When I joined Pepperjam in early 2018, one of the first challenges that needed to be solved was churn and satisfaction rates were outside of any acceptable range in the lower half of our customer file as determined by channel revenue. We dug in as a team and methodically reviewed the data and developed an issue tree with the intent to identify root causes. The data analysis led us to an answer that confirmed what should have been intuitive. While we had opportunity for improvement in the way we supported these clients, the single largest driver of churn was isolated to clients whose total cost of ownership exceeded channel generated revenue. In other words, we should have never signed them as clients in the first place. It was just too soon for them. The thing was, the leading indicators weren’t a smoking gun and we weren’t obviously overcharging (most clients in this segment were paying us $250 to $500 in monthly minimums on a credit card they weren’t paying attention to), and many were paying agency fees that probably seemed reasonable in the beginning, many even had a “success fee” that gave the appearance of “skin in the game”. Both fee categories contributed, but ultimately, those were not the root cause. So what was it? It was as basic as validating that this channel only works as intended if the brand has met a minimum threshold of awareness amongst its target customers. Simply put, having a partnership program doesn’t guarantee any desirable outcome or results.
Rather, there are factors requisite for success, in both channel outcomes and brand satisfaction. How do you know if you’ve met the minimum criteria necessary for channel success? Start looking at your annualized paid social and paid search spend, which can serve as indicators of a brand’s level of awareness. Is your annualized run rate at least $1M USD? If the answer is no, you’re not ready and need to proceed with caution if anyone tells you that you are. Sure, you might get lucky and maybe you are the next Everlane, who entered early and scaled rapidly, but it’s more likely you’re not (at least not yet). The takeaway is that your precious budgets should be deployed to the primary channels that are most effective at creating that initial awareness. Eventually they will reach a point of diminishing returns (perhaps sooner now given Apple’s privacy changes), but that doesn’t really start to happen until about $50M in total ecommerce revenue.
When you stand back and look at it objectively, the temptation to enter the channel early has always been strong for emerging brands. The channel is outcome based, low risk and high reward. It is this unique combination alone that often drives unrealistic revenue expectations for the channel. Channel efficacy and expectations are further fueled by macro-level forces. There are no Facebook/Instagram CPMs with uncertain returns–a dynamic that has been made even worse as a result of Apple’s tracking transparency crackdown–no escalating CPC bids on highly competitive keywords on the Google SERP, no upside down CAC to LTV ratios that undermine unit economics and keep spend-conscious entrepreneurs staring at the ceiling in the middle of the night. Some marketers even astutely recognize that the right placements actually generate a comparable effect to earned media value, regardless of whether an attributable conversion takes place. Add to that the rapid emergence of affiliate networks, platforms and agencies offering “lite” or “starter kit” capabilities for SMBs with shorter contract terms looking to capitalize on the Apple-induced panic as a means to generate growth for their own businesses and the quest for the “next breakout customer” to fuel that net revenue retention number their investors are looking for, and you have the perfect storm for channel failure. Be wary. Ask how they know if you’re ready. Ask them to prove it. Talk to others who’ve been there before you.
Why? Because there is one critical and very basic element missing at this stage. Partners won’t promote you and customers won’t purchase from you if they don’t know who you are. For most partners (from a micro influencer to well-known content publishers), if there is little to no confidence that a conversion will result from the promotion, they simply aren’t going to choose you. Their businesses require them to manage for page yield against user experience, and doing so demands that they consistently bring relevant, high-quality offers to their audiences large and small.
So now you have unreasonable expectations on revenue contribution from the partner channel, no partner distribution to generate those conversions, and the final blow, agency fees that could well exceed contributed revenue from the channel. Make no mistake, this channel has an absolutely critical role to play in your marketing mix. Ultimately, it has to be active if you want to create leverage. Just don’t turn it on too soon or you will not only be disappointed, but you will also doubt its effectiveness in the future. The net result will be the double impact of wasted marketing budgets now and the enduring skepticism that will likely result in a critical miss on what needs to be a key contributor to your future growth.
Bottomline: Don’t rush in. Lower barriers to access don’t automatically mean it is time to enter. Talk with experts who operate with integrity and prioritize your interests over their own — even if it means turning away your business. And proceed when and only when you are well informed and ready on your own terms.