Marketing to the Rescue

June finished unexpectedly strong. Last week was actually my second-best of this year. We’re still not talking high finance here, but hey: it’s good news for a change. Fact is, thanks to some other unusual circumstances, June’s ever-so-slightly in the black, and I am still running a wee bit ahead of LY in YTD sales. My sales uptick coincided with eBay pulling its pay-per-click ads from Google. This week’s sales, OTOH, were typically poor (as expected; this is a very slow time of year).

My “rescue products” haven’t kicked in yet. The lighted caps are extremely popular with everyone who sees them in person. I’ve already sold three to friends, had expressions of interest for a few more, and might sell a few at our Fourth of July barbecue tomorrow. As I said once before, if I had a physical store I know that these things would be blowing out. But I need online success.

Which brings us back to marketing again…the topic that will not die.

First, I’m trying to spend money more efficiently. PPC advertising keeps getting more and more expensive as the deep-pocket people like eBay and Amazon spend millions of dollars to own the top position for every keyword they can think of. I don’t have millions. I have hundreds, and precious few of those. So I’m pruning the least cost-effective keywords. I used to think that any traffic is better than no traffic, but that isn’t true when you’re paying for it. Every keyword that’s cost me over $15 per sale is gone.

Example: I’ve been bidding an average of 13 cents per click on the words “cool gifts”. 824 clicks have cost me $109.77 over the years. Only two of those 824 visitors (0.2%) bought anything, meaning that I paid over $50 for each sale. Buh-bye, “cool gifts”. Compare that to “unusual gifts:” Also averaging 13 cents/click, 801 visitors have cost me $107.16…but 0.95% of them bought something, so those words cost me $13.66 per conversion. It’s just barely under my threshold, so it stays for now.

At the same time, I’m raising my bids on my more successful keywords. My overall spend probably won’t go down, but my conversion rate should go up. I currently convert a little over 1% of my clicks. I would be thrilled to get that up to 2%.

Here are some fun statistics (Dec. 11 2005 – June 19 2007): I’ve spent $3,018.77 to buy 23,126 clicks, or 12 cents per click. I achieved a conversion rate of 1.18% (225 sales), slightly above my target. My cost per conversion was $10.06. My worst campaign was “Holiday & Seasonal”. I have torpedoed this campaign entirely. “Product Categories” is the next worst; I’m pruning it almost to the point of elimination. “General Keywords” is also pretty bad, but salvageable. My most successful area is “Product Specific” keywords, where 187 sales cost “only” $6.44 each. By the time I finish pruning, this will be the only campaign with any meat left in it.

I focus on PPC advertising because it’s the only thing I know how to do. But it’s not working that well. My few print ad experiments have all failed, and I think I now know why: I keep trying to promote my store generically. “Come and shop here” just doesn’t work. I have to get specific.

Here’s one approach: Choose one product (cap lights). Define a likely group of customers (fishermen? campers? computer geeks?). Find a print publication that they read. Then design an ad specifically for them, and run it in that publication. The problem with this approach: My specific product page URLs are way too long and convoluted to place in an ad, so I can’t bring customers directly to the product page as a PPC ad does. If I am going to bring people to my home page, I have to make sure that the caps are prominent there. That’s very difficult with my design.

Here’s another approach: Mark maybe 12 caps down to zero and mail them to media contacts in the hope of getting a product review or promo. It’s cheaper than producing and placing an advertisement (about $150, versus probably >$1,000). The problem with this approach: There’s no guarantee that any of those 12 caps will bring results. And even if they do, there’s no guarantee that the publication will inform me before the review runs.

Theoretically, I suppose, I could do both. Maybe buying ads at the same publications that get a free review copy would improve my rate of success with reviewers. That would be expensive and risky. I’d have to sell about $10,000 worth of caps (500 of them) to justify the cost of a $1,000 promotion. It isn’t out of the question, but it’s pretty damned ambitious. Curio City has only had a bit over 1,000 transactions in its history to date.

The lead time for Christmas sales is ticking down fast. I can’t afford to dither and delay if I’m really going to do this. If you’ve been reading this blog for long, you know that I’m masterful at avoiding this type of work. I would rather eat a bug than deal with advertising and marketing.

One other marketing move that’s more up my alley: I want to reorganize my store. Even I sometimes have trouble remembering which category a particular product belongs in. My site could be a lot easier to shop. There are two ways I can go about this:

The proper and elegant fix depends on the stupid Sunshop upgrade that you’ve been hearing about for six months now. I want to implement subcategory flyouts. As your mouse hovers over the category names on the navigation bar, subcategories would appear to the right. This is extremely basic design. Virtually every retail website that you see does it. Yet AFAIK Sunshop still won’t support it, even in their ephemeral upgrade. I have to have it custom coded, and Eric (my current developer) has said that he doesn’t want that job. I’d therefore need to find and hire a different programmer. And I don’t want to change horses midstream until the Sunshop upgrade is performed and absorbed. So…stalemate.

