This episode features Diane Albouy, CTO of smol. We focus on how ecommerce businesses can accurately define lifetime value and the pitfalls of analyzing vanity metrics. We also talk about using a quiz for an onboarding flow and discuss how the culture of sustainability plays into how brands market themselves.
Diane Albouy, CTO at smol
Defining lifetime value: Vanity metrics, onboarding quiz, and sustainability
Chase: Glad to have you here. Why don't you give us a quick on who you are and what you do at Smol?
Diane: Sure. So my name is Diane. I am the tech lead for Smol Products. So Smol Products is a UK based company that creates eco-friendly convenient household products and distributes them to households in the UK and in other European markets. We've been in existence for about two years now and we've been growing really, really fast and discovering our customers for those past two years.
Chase: Your growth has been awesome watching that from the ReCharge side, that's really exciting. So I want to start with something that is pretty obvious to start with, which is the Smol tagline. So coming from a marketing world, most marketing taglines are just kind of a little cheesy or a little funny, but the Smol tagline is "Small things make a big difference." And that's true on so many different levels, how does that kind of impact your day to day? How does that affect what you do everyday?
Diane: Funnily enough, a lot of people will say it's a tagline and a nice marketing sentence that sticks because it has a lot of small words and it has a rhythm to it, but it's really much more than that. It's really a philosophy and it's something that we actually quote a lot in our day to day even unrelated to the product itself.
When I work on different projects with my team, for example, from a tech perspective, it's not about trying to design the next biggest system and having a very water flow approach. It's all about making tiny changes that are going to add up to a very, very big change for the customer at the end of it. And you can take that to the supply chain, you can take that to marketing, you can take that in technology and you can take that in your day to day life. And that's why it's so powerful because we don't just sell it, we actually live it on a day to day basis.
Chase: Right. That's spot on. That's awesome. It's great user psychology. So taking that, like you said, to the product, let's take it to onboarding. So one of the first things you notice when you get to the Smol website is this onboarding quiz. You can't just go in and buy things. You walk through the quiz, you do the checkout, how many pods do you use per week? How much frequency? What's the goal behind that? We're seeing a lot of these onboarding quizzes get really popular. Is that something that you've been doing for a long time? What do you see of value out of that?
Diane: So part of the reason for the quiz, there is different purposes that you can fulfill by using a quiz to onboard your customer. Part of it is product discovery. So I know laundry detergent is not a brand new thing that people are discovering, but actually, for example, in the UK we offer two types of detergent and we found out that didn't necessarily know what they needed.
So part of it, when you do a quiz like that, is educating the customer into what they want, making them feel in control of what they're choosing, and then the third one is getting to know your customer. So by using those kinds of quizzes, you tailor the initial subscription, but you also need to think about the future of cumulating data that the customer is willing to share with you so that you can give them a better offering in the future.
If I know that you're a household that has very frequent washes, in the future I will talk to you much more differently than I talk to a single person household who is receiving two packs a year. And so I think a lot of the people who are doing subscription quizzes at the moment are in that realm of trying to learn about the customer and trying to customize it.
That said, there is always a very interesting balance to strike between what do you want to learn and becoming too heavy ended and too intrusive in the questions that you're asking the customer. So you have to be quite careful about where you want to go. You don't want people to be dropping off as you're asking more and more questions.
Chase: Because at a certain point you are selling laundry detergent. So you don't want to get so over complicated that users going through this onboarding checkout flow are going, "Why are they asking me this? And why are they asking me that?" You just want to get them understanding who they are and get them to check out.
Diane: Exactly and it's also about getting to know your customers at different points of the funnel. One of the things that is a pillar to our entire system is also the customer portal of customers, where we learn even more about them. So I'm really into data.
So as part of my job, I also look after data analytics and one of the things that you want to do is you want to know what you can find out about the customer without being intrusive and what you need to ask them because there is no way you're going to be able to know by yourself, and what you can't know by deduction you ask the customer. What you can infer by yourself then just don't don't ask them.
Chase: Exactly. Classic less is more. You only ask what you need to, everything else you figure out through the data. So digging into data a bit more, how do these custom timeframes boost retention, or do they boost retention? You have to assume if customers are getting exactly the quantity they need in exactly the timeframe they need, is that something that keeps them subscribed for a longer period of time?
