Shopping for some pricy speakers got Andrew Lissimore looking into buying them directly from the manufacturer. After scoring a pricing sheet, Andrew realized there's a healthy margin and an opportunity to sell online.
When his first sale came in a few weeks later, Andrew knew he was onto something.
In this episode of Shopify Masters, you'll learn how Andrew Lissimore got the domain name Headphones.com, how he scored a feature on CNET, and what him to pivot into headphones from speakers.
We decided to build our rules for the customers who we really want and then make exceptions for the people who were taking advantage but there's really not that many of them.
Tune in to learn
- Why you don’t need to see the entire path towards your goals to get started
- How they created a forum and use it to increase traffic and sales
- How they were able to get a million dollar domain like Headphones.com without paying a million dollars
- Store: Headphones.com
- Social Profiles: Twitter, Instagram
- Recommendations: Uncog.com (Marketing Agency), Klaviyo (Shopify app), Tidio (Shopify app), Trustpilot, Out of the Sandbox, EasyShip, Excelify, Refersion, Zapier
Felix: Today I'm joined by Andrew Lissimore from headphones.com. Headphones.com sells ultra high-end headphones for people who want to hear what music actually sounds like, and was started 2016 and based out of Vancouver, BC, and is now a $5 million a year business. Welcome, Andrew, to the show.
Andrew: Thank you very much. Great to be here.
Felix: Awesome. Great to have you on. So tell us about how you started this business. We were talking off air about how there's headphones.com, headphone.com, what was the origin of this business?
Andrew: Yeah. We did not start with all those incredible domains. The origin of the business is actually kind of a funny story. I came from being a software executive at a venture back at a company in Austin, Texas and had some visa problems and had to come home. And I had, now my wife, then my girlfriend, who was balking at the idea of me buying an expensive pair of speakers.
Andrew: And so I was thinking about ways I could acquire these speakers without paying full price. And it seems crazy now that I think about it, but my idea was to call the company and see if I could get a dealer's discount, and get a dealer price list, and also get 30 or 40% off the speaker. And the company, for some crazy reason, said yes. And so I got the speakers and they sent me the price list. And as it turns out, the margins on all the other speakers were really good. And so I thought just throw these online for fun and build a little Shopify website. And so I did it over the weekend. It was a brutal website, and then I forgot about it for a week or two. And then about two weeks later, we got our first sale. And someone actually trusted this website enough to buy a $999 pair of speakers. So that's how it started.
Felix: That's amazing. I feel like when we think about starting businesses, we think about entrepreneurship, we see this humongous mountain to climb, that all these barriers entry for us to find a way, not sneaking around, and going through it, and going over it, finding all these different ways to almost create these obstacles in our heads on how to get started. You just found this price sheet, and the barriers were super low, great profit margins. You put up a site very quickly. Was it shocking to you how easy it was to at least start the business?
Andrew: Yeah, I guess there are two stages to starting it. One is the kind of internal work of making the crazy decision to start a website with not even no guarantees of success, but just the feeling of no chance of success. So that was the first thing. And it wasn't shocking that that was easy because Shopify was already a really good software in 2016 and it was pretty easy to get set up. But the fact that a person bought something from us, that was totally wild. And the fact that that was so easy, blew me away. And if that hadn't had happened so quickly, we probably wouldn't have had the motivation or the confidence to keep going.
Felix: Got it. So did you have experience with Ecommerce specifically? Why did you decide to say, "Okay, I see... " You see that there are good margins to be made. Why did your mind instantly say, "Let's try selling this online?"
Andrew: No, I had zero Ecommerce experience at the time. I'm not really sure what I was thinking. I think it was along the lines of I wanted these speakers and they're kind of hard to get in Canada, maybe other people want these speakers too. And so I just, I threw them up. I didn't put too much thought into it at the beginning, really. I know people write a business plan and whiteboard out their entire business strategy sometimes before making their first actual move into the market. And I did the complete opposite. I just threw them up and didn't really think too much of it. I didn't tell anyone I was doing it because I didn't want to say like, "Hey, I'm starting a business." And then have all the pressure and expectation that comes along with that. So I just threw it up and kind of forgot about it.
Felix: So, would you say that that's luck or if you are to start over, you would still try to get to market as quickly and stealthily as possible?
Andrew: Absolutely. So first of all, I would say it was luck, but I think it's lucky that we learned that I think the best way to go to market is to do it as cheaply and stealthily as possible. Because what I see now... A lot of people ask me for advice about how to start a business like this. And a lot of the time, I think it's comfortable for people to sit around and think about ideas, and talk about ideas, and think through how it's going to look in the market, and think through the competition. If I'd done any of that, I would have thought about Amazon and Best Buy, and all these companies and there's no chance I would have started.
