#154: The 3 Ingredients To Building A Profitable Shopify Business

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Claus Lauter: Hello and welcome to another episode of the E-Commerce Coffee Break. Today we wanna talk about the three ingredients to building a profitable Shopify business. Now what does that mean? A lot of shop, owners struggle to find a strategy, a way to. Create clarity to focus on the things that are really matter and what matters makes your business better and stronger.

And only with that you can build a resilient and profitable business. And that's what we dive into today. As an expert today on the show, I have Duane Brown with me. Duane is called an international man of mystery in digital Norma by friends. He has lived in six cities across three continents and visitors, 42 countries around the world.

So he's very well traveled. Over the years, Duane has. At the opportunity to work with brands including Azos Bros, pillar, case, Jack Wills and Moore Duane and his team help E-commerce and D T C brands grow through PPP C marketing data and conversion rate optimization. So let's welcome Dwayne . Hi Dwayne, how are you today?

I'm doing great [00:02:00] class. How are you? I'm very well, thank you. Dwayne. Building a business, , is not easy, specifically in e-commerce, evolving new things coming down the line all the time. Talking about three ingredients from your experience with DI right into it, what is the mystical three ingredients that we are talking about?

Building a business today is not easy at all. It is hard. It's even harder in sort of in a recession or stagflation, whatever you wanna call, the period right now where people have less money to spend on things. I don't think the three things we're gonna talk about are a secret here, but I think when people are building the business, they often think that if they just do this one thing over here, they're gonna grow their business.

When reality is, you've gotta do lots of things right, to grow any business, whether you sell cell phone cases or candles, or you've got the next, Bike that people wanna buy and bike around Europe and Africa and North America and stuff like that. And so the three things people need to have to have a successful business are one, you need to have product market fit, right?

You need to have a product that people actually wanna buy. And even though lots of people may [00:03:00] sell your product already, it doesn't mean they have product market fit all the time. They can just be trying to sell it because other people are trying to sell it. So having product market data is probably the most important thing because if you have.

Everything else in running the business becomes a lot easier. The second thing people really need to have is they need to do marketing. Oftentimes brands will come to us and say, Hey, we wanna do Google, or shopping ads, or Facebook or TikTok or whatever. And they wanna spend all their money on that one channel.

But to grow a successful business today, you can't put all your eggs in one basket. So you shouldn't just do TikTok. You shouldn't just do Facebook. You shouldn't just do Google. Ideally, a brand would be doing two or three of those things on top of. They'd also do things like seo, emo marketing, pr. All those marketing channels were together to build a better business, just relying on one channel, even if it was just SEO or just prs, not gonna get a business forward.

And then the last thing at the end of the day really is brands need to think about how they build sort of a mobile experience, They need to make sure they have a site that works on mobile devices, because unlike 10 years ago, where you used to see. Half your [00:04:00] traffic come from mobile. Nobody convert today.

It's half your traffic come from mobile and half the people convert. And so you're seeing half your business today on mobile more than it ever was in the last 10 years. And clouds, you and I are probably roughly the same age. And so as we've grown up, people have called it the year of mobile. Well, this year really is the year of mobile.

It's just taken us 10 years to get there and it's taken consumer habits 10 years to catch up where people feel comfortable buying on mobile devices. Cause sites are made for mobile devices. And so if you are a business today and you wanna be successful, you've gotta have product and market fit, you've gotta have your marketing going, which isn't just doing Facebook, it isn't just doing Google.

And then you've gotta build a site for the mobile audience today, because people are not only researching a mobile device, they're shopping on a mobile device.

Claus Lauter: Yeah. Makes perfect sense. Now you, the founder and head of strategy has take some risk.com. You were talking also about revenue optimization, and that's a topic I'm very interested in. Everyone. In the last year there was a big topic, conversion rate optimization all the time. By now, I think everyone knows what that is, but the next step there is revenue optimization. Give me a bit [00:05:00] of a, background what that

Duane Brown: actually means.

We think of revenue optimization a little bit different than c R o, right? C R o often for people is just, I wanna improve my conversion rate. problem with your conversion rate is if the people who are coming to your site currently aren't people you want as customers. get more of those customers are actually gonna build you a better business, right?

Often you gotta think you have to optimize for the people you want to buy from your store. Good example. I always think about years ago, and I don't know if this story is true, but I think about it and when I heard it was there used to be a bank in England and they used to have a million customers and they realized that 20% of their customers often took up 80% of their time with customer service.

