call to action? What comes in my product order that invites customers to re-engage with me?

Taylor: (36:30)

If you just simply look at that set of information and you say, "I am going to be as relentless about improving every point on this line as I am about my CAC," you will see the difference immediately, within 30 days if you think about improving and you have visibility to every point along that line. That really needs to become your obsession, is where does ... Show me every time a customer sees me, interacts with me, touches my product and what happens, and how do I make that more of what I want to happen? Just that line and putting it, especially if you're a founder or an operator, in front of you every day where you have to look at it will really keep forefront this idea of improving not just your top of funnel, but every step of the way.

Kristen: (37:13)

God, I love that so much. One of the first blog posts I actually wrote for the SaaS space, which now you've reminded me that I need to convert for the e-commerce space was about churn prevention throughout the customer journey. My whole argument was map out the customer journey, find when you are contacting your customers. Go look at those things, experience them as a customer and then actually say, "Okay, holistically as an experience, does this actually make sense? Are all these points that I'm contacting a customer actually ..." And back to your thing, is it living through my mission? Is it magical? And then lastly, is going to make us money? Putting a lens up to that on everything, it's funneling back into my real big motto of 2020 and what I'm trying to get put on mugs. Hopefully we can get it to catch on, is this idea that customers are greater than metrics.

Kristen: (38:03)

That if you're giving a good experience, if you're focusing on the positive customer experience and actually having a mission behind every touch point with a customer, then the metrics are going to follow. The LTV is going to follow. When you do these LTV:CAC analysis, you're going to see this curve that you want and you're going to say, "Oh look, we're actually doing this. In 120 days, our LTV is three to four times more and the return is three to four times more," which is why I think I connect so much with this analysis, because it's putting what we love in e-commerce, the data, and the numbers, and the concrete stuff behind this flowey idea that customers over metrics. So, it's giving the best of both worlds.

Taylor: (38:46)

My only pushback would be that the hierarchy of one or the other tends to be where these camps divide. One of the things that I hate on Twitter is that there's two camps. You either get lumped into being a brand person or a performance person. My thing is that all data is, is a story about the truth. Data just reveals truth. So when someone tells me, "We have a great customer service department," what I would say is like, "Awesome, I love the feeling that you have about your customer service department." But if that's true, there should be data that helps to validate that story.

Taylor: (39:24)

So when someone tells me, "We have an awesome brand," I say, "Great, that's super cool. LTV should be a metric that reflects just how "awesome" your brand is." I think we should always tell them challenge ourselves, especially as business owners and operators or individual marketers, you have to acknowledge your immense internal bias. If you don't come to grips with the fact that you see the world fundamentally different than everybody else who experiences your product, you are going to be in a prison of your own mind. Instead, what the data allows you to look at is, yeah, I think my post purchase flow is awesome and it's so magical, but actually no, no one engages with it and it sucks.

Taylor: (40:04)

This is what I have an appreciation again. Patrick, again I'll just reference him because he's a shared friend at Supply. I bought his razor the other day and I cut myself shaving with it. He and I started talking about it because it's a straight edge single blade. Very different, and I'm a pretty fidgety [inaudible 00:40:23] and never ending guy, and so I go really fast. So he's like, "Whoa, whoa, whoa dude. Did you read the instructions?" And I was like, "I'm going to be honest man, I haven't read an instruction booklet in I don't know, 30 years." His response was not, "Well, Taylor you should've read the instruction booklet." He was like, "Man, how do I communicate with people like you to ensure you have the right experience?"

Taylor: (40:45)

That sense of individual ownership, where he spent a laborious amount of time writing a great instruction booklet that would've prevented my problem, but he didn't care about that. What he cared about was this idea of ... The data, in this case his interaction with me said that I didn't have the experience that he wanted, and so he was going to be relentless about pursuing it, even though he loves his current unboxing experience. But when you are willing to stare into the truth, which a lot of times the data gives you access to, and face the reality about what's happening, it gives you optionality, it's power. You have a real chance then to respond.