Felix: You would have talked yourself out of it because there's too much competition?
Andrew: Absolutely. Yeah. If someone had asked me if this was a good idea before I started it, I would've said, "Definitely not. This is a bad idea."
Felix: Got it. I see what you're saying. I think what you're getting at is that you want the speed aspects of that. You don't give yourself the time to second guess your decision to go into this. So you also mentioned trying to get in as cheaply as possible, why is that part important? Let's say someone has a budget to spend, they have money to spend, is there still a benefit to making sure that you don't spend the money? What is there a kind of reason to do that?
Andrew: Yeah. So the reason is that just in case you're wrong, it's good to be able to take another few swings. So it just happened that we were right the first time, so I think we got really lucky with that. but if we weren't right, the good thing is that we hadn't invested too much and it would've been really easy to pivot and try something else. I think if you have, say $10,000, we didn't have that. My wife who I already told you was frugal with the speakers. She's a conservative accountant, which is actually very helpful when you've got an entrepreneur starting a business, and she's a great guard rail on some of the things we want to do.
Andrew: But there's no way that we could have spent any sizable amount of money starting the company, which was an advantage because if it didn't work, it would have been really easy to try it with something else. And also you get really asymmetric risk when you're able to try something that costs you very little, but that has potentially enormous upside like what we've experienced as we've only taken three years and we've had a lot of upside, and we had very little risk at the beginning, which was I think is a great way to start a business.
Felix: Got it. So when someone out there is doing opposite of this where they've spent a lot of time, spending a lot of money on, what do you find that there is someone out there who wants to reflect on their actions and see if they are kind of a sinner, in this case. What would you say is that they're spending too much time on or wasting too much money on when getting started for the first time?
Andrew: I think, in general, and this, it's different for different people, but what I see a lot of is people wanting their business to look good before actually putting it out. I think it's natural for us to be a little embarrassed by planting our flag in the ground and saying, "Hey, I have a business now, here's my business." And naturally we want that business to look cool and we want it to sound cool. We want it to make the world a better place, we want it to have a great office, we want a sweet logo and all that stuff. So I think just naturally you get pulled in that direction to try to make your business look awesome and it stops you from doing the things that actually build the business like getting products out on a website and trying to get customers to buy them.
Felix: Right. That makes a lot of sense. Okay. So let's talk about that very first sale. Someone bought the high-profit margin product from you that you had just thrown on a website like two weeks ago. What was next? Once that happened, did you immediately say, "I need to focus on this and turn this into a business?" Or what was the kind of next step?
Andrew: No, it was like a dial that goes from zero to 10 and right at that moment the dial was at like 0.5. And then we got the first sale and maybe the dial went up to two, and then we got two or three more sales over the next few weeks and the dial kept on creeping up to where I started to focus on this more and more. Because I kind of came from a world where to build a real business it has to be software and you have to have the ability to grow something really enormous because I had just been working in a venture-backed software company.
Andrew: So coming to retail, I didn't feel like it was a giant opportunity at first. But I did think, this is actually working right now and maybe if we do more of what we're doing, like add more brands that look like this brand, maybe this thing can continue to grow and maybe there's a business there. But I still didn't really admit it to myself at that point. So maybe those first few sales turned that dial up to two or three. I needed a lot more convincing to kind of go and jump into this with both feet.
Felix: Right. So I guess if you were to do it all over again, what kind of green flags would you look for to say, "Oh, let's keep on, take another step down this path."
Andrew: It was the sales. So there are two things. So we're kind of unique in the sense that we're selling other people's products. And so we needed to get vendors or brands to say yes to us on one side and then we needed to get customers to buy those products on the other side. And getting vendors to say yes was a huge challenge, but the green flag was that the first vendor I asked said yes, which was great. If the first vendor I'd asked had said no, there probably wouldn't be this business today. So they said yes, and that gave me some confidence to keep going. And then those first few sales, those were massive green flags, especially when we knew... I knew how horrible our website was, both from a design perspective and a credibility perspective. And the fact that someone bought something off that was a really good sign because I thought if we've got a long way to go towards building this into a credible, nice, well-branded experience for customers and we're already selling something. That felt like a significant green flag.
Felix: Got it. So these vendors that you're a retailer, essentially a reseller, for, don't they want to see that you have customers? Don't they want to see that you have a "professional site"?
Andrew: Absolutely. Yeah. And yeah, that was a constant challenge for us was trying to look credible when we had no credibility. But the trick with the first one was I didn't have a site yet, which was actually a benefit and it said, "We're launching on June 15th." Or whatever it was. And so I tried to make it sound as professional as I possibly could and said, "We're about to launch this thing and we'd love to have you as one of our first brands for our launch." And I spent a lot of time crafting really well-written emails and things to make us sound like we were a serious new company without lying, but definitely leaving out the fact that I was working out of my living room on a couch.
