The E-commerce Leader

[00:00:00] Jason: test your way into all things. Let people who are gonna work with you have a small corner of your total business and prove themselves with good stewardship and then include them further
[00:00:11] TEL Intro: We are Michael Veazey in London, England, and Jason Miles in Seattle, Washington. More importantly, you are the owner of a thriving online business, and you want to become the best e-commerce leader you can be. We’re here to get you there for show notes, with links and resources mentioned today. And for other GC resources like downloads, just visit our blog, the e-commerce leader.com.
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[00:01:18] INTRO: Hey folks. Today we are discussing an important quest on the e-commerce leader, which keeps coming up in my experience to the Mastermind members than the 10 K Collective Mastermind in London. And Jason’s also had various experiences with his clients over in the west coast of the States. So it’s a universal problem, which is this, should you hire.
[00:01:35] An Amazon PPC agency, an agency to manage your Amazon ads or indeed further ppc, but dealing with, driving traffic to Amazon. Should you hire somebody to do that for you. There’s a lot more to this than meets the eye and this is a problem that keeps coming up. So even if you haven’t considered it yet, it may be something that will come up for you in the next few months.
[00:01:56] If so, we are here for you. We’ve got a great set of questions and some solutions as well to how to deal with this complicated but important topic. Enjoying the show.
[00:02:04] Michael: We talked about, fixed fee and percentage, which I think was important, because for example, Eva, and they’re not the only people out there, do just offer fixed fee a month and it starts from about a thousand dollars for a sort of smaller.
[00:02:15] Account, which I think is really important because otherwise it’s very hard for you to do all the maths necessary to see what’s my break even point? In other words, what, where would I have been better off without the agency or where are they actually adding value? And it’s hard to calculate it. You got shifting stands.
[00:02:30] I’m not rigid about that, but I think I would have a preference for fixed fee. Yeah. Let’s
[00:02:34] Jason: break this down a little bit for people who may, might not be familiar with working with, agencies or vendors. Sure. In such ways. The two common models are, as you just described, a fixed fee where it’s just a quoted amount a month and they manage your account.
[00:02:47] Let’s say what, it doesn’t matter a thousand dollars, 2,500. It it could be any amount. If you’re, if you’re hiring , the Steve Jobs of product creation, he could say a million dollars a month. Yes, please. Whatever it is. It comes down to the quality of the operator or whatever.
[00:02:59] So that’s this very straightforward. You’re just asking yourself, Can I afford this? And we’ll, is my thesis that they’re gonna add more value than I’m paying for them? The alternate method, which gets more complicated, but is, what, how a lot of people operate, is, a fixed fee plus a percentage of the upside that they bring to the party.
[00:03:16] And the upside they bring to the party is then they get a cut of that. And so the percentage, and that, that gets complicated. But let’s just say, for example, let’s just say they incrementally add a million dollars of new business to your account in the next 12 months.
[00:03:32] Is, and that’s their work. That’s the result of their work, million bucks. Now if they know how to do that, then, generally speaking, those people wouldn’t be operating on a fixed fee. They would be operating with a, Hey, gimme a fixed fee. But I also want to cut to the upside.
[00:03:45] because I’m not gonna create a million dollars of value for you and make $2,000, a month. That’s just nonsense. In that regard, then you might hear prices like, it’s, 3% of the upside, or it’s 6%, or whatever. It’s in a range. And those are harder to evaluate, but generally speaking, they’re gonna be people who have a more, I guess what you might say, what’s the word I’m trying to use?
[00:04:06] They’re confident in their own ability to produce an outcome for you, and therefore they have already set the deal so that they harvest value for themselves because they’ve created value for you. There’s nothing wrong with that in, in my view, that doesn’t, that’s not a problem in any way. In fact, in a way it’s a really good inducement for them to work hard.
[00:04:27] The problem with the fixed structure where it’s just Hey, a thousand bucks a month, or whatever it is, $2,000 a month. Is you write them a check every month. They are not induced in month 2, 3, 4, 5 or six to work any harder or to make any magic happen in any different way than in month one. But if you are paying a fixed fee plus a percentage, then that person gets an appetite for the opportunity in a different way.