Kristen: (41:18)

Yeah. I mean, I love that story and that response from Patrick is one so Patrick and I love it. That's why we both love watching him grow this brand, because that's how he's doing it. Another thing, this actually came out my episode with Aaron Orendorff last year. I had a moment in the episode where even he was like, "Ooh, that's a quote right there." It was something we were talking about exactly this. We were talking about the LTV:CAC ratios. We were talking about how that then informs customer stories and stuff.

Kristen: (41:48)

What we came down to is, in this exact frame that we're looking at is the data, is giving you the plot lines of the customer story and you can't fight that. You can't say, "No, that story is wrong. That shouldn't be how it's going." The data is there and it's saying look, this is the beginning, middle and end of your plot line. How you want to get people there, how you want them to experience it, that's up to you and your brand. But at the same time, the data is always going to tell you what's actually going on. It's about then adjusting to the customer and the data rather than just staying hard and true and saying, "I know this is how it should be. This email is great, why aren't they opening it?"

Taylor: (42:26)

That's exactly right. That's exactly right.

Kristen: (42:28)

Then I have to ask, because we've talked a lot about Bambu Earth, which is a very consumable product, and so looking at these 30, 60 day windows makes a lot of sense. They have a natural retention flow. A lot of these end up going on subscription because that just makes sense with the replenishment, but other brands are going to be listening to this and saying, "Okay, this is awesome but my customers aren't coming back in 30, 60 days because that's not this kind of product." So, can these businesses that aren't using replenishable, they're not selling a replenishable product, can they still look at the cohorts? And, how does that help them if it's not as simple and, I hate to say simple because it's not simple at all, but so clear cut?

Taylor: (43:10)

Yeah, absolutely. This is what I'll say. Under 4x400, we have another business called FC Goods and we sell leather accessories repurposed from old baseball gloves. Right now we have ... When we started the business, we had just wallets. It was a high AOV item, AOV almost $200. Lots of gross margin then, and we only sold wallets. People don't buy five wallets right? Especially if I buy a wallet, I don't need to buy another one within 30 to 60 days. And so when we started that business, AOV was everything and our ROAS against the initial purchase, but it was a business that was modeled that way because we knew we had a lot of gross margin to play with and we could run it 2:1 and still make you know $60 on every order. And, it has this awesome value to weight ratio and it's this perfect front of the funnel e-commerce product.

Taylor: (43:58)

But because, and this is just physics, customer acquisition metrics degrade over time always, forever, period, we know that that is not a long term viable business model. So when we think about diversifying in 2020, our job is ... The growth of this business is a product development problem. It is not an acquisition problem. Again, the idea is okay, we now know who our customers are. We have them captive, they've engaged with us, we know things about them. Now the question becomes, what would they want to buy within 30 or 60 days? What other supplements? So, we've released dopp kits and belts, and we're looking at other accessories that complement the existing hero product.

Taylor: (44:43)

And so what I would say is if you're a single skew business, that will work for a relative amount of time given your ability to continue to scale it, but at some point you have to diversify to be able to take advantage of LTV, to be able to take advantage of email as a channel and these other things. If you're not there, you should think about how you get there. Then also, there's lots of ways like if you are a business where let's say that you do have a high repeat purchase rate, it's just 60 days from now, or I mean six months from now so it's a longer window product, then you just have to think about a capitalization strategy.

Taylor: (45:16)

You have to think about, "Well, how do I afford to wait six months to be able to grow? This really becomes a financing problem related to growth. And so, every business can use cohort analysis in different time windows to understand what their current thing is, and then what they can push forward and what they need to solve from other business tactics. This is where ... What I love about the world that we get to live in is all three of the businesses that we own, the third one's a company called Slick Products, which is an off road wash for ATV, UTV and dirt bike.