Diane: So the answer is, I don't know, because we haven't tried the other way.
Chase: A long time product?
Diane: So we only know we only know the intentions that we have, but I do know that compared to more classic subscriptions where it's your box of the month, it's doing better and I think part of the reason for that is the bespoke aspect, but it's also the control that people are having. So they know they can trust a regular schedule and on top of that, they can order more if they want to and I think that's a very big difference.
If we were just offering bespoke subscription, it can get really tricky because people have different patterns of usage. In the summer you wash more, you wash less, you want to be able to have that control. So you want to really offer the two things.
And also we have a product that lends itself well to a personalized schedule and there is a reason why it's like that. If your product doesn't lend itself to a personalized schedule, I would say, don't do it because it adds complexity everywhere down to your customer service down to the way you do data analytics. So it has to be having an ROI for you to be able to do it.
Chase: Right. So again, it's about the customer experience. Too much kind of puts them over the top or if your product doesn't quite fit, it's kind of useless to be asking all those questions.
Diane: Yes, exactly.
Chase: So we know that the onboarding quiz gives your customers a really good sense of control. I'm curious about your fulfillment in your backend. How does it work if you're shipping out different product quantities at different timeframes? Is that just all stuff that's handled on the backend or are there different ways you have to analyze those new products coming in or in recurring shipments? How does that all work?
Diane: This is definitely true that it's part of what I was saying to you. If you don't need to do it, then don't do it because if you have three types of subscriptions, managing your inventory is going to be a piece of cake compared to what we're having to do. And what I would say is one of the upsides of Smol is because we now have such a good customer base and such a good knowledge of our data and I think we use it in very, very simple, but clever ways that we're able to predict relatively well the evolution of our inventory and the evolution of our stock. And despite the complexity of the data, now there are so many data tools out there that allow you to do what you used to have to do in Excel, in Micros before.
And therefore, you can afford to be more complicated because you have at your hands tools to just deal with that kind of complexity. So it's been fine so far. We started with laundry and we now have two additional product lines on top of it and we feel very confident that I can see it growing very, very easily.
Chase: That's awesome. So let's dig in more to the growth. LTV is one of the biggest topics, not only just in general e-commerce, but we've had conversations in the past about how we define LTV and some of the problems behind setting a real definition towards all of that. What's kind of your overall philosophy on LTV and maybe how LTV works at Smol?
Diane: I think we spoke about this six months ago unfortunately. I mean, I have made progress since then, but I don't have a good answer just yet, as in a very structured answer yet for several reasons, I would say. I think the overarching thing is you need to calculate the LTV according to your business model.
So if you're a subscription only business, even if you're in the e-commerce space, I tend to calculate LTV following a sales model. So just following the formula that a sales model would use for an LTV calculation. That becomes more complex with a model like ours where you need to first determine where the majority of your customer base sits in terms of how recurring their subscriptions are before you can actually dig into how you calculate the LTV.
And then the second I mentioned is if you're more on the e-commerce, traditional e-commerce space, and you have a dimension of subscription, then you should more look towards an e-commerce, the traditional e-commerce calculation of LTV where you can kind of boost up the probability of returning by the fact that you're offering a subscription, but you shouldn't be basing yourself on a subscription business LTV because you're going to, I mean, you're going to have better numbers. It's going to look better for the investors, but realistically, that's not what your LTV actually is.
Chase: Looking better for investors is a whole other conversation.
Diane: Yeah, but it is a very relevant information because when you talk about data and you talk about KPIs, a lot of people unfortunately feel like they have to focus on certain KPIs that are more managed in metrics or trying to boost those metrics because they're having to report to someone or they're having to show that to someone and you can very easily shoot yourself in the foot if this is what you're focusing on and you end up forgetting to look at the more realistic set of data.
And the final thing I would say about LTV is never ever look at LTV just by itself. Always look at your LTV to CAC ratio. And it sounds simple once you've read about it and once you know this is what you have to do, but some people tend to forget about it and just focus on the LTV.