[00:04:56] They have the vision for seeing your account go from, let’s just say, a hundred thousand dollars a month to a million dollars a month. And when they get that vision, then they’re willing to work for it because they see a path for themselves to be compensated. So I, there’s nuance there and I think it’s something to think through.
[00:05:12] I wouldn’t disparage one versus the other. I would just say they’re different games and different games have different outcomes, true. And you need to think through
[00:05:19] Michael: that, yeah, you absolutely do. What I would say is, a couple of thoughts on that. Your points are absolutely valid.
[00:05:23] Somebody’s gonna be more motivated if they’re getting a good percentage of the upside. Sorry, I’m trying to get the cameras to work here. First thing for an ad agency, I would say it’s good to air on the side of a fixed fee because it gets enormously complex and actually the added value isn’t necessarily that much if they’re saving you 3% on ad spend on a big account.
[00:05:41] And if you’re spending, $10,000 a month or something that’s worth having, if you’re spending like $50,000 a month, that’s extremely worth having. But it’s probably not gonna be adding so much value that it’s gonna be worth you deep diving into it. And here’s the problem. It’s the adding value, but then there’s the management of the process and the, evaluation of it becomes so complex.
[00:05:58] And I’ve seen people get wrapped into this. They spend the whole time, evaluating where their agencies doing any good for them or not, and take that off the ball of actually going create some new products. That’s the best way to get some new revenue, with an agency. Managing overall, I agree that the inducement to, to, have part of.
[00:06:13] The upside, the revenue is really important. And I would just differentiate, there are actually three models that I see that are quite common. The other model is not anything like is good, which is you get, you pay say two and a half thousand dollars a month. These are typical numbers plus say 5% of total revenue, not of upside.
[00:06:30] And that is a lot less attractive because you’re basically giving away a lot of the money that you’ve worked incredibly hard to create. And they’re taking a piece of it without having had a piece of creating that, the value. And that’s very common and I would definitely stay away from that. That sense of upside is great in theory.
[00:06:45] Of course, that means you’ve gotta sit down and define how that works. And attribute upside to them, which is. Important but complicated, . Again, it introduces a layer of complexity, which doesn’t mean you shouldn’t do it, but again, this is the cost of having an agency. Yeah. It induces a, it introduces a layer of complexity that could be a distraction.
[00:07:03] So there’s another thing that you gotta think through.
[00:07:06] Jason: Yeah. Okay. So I wanna rewind the clock for a couple minutes to insert another layer of the fundamentals, because you just touched on something that’s really important. We’ll amend this little bit here, what we wanna talk about for a minute into our introductory section, which is the fundamentals of why would you do this.
[00:07:21] You just touched on something that’s really interesting, which is if you’re introducing an ad agency into your account, and let’s just say you’re spending, pick a number, it doesn’t matter. $5,000 a month in ad spend and the way you get profitable is either, make more money in re response to that, $5,000 of spend or.
[00:07:45] Spend less and get the same sales velocity occurring. You could just, you could be focused on getting an ad agency for efficiency’s sake, you could call it, or for optimization of ad spend. And we didn’t mention that a few minutes ago, but this is really interesting because yeah, this was my next question,
[00:08:00] Michael: but Yeah,
[00:08:00] Jason: Yeah. Oh, I’m sorry. Yeah, so then we’ll just weave at this together, but
[00:08:04] Michael: now carry on. I like where you’re getting, Let’s just keep getting,
[00:08:06] Jason: Yeah, because the question is, are you spending an appropriate amount currently, but it’s not producing a good outcome or result, or you’re not, making money, but the amount itself is appropriate Because, all marketplaces can only, Google is, this is true for Google I ads, so it’s true for Amazon ads as well.
[00:08:25] On the Google side, I have a standing budget for $40,000 a month of ad spend on Google Ads Manager, for our charity. I know how. Much Google can take against the keywords that I’m trying to spin for it. There’s only, so it’s like a buffet and there’s only so much the world can eat of your key phrase, and, so it, you have to, you have, there’s a cap to it. So if you’re already spending an appropriate amount, then the question becomes, is it an efficiency exercise? And could could you get a lot better outcome or even spend half that much and get the same outcome? So anyway, that all that to say that’s an important idea to think through.