Email and having questions about their accounts and how they work and stuff like that. And so one day the bank decided to do something no bank would ever do was just fire those 20% of their customers. And the reason they fired 20% of their customers is cause they realized if you're gonna take up 80% of our resources, we can easily just fire US customers and instantly make a more profitable business.

And so just like that, bank e-commerce has to ask themselves, are the people we're getting today the right kind of customers for our [00:06:00] business? Because if you can get customers who buy your product, love your product, come back. P purchases don't really bother your customer service team. You would build a better business than people who have something come to their store, buy from them, and then take up all their time in the customer service.

People are generally lazy on the internet, so they're gonna ask you questions on your customer service team, but you don't want people who are gonna be in your inbox every day, every week when they're questions they have, or questions they could have went on their website of. Or they're just gonna be that annoying customer that complains a lot.

And so we think about revenue optimizations, helping clients optimize the revenue for profitability, versus purely optimizing the website for a higher conversion rate. We often may not wanna get a higher conversion rate. Maybe we wanna just focus on which of the customers are bringing 'em that actually make the business really strong, and how do we get more of those customers to come in?

So customers that have a high average border. Value. Customers that come back and make their second purchase in 30 days are in 60 days versus 90 days, 180 days. And so we optimize for revenue and profitability versus optimizing just for a higher conversion rate, which I think for most brands is a misnomer.

Unless [00:07:00] your conversion rate is below a what? If it's below a one, then you should probably optimize your conversion rate. If it's below, if it's above a one, optimize for your customers.

Claus Lauter: Oh, makes perfect sense. I like that you used the, , 80 20 group, the Perro principles on firing your Worst customers.

I've never heard that. I, I really love it. Usually I'm a big fan of that, but usually it's formally, like 20% give you 80% of your revenue, something like that. So that's basically putting it upside down. Now when comes to strategies to exactly achieve that, to focus on the main things, what are your main strategies to exactly build a profitable business on

Duane Brown: Shopify?

There's a couple ways we will get that. There's the obvious one you can do and people know they should do, but often don't do it because they're busy running the business. It's like, talk to your customers. If you decide that a V I P customer buys from you twice within 60 days and spends, let's say $400 with you, you should start to talk to those customers to find out, like why do they buy from you?

What made them purchase? Why did they buy those products versus other products? And then sort of use that information you collect to then run better [00:08:00] marketing campaigns to talk about those things of why they buy people said they bought because your product solved their problem. Then you should talk about that problem in your Facebook ads or in your Google adsd.

So you can track more people to your website than have that problem. And so interviewing customers online is really great. But if you've got stores or you do a popup or like some of our clients go to a big craft market in Toronto. I literally went to the craft market and I sat down and talked to lots of women about pajamas and why they buy pajamas As, a gay man who has very few women in my life, other than my mom and a few female friends, I have no idea why women buy pajamas.

But to spend a half an hour with them to talk about them, revolutionize what we do for that brand, because now I. Take that copy they've given me and put it in our ads and attract more women who wanna buy pajamas that are gonna make them feel good. They're not gonna have hot flashes. They're not gonna sweat too much.

So really talking to people in person will get you better information than doing an online survey. But if you can't talk to people in person, online surveys and an Xbox thing, people often know they need to do this, but they don't do because they're busy running the business. [00:09:00] But if you wanna have a better business, you should be talking to your customer.

Claus Lauter: Yeah, I think that's a very good point there. , a lot of business don't do that and even picking up the phone and talking to people who have just ordered from you and finding out why did you order from us will have a lot of merchants to get a better understanding about the client and what's actually working and what's not working.

now with this re coming back to the three ingredients to building a profitable Shopify business, , obviously retention is one. Conversion is another one. Traffic is the third one. Without traffic, you don't have a business. we see right now traffic, , paid traffic's becoming increasingly, , difficult for smaller brands that don't have big budgets.

is it sometimes that, just paid ads don't work for a brand? What's your experience

Duane Brown: there? Our experience would often say that you've got the wrong person driving the. , oftentimes store owners think that like our agency is like every other agency out there, Or they kind of think that like my mechanic is like every other mechanic, right?

If you're shaking your head right now and you're going, yeah, my mechanic's really amazing, he's not like every other mechanic, or she's not like every other mechanic. Well, agencies are like that as well. [00:10:00] Every agency, you can't just replace it for another agency, right? And so making sure you've got the right person driving the car is really important.

