| Happy Sunday! If you're reading this, I hope you survived Halloween weekend and whatever candy made it into your house is mostly gone by now. Here's the situation I want to work through today. A brand has been running the same welcome offer forever: $10 off the first order. Someone on the team pitches replacing it with a starter kit. More stuff in the box at a slightly higher price, and the argument is that it "feels more premium" and bumps AOV. Everyone nods... Nobody writes down what has to be true for the kit to actually be the better offer. I've written about new-customer offers before, and both of those were about building the offer, what goes in it and how to make the value obvious. Today I'm going to take one made-up offer and calculate the conversion rate the new version has to clear. But, before we get into that... Vendor of the WeekVibe.co — reach future customers using what they already buy. If I ran a protein brand, I'd be interested in people buying equipment for a home gym. They've already put money into the habit my product fits into, even if they've never visited my site. Vibe.co now lets you reach shoppers like that on streaming TV using Walmart's online and in-store shopping signals. Those audiences are available directly in its self-serve campaign builder, with 3,000+ segments, including 300+ personas. You don't need to sell at Walmart to use them. I'd start with one related purchase that gives someone a reason to need your product, then test that audience against your existing targeting. Keep the creative and offer the same so you can get a clearer read on whether the audience is helping. You can still use Klaviyo customer lists to exclude existing buyers and measure Vibe campaigns alongside your other channels in Northbeam. The Walmart audiences come at no additional charge for Vibe users. You still pay for the ads, but there's no added data fee to try this. Limited SupplyThis past week on Limited Supply, I sat down with Izzy Rosenberg, the founder of Portless, an international logistics company. He previously built a global supply chain for his electronics brand, shipping anywhere in the world, and when he realized how hard it was to execute, he turned it into a service that now lets brands scale global sales overnight. We talked about what it takes to be an international-friendly product, what you need to have ready to go international, which countries you should start selling in first, and what kind of team it takes to execute this. Give the episode a listen. It was one of my favorites I’ve done… Izzy is a wealth of knowledge when it comes to supply chain (something I don’t know as much about myself). Give it a listen on Apple Podcasts, Spotify or YouTube (just search “Limited Supply”). A bigger offer isn't automatically a better oneA welcome offer has one job. Make it easy for a stranger to say yes to the first order and actually use what shows up. Whether that offer is better for the business is a different question, and the answer is how much money it leaves you from the same traffic. A higher checkout price tells you nothing on its own, because the price can go up while the number of people willing to pay it goes down. "Feels more premium" is not a reason. Your bestseller might be the wrong first purchaseYour best-selling SKU is usually your best-selling SKU because existing customers keep rebuying it. That's a loyalty signal, and it says very little about first purchases. A three-tub bundle can be the top line in your reports and still be a terrible first order, because it's asking someone to commit $120 to something they've never tasted. What you actually want to know is what first-time customers buy when they come in cold from an ad. Filter to first orders and look. Your reporting will be imperfect and attribution will be fuzzy, but even a rough cut beats treating every order the same. Then poke holes in it. Can a new customer pick the right version without opening a support ticket, and do they get a real trial without buying a 90-day supply? Pull refund rates and support tickets by SKU if you can, because the "obvious" entry product sometimes carries the highest return rate. For today's example, we're a protein powder brand and the standard tub is the right entry point. Someone can pick a flavor and get a few weeks of real use out of it. That's an assumption for this example, and I wouldn't apply it to every powder brand, let alone every category. The kit, and why each extra is in thereCurrent offer: one tub, normally $50, sold to new customers for $40. Proposed offer: the same tub, plus a shaker and a single-serve sample of a second flavor, sold as a $49 starter kit. Same amount of product, so the comparison stays clean. Each extra needs a job. The shaker is there because the product is annoying to make without one, so you're removing a reason the tub sits unopened in a pantry. The sample is there because if someone doesn't love the first flavor, it