And then one more thing as well is for people out there who think that LTV can be calculated without a gross margin, you have to include the gross margin in the LTV or at least make sure that the metrics that you're comparing yourself against are calculating it the same way that you are, because you're either going to be very happy about yourself or very depressed if you're comparing the wrong kind of metrics and I've made the mistake in the past as well.
Chase: So the long story short is this is a really easy calculation and you just couple numbers, you plug it in and you're done, right? What are some of these vanity metrics that you're talking about? What are things that you think that some people maybe focused too much on that we shouldn't be focusing on?
Diane: Size of your customer base with omitting the fact that a certain percentage might be inactive due to churn rate. Talking about your number of subscriptions without talking about how often they recur, or again, the status that they're in. If 75% of your subscriptions are off, I don't really care if you have thousands and thousands of them.
Chase: There's value there if you can end up running a successful win-back campaign and getting people resubscribed, but you're right. If 75% of your customers aren't subscribing, then they're essentially worthless.
Diane: Exactly. So I think it's a combination of the metrics that you look at and how you phrase them and how you look at them. So exactly back to your point, if you have a very big customer base and for a very valid reason a big part of that customer base is now inactive because let's say you've discontinued a line of products that they really, really loved, you have to see it as a potential user base that you can win back very easily for free. So at a CAC of zero, which is quite an upside, but you can't talk about it as I have 2 million customers, because you don't have 2 million customers. You maybe have like 1 million and then you have 1 million sitting that could potentially become customers again. So I think that's quite an important point.
In terms of other vanity metrics I think there's always things like traditional marketing metrics around engagement and around visits to your site. Visits to your site is actually a pretty tricky one because when you live in the subscription space, you get a lot of visits of people who come and amend their subscription. They don't come because they're interested about your products. So you need to become really, really good at distinguishing the two so that you have a more realistic picture of the world, but you could very easily get away with saying that you have a lot more traffic to your site than a traditional e-commerce site might have. So those are the kinds of things that I call vanity metrics.
Chase: That's an awesome point. I love looking at those kinds of pieces of context that you sometimes leave out. If you have 100,000 subscribers and you're getting 120,000 visits to your site every month or whatever it ends up being, there's a significant chunk of those people who are just coming to log into your portal and those are just, people are hitting the site over again.
Those aren't customers or they are customers, they're not potential customers. They're not making you any money, they're just kind of inflating your metrics. Really interesting. So what is the solution to all of this LTV? Is there a solution? Is it just factor in as many numbers as you can, try to make sure you're looking at cost of acquisition, including with this gross margins always included? What's the right solution?
Diane: I think it's a pretty traditional data and definition problem really and one that you run into, not just for LTV, which is... Set yourself a target and a definition for your measure and try not to deviate from. Following that formula and staying consistent with how you're measuring things, is the first thing they would say. And then second is, think about delta and think about movement rather than the actual number itself, which for LTV is hard because people tend to want to think about the actual number, but your aim is really to increase the LTV of your customer. A lot of the projects that you do are to do with that because in order to do that, you need to increase the AOV.
You need to decrease the chan. You need to improve your gross margins. So look at the delta and look at the evolution of those metrics and your overall LTV rather than the focusing on the number itself because in that way, it doesn't matter if the number is wrong, if it's the truth or not the truth. Nobody can tell you what is the truth or not for your particular business. It's about how you can make it evolve. So always look at the delta and you'll never be wrong.
Chase: Love that. That's great advice. Delta is huge. If you're growing from one to two is the same growth margin as growing from 100,000 to 200,000. So looking at those numbers even the day before is all you're looking for.
Diane: If you're benchmarking yourself against other companies, then that's when it becomes a problem, but that's why you can just adjust the formula at that point in time if you really want to.
Chase: Right. So shifting gears, moving towards an interesting topic that's pretty hot today, which is sustainability. So a lot of companies in today's e-commerce world are boasting about sustainability, making sure their products are organic and they're recyclable and all this kind of things. It's obviously not a secret that every product that's shipped needs to be in some sort of box, which creates waste. Why is it important for Smol to be focused on sustainability as kind of this core value prop?
Diane: I don't know if we use the word sustainability a lot. I think sustainability is actually, I mean, it's a tricky word in and out of itself because if you look at the definition of it, it means keeping up the growth. Doing something that's sustainable. Sustaining a rhythm means keeping up with it and when you actually want to do when you produce eco-friendly products is almost reducing the impact that you're having.