The quick and dirty fix is to simply make every subcategory a top-level category that appears in the navbar. There are several drawbacks to that. First, it would be a ton of work to revise virtually all of my product pages, and then redirect all of my PPC ads to the new URLs. Second, my current list of 17 departments would balloon to 39 entries! Even with some consolidation and cleanup, I’d probably end up with at least 30 categories. I’m not sure that 30 specific categories are any easier to navigate than 17 vaguely-named categories. Third, my categories would no longer correspond to my main page’s image map, which invalidates my core design and implies that I really ought to have a new front page. So now I’m contemplating a complete design overhaul. Not so quick and dirty after all, eh?

Decisions, Decisions

It’s time for all of the hand-wringing I’ve done since the Mother’s Day Bloodbath to pay off. Changes are afoot.

I finally decided to blame my merchandise for my ongoing sales decline. The star products of 2006 sputtered out, and nothing new flared up in their place.

My working conclusions:

• Curio City Online probably isn’t going to achieve the goals that I defined for this year. Sure, the year’s only half over – and, for the first time since April, this week’s business unexpectedly beat LY. But I’m on the verge of falling behind in YTD sales – inconceivable, considering that I had planned to double LY. Why? First, as I said, my 2006 bestsellers are languishing. Second, the big Sunshop version 4.0 upgrade that was due last Fall has still not shipped. That endless delay killed my enhancement plans. (Sunshop was probably a bad choice anyway, but that’s a whole ‘nuther column). Finally, running a web business draws upon my weakest skills. I am always a step behind the curve in understanding the technology and the retailing environment…and consequently I’m at the mercy of outside experts. It takes a lot of effort and money just to keep up with the status quo. Therefore, I am not going to invest very much more startup money in Curio City Online, although I’m not turning off the spigot entirely. We’ll see what happens when that Sunshop upgrade finally does ship…any day now, yessirree. Any. Day. Now.
• Of the several possible futures that I’ve considered, opening a store offers the most promise for profitability. Doing that by myself will be incredibly challenging, but at least there should be no mysteries that I can’t solve, and few dependencies on independent contractors. On a personal level, I am ambivalent about spending my old age shackled to a store; most businessmen my age are starting to think about turning the keys over to someone younger. But on the professional level it’s the only logical move. Therefore, I’m going to invest most of my remaining inheritance in opening a store.
• This is NOT the end of Curio City Online! It’s my only source of income until my store opens in September 2008. Even after that, it will remain an important marketing/supplemental sales tool, and an integral part of the Curio City concept. I think my heart will always be in the online business, and ultimately that’s still where most of the income potential lies. Therefore, even while I’m laying the foundation for the Curio City store, turning around the web business is still my primary focus for the rest of this year.

What’s the turnaround plan?

Finding new products has to be priority 1. Promoting them is priority 2. Reorganizing categories and subcategories to make the store easier to navigate should be priority 3, although it depends in part on upgrading the site itself. Previously my primary goal, improving the website is now last priority, since I can’t do that without infusing new money, and it still depends on a Sunshop upgrade that might never come.

The rest of today’s post is about finding new products.

I dissected my cash flow projections to liberate as many dollars as possible beyond my known obligations (payroll taxes, sales tax, orders outstanding, marketing budget, normal open-to-buy, etc). There wasn’t much cash lying around, but there was a little leftover startup money from Phase 2 that never got spent. It’s enough to buy maybe half a dozen “rescue products”. This leaves me with no cushion against unexpected expenses, but sitting on the money only ensures a prolonged bleeding to death. So I’ve been shopping aggressively.

These lighted caps are my first rescue product (many thanks to my friend Matt for showing them to me). Selling them online will be challenging, as usual. First, the caps don’t photograph well; that’s my chore for this weekend. Second, some competitors are already underselling me. Third, similar products of lower quality sell for less. Fourth, the minimum outlay to bring these in took more than 1/3 of my “rescue” money. If my hunch is wrong, I’m hosed. But they get to the heart of what Curio City is about: cool things with practical value, flashy but useful. Best of all, they aren’t ubiquitous yet. I might be ahead of a curve for a change.

I sank even more money into a couple of related products: This clip-on unit offers a similar function for less money (and with a much better markup!). And this strap-on head lamp covers another base. My hunch says it’s the most marginal of the three, but we’ll see. I think I’ve got the bases pretty well covered in this product line now. (NOTE: At post time, these products have still not arrived and these links are inactive).

Getting people to come in brings me back to my old nemesis again: Marketing. I’ll grapple with that again in next week’s column.