Taylor: (45:48)

They all have fundamentally different behaviors of customers that all require different solutions. But, our understanding of what happens after they become a customer is valuable in all three cases even though it's different for all of them. So I think that no matter what your business is, unless you are truly fundamentally a single skew business that has no desire to look at LTV at all, well then discard this conversation and probably go find a different podcast because I don't know that this is [crosstalk 00:46:16].

Kristen: (46:16)

Yeah, I don't know why you're listening to this.

Taylor: (46:20)

Yeah, but otherwise I would argue that for everybody, there's an opportunity for this data to inform something in your business. Whether it is your post purchase email flow, or your product development strategy, or your capitalization strategy, the information is useful in some way to you as a business.

Kristen: (46:35)

Yeah, and I love that. Some of my questions you've already answered because that's what I expected you to do. One of my questions that I was going to ask, can this data inform more than just an advertising decision? And what's come out of this conversation is, it can inform just about everything in your business. There's so much that you can get out of this just knowing this one piece of data and having this one way of looking and thinking about things. I'm thinking back to my conversation with Ancient Nutrition and they actually do this. They do cohort analysis on LTV, but they do it for promotions.

Kristen: (47:10)

What they did, I think it was last year or the year before last so it would've been 2018. Hoo, it's 2020. It would've been 2018 and their Black Friday, Cyber Monday things. What they started doing was, they ran a gift with purchase promotion and then they did three different gifts. Those are the three cohorts. Then what they did was, they looked at a 60 and 90 day window and they said, "Okay, based on what gift this customer got, what is their LTV at now? Have they repurchased? Have they joined the subscription? Have they done this?"

Kristen: (47:41)

I mean, when we were talking he was saying, it's an obvious answer when you look back at it, but they were able to find out that when they gifted a frother with the purchase, then that customer was coming back in 60 to 90 days and they were spending two to three times more, and were something like five times more likely to just come on to the subscription. Being able to have that insight is just, I mean, for a retention nerd like me that's mind boggling exciting.

Taylor: (48:09)

But again, this is the thing, the delineation. You're not a retention nerd, what you are is somebody who's focused on the actual things you need to know to grow. Offer type is a great cohort analysis to look at, like, what was the initial offer type that they came in on? Because one of the things ... Even as you ... At some point here, probably in March, we'll start planning our 2020 Black Friday content. One of the things that becomes really interesting is as brands thinking about their offer, being able to understand what customers respond to different values and offers and what their LTV is to you can absolutely inform that in a way that is so much clearer than just going, "I don't know, do we want to do 15% or 20%, or should we do a different purchase?"

Taylor: (48:50)

A lot of times what it comes down to is somebody's feeling about what branding is and how offers affect branding and how they affect ... Again, let's just deal with the truth. Does a discount purchase customer, are they worth less to you than someone else? That's something that people theorize a lot, but it's a question that's actually not that hard to answer. First purchase, was it a discount? Yes or no, is another part of our cohort analysis that we did for Bambu Earth? And guess what? Discount purchase on first purchase was actually more valuable than not. That's counterintuitive but again, the point of things that are counterintuitive, what that really means is counter to my internal bias, which is actually a fundamental risk to the business success. And so, being willing to submit yourself to what is actually happening and explore why is a really, really valuable skill.

Kristen: (49:43)

Yeah, just being able to look at it in that sense. And then also even going further, when you're doing especially high buying periods of time, it's a great time to start testing theories that you have around this. You know Black Friday and Cyber Monday you're going to have a big uptick in sales, so why not actually set that up to test things? Set up these periods where you can say, "Okay, we've got this huge cohort of customers coming in. Why don't we test different things and see in February, which ones are still profitable for us, which ones are having bigger LTVs, and which ones just Christmas shopped and then dropped off."

