Everything You Need To Sell On Google

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Your most Valuable Channel

You may not know it yet, but there’s a good chance Google Shopping is your most valuable online channel. This paper will explain why Google Shopping adds more long-term value than marketplace channels, and how we work with retailers and brands by leveraging Google Shopping to build long-term, defensible ecommerce businesses.

According to data from SimilarWeb, there were an estimated 44 billion million monthly unique visitors that searched Google in the United States during 2017. During the same period there were 2.6 billion monthly unique visitors searching Amazon. As Amazon’s position as the default product search engine strengthens, Google has been quietly building a powerful ecommerce ecosystem (Google Shopping, Google Express, Google Customer Reviews) that should not be ignored.

Of course, people search Google for more than products and Amazon primarily for products. As demonstrated by the accompanying graph below, Google serves a massive audience of consumers that are looking for your products.

When properly implemented, Google’s Shopping and Customer Reviews services deliver a positive feedback loop that creates long-term value for your retail business. These services allow you to cost-effectively acquire a growing base of your own customers.

Marketplaces vs. Google Shopping

On traditional marketplaces you pay a fixed commission (typically 15%) for  each sale. If the same shopper purchases from you multiple times on the marketplace, you pay that commission every time. You don’t own the customer relationship.

Google Shopping is best thought of as an alternative marketplace where instead of paying a fixed commission, you pay an upfront fee for shoppers to be directed to your ecommerce website. Each shopper that makes a purchase becomes your customer. If your customer has a pleasant experience, and you develop a conversation with them in the form of cost effective email marketing, there’s a good chance that customer will purchase from you repeatedly. You only pay once for a customer.

A Sleeping Giant For eCommerce

Google Shopping is Hard

Because Google monetizes on an advertising model, advertisers (retailers) need to figure out how much to bid for clicks from consumers that are browsing Google for specific products or keywords. Inexperienced advertisers with lower budgets face difficulties implementing a campaign that cost-effectively covers their catalog and collects enough data to justify further investment. Most retailers lose money on half-baked Google Shopping experiments only to retreat back to the comforts of traditional marketplace sales. Other retailers work with traditional search engine marketing firms and achieve mediocre results because incentives are not aligned.

Google Shopping is overly complicated and widely misunderstood. These barriers have kept competition low and have created a major opportunity for dedicated retailers looking to reduce their reliance on marketplaces.

Bid Strategy, Campaign Optimization and Budget Management

The key to a profitable and fast growing Google Shopping channel is a carefully monitored, data-driven bid strategy. At Zentail, we’ve designed a proprietary system that uses machine learning to dynamically assign SKUs to CPC buckets based on conversion rate, profit profile, and price profile. The system continually adjusts SKU bucketing with the goal of achieving a predefined effective commission agreed to by the retailer. We call this Programmatic Google Shopping.

Since Google Shopping requires up-front payment, once profitability is demonstrated through a stable effective commission, the retailer needs to be willing to authorize periodic increases to daily ad spend to avoid hitting an artificial ceiling in revenue generation.

Operation “Diversify and Grow”

In March 2016, we had an onsite meeting with one of our earliest beta customers. They handed us their latest monthly report from their search engine marketing firm, the numbers were deeply concerning. The previous month had seen $3,000 in Google Shopping ad spend that generated a total of just over $3,100 in revenue. If Google were a marketplace, that would be the equivalent of paying a 97% commission — the ecommerce equivalent of a cash incinerator.

This meeting set into motion a remarkable process of iteration and experimentation that would ultimately lead to a 53.3% compounded monthly growth rate on Google Shopping, contributing over $145,000 in revenue for the month of December at an effective commission of 17%.

Just ten months prior, Zentail was operating as an online retailer. We were a top 5 partner in Jet.com’s beta and fine tuning a profitable and fast-growing Google Shopping presence for our own webstore. As former online retailers, we understand the anxiety and despair symptomatic of over-reliance on marketplace channels. It’s hard enough operating profitably when 15% of every sale goes to the channel, not to mention the constant risk of suspension and ruthless competition. We could see it in their eyes how badly they wanted to own their customer base, how badly they wanted to take control of their own destiny.