Calling this a bet-the-company risk is overly dramatic. It’s more like bet-the-company’s-direction. If people go for these new products, I’ll feel confident in my concept of this store’s future. If the rescue products flop…well, I’m not sure what I’ll do in that eventuality. I don’t have enough money to try yet another direction.

As my “rescue money” evaporates and I keep finding promising new products, I’m tempted to mark down some of my nonperforming stock to sacrificial prices, just to free up dollars. But some of the items that I can’t sell online might do well in my store, so I won’t panic. In the long run, I’ll still make money on this inventory. The trick is making sure that there is a long run.

The Promised Post: Store Financials

Introducing…the store-financials post that I promised three weeks ago! Ta-daaa! If you haven’t been following along, start reading at Curio Metropolis Online Redux to get the context.

I’ve been struggling since last week’s post to understand how a little store that earns only $125 per square foot can pay me a salary and cover its costs. The answer gradually became clear: It can’t. So I found some different starting data.

• Average gift-shop sales for a “neighborhood shopping center” -- one of those little malls surrounding a grocery store – is $149/sq ft, according to the Newspaper Association of America
• The median square footage for a gift shop in that type of shopping center: 2,250 sq ft, including non-selling space. This is twice as big as I’d originally planned.
• The average 2002 retail rent in Boston was $18.79. On one hand, there’ve been 5 years of inflation since then. OTOH, suburban locations are a bit cheaper. $20/sq ft is a reasonable rent budget.
• The store opens in September 2008, and achieves 75% of its 2009 same-month sales benchmarks.

Even using these new sales assumptions, no amount of budget-cutting could get the annual loss below $20,000. So I found this benchmarking tool and decided, reluctantly, to replace my experience-based cost numbers with statistical numbers. A few more hours of finagling finally squeezed a $135 profit out of my spreadsheet. (And that even includes a small slush fund for travel).

My $50,000 salary was the first extravagance to go. Curio City can pay me a maximum 11.5% of gross sales, or about $42,000 in 2009. Assuming 5% annual sales growth, I will finally regain my 1999 salary in 2012. As the only shareholder in the company, I’ll also pocket any year-end profits. So this works as a base salary with the potential for bonus income.

Staffing now becomes my biggest problem. If my store is really bringing in $335,000 per year, a typical slow month’s plan is $17,000. That’s a daunting $566 per day, or as much as Curio City Online grosses in a good week now. That’s 14 sales per day if my average $40 ticket holds up. I could handle that level of business alone, but where will I find the time to do all the admin stuff that currently fills my days if I’m tied to a cash register for 78 hours per week? The budget allows for one part-timer during November and December. But for the rest of the year, I’m on my own. No vacations, no days off, no sick days.

I shaved my store-opening budget to $75,000. If I can somehow manage to preserve $15,000 of my own cash to invest next summer, I’ll only need to borrow $60,000. That gets the debt payment down. My next chore in computing store financials will be to find some hard numbers for opening costs. For now, I just listed all of the expenses that I can imagine and put arbitrary numbers on them.

So I have a baseline budget, however shaky. Now I need to improve it. For one thing, I really can’t run a store of that size by myself, but the spreadsheet won’t balance with less than 2,100 sq ft even if I cut my slush fund in half, cut my own salary again, and fire one of my two December employees.

The only magic bullet is more sales per square foot. If I can boost that number from $149 to $175, I can cut my store to 1,500 sq ft – still bigger than I’d like, but it’s at least conceivable that I can handle a store of that size. The Curio City concept emphasizes more expensive merchandise than typical gift-shop fare (which probably includes souvenir shops). Also, my benchmark numbers appear to be national averages. Sales per sq ft in a major metro area are probably a bit higher. So $175 might not be unrealistic, but that’s just wishful thinking for now.

All of these calculations are for my own proof-of-concept. Before I can write a business plan and seek financing, I’m going to have to join a trade association and buy better-supported numbers. Random googling is not cutting it.

Next week I’ll draw some conclusions and try to define my new path.

This Still Isn't the Post I Promised

The arrival yesterday of a badly-needed new computer desk prevented me from finishing up the store-opening financial analysis that I promised you two weeks ago. My wife bought me this one for my 50th birthday, to help alleviate chronic problems with my neck, spine, and hips. My badly-configured workspace threatened to undo the progress that I made earlier this year in an expensive round of physical therapy. I really like the desk’s flexible design and all-hardwood construction, but assembly was a major challenge. It took me a good four hours to achieve the basic configuration, and then another couple of hours to customize it to my liking. And I’m still pondering more adjustments.

Kraken Enterprises’ headquarters is a glorified closet, really, so space is at a premium. My previous desk was a printer stand. Back pain often prevented me from working more than a few hours a day.

To be honest, I thought I’d completed the spreadsheet in question. After many hours of number-crunching, I arrived at a bottom-line sales requirement of $375,000 annually. That’s a lot of money, but it’s at least in line with revenues of the bookstores that I’ve managed in the past. It’s sure a lot less intimidating than the $800,000 I figured I’d need to make Curio Metropolis Online succeed.