Kristen: (50:18)

Because then the next year, you're not going to run that promotion because you're going to say, "Cool, we got $1 million in sales, but then we didn't really get a return two months later. We did a lot of work to get a single purchase person," and that's just ... I mean, as costs increase, like you said, it's going to increase for everybody. The longer your advertising, it's going to increase. There's a limited number of people you can reach on the internet, a limited number of people who are going to respond to your ads. Being able to actually think longer term like that is going to inform every year you go through things like Black Friday, Cyber Monday. You're going to feel less panicky and chaotic about it every year like I know we all did this here.

Taylor: (50:56)

Yeah, exactly. And I think that there's somebody inevitably screaming at the podcast in their car right now. Your customers in December are fundamentally different people because it's a gift season, then January and it's like yes, you have to be thoughtful so before you just go ... What I would say is when you see a massive discrepancy between the LTV of a different cohort, before you just jump to the answer of, "Oh, well then what we must do is find more of that cohort," be thoughtful. Take time to ask the question of why. What might be happening, or what might be true about this cohort? Because the data shows you what objectively is happening, but it doesn't answer why.

Taylor: (51:34)

I think really making sure that you're dealing with meaningful sample sizes, and you're being thoughtful about the considerations. When we look back through our Bambu Earth data, there were months where we fundamentally focused on advertising different products without really understanding that the AOVs were massively different than these different things. You just have to take space and be considerate of yeah, my customer and who is buying in December is very different maybe than who was buying in March. Let's make sure that we aren't comparing those and using it to say like, "Oh, well ..."

Taylor: (52:05)

QALO is an example, the company my brother started that we just sold. That product if you think about it, they sell primarily if you look at the skew data, it's men's rings, it's 80% men's rings. So if you looked at just the skew data, you'd be like, "Oh, I'm selling the product to men." But if you look at the customers, it's actually about 55% of them are actually women, so it's primarily women buying for men. Then in the holiday season, it goes up even more, it's even more drastically female.

Taylor: (52:31)

So those cohorts are not always consistent or indicative. The user that's driving the demand for the product then becomes a little bit different too, and so there's complexity there in trying to understand the actual, how the cohorts compare to one another. That's why when you have multiple years of data and you can look at December versus December, that becomes a valuable thing to do. Just really breaking it apart and asking why a lot is also really critical to this journey.

Kristen: (52:57)

You're making me think of a quote from actually the very first episode I recorded of season two earlier this week with Form Nutrition. We were talking about their approach and they have this slower growth steady approach to growing that I obviously really related to and got all teary eyed about because I was like, "You guys are amazing." But, he had a quote that I absolutely loved. He defined their founding team as quick thinkers who aren't in a rush. I thought that was a really smart way to sum it up, that he was saying, "We're going to follow all the trends, we're going to see what everybody's going to do. We're going to watch these new channels. We're going to watch SMS blow up, but we're not going to rush into it until we know how it's going to affect the business, how it's going to affect our mission, how it's going to affect our customers," which is really what we're saying here.

Taylor: (53:43)

Is that [inaudible 00:53:43] by the way? Is that who-

Kristen: (53:44)

Yes, yeah.

Taylor: (53:45)

He's awesome.

Kristen: (53:46)

Amazing, he was amazing.

Taylor: (53:49)

Yeah, and that's exactly right. That tends to be driven relative to the objective and expectation of the people who own the business and what they want out of the business. I think that's where ... What I think about this push and narrative around diversifying your media mix, what it actually reflects to me is this sense by which I feel a pressure to go and generate more of a thing without actually deeply understanding what's happening. Because, the way that you get to being able to diversify your media mix is by being able to say like, if I on Facebook get a 3:1, if I could find another channel, if my system was set up where if I got a 2.4:1 I can also be profitable, well now you have an opportunity to diversify.

Taylor: (54:29)

Because likely if you go run YouTube, or you go run display, or you go run whatever, you're going to be less efficient than Facebook. So, you can diversify when you have the capacity to take less efficient return because of your ability to generate value off the customer. That's what empowers diversification. And so really being thoughtful about every step of this, once that funnel is in place ... It's funny because the nutrition guys are actually so good at this.