Andrew: So they said yes, that first brand, and then I realized after that how hard it was to get brands. So it was a total fluke that they said yes. But one of the reasons we got headphones.com or that we worked so hard to get the domain was because we needed to buy some credibility in order to get the next slew of brands because we were dealing with storied audio companies that have been with headphones that are handmade in France, or Germany, or whatever it is and really tough to convince those guys as a new company that they should take a gamble on us with their brand.
Felix: Got it. Yes, so what was the timeline? So you bought and you sold the very first kind of couple of products. That was in 2016. When did you guys decide to buy headphones.com?
Andrew: Probably early 2017 if I remember correctly.
Felix: What was the name of the store, I guess before that? What were you operating as for that year?
Andrew: It was Premium Sound Canada for the year.
Felix: Got it.
Andrew: Oh, go ahead.
Felix: So when you bought headphones.com, did you have like a large customer base at that time to rebrand with them? How did you kind of transition into this new brand of headphones.com?
Andrew: No, we didn't really have a big customer base at all. And we erroneously thought that if we bought this domain, everything would be rosy after we bought the domain and we were wrong. We definitely had a lot of work to do right after we got the domain, we thought if we just opened this thing up, we'll be flooded with customers and orders. And our Premium Sound Canada business wasn't actually very big. Interestingly at the time, we also had an Amazon business where we were doing FBA. And at the time, I think FBA was about 80% of our business and Shopify was 20%. And since then we've flipped it around so that 80% of our business is Shopify and 20% is Amazon.
Felix: What was the step towards doing that?
Andrew: There were many steps, but I think the first step was just to internalize the fact that while it was easy to get started on Amazon and it was easy to scale on Amazon, there was something about building a business where we own the customers, and we own the brand, and we have control over the customer experience that we thought was a better long-term idea. So we was internalizing that and then making that a focus in the company where we were kind of giving up some short term flash in the pan type sales on Amazon in order to build a longer-term business because we knew that we couldn't build a brand on Amazon, for example. It would be really tough and really hard because we couldn't market to our own customers that we'd acquired through Amazon. So, yeah, it took that and a bunch of initiatives to try to improve our Shopify sales. If you want me to get into the marketing and things like that that we did that have worked and haven't worked, I think that's been pretty interesting.
Felix: Yeah, yeah, we'll definitely step into that in a second. I want to ask so is that the right stepping stone where you go into a marketplace that already exists like Amazon and then start there and then transition more of the marketing, more of the sales towards your own platform, your own site, your own Shopify site in your case, and focusing on it? Or is it better to focus on owning those customers from day zero, from the get-go?
Andrew: Well, it worked for us and I think the reason it works for us was because we didn't really have much money to invest, so it was nice to have something that worked right away, which was Amazon where we were a bit of an income and it was a proof of concept for the business. And that funded our ability to grow the rest of the business, the Shopify business. However, if I was doing it all over again and we had a little bit of money, I probably just would've started on Shopify and grown that business from day one because I've always seen the Amazon business as a bit of a distraction from investing in our website.
Felix: Got it. So you mentioned that you started this while you were in sales at a tech company. I'm assuming you've since left that job and end up focusing on this full-time?
Andrew: I have already left when we started this.
Felix: Oh, okay. Because you were trying to start a business or what was the reason why you had left?
Andrew: I left because I had to come back to Vancouver from Austin, Texas because I was having visa problems out there. So I came back to Vancouver and I was starting a different business with some friends. We were starting a software business and that was what I was focused on at the time. And then at some point, I realized that this business was the one I should be focusing on and I stopped doing the software business.
Felix: I've heard this quote recently, which is similar to the idea of how important is to learn how to say no as an entrepreneur. There's other, I think the more extreme approach is learning when to give up. So when you said no to the other opportunities and you decided to focus on this full-time, was it a hard decision for you to make? How did you come to that decision to say, "Let me kind of leave this path and focus 100% on headphones.com." In this case?
Andrew: Yeah, it was hard and I think I probably took too long to make that decision because all the signs were there that this was the right way to go. But I think it was just an ego thing where I didn't really feel like this could be a real business. Remember when we started this, it wasn't big yet and it wasn't successful yet. And it was hard for me to tell all my peers that I was running this dinky little Shopify store and that that's what I was working on. So it was nice for me to have this big software project that I was working on that I could tell people about, and it was kind of what we were talking about at the beginning where you want the business to sound big and good because it's a social pressure for that, I guess.
Andrew: Yeah, so I think if I'd made the decision earlier, I would have been much better off. But by the time I made the decision, it was really obvious that this was the way to go because this was ramping up and making sales and we were still about a year away from any revenue with the software business.