(Footnote: My average sale has climbed back to its historical level of about $40, so the ridiculous number of sales-per-day in my earlier post is slightly less ridiculous now).

Before putting a bow on it and calling it a plan, I did the basic research that I really should have started with. The median sales figure for gift shops under 1800 square feet is $115-$140 per square foot. The magic number to make my plan break even was $375/sq ft. Only jewelry stores, which cram very expensive merchandise into very little space, typically achieve such a number. Gift shops in busy malls might exceed $200/sq ft, but they also pay astronomical rents. When I plugged in the safe assumption of $125/sq ft, everything collapsed. Even if I have no employees, pay below-market rent, and cut my own salary to a token $25,000, the best result I can forecast is a $35,000 annual loss! How the 1,000 sq ft store that I envisioned can pay its expenses and put $50,000 in my pocket from $125,000 revenue is…well, impossible.

By my calculations, it’s impossible for a gift shop to break even. Yet, just as bumblebees manage to fly despite scientists grounding them aerodynamically, they do. So there’s obviously something wrong with my assumptions. I had just realized that I need to start over yet again when my desk arrived.

Getting this right is very important. Maybe next week I’ll finally nail it.

You might have noticed that I didn’t start this week’s post off by whining about sales, as I’ve done for the past several weeks. Things picked up a little for Father’s Day – too little, and too late, but enough to reassure me again that there is no technical problem. Curio City is routinely running 50% behind last year now. The good news is that the stakes remain so low that it really takes only a few outstanding days to turn things around. Today I’m up against an astronomical $300 day from LY. Sales so far today? $9.95. Still, one never knows.

In any case, although it still depresses me, I’ve stopped stressing out over the sales decline. This year is just going to suck. Although I'll keep trying to turn it around, I have to accept that the current incarnation of Curio City Online may simply be a failure. Instead I'll put my energy into defining and implementing a new phase.

This Isn't the Post You Were Expecting

I never got around to starting my store-opening financial analysis last week because life got a little too busyl. Alas, this does not mean that Curio City got busy. Despite a very nice sale on Sunday that started the week off on a hopeful note, a 3-day shutout will bring it in way below LY, and May will finish at least 50% down overall. I still don’t know why.

With each day that this sales slump drags on, I spend more of my time working in the garden and around the house, and less time hunched over this computer. There’s only so much work I can do with no sales to process and no operating cash to spend (and no paycheck for motivation). This week's big news was the death of our 20-year-old clothes dryer. I had to move all of my Curio City stock – at least 100 boxes -- to clear a path to our bulkhead. After the new dryer arrives today, I’ll have to move it all back. At least I can reorganize and consolidate my inventory, making the "warehouse" more efficient if sales ever return to normal.

Lest I give you the wrong impression, “slacking off” still means spending 3-6 hours a day on Curio City, seven days a week. I read traffic reports, tinker with my PPC campaigns, look for new merchandise, evaluate forecasts, answer email, and hope that growth will resume as mysteriously as it stopped.

The Sunshop upgrade is the only thing I can see that might restore some momentum. Turnkey hasn’t updated their release news since May 18. They’re still working on gift certificate functionality (hooray!) and the ability to modify orders at the product level (huh?). There is no indication when they might release a stable and complete version.

I wrote a 1,000-word essay for the Yahoo Ultimate Connection Contest, which will award $25,000 worth of free clicks, a website makeover, and a year’s worth of marketing consulting to some lucky small business. Winning a $40,000 prize would certainly change everything. I’ll post my contest entry here when I’m sure that it didn't win.

My Father’s Day newsletter flopped despite what I thought was an extravagant free-freight offer on 15 featured products. 422 emails went out. Seven bounced. The 83 that were opened brought 26 clicks. No sales. All of the hours that I spent finding a new jewelry line, negotiating terms, creating product pages, featuring it in two newsletters, and creating PPC ads yielded one sale of women’s jewelry to an acquaintance from Octopus Overlords, and one expression of interest from a friend. The 26 clicks that I got from the hours spent writing my newsletter would have cost me about $3.00 on Google. My time these days is worth about 25 cents an hour.

I do have a hopeful eye on one cool new product line with good sales potential. The minimum order to get started is over $500 (my OTB right now is $150, and I have several reorders stacked up already). Some competitors sell very similar items for a lot less than I’d have to charge, and at least one website sells the identical product below my price. But their site looks kind of cheesy. I’m leaning toward bringing them in and emphasizing superior quality (while hoping that shoppers won’t price-compare too aggressively). I really like this product. Maybe my enthusiasm will be infectious.

Next week I’ll see if I can get to the financial analysis that I promised you last week.