Play Stupid Games (with your store), Win Stupid Prizes.

In 2006, MySpace's parent company signed a deal with Google. Google agreed to pay at least $900 million, but the money was tied to hitting traffic targets. So MySpace was pretty much literally getting paid to play the pageview game. A little later, over at Facebook, the growth team got obsessed with a totally different number: get every new person to seven friends in 10 days.

That was it. That was the whole game, because once you had seven friends, you stuck around. One company was playing for clicks, and the other was playing for "Does this person actually come back?" And I think we all know how that ended. Most Shopify stores are running MySpace's playbook right now, and they have no idea.

Hey, everybody. This is Jay, and this is Shopify1Percent. You've heard the saying, "Play stupid games, win stupid prizes." In ecommerce, we play stupid games all the time. Nobody means to. Nobody wakes up and says, "I'd love to build a business that looks great in a screenshot and terrible in the bank account."

But the numbers we stare at every single day quietly decide which game we're playing. So today I want to talk through five stupid games merchants are playing, the prize each one hands you, and some better games to play instead. I've also got two bonus ones, so it's actually seven.

By the end, I want you to pick the one number your store should actually be playing for. And the last bonus game is one I think most founders are losing without even knowing they're in it. That was me, too, for a lot of years.

There's a name for this in economics. It's called Goodhart's Law: when a measure becomes a target, it stops being a good measure. Actually, wait, fun side note. Goodhart never said it that way. His original line, from 1975 (I looked it up), was about monetary policy, and it was a lot wordier.

The clean version everybody quotes came from an anthropologist named Marilyn Strathern in 1997. So even the quote got optimized over time. Anyway, the idea holds up. The moment you start chasing a number, you'll find ways to hit it, whether or not the business actually gets better. And the number most of us chase is new customers.

A 2022 report from SimplicityDX found that brands were losing roughly $29 on every new customer they acquired. Losing, on the very first order. So if the first order is the only order, you're paying 29 bucks for the privilege of shipping someone a box.

Okay, let's get into the games.

Game one is the first-order game. It's the most common one, it's one I've talked about many times on this show, and it's the one that costs you the most.

All of your energy, all of your budget and all of your creative go into getting someone to buy once. You get the new customer, the order ships, and then nothing. Maybe a review request, maybe a discount code two weeks later. The prize you win is renting customers. You pay full price to rent them, they leave, and then you pay again to rent the next one.

The better game is the second-order game. It comes down to two numbers: your second-order rate, meaning the percentage of one-time buyers who come back, and how many days it takes them to come back. Remember Facebook's seven friends in 10 days? Your store has its own version of that, a point where someone stops being a one-time buyer and starts being a customer.

For a lot of brands, it's the second order. For some, it might be the third. I honestly don't know what your number is, and I'd be a little suspicious of anyone who tells you there's a universal one, because I think it's different for every brand. Coffee runs out in a few weeks. A mattress, well, doesn't.

But you can find yours. In your Shopify admin, go to Analytics, then Reports, and open your Customer cohort analysis report. It groups customers by the month they first bought and shows you how many came back after. Or you can just ask Sidekick. It's right there in your admin, and you can say, "What percentage of my first-time customers placed a second order within 90 days?" It'll tell you.

Once you know when people actually come back, build everything around getting them there faster: your post-purchase emails, your thank-you page, a note in the box. If most of your second orders happen around day 40, your reminder email shouldn't go out on day 60. Land it roughly a week before that window, when they're about to reorder and hopefully still remember why they bought in the first place.

This is exactly why we built rePete at Bold. Every customer needs to reorder at a different time, and rePete predicts exactly when and nudges them at the right moment. So whatever you do, whether you use rePete, which is a great tool, or build it yourself, get order number two.

Okay, stupid game number two is the ROAS game: return on ad spend. ROAS is reported by the ad platforms, which means you're letting the platform grade its own homework. The platform decides which sales it gets credit for. So your retargeting ad shows up in front of someone who might have already had the product in their cart and was going to buy anyway, or someone who's already bought from you three times.

They buy, and the dashboard says "6X ROAS," which sounds great. But the prize you get is scaling your spend on customers who were likely coming anyway. Your dashboard looks amazing, and your bank account doesn't look as good.

The better game to play here is payback: how many days does it take a new customer to pay back what you spent to get them?

Start with your real cost to get a new customer. Take your total ad spend for a month, so everything you spent on Meta, on influencers, on whatever else, and divide it by the number of first-time customers Shopify says you got that month. The First-time vs returning customer sales report in your Shopify admin will have that number, or you can just ask Sidekick. This isn't going to be as pretty as your ROAS, and I'm telling you that up front, but that's kind of the point.

