British mathematician, Clive Humby, declared “data is the new oil” in 2006. So where are we with data in 2023? I sat down with Thomas Gleeson, co-founder at StoreHero, to discuss. Enjoy 🙂
.....................
Describe what you do
I'm Thomas, a co-founder at StoreHero, an ecommerce profit platform. My journey in the ecommerce world started at home, with my mother running an ecommerce business for over 20 years. I suppose that's just the house I grew up in! I launched some small ecommerce brands and later worked at Shopify for 3.5 years. I started in support and worked though a number of roles later as a Merchant Success Manager for brands in the £25m - £100m bracket. This was a phenomenal experience and really gave me a front row seat to see how the ecommerce industry really works.
I found that many ecommerce operators were leaning on accountants for financial advice who might not fully understand the specific demands of ecommerce, especially its unique reliance on paid marketing.
Recognizing this gap in the market and a pressing need for brands to understand their unit economics, margins, and profitability, I left Shopify and co-founded StoreHero. Our platform integrates all the core ecommerce, marketing, and financial operations to give businesses a holistic view of their performance.
In my current role as a co-founder, I wear multiple hats. I oversee sales and marketing, and I guide our product development with a strong focus on driving profitability at all times. StoreHero is here to empower ecommerce businesses, providing them with critical insights for making informed strategic decisions to drive profitable growth.
Why is it hard to aggregate customer data?
Ecommerce brands use a lot of tools to run their business. This was something I witnessed firsthand at Shopify, as I saw brands juggling their ecommerce platform, multiple apps, inventory systems, CRM’s, ERP’s, and many, many spreadsheets. Each of these generates its own data, and when that information is spread across different places, it becomes challenging to unify and comprehend what it's saying.
This flood of data can sometimes cause brands to feel overwhelmed and uncertain about what's crucial, complicating their understanding of the overall business. Having a clear goal or a specific KPI to focus on within each data set is vital. However, it's so important to also remain open-minded. There can be valuable insights waiting to be discovered, which you might not have initially been searching for.
Data has been touted as the new gold for many years. Do you think this is still true?
I agree, we're now in an era where data is abundant and the real challenge is making sense of it. Brands have access to vast amounts of information, but this can sometimes be overwhelming. The key is not just in having the data, but being able to interpret and make decisions based on it.
Brands often find themselves in one of two situations: they aren't gathering enough data, or they're accumulating so much that they don't know what to do with it. Therefore, the real advantage lies in knowing which data is valuable and using that to drive decision-making.
For instance, understanding order level profitability can help a brand determine the makeup of its most and least profitable orders. Naturally you won’t want to see this every day, but understanding what makes up your most and least profitable orders can dictate your whole ecommerce strategy!
Using this information, businesses can strategically adjust their strategy – from site merchandising and discount strategies to deciding which products to promote in paid marketing campaigns.
I believe the future of ecommerce lies in the seamless collaboration between finance and marketing teams, working together towards the unified goal of business profitability.
How do you guys empower brands to make sensible decisions with their data?
StoreHero empowers brands by providing them with real-time, granular insights into their profitability at the order, store, and business level. This real-time view enables brands to make proactive decisions instead of reactive ones based on monthly management accounts.
We give brands an accurate understanding of their Marketing Efficiency Ratio (MER). By considering all variable costs at the order level and all operational expenses, we can determine not only the current MER but also the break-even MER. Having this data means brands can act more aggressively, and do so in the confidence that they’re making profitable, sustainable decisions.
As online advertising costs continue to increase, it's essential for marketing and finance to work in synergy more than ever. StoreHero acts as a bridge between these two critical functions, aligning them towards the financial objectives of the business.
We recognize that many brands either overspend due to a lack of precision or underspend because they lack clarity on the levers that can drive profitable growth. StoreHero solves both issues by providing clear, actionable insights that guide brands towards optimal spending and maximized profits.
Why has order level profitability typically been hard to measure? And what benefits are there if one has a better understanding of order-level profitability?
Order level profitability has been incredibly difficult to solve before now due to the fragmented nature of ecommerce.
We allow brands to include their shipping costs (as opposed to shipping sales, think about the free shipping implications!), 3PL costs, packing fees and transaction fees and map these directly back to the order level.
