[CASE STUDY] How We Generated $130,000+ in Revenue in 5 Months for A Skincare E-commerce Business With Paid Ads.

Over the years of working with startups and SMEs at different stages across multiple industries, especially skincare E-commerce business, I believe that two important things a business must focus on to increase its chances of success at an early stage are customer acquisition and customer lifetime value.

The former focuses on getting the customer, while the latter focuses on making them come back over and over again.

Understanding customers' demographics/psychographics is important, but systematically acquiring them is what effectively drives growth.

Successful and valuable businesses are always creating products and services that enable them to improve customer acquisition and lifetime value.

Skincare E-commerce Business

A great example is Amazo

In 2005, Amazon launched their Prime subscription at the initial price point of $79 a year offering unlimited 2-day delivery on over a million products in their store.

It was successful (and still is to date).

The rationale behind it was that Amazon found out that Amazon Prime customers spent more than non-prime customers.

By 2015, Amazon introduced same-day delivery.

Take a look at how Amazon increased the cost of Prime and the user growth for the US market.

Year Annual Prime Subscription Fee No. of Subscribers Prime Revenue
2005 $79 - -
2014 $99 40 million $2.76 billion
2018 $119 112.1 million $14.17 billion
2022 $139 163.5 million $35.22 billion

A great case of inelastic demand.

As a founder, knowing how much a customer is worth to your business cannot be overemphasized.

Here's why…

  1. It defines how much you should be willing to invest in acquiring that customer.
  2. It informs you on how much the customer should spend with you to increase your chances of profitability.
  3. It also defines how often that customer should keep coming back.

Of course, there's more to it, but I'm sure you understand it.

At the centre of this, it's all about initiating and maintaining a relationship with your customers long enough to make you achieve exponential growth.

Want Proof..???

Would you spend $1000  to acquire a customer that would spend $3000 with you for the next 3 months?

Of course, you should.

Here's why…

Acquisition Cost Month 1 Month 2 Month 3 Income Generated
$1000 $3000 $3000 $3000 $9000

That’s a 9x Return.

In other words, the lifetime value of the customer to the business is $9000.

Is investing $1000 to get $9000 a great idea?

You bet it is.

This is the most effective and scientific way to approach customer acquisition to scale a business.

In addition, the quality of the customer you acquire also defines how much the customer is willing to spend and how often they would spend with you…it also should influence the customer journey.

In other words, resist the urge to be a cheapskate when it comes to customer acquisition because it could hurt your business in the long run.

Now, that doesn't mean you can't acquire a customer with little or no money, it simply means focus on acquisition channels that predictably generate high-quality customers who are predisposed to buying from you.

With that in mind, let's talk briefly about channels…

There are two broad top-level channels you're probably going to leverage:

  • Offline channels 
  • Online channels

I won't go into the details, because you probably know the subcategory channels you can use, but there's just one thing to keep in mind when deciding what channel to use…

And that is CONTROL.

As a founder, you'll always encounter so many variable factors at play in running your business that could be very distracting and the same applies to customer acquisition.

So only prioritize channels that you have over 50% control of the outcome and keep optimizing to get the best results.

Now, here's where I'll be honest with you(and a little bit biased so feel free to disagree with me😜).

Of all the channels you can leverage to reach, engage and acquire customers nothing puts more control in the hands of any business than paid advertising leveraging digital platforms.

With this background, let’s dive into the case study.

Skincare E-commerce Business

As a startup growth studio, one of the first things we look out for in any business we work with or looking to work with is the feasibility of scale.

In other words,  how feasible is it to scale the business and how easy is it.

What’s interesting about this methodology is that it doesn’t only apply to startups, but SMEs as well (but startups have an advantage and I’ll explain why as we go on).

For most startups, the fast-growth ideology is seeded in from day #1  and is essential to achieve economics of scale in its early stage as compared to SMEs.

We’ve observed that there are about 5 things to look out for when trying to identify how feasible it is to scale the business:

  1. The Market dynamics
  2. The Customer
  3. The Need
  4. The Product/ service
  5. The Business model

No doubt there are so many other factors that could be included on this list, but the chances of missing the mark with the above list are quite slim.

I’ll talk about each of them as it relates to both startups and SMEs (with the current trends that we’re experiencing now).

The Market Dynamics

Market dynamics are the unseen (and sometimes seen) forces that affect most factors every market needs to exist such as price and consumer behaviour. Most startups or SMEs desire favourable market dynamics but solid businesses are made in unfavourable market dynamics.

Porter’s 5 Forces identifies and analyzes five competitive forces that shape every industry and help determine an industry's weaknesses and strengths.