This game is often. Chess, but often people think it's like a game of checkers. And so if you hire the wrong people who think it's like a game of checkers versus a game of chess, you're often gonna get poor results. Great example I like to give, and so I talked about this, I read it yesterday actually, is that when it comes to a lot of your campaigns, there's a language set in in your campaign and people often misunderstand and think that if I put that language set into English, that my ads will always show up when somebody types in English into.

And that's actually incorrect because what that setting does is it allows Google to show an ad anytime a Google signal is related to English. So if I type in Spanish, but I visited English websites in the past, Google will still show me an ad, even though I typed in Spanish. If I type in Spanish and I've click on lot of ads in the past.

That are English. Google will still show me that ad because I've typed, clicked on things in the past that are English, and so if you are one of the signals where it's [00:11:00] what you've browsed in the past, it's what you've typed into Google or the device that on your device is set to English. Even if you type in French or Spanish or Chinese, as long as you're in a location where you can serve a Google ad, Google will serve that ad on that person.

Even though what they've typed into Google is in English. And so understanding the fundamentals of Google Ads is really important, and clients don't understand that. Not everybody understands those fundamentals. And so when you pick the wrong sentence for your campaign, you've already set yourself up for not having success.

You set yourself up to fail. And so the hardest thing for a lot of clients is making sure you pick the right people. I get that when he is tight, but much like anything else, If you wouldn't hire a cheap mechanic or a cheap lawyer or a cheap dentist, don't go cheap on who you run your ads because it's gonna cost you more money in the long run because your performance isn't gonna be there.

You're not gonna make as much sales and you're gonna be unprofitable on top of what you've paid the agency.

[00:12:00]

Duane Brown: Okay.

Claus Lauter: Very good tip there. , actually, I didn't know that. You just gave me a very good tip. , it's a bit embarrassing I do on Google Ads for 20 years, but that was news for me, so thanks for that.

I take some risk. Obviously you're working with lots of, , Shopify merchants when it comes to , a strategy on running ads, , omnichannel, , what's your best take there is like, how do you split off , a marketing budget over different channels to get the best results?

Duane Brown: The way you think about is, one of our clients come to us and they're starting at [00:13:00] 5K a month, right?

They don't got a lot of money. Sometimes about 3000 if we really love what they sell and we know we can sell it. But all things equal, people start at 5k. And so what we often ask ourselves based on the product that is in front of us right now, Is this a searchable product? I e are lots of people gonna search for this product on Google or potentially Amazon?

If it's a searchable product, we're gonna start out on Google or Amazon as a place to be because we wanna make it easy for people to buy our product. If it's not a searchable product, then we might start out on Facebook or TikTok. And the reason we start out at one ad platform is oftentimes we find brands will spread their budget too thin.

They'll take their 5,000. Put a thousand on TikTok and 2000 on Facebook, and 2000 on Google. And what often happens, like when a car gets stuck in mud, you often spin your wheels, but don't go anywhere really quickly. And so we'd rather put all our money to start in one platform, get it where it's bringing in consistent sales and revenue every day, every week.

And then we have a scale of the budget to 10 K or 20 K a month, and then we've got the predictable revenue coming in. Then we ask the client for more [00:14:00] budget and say, let's start with m. Or Amazon or Facebook. So instead of trying to be everywhere at once, we really focus on an ad platform, get it in real good shape, and then expand from there to other platforms.

If for some reason the client doesn't have more budget, it's probably better to spend all your money on Google than work with a client to figure out what they're gonna do for email, for seo, for pr, all the other marketing channels we talked about earlier. But you should never start on one platform if you only have three or four or $5,000 a month because you're gonna end up spreading your budget too thin, and you're not gonna see the thick success that you want.

Claus Lauter: What's the biggest pitfalls or issues that you see with direct to customer, , brands at this point?

Duane Brown: The biggest pitfall, I think we've all probably seen it online, is they all kind of generic and they all kind of look the same. There's no distinction of why I should buy from One SEAL brand versus the other SEAL brand.

If you're gonna go into a very competitive space, you need to kinda understand how is your e-commerce brand or your D T C brand gonna stand out from all of the competition, ? If you've just got a cheaper price, or your site looks slightly nicer, that isn't really one way to distinguish your brand from your competition.