So these days is I tend to be a bit fidgety when I hear people talking about sustainability because a lot of the initiatives around it are about how do I keep up my lifestyle? How do I get the same level for less money? How do I feel better about the impact that I have, but still have the same level of consumption? What I would say is for Smol, what's really important is doing things better and improving every single day, which goes back to the slogan about doing small things, but making a big difference.
And when we think about our impact, we have a bunch of different dimensions that we look at in our products to do with the quantity of chemicals that's being used. To do with the amount of CO2 that's consumed to do the shipping, but it's also down to every single element of the supply chain. Are we trying to minimize our impact for every single one of them?
And every single day, our head of operation does an amazing job at that, just thinking about how you're going to go and improve every single bit across the supply chain and I think that's what's behind the Smol philosophy is we're improving every day. We started at a really good level and we're improving every single day to reduce it. With regards to shipping, that's actually a very interesting point because in order for a product to get on your supermarket shelf or in the shop around the corner, it has to be shipped, and you're probably going to try--
Chase: It had to be in a box somewhere.
Diane: The fact that things are being shipped, and I'm not saying, it's definitely true that the increased number of parcels that are being shipped around is definitely something to worry about and the amount of packaging and that's also one of the reasons why we created our own packaging, because that minimizes, again, the amount of packaging that we could be using while at the same time being safe. And that's why we spent months and months developing it.
And that's also part of the reason, it always circles back, but it's also part of the reasons why we're personalized, because if you personalize, you don't have to change the size of the box. And therefore, in the way that things are packed and in the way that things are stacked in a truck, you can gain more space and be much more efficient than if you had dozens of boxes that all have a different shape because you're having to ship different quantities around. So it's all a very big and complex puzzle that kind of fits together. You want to go?
Chase: That's such a great point and it's something that I didn't even really think of and it's not a topic that I wanted to get into here, but it's so interesting thinking every little piece of production around a product goes into figuring out how to deliver it from purchase to the person's doorstep. And there are so many other steps that go into this whole thing that it's really hard to focus all those things in.
And I think it even plays into LTV as well. Like all of the things that you charge for shipping or the cost of packaging, all of that. That needs to be factored back into your lifetime value cost and your cost of acquisition in understanding how each customer plays into your overall business strategy. So I think it's a nightmare of an equation to write out, but I think it's all related and it's things that people need to be paying attention to.
Diane: I think it's also really exciting. One of the things that's also really fascinating about the topic is that when you're trying to be in the sustainability space, or at least trying to reinvent some of the products that are out there, or some of the processes in the consumer space, what you need to always keep in mind is that consumers have standards. Costumers for the past 10, 15 years have been used to growing with Amazon and Amazon Prime and Walmart and all of those big retailers that are very, very powerful and have a lot of big brains behind them.
And they expect for you to have the exact same delivery, but at the same time produce better product and know them better because you're independent and personalized and direct to them. So you have a triple challenge to match what's out there, try to put out better products while at the same time sustaining the normal KPIs of a business. All this in a tiny startup.
Chase: And that's what keeps it interesting. That's what keeps it fun every day, huh?
Chase: Very cool. So I want to end with this. One of my favorite questions to ask people anytime I talk to anybody. We've talked a lot about subscriptions and about what you're purchasing and how to ship them and LTV and all these things. What is it that you are subscribed to in the physical subscription space and what are some of the products that you enjoy?
Diane: Well, I mean, it's going to be an obvious one. Obviously subscribe to Smol. What are the other subscription physical? I have a lot of magazine subscriptions, which I know is probably not the most environmental friendly, but I've been following National Geographic for years and years and years and it follows me for every country that I move to. And then a bunch of other magazines, but I think that's...
Oh, and of course, all of my groceries are now on a subscription basis. Be it from fresh vegetables all the way to the kind of more general house things that I need. Everything is subscription-based at the moment and I think that part of the future household is definitely there.
Chase: I would agree. I would very much agree. Well, thank you, Diane so much for joining us. I really appreciate your time here.
Diane: Thanks for having me. Thanks a lot.