However, while Porter’s 5 Forces give insights into an industry, nothing gives a better perspective and context as understanding the economic cycle as explained by Ray Dalio in the video below.

An economic cycle, also known as a business cycle, refers to economic fluctuations between periods of expansion and contraction. Factors such as gross domestic product (GDP), interest rates, total employment, and consumer spending can help determine the current economic cycle stage.

Businesses built in a down economy tend to have more resilience than those in more favourable times. Uber and Airbnb are good examples of businesses that solved critical problems in the down economy and that led to their success.

The Customer

Every economic cycle brings about a shift in consumer behaviour that ultimately affects the demand and supply curve. In times of economic expansion, we find more consumer spending, low-interest rates and increases in production.

On the other hand, economic contraction could spell trouble for businesses as consumer spending drops, and there’s an overall decline in growth.

The customers you target in both times may be the same but the strategy ultimately differs, in some cases, it might be two entirely different customer segments you might engage in to stay relevant.

A good example would be during the COVID-19 lockdown when economic productivity was drastically reduced and spending was reduced, businesses had to rethink their customer segments to stay afloat.

The Need

The needs of a customer determine their perception of value and directly correlate with consumer behaviour and its impact on the demand for a product or service which would in turn define bottom-line for any business.

There’s no better way to understand consumer needs than Maslow’s hierarchy of Needs.

Maslow's hierarchy of needs is a motivational theory in psychology comprising a five-tier model of human needs that prompts specific behaviour. Maslow believed that people are motivated to achieve certain needs and that some needs take precedence over others.

The level of needs a customer is at on Maslow’s hierarchy and the number of people on that level will tell how they prioritise the value of the need. Most of the businesses in Africa address the basic needs of the Maslow model. 

The Product/Service

With a good understanding of the fundamental needs of the ideal customer, you can then create a unique product or service that addresses the existing problem.

However, the reality is that there are numerous ways to address a customer’s needs but the outcome must meet the customer’s expectations (and if possible exceed it). 

And that’s where product design comes in.

Every customer has a desired outcome and has an idea of the relief the desired outcome would bring to them, and in most cases, they already patronize a business that gives that outcome.

…But, as Adam Smith once put it, human wants are insatiable. This theory gives rise to the premise that new products or services offer the same outcome faster, cheaper and better.

This is the driving force behind every innovative and disruptive product or service.

The Business Model

The secret to the success of any business is in the business model. It is the behind-the-scenes work that goes into the fulfilment of the transformational promise to the customer.

The more innovative or disruptive a business model is, the more advantages you can create for your business.

With that background, let’s dive into the case study on how we scaled a skincare e-commerce business to NGN 165,029,041.80 ($130,000+) in 5 months…

Over the past couple of months, we worked with a skincare e-commerce business. Our objective was simply to get more customers to purchase the skincare product.

Within the next 18 months, the business had expanded its online stores to Ghana, the UK, the US and Canada and over 3 physical stores and 15+ retail outlets.

I won't go into the details of that as it'll be way too lengthy for this article, but I'll speak more about the thought process behind it (particularly for August to December of 2023).

When it comes to acquisition, we typically use this 4-step question framework to guide the strategy we craft:

  • Who is the Customer?
  • What do they want?
  • Why do they want it?
  • How do we deliver value to them?

And the best way to answer these questions is to use a customer avatar framework:

As well as define what the ideal customer journey should be given growth.

Another strategic framework we use In crafting a strategy is 3 Ways To Grow A Business, a framework created by marketing legend Jay Abraham. Jay points out that there are three fundamental ways to grow a business:

  1. Increase the number of customers
  2. Increase the average transactional value
  3. Increase the frequency of transaction

All businesses start at #1, but most never make it to #2 and #3.

So, to get past this phase the first step was to create visibility and drive engagement from a top-of-funnel standpoint targeted at the ideal customer.

Also, because #1 is the most expensive way to grow a business, the smart way to grow is to either leverage a referral strategy or move to #2 and #3.

Ideally, the first step is to build a lot of momentum and audience engagement at the top of the funnel observe their activity and analyze insights for effective optimization.

The more people you have engaging at the top of the funnel, the easier it is to optimize and improve conversion rates and move them further down.

From the diagram, you'll observe the number of impressions, reach and how frequently they are served the campaigns.

We spent over NGN 1,020,239.75 to reach over 1 million people, who saw the ads.

The goal is to reach as many people as possible that match your ideal customer avatar and expand that audience.

That's because people don't buy from strangers, so our job is to make them know us, like us and eventually trust us to do business with us.