gives them a second shot before they write the brand off. AG1 does a version of this with the shaker and travel packs in the welcome kit, and Huel has been putting a shaker and a t-shirt in first orders for years. Both are making the first use easier rather than stuffing the box. Now push back on your own idea. Plenty of people buying protein powder already own a shaker, and to them it's worth roughly nothing. That's the reason you test the kit instead of assuming the extra helps. And please don't put a crossed-out "$68 value" on the page when nobody on earth has ever paid $15 for that shaker. People can tell, and it makes everything else on the page less believable. Tell them what's in the box and why it's useful. And "included" only means free to the customer. You're paying for the shaker and the sample, and that's where the math starts. Count what the order actually leaves youQuick math, all hypothetical. Customer payment excludes sales tax you're passing through, and shipping subsidy is what you eat after whatever you charged the customer for shipping. Discounted tub ($40)
Starter kit ($49)
The kit collects $9 more, adds $6 in costs, and leaves you $3 more per order. That $3 is the entire argument for the kit. I'm calling it contribution before CAC on purpose, because it isn't profit. We haven't paid for the ad yet and we haven't touched overhead. The payment fee is a rounded teaching number, and the extra shipping dollar is a nod to the fact that a shaker makes the box bigger. Your real version needs a line for expected refunds and anything else that moves per order. So here's the actual question. The kit makes $3 more per order. Does it get enough orders? The conversion rate to hitSend 1,000 of the same kind of visitors to each offer, same ad spend, same definition of a conversion. One purchase is one new customer. The $40 offer converts at 3%. That's 30 orders at $12, or $360 in contribution. The kit makes $15 an order, so it needs 24 orders to hit the same $360. That's a 2.4% conversion rate. At 25 orders, or 2.5%, it makes $375 and beats the incumbent by $15. Here's the formula so you can run it on anything: Required new conversion rate = baseline conversion rate × old contribution per order ÷ new contribution per order. In this case, 3% × $12 ÷ $15 = 2.4%. Per visitor, the current offer is worth $0.36 and the 25-order kit is worth $0.375. That's the whole gap you're testing for, and it's a lot smaller than it sounds when someone is pitching the "premium" version in a meeting. Same ad spend is not the same CAC, by the way. If the kit brings in 25 customers instead of 30 for the same budget, each one cost you more. The total contribution still comes out $15 ahead in that scenario, and subtracting the same ad spend from both sides keeps it that way, but none of that makes the kit profitable on its own. And this is first-order math only. Fewer customers acquired means fewer people who can ever reorder, and I'm not going to invent a retention bump for the shaker to make that go away. You'll find out what the kit does for second orders when you have second orders to look at, not before. Run this once before you launchPick one welcome offer you're running today and one revision you've been considering. Build the contribution line for both with your real costs, then write down the conversion rate the new offer has to clear. Do this before launch, because once the kit is live everyone involved wants it to have worked. Then test it against the same traffic under the same conditions. A concurrent split is the right way to do it. Comparing the kit's November against the discount's October tells you about November and October, and you'll end up crediting the offer for something the calendar did. And don't read too much into the numbers above. 1,000 visits and a 24-versus-25-order gap is arithmetic for teaching, and nowhere near a sample size. A $15 difference on 50 total orders is noise. Collect enough volume that you'd be comfortable defending the call to your CFO. The first call is a small one. Did the kit clear the contribution target, and did customers actually get the easier first experience you built it for? That's it. The LTV conversation happens later, when you have the data to have it. That's all for this weekGo write down your current welcome offer's contribution per order tonight. Then write down the revision you've been meaning to test and the conversion rate it has to hit. If you can't fill in that second number, hold the launch until you can. If you run the numbers on yours and want a second set of eyes, reply with them. I'm happy to go deeper on offer design if it's useful. It's Sunday night, so I hope you plan to get a full 9 hours of sleep tonight and have an incredible week. BFCM is a few weeks out... drink some water, get a walk in, take care of yourself. I'll see you next Sunday. Same time, same place. Nik | ||||
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