Felix: I guess, what were the signs as like when you look back on it if you were to leave with better timing and leave earlier than you actually did. What were the signs that you wished that you recognized sooner? Because you said it wasn't big or successful yet. So what were the signs that allowed you to look back and say, "I should have left then"?
Andrew: Yeah, it was that whenever we added a new brand and new products, our sales went up, so we kind of had a framework or a recipe that we knew would keep working. And so we just had to add more brands and more products or better brands and better products. And so anytime that I spent not doing that was kind of a waste at that time.
Felix: Got it. So how many successes of that in a row before you recognized that this is a pattern that you can invest into?
Andrew: I think I recognized the pattern really early, but it still hadn't hit the tipping point yet where I was convinced that this is the way I should go. And I think it was just more the embarrassment of saying, "Yeah, I'm a Shopify vendor." At day one without much to show for it. I think it took getting over some psychological stuff about what is a business and what do I want my future to look more than anything else because I think I recognize the patterns. It's just that it hadn't tipped the scales for me yet as it should have.
Felix: Yeah, I think it's an important topic, the psychological aspect of it because it's crazy how many kinds of false beliefs that entrepreneurs kind of have in their head about what makes a business, what goes into a business. I think the glorification of entrepreneurship is the culprit for a lot of this because it makes us seem like there's some mystical aspect to it. And, for you, it just sounded like you recognized opportunities, you put in the work, is literally you sourcing more products, grows the business. So when you were adding new products and you weren't just releasing them onto your website and then just waiting for sales, what was the process of adding a new product or adding, I guess, a new line of products and actually launching it to your customers?
Andrew: Yeah, I mean this goes back to testing things as cheaply as possible because every new brand and product we add is kind of like starting a new tiny business where you want it to be successful and you want to test whether or not it's a good idea to invest in or to continue investing in. And so when we were adding new products, what we try to do, and this was kind of hacky way to do it because we didn't have much money, we would add a product and then instead of buying stock from the vendor at the time, because we couldn't afford it, we'd see if we sold one. I think Zappos did this back in the day too, but we'd see if we sold a pair of headphones, or a speaker, or whatever. And if we did, we'd fulfill it some other way.
Andrew: We'd buy at full price and we'd fulfill it off Amazon or whatever, just to make sure that it's a thing that would actually sell before we went and invested in inventory so that if it's sold then we'd buy maybe one from the company if they'd let us. Sometimes they'd have minimum orders and things like that for good reasons to avoid people like us. And then we'd sell that one and we might buy two and we just ramp it up as slowly as we could get away with. And it became tricky because sometimes we wouldn't be able to fulfill orders to customers, and customers would get upset, and we really cared about customer service. So it was always a challenge balancing those things. Fortunately, now we've kind of grown. And I think you kind of have to start out that way though and patch things together and make them work. But now we've grown enough. We're able to hold all our inventory, and fulfill orders really well, and do all the things we wish we could have done back then.
Felix: Right. So, I guess if these vendors are willing to take on a brand new company at that time, there must have been a lot of competition entering this space or there must've been other websites or stores where people could buy... at least a product would be similar or maybe the same exact product. How do you differentiate yourself in a market like this?
Andrew: Yeah, it's a big challenge. I think one of the advantages for us was that we had no retail experience. And, by the way, when I say us, I'm talking about my brother and I who joined the company. My brother joined the company really early on and is my co-founder, and we've been working together very successfully for three years. So whenever I'm saying us, I'm talking about him. So we initially had a lot of trouble getting new vendors to say yes to us because we weren't credible and it was a big challenge to present ourselves as a credible business. I think what we did, the advantage was that we did not have retail experience, but I had a lot of software experience and software marketing experience. And this was business to business, Saas software, which when you want to talk about competitive, it's one of the most competitive spaces right now.
Andrew: It's so cutthroat, the marketing is so advanced and analytical. So I took a lot of what I learned from leading marketing in software and brought it over to this little slice, this little niche of retail, which is high-end audio and high-end headphones. And so the vendors actually really connected with that because they were all, at this point, kind of grasping at straws to think of how they're going to deal with the internet. They're finally starting to move away from brick and mortar stores into selling on the internet and they wanted people who understood the internet, I think more so than just retail or Ecommerce. They wanted people who had a good vision about how to acquire customers, and how to use data, and all these things that aren't natural to people who are running brick and mortar stores. So that really helped.
Felix: Got it. So you differentiate yourself to the vendors. What about to your end customer? Where did you get exclusive rights to some of these product lines?