We used the insights gathered and background knowledge to build multiple ad campaigns.

But that’s not all…

We began to create look-alike audiences of the customers who had previously purchased, which allowed us to expand our reach.

Interesting…right? There’s more.

Skincare E-commerce Business

In Q4 2023, we hit a bold milestone across its online stores in Nigeria, Ghana, the UK, the US and Canada by riding the Black Friday wave.

We all know that Black Friday and Cyber Monday are peak seasons for retail and e-commerce businesses for the simple reason that no other time in the year do you have customers prepped up and ready to buy almost anything you present to them.

So, with a highly engaged customer base, we started the Black Friday promotion about 2 weeks before Black Friday by sensitizing the ideal audience about the special deal to look out for.

We launched the campaign on the 27th of November and ran it till the 4th of December across all stores in Nigeria, Ghana, the UK, the US and Canada

Below are the results from the ad campaign.

The above screenshot was focused on the African market which is Nigeria and Ghana. 

Here’s what occurred…

Pre-sale campaigns were first set up for both the Nigeria and Ghana stores which overlapped into the sale period.

I’ll break it down in a table for both the pre-sale and sale periods for the African market.

In addition, we’ll also look into what acquisition cost looks like as well as the average order value for each transaction.

PRE-SALE CAMPAIGNS

Store Ad Spend (NGN) Unique clicks Website visits Total Purchase Total Purchase Value (NGN) Return On Ad Spend
Nigeria 35,675.24 856 370 137 8,635,800.41 241.26
Ghana 6,163.88 157 53 2 165,786.32 26.90
TOTAL 41,839.12 999 423 139 8,801,586.73 134.08

To get a good perspective of the marketing activity and the value of each customer to the business we’ll evaluate the cost of acquisition, average order value and  Return on Ad Spend.

Acquisition Cost (Nigeria): NGN 260.40

Acquisition Cost (Ghana): NGN 3,081.50

Average Order Value(Nigeria): NGN 63,035.03

Average Order Value(Ghana): NGN 82,893.16

ROAS (Nigeria): 241.26

ROAS (Ghana): 26.90

Pre-sale Insights:

  • It cost about 11x more to acquire a customer in Ghana than it does in Nigeria.
  • The average order value of customers in Ghana is more than a customer in Nigeria.
  • Conversion rate from ad to website visit for the Nigerian store is 43.8%
  • Conversion rate from ad to website visit for the Ghanian store is 34.4%
  • Conversion rate of website to purchase for the Nigeria store is 36.7%
  • Conversion rate of website to purchase for the Ghanaian store is 3.7%
  • The return-on-ad-spend(ROAS) for the Nigerian store is 9x that of the Ghanaian.

SALE

Store Ad Spend (NGN) Unique clicks Website visits Total Purchase Total Purchase Value (NGN) Return On Ad Spend
Nigeria 729,047.57 3,536 2943 1088 43,131,311.72 59.16
Ghana 84,905.92 498 271 10 546,917.31 6.44
TOTAL 813,953.49 4034 3224 1359 43,678,229.03 53.66

Acquisition Cost (Nigeria): NGN 670.08

Acquisition Cost (Ghana): NGN 313.31

Average Order Value(Nigeria): NGN 39,642.75

Average Order Value(Ghana): NGN 2,018.15

ROAS (Nigeria): 59.16

ROAS (Ghana): 6.44

Sale Insights:

  • It costs about 2x more to acquire a customer in Nigeria than it does in Ghana.
  • The average order value of customers in Nigeria is 19x more than a customer in Ghana.
  • The conversion rate from ad to website visit for the Nigerian store is 83.5%
  • The conversion rate from ad to website visit for the Ghanaian store is 54.4%
  • The conversion rate of the website to purchase for the Nigeria store is 36.9%
  • The conversion rate of the website to purchase for the Ghanaian store is 3.7%
  • The return-on-ad-spend(ROAS) for the Nigeria store is 9x that of Ghana.

Still, that’s not all…

if you recall I mentioned that we expanded to the US, UK and Canada.

