As a Direct to Consumer (DTC) business, you cut out the middleman and sell your product directly to your customers (imagine that), and this prevents you from paying extra fees when it comes to wholesale and other sales platforms. In addition, there’s no need to drive up markup fees to cover additional costs, so you can keep your prices low.
This model gets a little bit challenging with marketing, however. Businesses doing wholesale operations have the advantages of brand recognition, customer loyalty, a diversified inventory, and convenient locations. As a DTC business, you have to find your customers and convince them to buy directly from your store. It can be a tough game, but with the right strategy, you can be on the winning end.
Below takes a detailed look at the four essential pillars to grow your DTC business in this highly competitive playing field and ensure you gain your customer’s trust and increase conversions.
Pillar #1: Increase Conversions
The first pillar to grow your DTC business is to Increase Conversions. While there’s a myriad of strategies to drive up your customer conversion rate, among the most effective tactics is the optimization of your website by customization and curation and by improving the findability of your products.
Personalization & Curation
For consumers, having the ability to customize or personalize their DTC products is important. According to market research by Epsilon Marketing, 80% of consumers are more likely to purchase from a company that offers a personalized customer experience. More and more websites are starting to offer engines that ask shoppers questions to give them curated product recommendations.
Personalized engines increase customer engagement and conversion rates. In addition, shoppers who answer questions to personalize a product are more likely to subscribe. Allowing your customers to personalize products and bundles gives them an increased sense of control over their purchases.
Consumers can’t purchase what they can’t find, and shoppers are more likely to abandon their purchase if they can’t find all the information they need about a product. Providing complete information in a logical and intuitive platform gets shoppers to what they want faster. Another valuable tool is predictive search, which targets consumers who prefer using search to find what they what.
Giving priority to the shopper’s needs gives brands multiple ways to drive conversions and monitor consumer shopping patterns. As a brand, it’s important to have a solid understanding of how your shoppers search for products; this provides you with a clear idea of the right conversion tactics you need to practice to guide your shoppers and encourage maximum conversion rates, customer engagement, and overall business success.
Pillar #2: Increase Average Order Value (AOV)
Average order value (AOV) is the average amount of money your shoppers spend when they purchase from your online store. Your AOV is a crucial measurement for understanding consumer behavior. Having a clear understanding of your AOV and which products are most frequently purchased allows you to figure out the best ways to drive that number up.
Among the main benefits of increasing your AOV include:
- Driving up your overall sales revenue
- Bringing in new revenue over a shorter period of time
- Recovering the cost to acquire customers faster
- Increasing your customer’s lifetime value (LTV)
Now let’s look at some effective tactics to increase your AOV:
Integrate Bundle Deals and Bulk Options
Group your products that commonly sell together as bundles. Bundling encourages shoppers that were only looking for a single item to purchase a complete set, ultimately increasing your average order value. You can also offer little discounts for buying more than one of the same item. Customers may see the savings in bulk purchases and add more items to their orders.
Offer Free Shipping with Cart Minimums
To encourage your shoppers to add more products to their carts, one common strategy is to offer free shipping if their order reaches a certain amount. For example, if someone adds something to their cart and the total is low, it would cost the merchant quite a bit to get that small item to the customer with 2-day shipping; therefore the merchant will set a “cart minimum” in order to meet that shipping goal.
This strategy saves the merchant money while simultaneously up-selling the customer. In general, this is widely accepted by consumers and because that fast shipping is so important, adding a little bit more to his/her cart is an easy decision.
Offer a Customer Loyalty Program
Offering a customer loyalty program is a powerful way to increase brand awareness and revenue. A market study by Smile.io found that loyalty programs drive up AOV by nearly 14% on average. Not only are they great for getting shoppers to add more items to their orders, but they also help increase customer retention.
Gain Customer Trust with Reviews and Feedback
Reviews and feedback from your previous customers can have a significant impact on the decisions of new shoppers. 93% of customers will read online reviews about a product before making a purchase. If you have great reviews for your products, you want to make sure to display them on your store’s website and marketing materials to attract and reassure first-time buyers.
Pillar #3: Increase Consumer Lifetime Value (LTV)
The third and most important pillar is to Increase Consumer Lifetime Value (LTV). LTV is the total amount of money that you’ll receive from a consumer throughout their entire lifetime as your customer. For example, if the average customer spends $100 per year in your store and does so for an average of four years, then the average customer LTV is $400.
What makes LTV the most important pillar is the fact that it focuses on long-term value and not the fleeting appeal of sales spikes and seasonal fluctuation. It gives you a balanced view of your business by equalizing your statistics into either success or failure. LTV is crucial because it shows you a clear path to achieve higher profits. If you increase LTV then you increase profits, plain and simple.
A report by Detroit consulting firm Invesp states that existing customers are 50% more likely to try new products and spend 31% more when compared to new customers. By focusing on returning customers and their LTV, you are focusing on a strategy that gives your DTC business higher profit margins.
One of the most effective tactics to drive up your LTV is to turn your product into a subscription. A subscription product provides you with a recurring revenue stream. Your customers pay more, last longer, and become highly valuable. Other strategies include improving shipping times (which you can learn more about here) and correctly calculating your customer aquisition cost, which brings us to our last pillar.
Pillar #4: Reduce Customer Acquisition Costs (CAC)
The last pillar to grow your DTC business is to Reduce Customer Acquisition Costs (CAC). CAC is the approximate total cost required to get a new customer. This cost will consider the fees paid to marketers and salespeople, the amount spent on various marketing campaigns, and advertising costs. To identify your CAC, take the sum cost of these resources and divide it by the total number of customers acquired.
There is no standard benchmark on what makes a good or bad CAC. CAC is determined by multiple factors, but most importantly by your customer’s LTV and the industry you’re in. If you’re seeing a CAC that goes far above your target, the following two strategies can guide you in keeping it low:
Calculate CAC Correctly
In order to earn a positive return on investment, you’d want to begin with a target CAC. This will serve as a criterion for your sales and marketing efforts. If you’re a new business, know the average CACs for your specific industry and spend some time calculating a logical CAC that would allow your business to be profitable.
Optimize Your Ad Copy
One version of your ad copy could give you favorable results, but you can always improve those results by optimizing your copy. You’d want to look at click-through rates, identify your best-performing ads, and then compare them with ads that don’t perform as well. Pause your low-performing ads and write variations that are closer to the style of the stronger ads. Constantly improving and optimizing areas of your paid media strategy is crucial for reducing CAC in the long term.
Having a sound understanding of these four pillars sets your DTC business apart from others in your industry. Apart from this fact, it’s also vital to know the importance of what your customers expect when it comes to product delivery. A study by McKinsey & Company shows 90% of online consumers see 2- to 3-day shipping as the baseline delivery promise. Anything slower fails to meet consumer expectations. And, for almost a third of consumers (30%), same-day delivery is the expectation.
With that statistic in mind, you’d want to make sure to meet or exceed your customer’s expectations by providing them with same-day delivery and driving positive results towards the four pillars we’ve studied.
No one wants their business to fail, but the hard truth is that many DTC companies do. It’s not that easy to cut out the middleman and still make a profit, but if you stick to these four pillars (paying particular attention to CAC) your company will have a good chance at success.