Taylor: (54:53)

We have a client called BioTrust and they come from this really DR world where for years they've been saying breakeven on the first purchase and build your back end funnel. That world is actually really sophisticated at this point. Far head of most of the consumer product businesses. They're really good at the back end of their funnel, and it just makes it so much better when they're good at that.

Kristen: (55:11)

Yeah, and another ... God, I'm just pulling quotes from old interviews now. I'm just using other people's words to make me sound smart. That's what we do as marketers, I think. Another quote from Asher Hunt of Bite Toothpaste Bits, he was talking about very similar to what we're talking about, the going against counterintuitive things sometimes when your data proves it. They don't do rush shipping because their customers are very interested in sustainability. It's why most of their customers come on in the first place, and so they were able to prove, "Look, we don't need to spend extra on rush shipping because it doesn't matter to our customers. More than likely, they actually really like it when we don't do it because we're using existing postal routes. We're not adding to the issue." Going back to knowing your customers, but also knowing the data behind your customers. They looked at that and he summed it up as, you have to know the rules before you break the rules.

Taylor: (56:00)

Well, it goes back to mission, magic money. It's like, does your shipping reinforce the reason you exist? And if so, then customer who showed up because of that reason will agree with you. It's again, what was the premise under which you sold the customer joining your ecosystem? And then, does everything you do within the context of that ecosystem match? There's so much great overlap. One of my favorite books I've read in the last two months is a book by Ben Horowitz called What You Do Is Who You Are. It's this idea that values are ideological assents. They're this idea that you have a theory about who you want to be, but virtues actually reflect your behaviors. That's actually what sets the culture of your brand, and that'll be actually what sets the culture of your customer interaction.

Taylor: (56:41)

So, what you do relative to the things that you say and promise in every step of your interaction from how you handle customer service, to how you handle your unboxing, to what kind of content you create, they're all the virtues of who you will be as a business and that's what the customers are actually there for. They're there for the promise that you made about who you are. Everything that we own is a statement to our world about who we are. We talk about creating content as like, you are creating for your audience's audience. You are empowering people to say something about who they are. And so, choosing to not order rush shipping is very consistent with somebody who says, "I actually choose sustainability over convenience." And if that's the brand promise that you had from the beginning, that makes total sense to me and doesn't surprise me one bit.

Kristen: (57:23)

Yeah, I love that. Just wrapping, because you and I just went on so many tangents as I expected us to do and we got really deep into it. For the listeners who are listening to this who haven't really thought about this analysis, haven't done cohort analysis, if they're going to leave this podcast and go do one thing and go try to start this, what would you recommend they do?

Taylor: (57:44)

Again, we're trying to simplify this and we think this idea of cash multiplier is a really great entry point. If you can get to a single number, which is your 60 day LTV, and then you can examine everything that goes in to how you re-acquire customers within 60 days, I think that's the place to start. Get to that number and try and affect that number because that'll affect your cash flow a ton. And there are some seriously low hanging fruit. Like, your order confirmation email gets open north of 80% of the time. I guaran-damn-tee you 97.8% of your audience has no communication relative to an attempt to upsell or drive additional value in that email.

Taylor: (58:20)

There's just all these places, like is there even anything? You know what the highest open rate of anything in the world is? The box that you ship your customer. What are you saying in there? 100% of people unless it's stolen off their doorstep, which does seem to happen a good amount of time these days is going to open that box which gives you an opportunity to bring them back and increase their value immediately. There's just so many pieces that are just ... You can make meaningful changes to this which will drive your growth on the front end, so get to that cash multiplier. Get to your 60 day LTV and be relentless about improving it.