[00:09:00] The blanket assumption that an agency is just gonna need to spend more. They’re just gonna double your spend. And that’s how they’re gonna grow is just a falsity, It’s just not necessarily. No,
[00:09:11] Michael: that’s really very good point. And that isn’t the point I was talking, yeah, you can either increase your ad spend and maintain the sales or keep the ad spend similar and increase your sales, both of which will increase the return on investment.
[00:09:21] It was the point I was saying so, but I really like your point. So I guess there’s, to emphasize that is really important. There is a maximum amount of keyword search traffic per month that you could even theoretically gain is a kind of keyword. Yeah. Tam, isn’t it? Maximum market size. . also to your point there, a really important point, that I think applies.
[00:09:40] Possibly more outside the Amazon ad space, but it’s 2022 and people on Amazon are advertising all over the place now to drive traffic. And your agency may or may not have the ability to do that, which is another question that you should ask them. Wells, latest ads ad strategy, including off Amazon.
[00:09:54] Is it tick for example? . But here’s the thing on Facebook, it’s a well known thing that getting, say 15% of the market to, to click on your ad is gonna cost you X amount. And if you want to penetrate the market further, you’re gonna have to spend a lot more money because partly things kick in. Like they’re slightly less targeted, they’re less because you maximize your very targeted market and so all sorts of dynamics kick in.
[00:10:15] But the upside, the net, as per marsh will put it, is that to gain a bigger sense of the market normally costs you more for the incremental market share. And the more you start upping ad budgets, the more that’s gonna kick.
[00:10:25] Jason: Salla diminishing, returns. Yeah,
[00:10:28] Michael: exactly. Sure. I think that you can get on the other side of it and get a sweet spot, by the way.
[00:10:31] Where, moly up the last few percent of the market you dominate is probably easier, but few of us are gonna be in that position. Yeah. Yeah. So two related to that, so one question I’ve got is how much of an improvement in advertising to sales ratio do you even on paper need to break even on this?
[00:10:47] Let’s say for example, you’re spending $5,000 a month on ads and let’s say. Let’s say you’re 20%, so you’re getting, what does that mean? You’re getting $25,000 a month in, in sales and it’s assumed that there’s some profit in there. We’ll leave that to one site. Okay? If your agency costs you say, a thousand dollars a month, how much better do they need to be for you to just come out with the same profit?
[00:11:08] And that’s a, that’s not obviously a, if it’s just gonna break even. And now you’ve gotta manage an agency that wouldn’t be a good reason to do it. But that’s a very minimum it has to hit. And again, people often don’t do that simple number calculation. I think that’s the absolute basic that you’ve gotta do.
[00:11:21] Really.
[00:11:22] Jason: Yeah, that’s totally right. And we’ve been in that scenario ourselves with, a team that we had managed for several years. Wonderful people really know what they were doing. And, but the fundamental question was, were they earning their keep, is another way to say it. Are they bringing enough in to the party to pay for their own freight or whatever the metaphor is you want to use?
[00:11:41] The, that’s a hard, that’s a important thing to understand. and it’s a sometimes a high hurdle if you’ve already got a system going pretty well. Now, if you say, it’s only $2,500 a month that I would be paying them or whatever, they’re certainly gonna make more than that for me or save more than that for me on the efficiency side maybe.
[00:11:58] But you have to know the numbers to sort that out. And and knowing those numbers and having ’em on paper or on Google, sheet or Excel spreadsheet is important to really noodle out. And, a lot of us are just so slammed for time and, mental, head space that we don’t have the capacity to actually do that work thoroughly on the finance side.
[00:12:17] And we’re not so nerdy as to laying into that. And so we do back of the envelope stuff like, we’re doing better than we used to be and, we really like ’em. Or, we’re doing the same as we used to be. They’re doing okay, but is this really adding value? We don’t think so. These kind of these kind of, I guess you could say heuristic level, just generality views of this kick in sometimes when we actually need to know the numbers to really bet and verify,
[00:12:42] Michael: It, and it’s quite subtle how you actually would assess this.