Next, figure out what an order actually makes you after product, shipping and all the fees. Quick made-up example, so don't hold me to the numbers: say it costs you 60 bucks to get a new customer, and their first order makes you 20. Now you're down 40. If every order after that makes you 25, you're paid back around order number three. If that takes you four months, great. You can grow on your own cash.

If it takes you two years, then you've got a real problem. It looks like a marketing problem, but it's really a financing problem.

One more test worth running: turn off retargeting to your existing customers for two weeks and watch total sales. If they barely move, those ads were just taking credit for people who would've bought anyway. This is easy to do in Meta, Instagram, or wherever you're running your ads.

Okay, stupid game number three. You know the screenshot I'm about to talk about. You've seen it posted on X and LinkedIn: "Biggest Black Friday ever." It's the Live View globe in their Shopify admin, lit up like a Christmas tree, and everybody posts it. But then January shows up, you look at the bank account, and you wonder where it all went. That's stupid game number three, the revenue record game.

The prize is a record sales day and a smaller bank balance, because revenue doesn't care whether you made any money. Thirty percent off sitewide, ads that get pricier right when everyone else is bidding too, free shipping, extra hands in the warehouse. It all comes out of the same order. I've seen this hundreds of times: people posting record Black Fridays when they're not actually making any money.

So the better game to play is contribution margin: what's left from each order after product cost, shipping, payment fees and the ads it took to get it. That's the money that actually pays your rent, pays your salaries and pays you.

Quick made-up example so you get the idea. Say you have an $80 order, with $28 in product cost, $10 in shipping, about $3 in fees and about $30 worth of ads to get it. That leaves you with $9. So $9 is your contribution margin. Nine is the number to watch. That's the number you should be celebrating.

The first step is boring, and almost no one's done it. Open each product in your Shopify admin, and in the Pricing section, fill in Cost per item. Most brands don't have this filled in. Shopify never used to have this field, and you had to use third-party tools, but now you can put the cost right in the product. That's what powers Shopify's profit reports, and if you don't have it, you can't run those reports. And the catch nobody mentions: profit only shows up for sales made after the cost was entered.

So every day that field is empty is a day of history you never get back and can never track. Before your next big sale, do the math on one of your orders, figure out your cost per product, and make sure you enter it. If the answer is negative, you're not actually running a sale. You're running a fundraiser for your customers, and that's a stupid game you don't want to play.

Okay, game number four: the discount game. Twenty percent off everything in the welcome pop-up, a sitewide sale every month, a code for every single holiday of the year, including a couple I'm sure we've invented. Every sale feels like a big win while it's running, and the prize is customers who've learned to wait for your sale.

That's what stupid games get you: stupid prizes. Your list price turns into just a suggestion, and nobody actually pays it, because they know to wait for your next sale. And the math on discounts is actually worse than it feels. Say your gross margin is 50%, which is a pretty healthy gross margin.

So a $100 product costs you 50. Now, if you give 20% off, you sell it for 80 and you keep 30. You went from making $50 to making 30, which is 40% of your profit gone on a 20% discount. It feels like we're discounting something 20%, but it's actually costing 40% of your profit. To make the same money, you'd have to sell... it's 50 divided by 30, so let's call it two-thirds more orders just to make that up. Don't grade my mental math, but that's roughly what it is.

The better game to play here is full-price share. What percentage of your revenue, every year, month or whatever period you're tracking, comes from orders with no discount at all? That's your full-price share. If that number climbs over time, your brand is getting stronger.

People want the thing enough to pay for it. But if it's sliding, and more and more of your orders aren't at full price, you're basically training your customers one code at a time. You can just ask Sidekick, "What percentage of my sales last quarter came from orders with no discount code?"

Then try swapping out one discount code for something that doesn't cut the price. You could do a free sample in the box, a free gift with purchase, or first access to the next product drop. Give them something, just something that doesn't cut the price.

Okay, last one: game five. This one's a little sneaky, because you might not even know you're playing it. This stupid game is your agency's game.

There's a line usually credited to Charlie Munger: "Show me the incentive, and I'll show you the outcome." So how do you pay your agency? If they get a percentage of ad spend, the easiest way for them to make more money is for you to spend more. If they're judged on ROAS, they'll find ROAS, usually in your existing customers.

So it goes right back to game two. And I don't want to make agencies the villain here, by any means. I'm sure a lot of them are doing good work, but if they're not incentivized the right way, that's where it ends up. Villain isn't the right word. It's just that the incentive is wrong. Most of them are great people doing exactly what you ask them to do, but that's kind of the problem.

They're winning the game you set up. The prize is a partner who's really good at the wrong thing. So the better game to play here is paying for what you actually want. Tie their bonus to new customers at a cost you can afford, or to contribution margin, or to the numbers in your Shopify admin. Not the ones in their dashboard, the ones that actually matter.