Andrew: Yeah, some of the product lines, we were one of a handful of vendors, which really helps. But the biggest way we differentiated ourselves is, first of all, Taron and I love headphones. We love sound and love audio. And we thought about what's the Utopian version of a headphone store or an audio store? And what does that look like? And then we wrote a bunch of stuff down, one of which was 365-day returns, which is super crazy. And what we ended up building was just this incredible customer experience. And we just got fanatical about focusing on our customers being really, really happy and we'd kind of ingrained it into our DNA that we would do things that would force customers to talk about us to their friends, that our service would be so ridiculous that they couldn't help but talk about it. And that's the biggest way we differentiated ourselves in a really competitive landscape.
Felix: So you had this kind of balancing act early on and maybe you're still in this where you have this Utopian idealistic version of the store that you want to create, but then you have to balance that with launching before you're ready and kind of getting out there sooner than you feel ready. How does that work? How do you focus so heavily on creating this experience that's much, much better than what's out there, but then also not wait too long to launch or way too long to release new products?
Andrew: Yeah. So, to be honest, the Utopian vision did not start at day one. It's not like we wrote that down and then said, "Okay, now we start the company." It evolved over time. And I think at the beginning we were just trying to slap it together and keep things working, and in the back of our minds we kind of had these ideas developing, and then it took about a year and a half. So about halfway till this point for us to really crystallize the kind of company we wanted to build. So it was kind of like a great metaphor of you jumping off a cliff and trying to build an airplane on the way down. That's kind of what it felt like. We jumped off the cliff, and then we're building the company, and the values, and all that stuff as we go, and the systems, and the processes to operate.
Felix: Got it. So you're now kind of in this mode where you're building a beachhead and you're focusing heavily on customer service to differentiate yourself. What worked in the beginning then to kind of get the customers if you didn't have the resources or the experience to focus so heavily on the customer service like you do today?
Andrew: Yeah, it was mostly product selection, I think. We were picking products that weren't very well represented in the market yet and it had reasonable demand. So we just thought, "Hey, we really don't want to compete with Amazon, and Best Buy, and all these really efficient stores, so what's the product segment that we can go after that's pretty unique and not very well represented?" And it happened to be headphones that are between $550,000 and that's kind of... So it was the choice of that niche that I think helped us at the beginning because many stores selling that stuff. So that gave us an advantage.
Felix: Got it. Okay. So let's talk about customer service because this is what differentiates you today and you want to have such great service that your customers have to talk about you. And I think that's a great way to create kind of a goal for people to keep in their heads. So you mentioned that you had a 365 day return policy.
Felix: Let's start there. When you said that's pretty outrageous for anything like I guess Apple was the only other brand I know of that has a year-long return policy. How did you know that this was feasible, I guess, numbers wise?
Andrew: So my background and my education was in finance, and I loved spreadsheets. And that can be both a benefit and a curse when it comes to this kind of thing. But I got into a spreadsheet and I thought, "This is crazy, but I should just model out whether or not I think 365-day returns could work for us." Because we really want to do it. And so I made a model and it came out that, "Yeah, we'd be definitely giving up margin and in the short term, profit." But we could do it and build a sustainable business out of it. We just have to be really careful about which products we choose to put in our store. And we've got to react quickly to data that showed that a product wouldn't stand up to 365-day returns. So as long as we manage things really well, I realized through a spreadsheet that we could do it.
Andrew: The thing was, and it was kind of a neat incentive that was created out of this, is that now we have to curate our products very carefully in the store, and were forced to. We're forced to curate by this litmus test of, "Hey, can this product stand up to 365 days?" And that's a pretty high bar for a product to meet. So it's actually created a better customer experience because we have better products in our store because we're forced to, or else we'd be in an unsustainable business.
Felix: That's a good point where product selection affects your return policy because if you have sterile products, then you might not want a return policy at all, but in your case, what do you get to look at to determine if something can stand up to a long return policy?
Andrew: Well, first of all, it is just, in general, how satisfied as a customer with this product. And if you're satisfied after 30 days, you'll likely be satisfied after a year. So we look at that. And then we look at how often the company releases a new version of this product. Unfortunately, with the products we sell, the company's put a lot into developing these things and they're phenomenally made and built, but they usually release a new product every few years. So if the cycle was a new product's being released every six months, for example, then we'd have a tough time because someone would want to upgrade to the new version every time. But those are the two main things. The other thing is, unfortunately, we can't sell many things that have batteries in them because batteries tend to wear out over time. So that was kind of a negative forcing function.
Felix: Mm-hmm (affirmative), did you find that sales went up immediately? Or how measurable was it that when you instituted this 365-day return policy, how were you able to measure the impact of that on your business?