So I think having some sort of. [00:15:00] Viewpoint that makes you stand out is gonna be really important in the market today. , there's lots of d d C brands out there. We've got a list of d d C brands that 1200 brands from around the world. Obviously there are a lot of brands in America, but the other 40% are from, Canada, Australia, Germany, other parts of Europe, Africa.

So real understanding like how your brand is gonna compete with those brands in your country or in your continent. It's gonna mean that it's easier for you to stand out in the marketplace when you think about how you're gonna position your brand, whether it's organically on TikTok or paid on TikTok, or Facebook or Google, cuz it's competitive out there.

Claus Lauter: I'm coming from the side of, of but for a lot of brands, other sales channels like Amazon might be , a good additional sales channel or maybe even the main one. So is there a strategy from your side, how you would recommend where to start with, sales channel would be the most important

Duane Brown: for a brand?

Most clients come to us and they're already on a channel. It's very rare that they're not. So we'll kind of do an assessment. Are they actually given sales on this channel? Does this channel work? If it's a product that maybe people wouldn't search for Google but they would search for it on Amazon, then it would make sense to start on Amazon.

[00:16:00] over the last year, we've seen a lot of our clients start to wanna actually advertise on Amazon when before they wouldn't advertise on Amazon. We're doing their Google, we're doing their Microsoft, we're doing their Amazon, we've got their paid social cupboard as well.

And so Amazon I think really makes. If we go into a deeper recession or some sort of stagflation, because people instinctively always assume that Amazon is still the cheapest price, even though Amazon isn't always the cheapest price. And so lots of people will go there for a product search. And so I think just test it on Amazon as a brand for let's say three months during busy season.

See if it can work as a revenue channel and you can be profitable and then decide if you want to be there. I don't think people. Say no to Amazon like they did in the past. Because if you want to be able to drive sales, drive revenue, and get customers, lots of people go to Amazon whether you like it or not.

Claus Lauter: people going to Amazon have a bias intention. They go there to buy something , makes perfect sense. . When it comes to your budget, What are you willing to pay for a new customer? Things have become incredibly expensive, so smaller brands with a small profit margin, will struggle nowadays.

, what's your perfect [00:17:00] customer? So what kind of profit margin, what kind of product industry do you work with?

Duane Brown: Yeah, I don't say we work in any particular industry. I mean, we do have a lot of like sort of fashion apparel, clothing clients. That's just cuz those clients usually need a lot of help.

But we sell everything from candles and mountain bikes to cell phone cases to part of my Frenchman stripper shoes to everything else, including kit's, costumes for Halloween. . , when we look at profit margin, we try to get people who have like at minimum of 30, 40% profit margin, maybe even 50 or 60.

We're really lucky. We do take on clients that are in the 20, 25% profit margin, but obviously they need to hire return ad spend to be successful. And so those clients that only have a 20, 25% profit margin, we then wanna look for clients that have a high average order value. Because if you have a high average order value, it comes a lot easier to hit Your return on ad spend if you have a well profit margin. So let's say your average order value is $150, $200, and you have only 20% margin, it's probably easier for us to achieve success versus if you only have a $50 average order value. So outside of profit margin, we look at average order value and what it's [00:18:00] been, not just cross paid ads, but across the website as a whole.

We also look at the conversion rate. It's not to say we wouldn't take you on if your conversion rate was below 1%, but we try to take on clients, at hoist at 1%. We've got a couple clients that are below that and we're making it work. , but it's definitely a lot challenging because you've gotta work, obviously work with the client to get up their conversion rate while we'll get them at the same time to increase the average order value so you can have a better chance of success.

But we. Tell clients says we set that expectation. They're saying they're willing to work on the website, they're working to prove they're willing to work on improving their average order value. So yeah, we will get average order value and profit margin kind of go from there. . Okay.

Claus Lauter: What's the process if somebody wants to work with you guys?

Do I have to do some homework before I approach you? What's the onboarding process?

Duane Brown: There was a bit of homework. , so two years ago I realized, Klaus, that I couldn't tell looking at a website if somebody was making a thousand dollars a day or a million dollars a day.

I just realized I couldn't do that. Impossible. And so we put together a Google form that we ask everybody to fill out. That helps us tell us, what was your revenue last year? What's your revenue this year? What's your conversion rate? What's your profit margin? What's your [00:19:00] cpa? What's your roas?

What are you spending on ads right now? What channels, what country, what platform you're on. I mean, 99% of our clients are on Shopify. So it's usually Shopify, but it's good to know, are you on Shopify or Shopify Plus, cause plus we can customize the checkout. , and then we also ask things like, how many SKUs do you have?