Consider this: you purchase a product for £20 and sell it for £80. The presumed profit of £60, however, doesn’t account for other costs. Once we consider VAT at 23% (£14.96), free shipping costs (£5), third-party logistics costs (£3.75), transaction fees (£2.10), and a 10% discount (£8), the actual profit (or Contribution Margin 2 - CM2) stands at £34.19.
Understanding your order-level profitability helps brands understand the makeup of their most profitable orders and least profitable orders. Understanding this helps brands inform their overall ecommerce strategy, approach to discounts and site merchandising.
What are the advantages of a more robust contribution margin?
A robust contribution margin provides invaluable insights into true product profitability, accounting for all variable costs like shipping, transaction fees, and advertising. It enables informed decision-making, highlights profitable items, and assists in managing pricing strategies.
As businesses scale, maintaining a healthy contribution margin ensures increased sales translate into profits. Growth also boosts bargaining power, allowing businesses to negotiate better terms with suppliers and service providers, improving the margin.
Additionally, increased sales often lead to greater operational efficiency without proportional increases in fixed costs, further enhancing profitability. Finally, the contribution margin helps balance marketing spend for optimal returns.
Many businesses today are being acquired based on a contribution margin multiple!
Does a better understanding of your store's data really help manage higher CACs? If so, how?
Absolutely. Comprehensive data understanding is crucial to managing higher Customer Acquisition Costs (CACs). The key metric here is the Lifetime Value to Customer Acquisition Cost ratio (LTV:CAC).
By factoring in all variable costs, you gain a clear picture of the true customer value over time. Comparing this against the CAC helps assess the sustainability of higher acquisition costs.
We've noticed that brands successful at navigating rising CACs have a strong understanding of their margins and understand their maximum profitable CAC.
This insight gives them confidence and clarity when scaling marketing spend. Despite higher initial costs, understanding these metrics can guide a brand towards profitability, allowing a more aggressive yet informed approach to marketing expenditure.
Having detailed store data significantly aids in managing higher CACs and drives strategic decision-making.
Do you think the data challenges brands face gets easier as they scale? Or do the challenges get more complex as they grow?
While scaling up, brands typically face more complex data challenges due to the integration of more sophisticated systems like ERP and inventory management. These systems often introduce more variables, making data management more intricate.
However, ensuring that foundational data—like that in Shopify—is kept current and accurate can substantially ease these challenges. Consequently, as brands grow and improve their data management practices, they can effectively turn these challenges into opportunities for improved decision-making and strategic growth.
So, while initially the challenges may increase in complexity, with proper data management, they can indeed become easier to handle over time.
Who are the people in the brand that typically use StoreHero on a daily basis? And what sort of roles or people should brands be bringing into their team to help them understand and interpret data as they scale?
StoreHero is typically used daily by key decision-makers such as founders, fractional CFOs, profit-oriented e-commerce managers, and marketing heads.
As brands scale, aligning marketing and finance becomes vital, given the rising ad costs. Brands should aim to foster a team where financial experts understand how marketing can drive profits, and marketers need to understand the unit economics of the business, including crucial metrics like the Marketing Efficiency Ratio (MER) and the breakeven point Return on Ad Spend (ROAS) at the product level.
Finance professionals often view marketing as a cost center, but with a deep understanding of the unit economics, they can make informed decisions, not risky ones.
Therefore, a data-driven, financially aware marketing team paired with finance professionals understanding the marketing's role in profit-driving is the ideal combination for brands scaling in today's digital ecosystem.
Finally, And it would be remiss of me to not end with a large language model question to round out this interview. How is AI impacting data aggregation, interpretation and decision-making in 2023?
Haha, I knew this one was coming! AI is revolutionizing the ecommerce landscape in 2023. Its rapid advancement is both awe-inspiring and a bit overwhelming.
The key contribution of AI lies in its capability to aid ecommerce brands in interpreting massive data sets and making informed, profitable decisions swiftly and accurately. The real game-changer is having a proprietary data set and using AI to analyze it. This would give businesses insights that are unique and highly targeted.
While I can't reveal much at this stage, I can say that StoreHero is working on an exciting development leveraging AI, which we are eager to unveil in the coming weeks!
Thanks, Thomas. You’re a legend 🙏