Andrew: At first, I don't think anyone noticed. We had a really hard time getting the word out, but I've got a funny story. About a year and a half ago, I was at an audio show in Colorado with my brother and I spotted this guy named Steve Guttenberg who writes for CNET. And he's a really nice legendary guy in the audio community. And I thought, "I'm going to go introduce myself to this guy." And so I went up, and there's a young guy in an audio show full of pretty old dudes. It's mostly 55 plus. And I introduced myself to Steve and talked about the company a little bit. And we got to the topic of 365-day returns and he said, "you're kidding me. That's not possible." I said, "Well, so far it is." Then he said, "I'll tell you what if you guys are still in business in six months... " And he said it with kind of a winky face sneer and he said, "if you guys are still in business in six months, I'll write about you."
Andrew: And I thought, "Okay, great." So I left the show and sure enough, he called me six months later and did a quick little interview, and CNET wrote an article about our return policy. So that kind of let the cat out of the bag, and that quadrupled or quintupled our traffic, and it's never let down since then. And it really got the word out about the return policy. He even made a YouTube video talking about it. It was really great.
Felix: Yeah. So this is almost like the hook that you guys lead with now because I'm seeing on the very top of your website that the 365-day return policy is up there.
Andrew: Yeah, it is.
Felix: Yeah. That's awesome. So what else did you try to do to improve the customer service experience?
Andrew: I mean, there's nothing that we've really institutionalized. It's just that we treat every customer interaction, or not even customer interaction, every interaction period like they have a million Twitter followers and they can tweet about their experience. So it's more of just a mindset. And also my brother, Taron, to this point has been able to do most of the customer service himself. So as an owner of the company, he really cares about the customers and so do I. And so we deal with things right now on a case by case basis and we are starting to codify it into some procedures because we're right now, actually this very second, in the process of hiring our first customer service employee. So we need to be able to pass this on. But really it's just treating every customer like they are the most important person in the world.
Andrew: And also, keeping in mind that we want to do well in the long term, not the short term. So we want a customer to be ultra happy with whatever they buy. We don't try to push a product on them we don't think they're going to like, and then we'll do something that might be construed as ridiculous, we'll take a return back that we shouldn't or that a bigger company wouldn't, or we'll send someone a new pair of headphones before they've returned their broken pair. We do that stuff on a case by case basis, but we always like to make our rules. I think a lot of companies make their rules for the lowest common denominator of customer.
Andrew: So the return policy is built for the people who abuse the return policy or how they treat their customers kind of built to deal with... the customer is going to take advantage of something. And we decided to build our rules for the customers who we really want and we really want to take care of and then make exception rules for the people who were taking advantage. And there's really not that many of them. So I think a lot of companies, there's this boogie man of all these customers that are going to beat down your door, taking advantage of your generous policies when in reality, most people are really reasonable and there's just a handful of people who in most cases ruin it for everyone else. And we decided not to let those people ruin it for our customers.
Felix: Makes sense. So let's talk about this transition from moving 80% of the sales from your business, from Amazon over to flip it around to have 80% of your sales go through your Shopify site. And you had mentioned to us that you figured out a way to hack Google shopping that major as highly profitable after wasting a small fortune on a useless agency. I feel like a lot of people out there listening, I was like, "Oh, they're in that same situation right now, or they went through it." So please share that experience with us.
Andrew: Yeah. I'll give you the concise version. If people want the longer version, maybe I'll do a blog post on it one day and share it with you guys or something because it's a bit of a tricky system that we figured out with Google Shopping, but it works. So basically the Achilles heel of Google Shopping is that Google uses an algorithm to pick the keywords that you're going after with Google Shopping products. So our problem was that we'd have, for example, a Focal Utopia headphone was one of our products and it costs $4,000. And Google would have that showing when people type the keyword headphones into Google. And so people would see a $4,000 headphone when they type headphones into Google and they think, "oh, that's interesting. I didn't know headphones could be $4,000." And they'd click and then we'd pay our dollar 50 or whatever. And that was 99% of the traffic we were getting because they weren't people that were looking for a $4,000 headphone and they weren't people that were looking for Focal Utopia headphones, specifically.
Felix: Basically no shopping or intrigued by the $4,000 headphone. Not that they're interested in buying it.
Andrew: Yeah, exactly. The average person who's looking for a headphone is not looking to spend $4,000. I'd say that's 0.0001% of people looking for headphones. So that was a big problem for us because we were just pouring money down the drain on all these Google Ads and not getting much in return. And so our return on ad spend was brutal. It was completely unsustainable. But what we figured out was that we could do something that kind of took advantage of Google's logic where we would set up three campaigns, three shopping campaigns, and one would be kind of a 5 cent level campaign, like really cheap clicks, and we'd make that the highest priority campaign. It was kind of tricky to wrap your head around, but basically, we'd make that the highest priority so that Google would default to showing the 5 cent clicks first.