, do you have any email list? What's your conversion rate? And stuff like that on email or open rate on email. We ask everybody to fill it out. We've had probably four or five brands tell us they don't wanna fill it out. And we told them, thank you for reaching us. We're not gonna talk to you.

We won't talk to anyone. I don't care who it is without filling it out. Because I realize if I can't tell, how good is your businesses doing just by looking at your website? We need the right information to understand, can we make this business work? Like is this a business that we can be successful with?

And so if you're not willing to do the five minutes of homework to fill out this form, because most of these numbers. Relatively, we know how to find that. It doesn't make sense that we're gonna give you a half an hour for a time for free to talk with you about your business. , and that's kind of it.

Once you fill it out, we kind of decide if we wanna talk to you or not. Most people, we wanna at least have initial conversation. For the few that we don't, we just email 'em back and say, Hey, we don't wanna talk to you because of these reasons. It doesn't make sense. It's not a fit. , [00:20:00] and then we talk to, we wanna talk to, and then after that, we might have one other meeting if it's a larger organization.

Otherwise, most people we just decide if you wanna work with us at the end of the day, like, do you wanna get married to me and the team because we're gonna go to battle for you. If you don't, we're probably not the right fit. If you do wanna get married to us, cuz this is like a marriage when you work with an agency, then let's get together and see what we can make happen with whatever you sell.

Like we don't really care what people sell to be honest. , I used to care about it my twenties and as I got older, I'm like sometimes the most fun stuff or the. Boring things that other people don't wanna sell. Like some people would say cell phone cases are boring, but they're actually really fun to sell.

And why? Because it's a hyper-competitive industry and you've gotta find a way to take a such a commodity product and make it distinctly unique.

Claus Lauter: No, good point there. Good point. there's 1,000,001 different models to work financially with a agency. How does it structured with you guys?

Duane Brown: We're definitely a little bit different out there.

We've seen more brands take up our model over the last couple years. We've had this model since February, 2018. , so we actually break our fee into two parts. So part one is we charge everybody a monthly strategy fee. because we think there's two jobs we're doing. We're doing research and strategies.

Part one, we're trying to think about what we're gonna [00:21:00] work on and make sure we pick the right things on the to-do list. Because even though your to-do list might be eight or 12 items long, if you pick the wrong things on the to-do list, you're not gonna move your business forward. And it's the same thing with paid ads.

If we pick the wrong things to do with paid ads, we're not gonna move the ad account forward. And so making sure we're spending time doing research on keywords, research on like the lady's betas from Google or Microsoft or Facebook, is really important. Make sure we pick the right things to work on is really important.

So we charge every client a strategy fee. There are no exceptions. , and then the other half for a fee is just usually a 10% of ad spend, sometimes a little bit lower. Sometimes it's a little bit higher. It kind of depends on like what a client is spending right now and what they could spend in the future.

, but the average across clients is usually around 10%. , and then that's it. And that goes towards like obviously managing the ad account, optimizing the ad account, picking keywords, managing the shop and feed, making sure the shop and feed is the best it could possibly be based on our framework and structure that we've talked about at tons of conferences, including brightness, e o.

, and that's, that's kind of it, you know. Two jobs are being hired to do. We don't want people who think our job is just to run the ad account. There's more work than just running that account. And if you don't do all the work, you're probably [00:22:00] not gonna see the success that you wanna see.

Claus Lauter: Yeah, the value leaks , is definitely in the strategy.

Without the strategy, everyone can maintain , an ad account, but the strategy is for sure, , a core key component to make it successful. Where can people find more

Duane Brown: about you? I'm on LinkedIn a lot more these days, which is not something I thought I would say. , I've also spent a bit of a time on Reddit on.

PPC sub thread. , and then I'm also on Reddit. Beyond that, I'm on like, , Twitter, so just like Dwayne Brown on Twitter, Dwayne Brown on LinkedIn, , on Reddit. It's just Fathom 53. , those are probably the three places spend time on our own website to make sure it's the best website possible for us.

Claus Lauter: Sounds great. Okay. I will put the link in the show notes. That's always just one click away. Gwe, I think that was a good overview of, , the main ingredients that you need to focus on as a Shopify merge to grow your business and then obviously have a successful business over time. Thanks so much for your time.

Duane Brown: Thank you Claus. I appreciate it.