Here’s how they performed…

US MARKET

Store Ad Spend ($) Unique clicks Website visits Total Purchase Total Purchase Value ($) Return On Ad Spend
US 592.12 127 132 91 8,433.18 14.24

Acquisition Cost: $6.51

Average Order Value: $ 92.67

ROAS: 14.24

UK MARKET

Store Ad Spend ($) Unique clicks Website visits Total Purchase Total Purchase Value ($) Return On Ad Spend
UK 597.73 300 276 253 25,793.77 43.15

Acquisition Cost: $2.36

Average Order Value: $ 101.95

ROAS: 43.19

CANADA MARKET

Store Ad Spend ($) Unique clicks Website visits Total Purchase Total Purchase Value ($) Return On Ad Spend
Canada 593.99 263 273 148 16,438.01 27.67

Acquisition Cost: $4.01

Average Order Value: $ 111.07

ROAS: 27.67

INTERNATIONAL MARKET (SUMMARY)

Store Ad Spend ($) Unique clicks Website visits Total Purchase Total Purchase Value ($) Return On Ad Spend
US 592.12 127 132 91 8,433.18 14.24
UK 597.73 300 276 253 27,793.77 43.15
Canada 593.99 263 273 148 16,438.01 27.67
TOTAL 1783.84 690 681 492 52,664.96 29.52

Acquisition Cost (US): $6.51

Acquisition Cost (UK): $2.36

Acquisition Cost (Canada): $4.01

Average Order Value(US): $ 92.67

Average Order Value(UK): $ 101.95

Average Order Value(Canada): $ 111.07

ROAS (US): 14.24

ROAS (UK): 43.15

ROAS (Canada): 27.67

Insights:

  • It costs less to acquire a customer in the UK than it does in the US and Canada..
  • The average order value of customers in Canada is more than US and UK.
  • The conversion rate from ads to website visits for the US store is the highest.
  • The conversion rate of the website purchases for the UK store at 91.7% is the highest.
  • The return-on-ad-spend(ROAS) for the UK store is 3x that of the US.

Takeaway:

  • The lower the acquisition cost the more your profit margin on each acquired customer.
  • Invest in low-cost high-yield outcome areas of your business.
  • Constantly improve conversion rate across your customer’s journey.
  • Cashflow will always trump future promises of gain.
  • Focus on what is scalable.
Skincare E-commerce Business

Business Assessment

I understand that the breakdown I just described is just one aspect of the business.

In other words, there’s more to a business than marketing and sales but the easiest way to assess a healthy business with potential to scale is first through its relationship with its customers.

Customer lifetime value greatly exceeds acquisition cost, with spending over 10x the cost to acquire customers. Ideally, LTV should be 3x CAC.

Store Online Marketing Spend($) Customers RevenueGenerated($)
Nigeria 606.92* 1224 41,085.01*
Ghana 72.28* 12 565.64*
US 592.12 91 8,433.18
UK 597.73 253 27,793.77
Canada 593.99 148 16,438.01
TOTAL 2,463.04 1,728 94,315.61

*Using $1 = NGN 1260

Also, with an average customer return rate of 20%, you can expect about 80+ customers to return.

Let’s review the cost structure of e-commerce retail and an ideal percentage allocation of its revenue to understand the business better.

Based on the table above less than 10% of revenue for marketing generated enough cash flow to run operations and make a conveniently take a 10% profit.

Now, while my assessment is assumptions extrapolated from the numbers generated from the online channel there could be other channels that could contribute to even better figures.

Also, keep in mind that all this is from a 2-weeks campaign.

Summary

We analyzed revenue generated from only paid advertising over 5 months (August - December) for the online stores in Africa here’s what we observed.

Here’s what it looks like…

AFRICAN MARKET

Total Ad Spend (NGN) Total Customers Revenue Generated(NGN) Average Return-on-Ad Spend
4,265,642.35 2,072 81,737,196.65 19.16
Total Ad Spend ($)* Revenue Generated($)*
3,385.43 64,870.79

*Using $1 = NGN 1260

INTERNATIONAL MARKET

Total Ad Spend ($) Total Customers Revenue Generated($) Average Return-on-Ad Spend
5,858.86 641 66,104.64 11.28

COMBINED MARKETS

Total Ad Spend ($) Total Customers Revenue Generated($) Average Return-on-Ad Spend
9,244.29 2,713 130,975.43 14.16

In other words, for every $1 invested in paid advertising $ 14 was generated back.

Now that's a good acquisition system.

Every business can be profitable if the basic principles are understood and strictly adhered to without reservation. 

Build systems that allow you to leverage exponential growth and operate your business like a hedge fund, to generate above-average returns.

P.S: Feel free to book a call if you'd like to work with us.

4 comments

  1. Dinma
    January 22, 2024 at 5:07 pm

    Wow!!. This is massive guys!. Keep it up.

    1. Admin
      January 23, 2024 at 1:47 pm

      Thanks Dinma

  2. Opata
    January 23, 2024 at 12:51 pm

    Awesome details hope to see more

    1. Admin
      January 23, 2024 at 1:48 pm

      Thank you Opata, you definitely will.

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