Andrew: And then what we would do is put negative keywords in that campaign for our brands, and our products, and some other things that would move those clicks up to the second level campaign, which would be kind of a medium priced one where we might bid 50 cents to a dollar on clicks. So then the only keywords that we spent 50 cents, or a dollar on were ones that were negative keywords in that first campaign.
Andrew: So instead of bidding on everything, we could choose the keywords we bid on, and then we'd do the same thing with negative keywords in that second campaign into the highest level campaign where we'd bid a dollar or $2 on clicks. And then the only keywords that we get up there are very specific keywords where we knew the person had the intent to purchase. So that way we were able to kind of hack Google Shopping to make sure that whenever we paid a lot for a click, we were paying for a click that was actually someone who was intent on buying what we were trying to sell instead of whatever keyword Google wanted to show our headphones on, which was generally very poorly targeted.
Felix: I think I'm kind of following you, so I think I want to try to clarify this, at least for myself and I hope maybe others, is that you... I guess what is the point of having these multiple campaigns? It sounds like what you want to kind of... this is probably my ignorance with Google Shopping. But if your goal is to get highly targeted traffic, why can't you just set one campaign and then have negative keywords on that entire campaign except for the keywords that you actually want Google to show your product for?
Andrew: Because you will spend hundreds of thousands of dollars before figuring out every negative keyword that you need to put down. So this way,
Felix: These campaigns are running simultaneously. You're running them until you find out what the negative keywords are.
Andrew: No, they are. So your negative keywords in the lowest value campaign are the keywords that you want people to type. So basically what you're doing is passing those-
Felix: I see.
Andrew: ... negative keywords up to the second level campaign, so you can bid more on these things because what you've set the priority levels so that Google shows people the 5 cent campaign first. But then if there's a negative keyword there, for example, negative keyword Focal Utopia, then the Focal Utopia search will go up to the second level campaign because you put a negative keyword in the first level campaign.
Andrew: So it was kind of tricky. I could write about it basically, and make sure that instead of using negative keywords to say what we don't want people to search for, clicks we don't want to pay for, we're using negative keywords to get the clicks that we do want.
Felix: I got it. Okay. Yeah. I think the visual will certainly help. I think get the idea is that you are using a lot of negative keywords to kind of drive Google's algorithm in a direction that you want them to go in in terms of showing that they're right products. Okay.
Andrew: Yeah, it's like using a laser beam instead of a shotgun.
Felix: Right. That makes sense. Okay. So what else have you done in this transition to kind of move your traffic and your sales over to your own platform?
Andrew: Yeah. It was quite a few things we've done and some of them worked in the short term and some of them have been more long-term initiatives. But one of the biggest things we've done is we created our own community. So we made a forum on our website and if you're up at the top of the website, and click on forum, and there's a really engaged headphone community there. And what we decided to do was not sponsor with ads, not really even once you're in the forum, there are no real mentions of our website or anything. And it's just a community where people can talk about whatever they want. They can bash our products, they can bash our site. But we wanted to provide this so that the kind of people who buy these high-end headphones had a really great place to communicate with each other and talk about headphones.
Andrew: So that's something that was built over time and that's worked really, really well. And one thing I really like about it is because we always feel a little exposed when we're selling other people's products because we don't have a lot of control. But having a community and building a brand around that is something that's really hard for someone to take away from you or to copy. So that's been a really great initiative, and it's grown over time and given us a lot of our best customers. And then from that community, we take some of the best reviews that people write and then we asked them if they'd like to have their review on our main site. So we've gotten a lot of great SEO and a lot of great traffic of people looking at reviews that have come through that community and we get them onto the websites.
Andrew: So we released their review every one or two weeks and their reviews are impartial. So we actually don't even look at the reviews before they're posted. We have someone who's unpaid who posts the reviews for us, so there's no potential conflict of interest because we know we're a store. We want a reputation for being honest and transparent with our customers. So those reviews are posted by a third party and then they show up on our site. So we've got this whole brand around being open and transparent about these products with our customers, which also really helps to build our Shopify store.
Andrew: And then the fourth thing, and this one was huge, talking about an agency that didn't work, I hired someone and I've got to give a shout out to uncog.com, U-N-C-O-G.com, who set up our email marketing campaigns on Klaviyo. And this is something that we hadn't been doing before, but we just started. They set up all these Klaviyo templates for us. And the first month they set them up, we did an extra $45,000 in sales, just three emails, which was incredible. It doubled our sales that month. And since then, it's just been printing money consistently every month. So that was the fourth big thing we did to get the business. And then the CNET article really helped. And 365 day returns really helped our brand spread like wildfire among the headphone community that we're trying to serve.
Felix: Go it. So the email marketing that you guys are doing through Klaviyo, what was going on? What were you setting out that was driving so many sales back to the store?