Kristen: (58:53)

Yeah, I like that and just starting there. Start with that 60 day LTV and then hone in on that experience in the first 60 days, first 90 days, and improve it piece by piece. I think that's a good way to give brands a way to approach this without ... Because I know retention is wildly chaotic and overwhelming if you're just looking at a number and you're like, "Ah, we got to do this better and we don't know how." There are so many things that go into it. I think that's a really good way to say okay, just look at it in buyback periods. Look at it piece by piece, and break down the experience in each piece and make sure it's really fulfilling the promise that we're giving our customers on the front end.

Taylor: (59:28)

Yep, and then just the number of times you're communicating between the end of that buyback period and the purchase. That's one of the other things. People will build post purchase emails and the logic between when they're sending communications is just, it's completely outside of that window and there's no actual plan or you literally don't communicate with your customer at all within the buyback period. So, just look at the number of communications. That goes back to that dotted line on the whiteboard of your customer journey. As simple as increasing the number of times you speak to them within the period will make a difference, even if it's small.

Kristen: (59:58)

Yep, I mean, engagement is every right? At that point you're just looking to engage the customers. And not just crappy, let's send out an email that says, blah, blah, blah, thanks for doing this, here's another product to look at. It's actually engaging in a way that you can say, okay, most likely they're not going to repurchase in 30 days, and this is a hypothetical. You're looking at a business and you're looking at your 30 day buyback window and you're like, "It's not really where people tend to buyback."

Kristen: (01:00:22)

So, let's maybe not push a bunch of product emails in the first 30 days. Let's push some branded content, let's get them social proof. Let's get them education on how to use the products better, what we're about, what we mean, what the brand is about. Then when you're getting closer to that 60 days, then they're like, "Okay, now we can send product emails." Then it feels a lot better than a lot of the examples I've pushed on Twitter like Bombas who sent me 29 product emails and I never even bought a single thing.

Taylor: (01:00:50)

Yeah, you're the email hater of the internet.

Kristen: (01:00:52)

I am. I like to call brands out.

Taylor: (01:00:55)

The other thing to ... That's right. The question is again, it goes back to this idea, what is the engagement that will drive the value? So, a simple one. This is obvious and there's a causality question here but our data, customers who follow you on Instagram are more valuable than customers that don't. What if part of your process was after someone becomes a customer, you try and move them into more owned audiences where you get to communicate for free? That's just a simple thing if that becomes part of your process. This is an example of when you were talking about this arbitrage.

Taylor: (01:01:24)

Let's say you do an LTV analysis and customers that follow you on Instagram are worth $7 more than customers that follow you on, or that don't follow you. Well, guess what? If you were willing to take a 2:1 ROAS on your marketing, that means that if you can spend $3.50 to make them an Instagram follower, whether that's through email, SMS, literally re-advertising to them, whatever it is. If you can do it for less than $3.50, you just created a diversified media mix that'll increase your value. There are so many freaking things like that that you can do.

Kristen: (01:01:57)

Yeah, and if we want to put it in the terms that people think of like okay, I want to diversify my acquisition channels. Well, if you're thinking about repurchasing as a re-acquisition of that customer, then you're investing in another acquisition channel. You're just not thinking about it as the front end of the funnel, you're thinking about it as the second purchase, third purchase. So, what we're talking about a still playing into the acquisition. We love growth, we love to get new sales, you're still doing that. It's still acquisition, but it's just taking acquisition from what you already have rather than keeping and trying to grind and find completely brand new users out there.

Taylor: (01:02:33)

Yeah, exactly. It's the same thing for us in our agency business. It is way easier to sell to the people that are already our clients than brand new customers. And again, this is not, these things aren't in conflict with one another. We're going to do both, but right now you are disproportionately focusing on one sphere over the other and it happens to be the one that has greater friction.

Kristen: (01:02:54)

Yep, it's a harder hill to climb and you're putting too much there. I have to ask, I'm curious if you guys have thought about this at all for subscription based businesses because with LTV and stuff for subscription, it's a lot easier with forecasting. It's a lot easier to look at your MRR, and what MRR is to be processed, and how many people you're bringing into the subscriber program. I'm curious if there's a way that you can look at cohorts for subscription that is actually going to give you even more insight into getting more people in your subscription, maybe increasing order value. Is there a way for non just single use products to, or single sale products subscription programs to actually use this and inform their decisions?