[00:12:46] One other question that comes up with this is to your point of why do people outsource Sunday, By the way, we’re so down on it today, but there are really great reasons for doing it and there are people who will do it well for you, as we’ve said, but one of the reasons is to getting back time. So my question is another one that again, people don’t think three cuz I assume.
[00:13:03] Because it’s sold that way and because they want it to be due. It’s a kind of push button exercise, click okay, I’ve applied these guys, they’re gonna take care of it. Now I’m back to, building wonderful products. Guess what? You’ve gotta find agencies gotta do due diligence. You should at least do some kind of, interview or see if they do account audit for you, which is great cause you’re gonna get free value from that.
[00:13:19] And these guys probably are quite expert at ads if that’s what you’re focused on. Or even your entire Amazon accounts. Same argument applies. You gotta do onboarding, negotiating. And if you’re talking about getting a percent of value add, how is that even defined and can you negotiate that? Do you understand it?
[00:13:34] That takes time. You’re gonna manage an agency because if you just leave them on their own, they’ll generally just do. You know what’s least pain . And even if they got a percentage of the upside, if they got 5% of your additional revenue, but you have 95% of it, guess he’s more motivated to chase them up.
[00:13:49] And then of course you might have to fire them. And as you say, go around more than once. And that actually takes a lot of time. And you have to really look at the amount of time in the ramp for the overall process of maybe trying two or three agencies to find the one that really works for you. If you think that works that well and look at that versus just doing it in house yourself and weighing that up.
[00:14:07] Often the saving, even if the money makes sense, the time saving is actually not as much as you think. And you’ve got the level of risk and uncertainty. And again, sometimes it’s not worth it. Sometimes it really is because you just have to do something about getting off your plate and you suck at advertising.
[00:14:22] And I could think of a couple of people where I would just simply say to them, Hire an ad agency. But to your point, compartmentalize going slow. Yeah, because they just suck at it. . Yeah. But if you’re not one of those people, then you know, you’ve gotta think that through.
[00:14:34] Jason: Yeah. Totally agree. This is a great conversation, man.
[00:14:36] Any other top of mind questions or commentaries or should we just bring this, train into the station? Yeah.
[00:14:41] Michael: Two, the simple points. We talked about having a strategy for dealing with the latest ad tights, including off Amazon strategies. Here’s what I would say. The numbers are what matter. It’s very easy for an agency to get very excited.
[00:14:52] They hire young people who you know often and they’re very good at getting excited about and making a lot of activity around new ad types, and Amazon is offering a plethora of new ad types. And guess why, cuz it makes Amazon money. I would still put my money on sponsored ads and to some degree video ads.
[00:15:09] I’ve not seen a great deal of other types of ads actually show a provable return on investment. So just because they do more doesn’t mean it’s good asking. What their strategy is that they just offer everything in the world. It’s like, how are you gonna make that make me money is a critical question.
[00:15:25] . And then the final question is simple. Yeah. Do they offer free audit? A lot of people do. Some don’t. But, get them to look at your account and go and talk to several people and get their insights. And if there’s some common ground or they get insights that, again, to reflect on it with a mastermind or a coach is really helpful.
[00:15:39] If they have really great insights that other people don’t, then they may have something extra to offer, which is not a substitute for that. And the we do every type of magic advertising are so seductive. They are not a substitute to your extremely important point, Jason, for getting a referral from somebody who’s used them as happy.
[00:15:56] That’s really the bottom line. Yeah.
[00:15:58] Jason: No, I’ve seen this happen in the last month where now that Amazon’s unlocks a new ad, products, those have become the shiny. That people are now selling like, woohoo. Now we can do, off Amazon ads and, is this funny kind giggle, look, they’re making a shiny object out of off Amazon ads.
[00:16:17] What is an off Amazon ad? Oh, it’s a display ad. Oh, there are people who’ve been doing that for 25 years and let me tell you all about how display ads work. It’s like it’s not a shiny object, it’s just new to the people who don’t know about it. But actually when you just think it through, it’s like, what is off Amazon ads?