And then ask them out loud, "Which number do you get paid on?" If the answer surprises you, you just found your stupid game.

Okay, I mentioned I had two bonus ones. These are two bonus games I added after I made my notes. The first one goes back to Facebook, because their whole game was people bringing in other people.

In ecommerce, that's word of mouth. The stupid version is the follower game: likes, followers, a giant email list that mostly never gets opened. Numbers like that feel like a big audience, but it's an audience that doesn't act like one. So the better game is simply asking, "Are your customers bringing you new customers?"

Not how big your email list is, and not how many followers you have. Are your customers referring their friends? The easiest way to find out is to ask. Put a question on your thank-you page: "How did you hear about us?" Most people don't even know. If I asked a brand what percentage of their customers come from a referral, or how many of their customers refer other customers, they wouldn't know off the top of their head.

So start by at least knowing. There are plenty of apps you can set this up with, or you can code it yourself. Just start getting the answer. Then watch for answers like "a friend," "my sister" or "a coworker." If that bucket is close to zero, it's worth asking, "Why is nobody talking about you?"

If every single person picks a Facebook ad or an Instagram ad, and nobody's being referred by a friend, why aren't people talking about you? That's usually a product or experience problem, and no amount of ad spend can fix it. A beautiful website won't fix it. Spending more on ads won't fix it. You need a better product experience, whether that's the unboxing, the support or the actual product itself. And when someone does say a friend sent them, that friend is one of the best customers you have, so thank them.

I would actually write a handwritten note anytime you find out someone referred a customer to you.

And then the last one. I call it the busy game, and honestly, this is the one most founders are losing without even knowing they're in it. Answering every support ticket, tweaking ads at midnight, rewriting the same product description for the fourth time. A hundred things you're doing. You're busy.

It feels like progress because you're exhausted, but the prize is a business that only works when you're working. I'll just be honest: this is something I personally struggle with. There are lots of days where I mistake what's urgent for what's important, and it's very easy to sit at your desk or your laptop and just do the urgent things.

You open your email and you're bombarded with emails and Slacks, and without direction for your day, the day takes over, and you just do all the things that are urgent but not important. So plan out your day. List the three big, important things you need to get done every day, not just the urgent ones.

Prioritize those. Do them before you answer any emails. Don't even open your email until you've done those big things. Work on the things that are important. So in a nutshell, the better game here is spending time every day or every week on things that will compound your business, not just putting out fires.

Something you'll look back on six months from now and think, "That decision made my business better." If I asked you, "What were the most important things you did in the last year that affected your business?" you could probably narrow it down to a handful of big things.

Meanwhile, thousands of hours of everything else you did didn't significantly impact the business. If I asked, "What made the biggest impact on your business?" it's probably only a few big things. So make sure you carve out time for those big things. A couple of examples might be the second-order email that runs while you're sleeping, putting in those cost per item fields, or having that conversation with your agency.

Do the things we're talking about in this episode once, and a year from now you might look back and think, "That episode with Jay, when I actually did the things, those were the things that made the biggest impact for me all year."

What I would do is look at your calendar from last week. I live by the calendar, and I don't know if you do or not, but I would circle the hours that made the biggest impact, the ones you think will still be paying you in six months and that made a long-term impact on the company.

And if you can't find any on your calendar from last week, well, that's your answer.

So let's wrap this up. One thing I would do is pick one number, just one from today's list. That could be your second-order rate. I encourage everyone to know their second-order rate. It's the most important order in your business.

Or it could be days to payback, contribution margin, full-price share, or the share of new customers who came from a friend. Those are some of the ones we talked about. Pick one and find out what it is today. Then put it somewhere you and your team will see it every single week. At the top of every week, every Monday, whether that's in a Slack channel or your stand-up, make sure you review it.

Drive toward it. That number is literally your scoreboard now. And whatever's on your scoreboard is the game you'll end up playing. That's the law: what you watch, you grow. So pick it on purpose. MySpace played for traffic. Facebook played for seven friends in 10 days.

Both played hard. This isn't a question of how hard you're working. It's a question of whether you're picking the right game. Your first orders, your ROAS, your record sales day, all your discounts, your agency's incentives: all of them can make it look like you're winning while you're working super hard, but the business is quietly getting worse.

So pick the number that matters and get it 1% better. And honestly, 1% better a week is 68% better in a year. I did the math on this before the episode. If you improve 1% a day, it's about 38 times better in a year. So it's not hard. You can do this, and that's the game I want you to be playing.

Last thing: if this one made you think of a number, if you have a number in your head right now, make sure you follow Shopify1Percent wherever you're listening, or send it to someone on your team who should know about this and should be thinking with you about which number to track for your business.

And of course, if it made any kind of impact, leave a five-star review. That's how people find out about us. All right, talk to you on the next one.