Taylor: (01:03:37)

I think this goes back to the idea of the offer cohort testing, is the people that are great at subscription, what they're constantly challenging is the idea that the price is right. One of the things that I think is so awesome is that I've seen guys like Brickle that run a free plus shipping as their initial offer, and then everything's upsell off of the bat. Some people it's by a year, some people it's biquarterly. We run a community person called ADMISSION for like stage entrepreneurs. It's a subscription business for a monthly fee, and we play with a thousand different offer types.

Taylor: (01:04:08)

I think the key opportunity with cohort analysis is to really think about hey, the idea that our current pricing of $9.99 a month for endless subscription is the only answer and the one that is right for our business is something I would constantly be pushing on. There are so many different ways to try that, and then to just go like, "Oh, there's this drop off point at month six. What is happening there that we can really go after, coming up with an awesome experience?"

Taylor: (01:04:36)

For us on the agency side, we want clients to stay with us as long as possible. If we know that there's an inflection point where in month seven, that's our average loss of customer. What if we created a really magical experience in month seven that was different than everything else? What would that do? You can come up with all these ways to attack the gap in your churn in a way that is really ... Then use that to inform back the front and acquisition of the who. There are so many things. There's just countless little elements where you can attack once you have visibility.

Kristen: (01:05:07)

Yeah, and just to wrap this all with another Kristen, now I can't think of the word I was going to say, oh term. A Kristen term that I've been using a lot. To sum up how I define all of this, the analyzing cohorts of acquisition to think about LTV is, I would call it retention based acquisition. Basically, you're thinking about ... You're acquiring users, but you're thinking about acquiring the best fit users in the best way possible that's going to make retention really easy.

Taylor: (01:05:38)

Yep, that's exactly right.

Kristen: (01:05:40)

That's my last magic Kristen phrase for the day.

Taylor: (01:05:42)

Do you have a trademark attorney that's working on all these things for you or what?

Kristen: (01:05:46)

Not yet, so if you guys want to steal it I guess you'd better hurry.

Taylor: (01:05:50)

Well, you said mugs were being ordered so it's first use in markets, so [inaudible 01:05:54].

Kristen: (01:05:54)

Oh yeah, then I'm good. Then I'll be good. If I just get it printed on a mug, then I'm good to go.

Taylor: (01:05:59)

Then we have this podcast to prove it.

Kristen: (01:06:01)

Yeah, we said it first.

Taylor: (01:06:02)

There you go.

Kristen: (01:06:04)

Awesome. Just to wrap up, three questions that I'm asking everybody at the podcast. First, I think I know your answer to this but I'm interested to see how you answer this a little differently than this entire podcast. But, what do you want to see more from DTC brands this year?

Taylor: (01:06:20)

Man, I have so many things. But my contrarian stance is, there's two things. The one I'll say is more Facebook. Everyone's going to say "Taylor, that's so self serving. You guys run Facebook ads." I don't care. I've existed before them and after them. We are all so naive to understanding how powerful this tool is. We just are so spoiled beyond belief for the universe that we're living in. I built a business before Facebook existed and I spent every waking moment of every Saturday and Sunday at live events in person dealing with my product and grew at a rate that was incredible, but it just pales into comparison to what's happening here. Do not neglect or miss what you have, and figure out better ways to use it. That's one thing.

Taylor: (01:07:04)

Then that that customer journey line, milk every dollar from your customer journey. From your supply chain to your last mile, to your payment processor, to your fulfillment fees. Every dollar, milk them all. There's an awesome podcast that I think it's how I built this with the woman came into run Build-A-Bear. She talks about how when she got to Build-A-Bear, the very first thing she did was she brought in all of her product designers and making them bring every single skew and set them on the table. They went through every stitch, every hem, every piece of material in every bear and squeezed out pennies from every bit of margin along the way, and it fundamentally transformed their business. The unlock to your growth much more likely lies in your supply chain than in your Facebook ad account.