[00:16:33] Oh, okay, here it is. And this is how those ad platformers work. And here’s the pros and cons. People have been doing that for 25 years. Literally Google bought the companies that did that and bought their way into that, ecosystem and environ. , and that’s a tried and true proven universe of ads.
[00:16:53] And, there’s not a lot of shine in there. All
[00:16:57] Michael: I would say is, yeah, I guess if you unpick the layers though, it’s a shiny object and then you’ve unpicked the layer. It’s not a shiny object, it’s been around for 25 years or something. But I would just go one layer deeper and say, Okay, I don’t care about all that.
[00:17:09] Show me the money. It can, What is the cost per click? Does that convert into sales? Do you have statistics? How does the economics of this work? For me, it’s that simple for ads, for Amazon agency as a whole, little bit different, but I think we, we’ve deep dive into ads and I’m fine with that because most people that I know think about hiring an ad agency and not many people go into hiring an Amazon account management agency.
[00:17:31] Because, Those are people who by definition don’t know Amazon very well and are really great elsewhere. And I don’t have many of them stumbling into my world because I run a mastermind for Amazon Center. That’s not generally how it works for me, although the odd person has, some experience with that.
[00:17:43] But, so I think we are good to summarize this here. I, should I just go through a few of the questions? We’ve got quite a few, so hopefully, if you haven’t got a plan then pop over to the, pop over to the eCommerce leader.com and I’ll make a list of the questions for you there. Yeah,
[00:17:57] Jason: just thes or maybe just the pros.
[00:17:59] Either way you wanna do it, but yeah.
[00:18:01] Michael: Okay. Why don’t you give us the prescriptives and I’ll do the
[00:18:04] Jason: questions. Okay. You go.
[00:18:07] Michael: So questions first, So I’ll blow your mind and then Jason will simplify it. This is the way we normally operate. First of all, do you have the right motivation? you trying to just get rid of pain or do you have a business case for doing this?
[00:18:17] For hiring an Amazon ad agency or indeed an Amazon account management agency. Will the agency help educate you on how the process works? Or is it just done for you and you don’t learn anything? Do you make enough gross profit to cover the extra overhead? And as Jason said, are your ads at all profitable?
[00:18:31] Start with, are trying to amplify a chaotic situation? Is your advertising to sales ratio aim realistic? What’s the risk, that you have, if you have an existing business, are. And again, Jason’s point, underestimating your own skill and overestimating the agency for a competent operator.
[00:18:47] Very common. And, what else we got here? Is the agency offering a fixed fee or a percentage? What? Both can work, but you’ve really gotta do the numbers. How much of an improvement in advertising to sales ratio do you even need on paper to break even on this? And then a a related question to advertising sales, but not the same thing as the amount of money you’re spending.
[00:19:05] Correct. So have you budgeted correctly? Are you possibly underspending? Some of my mastermind guys definitely doing that. Are you trying to just chuck money at the problem? How much time will it actually save? When you found and done due diligence and fired the odd agency, what’s the strategy for doing with the latest ad types and shiny objects aren’t necessarily what we’re interested in.
[00:19:22] And do they offer you a free audit for you to check them out? So those are the questions for you to think about and the
[00:19:27] Jason: solutions. Solutions . and the solutions are, number one, test your way into all things. Let people who are gonna work with you have a small corner of your total business and prove themselves with good stewardship and then include them further.
[00:19:44] Number two, build in-house capacity over time in whatever way you can, because that will make your system and your enterprise value higher, and better and stronger. And there’s just a ton of wisdom in that. Number three, look out for agency, risks. Do they have clueless reps? Do they over promise and under deliver?
[00:20:03] Are they really good at the sales side of it, but not so good on the delivery side of it? And n number four in that regard is vet anyone who you’re gonna use with real testimonies from people and number four is that the agency that you’re potentially gonna use with real testimonials from people and trust that you could really, poke around and lean into the conversation and say, tell me the details here. Because you know the person who’s recommending and that’s best done in a small group in my view, where you have veteran operators that you work with.