In reviewing the sales data that follows, it is important to note that this retailer’s industry is not influenced by holiday shopping seasonality. As you can see from their February 2016 sales mix, with 89% of sales coming from Amazon and eBay, if Operation Diversify and Grow was going to be a success, we had our work cut out for us.

Our goal for this customer was to reach $250,000 in monthly revenue on their Bigcommerce site by March 2017. This would imply achieving roughly $150,000 in monthly revenue attributable to Google Shopping. As you’ll see from the chart below, we’d need to re-set expectations.

The performance achieved thus far has opened our eyes to the value of Google Shopping. By November 2017, BigCommerce accounted for nearly 30% of this seller's online revenue, and we expect to achieve $500,000 in monthly BigCommerce revenue during 2018.

Trust Me, I’m With Google

Google Customer Reviews is an opt-in service that allows Google to survey your customers and monitor your service level and fulfillment performance. Sites that sport the Google Customer Reviews badge with 4.5 stars and above typically see meaningful increases in conversion rates, average order value and declines in bounce rate. Based on data from Zentail customers, sites that areGoogle Customer Reviews also see increased customer lifetime value which we believe is attributable to the survey which Google emails to customers shortly after their order is placed. This communication, like other email campaigns, reinforces brand awareness and positive association. Since online shoppers have been trained to buy from Amazon and top-rated marketplace retailers they can  trust, this program offers excellent value to both the shopper and retailer.

Summary: The Positive Feedback Loop

So far, in less than 2 years, our customer can fill an NFL stadium with the unique customers they’ve acquired from Google Shopping.

The point here is that these are  your customers. As you market to your growing base of customers originally referred by Google Shopping, your direct traffic, page rank, Quality Score, Google Customer Reviews, average number of orders per customer and customer lifetime value all increase. This allows you to invest more into your campaign to further fuel your growth. We strongly believe that Google Shopping is the most powerful platform for building a valuable, long-term defensible ecommerce business. With Google Shopping as the engine of your growth, marketplace sales become the icing on the cake.

If after reading this you feel that Google Shopping optimization can help your business, take a moment to schedule a demo by clicking the button below.

Exhibit A: Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV)

Since you own your customer and you can market to them on an ongoing basis, the effective and actual commission you should be willing to accept should be considerably higher than the commission you pay to a marketplace. Each unique visitor to your site that makes a purchase can be added to email, telephone and snail mail campaigns that incur marginal costs per communication. Understanding and optimizing your customer acquisition cost and the lifetime value of your customer needs to be the definitive focus of your marketing efforts.

Let’s assume your average order value is $50, your average cost per click is $0.30, and your conversion rate is 4%. This means that you’re paying $30 for every 100 visitors. A 4% conversion rate implies that 4 of those visitors will make a purchase for total revenue of $200 (4 transactions x $50 average order value).

Going one step further, let’s say your gross margin is 30%. This means that you earn $60 in gross profit before ad spend on your $200 in revenue and $30 in gross profit after your ad spend. Therefore, the cost to acquire each customer is $7.50 ($30 ad spend / 4 transactions).

Your first sale to this customer contributes $7.50 in gross profit ($50 order value x 0.3 gross margin - $7.50 CAC). Each incremental sale to an existing customer will contribute $15 in gross profit before the cost of follow-up communication ($50 order value x 0.30 gross margin). The average email costs $0.02 to send at scale so you’re looking at $14.98 gross profit per incremental sale.

Assuming you really don’t do a great job of marketing to your customer base and your website does 100,000 orders in a year from 90,000 unique customers. Your average customer is purchasing from you 1.11 times per year. If your average customer shops with you for 2 years, your customer lifetime value (CLV) is $25.78 or a present value of $24.30 if you discount at 3% interest rate.

Now let’s say you decide to put a little bit of effort into marketing to your existing customers via segmented email campaigns. Your monthly emails start paying off and now every 100,000 transactions are made by 80,000 unique customers. Your average customer is purchasing from you 1.25 times per year and shops with you for 4 years. Your customer lifetime value is $67.42, a present value of $59.90.

Knowing how much it costs to acquire a customer and how much that customer is worth are the two most important areas of focus for your business.

Exhibit B: Actual Google Shopping Campaign Metrics

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