Kristen: (01:07:51)

I love that. Okay, do you currently have a favorite DTC brand that's on your horizon that you're checking out?

Taylor: (01:07:59)

I have favorite entrepreneurs I think more than anything because the ... That tends to be just my heartbeat, is that ... I have a lot of cool brands. I recently bought, let's see, the last two products that I bought was I bought the new Purple pillow. That's one of my consumer products that I just purchased.

Kristen: (01:08:17)

I have to ask, how is it?

Taylor: (01:08:18)

You know what, I hate to be a hater, but it's too ... It compresses far too much. Not enough feedback. I'm using it, it stays cold all the time. That's one of the value propositions, but-

Kristen: (01:08:31)

See, I'm wondering if I'd like it because I tried the Casper pillow and it's too fluffy for me. I like [crosstalk 01:08:38].

Taylor: (01:08:39)

[inaudible 01:08:39].

Kristen: (01:08:39)

Yeah, maybe we'll just switch pillows.

Taylor: (01:08:40)

You ship me you're and I'll ship you mine.

Kristen: (01:08:41)

We could make that happen.

Taylor: (01:08:43)

Another great one that I love, and I have little kids. I have twin boys that are about to be six and a daughter that's three. There's a client that we work with, awesome female founder down in Texas. A company called Literati. It's a book club for kids that does, they basically send you a box of incredible curated books. It's nine bucks a month and you get the books, and then you decide if you want to keep it and you buy them like a Stitch Fix for kids books. But, their real magic is the way that they curate this incredible selection of really high quality books. That's been fun.

Taylor: (01:09:19)

We have two clients right now that I think as founders are just so thoughtful. Patrick we've talked about a lot. A couple others like Edward Wimmer at Road ID. That's a business that's been around 25 years so I don't know that it necessarily falls into the [DMDB 01:09:33], but he's continued to change his business relative to what the market requires of him and it is just incredible. What Matthew Murray and Lauren Bosworth have done Love Wellness. I have a lot of deep appreciation for the way that they're going after their business. So, lots of awesome people out there. And one of the things that I just continued to be blown away by this community is the eagerness and willingness to support and share information in a way that's helpful is crazy. It's really, really cool. I don't know, hopefully that answers your question.

Kristen: (01:10:03)

So far, favorite answer that I've gotten because I love that you turned it on its head and you said ... I mean, you basically pulled a Kristen on me and you were like, "I like brands, but I like the people behind them more." I loved that answer. All right, thank you so much for coming on. Where can people find you, find more about Common Thread if they're interested in checking out more about this?

Taylor: (01:10:24)

Yeah, commonthreadco.com. Come visit us if you're interested on the server side of the business. I'm @TaylorHoliday on Twitter. That's the place I'm most engaged, fun community there. Then if you're really early stage, check us out at youradmission.co, it's our community group. We have 100-plus entrepreneurs who are co-journeying and learning at the early stages of this. Then if you're interested in selling your business and you're a, let's call it a zero to $5 million consumer product and you'd like to partner with the crew at 4x400, you could go to 4x400.com and check us out there. That's our universe.

Kristen: (01:10:54)

Awesome, thanks so much for being on today.

Taylor: (01:10:56)

Thanks Kristen.

Kristen: (01:10:57)

Thanks so much for listening to this episode guys. Be sure to stick around for The Digest with Val Geisler right after this. Hey keepers, look, if there is a theme to Playing for Keeps this season, it's that the key to increasing customer retention is keeping the customer experience rock solid at every single touch point. You hear me harping on this in every single episode. So, here's one thing to look at. What does your business do when a recurring charge gets declined? How does that experience feel for the customer when they run into a payment issue on a subscription?