Bonobos. Dodocase. Warby Parker. A generation of e-commerce companies is growing up using a vertically integrated strategy where they take more ownership of the design, production, marketing and branding of their products. But how do you know very early on if you have a hit?
With a purely web-based or mobile product, startups can watch how well they retain users after a week or a month. With e-commerce companies, repeat purchases is an obvious metric, but there are also ways to track the virality of an e-commerce product.
A YC-backed startup called Curebit has built a business around tracking word-of-mouth referrals for companies like Bonobos. Based on that, the company says it’s able to not only drive sales but predict hits. What they do is create referral campaigns for e-commerce companies — like those landing pages that say you’ll get 25 percent off or $25 off your next purchase if you send a friend by e-mail, Facebook or Twitter.
Curebit will optimize the landing pages, copy, art direction and then track how many people convert to making a purchase after they’ve seen the page. On that strategy, the 12-person startup has grown to about 3,000 clients and a break-even run rate. Their customers include Bonobos, Restaurant.com and Jawbone.
“We still have a lot of cash in the bank,” said the company’s CEO Allan Grant.
Since creating landing pages for referrals isn’t technically that difficult, the base version of Curebit is free. The startup makes money off custom services like testing hundreds of variants for the highest-performing campaigns. For that, they’ll charge $10,000 for the first $100,000 in extra sales generated by the campaigns, then they’ll take a 10 percent after that.
“Just having a basic feature set is not enough,” Grant said. “We engineer virality the way that social gaming companies measure and optimize their K-factor, viral loops and every step of the funnel.”
Here what’s the funnel might look like for a client –
Curebit drove 25 percent of Bonobos’ new customers last year, which helped double the New York-based company’s customer base in 2012. Over time, Bonobos had to change its referral strategy. It was centered on Facebook sharing at first, but Curebit found that e-mail converted better for the company. That’s unusual since Facebook is a stronger channel in 93 percent of Curebit’s cases, Grant says.
He says the average lift in sales from referrals on e-mail, Facebook or Twitter is about 7 percent. But after watching lots of companies on the platform, the rate you really want to have is around 15 percent.
“If somebody’s lift is over 15 percent, then that company is going to explode really fast,” he said.
One example is Diamond Candles, which sells giant votive candles that have a ring hidden inside of them. Those rings are worth anywhere from $10 to $5,000 and the candles, for whatever reason, seem to be a great gift for women of all age groups.
“From their early days, we could tell they had some magic element,” he said. “We can’t always tell why somebody is going to explode, though.”
He did offer some common-sense advice, though: companies that break out either have a) a “fantastic product” or b) a “fantastic experience.” For example, Zappos (which is not a Curebit client) sells shoes that other retailers have as well, but they focus on giving customers a great experience. Bonobos, on the other hand, has a great product in pants that fit well.
Curebit isn’t looking at raising a Series A round at the moment. “We want to continue to grow a profitable business and if we were to do one, we wouldn’t start looking for another three to six months.”
The company last announced funding in January of last year with a $1.2 million round involving 25 investors, including 500 Startups, Karl Jacob, Auren Hoffman, Dharmesh Shah, Gordon Tucker, Alex Lloyd of Accelerator Ventures and others. They’ll be focusing on growing the customer base and on new areas like mobile referrals in the next few months.