[00:20:34] I’ll say one other solution which we didn’t talk about, which I think is really important maybe for another podcast cuz it’s a big ocean of opportunity. And that is another strategy for solution for this is thinking laterally. And that is thinking about what are the alternate options that maybe have bigger upside than just leading into a specific, solution like an ad agency for your Amazon account.
[00:20:58] That’s a whole different topic that I think is, worthy of a, a deep dive. And what I mean by that is, is. Incrementally improving your Amazon ads, even your best bank for the buck, Or would you be wiser hiring a Pinterest ad agency and having Pinterest drive traffic to your Amazon products? Or, I could name 25 things that are alternates, lateral thinking, to the fundamental question, which is, should you hire an Amazon ad agency?
[00:21:25] So I’ll say that for later, Michael. I know hopefully that’s an enticing additional conversation for future thought, but, great conversation today, man. Really love this.
[00:21:33] Michael: Yeah, I thank you. That’s, another interesting point you make, which is, and yeah, by the way is an interesting conversation because it’s a thing, a different podcast than today’s, yeah.
[00:21:42] A lot of pain out there. I just think we need to address it. Like I, this is really for, I always tend to try and make podcasts for the people that I know personally who are running Amazon accounts or e-commerce businesses, they have pains that need solving and this is our attempted to try do that.
[00:21:56] I think to your point, an excellent question in yes, an excellent podcast. I think, often people are asking the wrong question, which is, how do I improve my Amazon ads as opposed to how do I spend money and time in a way to get the biggest return, to your point. , really great question.
[00:22:08] So a couple of final, calls to action having trashed Amazon ads agencies. They’re not all born equal, and it may be that you are gonna go out and try and talk to one any anyway, in which case I would recommend, our sponsor, Eva, now they’re our sponsor, so I have a commercial relationship with them, but the reason for that is because I think they’re good at what they do.
[00:22:25] So if you want to get a free audit from them at. Then you’re gonna get, a good bit of insight. You may find it’s useful, you may not, but you can judge for yourself. If you go to amazing fba.com/audit, A U D I T for tango, then you can get that set up. And I would definitely get free advice from quite a lot of people around this stuff.
[00:22:41] You don’t have to believe it, you don’t have to follow up on it, but you, it at least makes your brain think in the right way, which I think is super valuable. And there’s no, took a risk reward. There’s no risk really there. And the other thing with Eva is a couple of the guys in Mastermind have been using them for Amazon, account management.
[00:22:55] So you, if you want to get in touch with somebody and get a referral from somebody who I know and trust, and if you trust me enough, then you’re welcome to just pop me an email, [email protected]. And the other thing, that we should just briefly mention, Jason, is that, are people of wanting full Amazon ads, management, that is something you guys offer?
[00:23:12] I guess it’s not a very common thing is that you’re not big sort front and center about it. But who would be a person that might be served by that?
[00:23:19] Jason: . It’s really our clients that we do that for more than anything else, and we’re not actively marketing that. So much so if you’re a client of ours and your account manage or, ads managed on Amazon, we do such work.
[00:23:30] But, I would punt to Eva on this stuff, honestly. Great. I’m happy to not be referred to for this work. There you go.
[00:23:38] Michael: probably the best person, the person who doesn’t want the work. . The other thing to say finally is if you have found this thought provoking and valuable, Don, forget to subscribe to the show.
[00:23:47] And we are the eCommerce leader with a Hy e hyphen Commerce, and we are of course on Spotify, Apple podcasts and pretty much everywhere else, Google Podcast, you name it, we’re there. So don’t get, subscribe to the show and get all the good stuff directed to your earbuds.
[00:24:06] Jason: Thanks buddy.
[00:24:07] TEL Outro: That was the E-Commerce Leader podcast with Michael Viy in London, England, and Jason Miles in Seattle, Washington. If you liked this content, don’t forget to subscribe to the show on your podcast app for free resources, including PDFs and videos on topics like traffic products and sales channels. Just go to www dot the e-commerce leader.com.
[00:24:32] No hyphens, just as it sounded. Thanks so much for listening.