Andrew: Yeah. There's a welcome series that we did where we would talk about the values of the store and some recommended products from Taron and I, our favorite products. And then we also, I should step back a second, we had to get people to sign up for our email list, which was a challenge. And the way we did that was by offering a free headphones stand. If you signed up for our email list and made your first order, you'd get a free wood crafted headphones stand. So we had all these emails coming in and then we would send them a welcome series of emails where we just talk about our products and our company. And then we also had more targeted stuff where if they looked at a certain product three times, then we'd send it back to them and say, "Can we help you? Do you have any questions about this product? Or whatever.
Andrew: And just the fact that we had targeted this stuff to people and the fact that it's something that's happening while you sleep was really awesome to us. And, yeah, it's had an enormous impact. Now we have 125,000 emails. So every time we send an email out about a new product or about a new review that went on for whatever it is, we get a substantial amount of sales just from that.
Felix: That's awesome. So I like the idea of offering them a product, the headphone stand, bundled with their purchase if they sign up for the email list. I think this is a very unique approach because a lot of times people would just give a discount code or some kind of percentage off. But you decided to bundle a product with the product that they end up purchasing. How did you decide to go with the headphone stand? How did you know that that was the thing that would make sense to pair your purchases with?
Andrew: Yeah, that's a good question. I think we did it because a headphone stand is something that everyone would want with a pair of headphones, but that not many people would buy it because it's such a luxury. So it was kind of like one of those really nice bonuses where if you get it for free, you're going to want it, but if you have to pay for a headphone stand, then it's only a very limited number of people that are going to have one. But if you have a pair of headphones, it's great to have to stand for them.
Felix: Yeah. I would not be surprised if people bought products just to get the headphone stand. I think having a-
Andrew: Yeah, they did.
Felix: Yeah, having a premium bonus like that sometimes you don't necessarily want to sell the most kind of sexy thing or have to buy it. You always want to pair it up as a bonus on top of the product that you're trying to sell. The way that you have a setup, I think that's awesome. So you mentioned Klaviyo so far as an app that you're using. Any other kinds of software that you guys depend on to run the business?
Andrew: Yeah. So we use Klaviyo which has been great. We use Tidio, if that's how you pronounce it, for live chat, which has also been really good. And then we have a dashboard, I think it's called Order Metrics that we use to track our sales and margins. And we were looking for something for a long time that would give us a good idea of what our actual margins were, including advertising and a lot of other expenses and that's the first piece of software that's given us a really good number for what our real margins are. And then we use a handful of other apps. We use Order Deadline, for example, just to show... it's kind of one of those apps that says, "If you order in the next two hours, it'll ship tomorrow." Kind of thing. I can't really think of any others.
Felix: Yeah. So before we wrap up, I want to hear... so let's talk about his story of how you guys acquired a cool domain like headphones.com or y'all submit to headphone.com to have is such an asset. Did it solve your problems like you mentioned, but what was the process of acquiring those domains?
Andrew: Yeah, that's a great story. So we'd been running Premium Sound Canada for about six months and through the process realized that headphones were way better to sell online than speakers because headphones were light and easy to store and the speakers were heavy and hard to ship, and expensive to ship. And so we started trying to get these headphone companies, these really good headphone companies to say yes to us. And that was really hard. They were really picky, and they kept turning us down and saying, "No, you can't sell our stuff." And so I thought if we had headphones.com, they wouldn't be able to say no to us. There's no way. And so I went to the domain and it wasn't being used.
Andrew: And so I looked up the who is on the domain and there was a guy named Mike Faith. He's the CEO of headsets.com. I think he bought both domains back when the internet first started in the early 90s, and ended up building a really big successful business on headsets.com, and just had headphones.com redirecting to headsets. So I sent him a message and I said... I forget what I said, but I said, "Hey, I'm interested in your domain. Are you looking to sell it by any chance?" Totally thinking there's no way this would ever work. And this is a really good lesson, is just trying stuff where the risk is very low, but the potential upside's really high. Another example is when I introduced myself to Steve from CNET. The risk was low, just embarrassment and the upside was huge.
Andrew: So yeah, sending this guy an email, he got back to me, and he said, "Great timing. We had a board meeting last week and we were talking about what we wanted to do with this domain." So I thought, "Oh my goodness, this is awesome." At the same time, in the back of my mind, I knew that I couldn't afford the domain, whatever he wanted for it. There's no way I had enough money. So I thought it was a bit of a pipe dream, but maybe we could work something out.
Andrew: Fast forward to four months. And we had spent the whole four months kind of going back and forth and negotiating and we made a deal for the domain. And it was very expensive, but I was able to get it tied to the business basically. So we were just paying for it monthly and then as the business grew, our payments would grow. And so yeah, that's how we got the domain and we did it without... he wanted over a million dollars for it and we obviously did not have a million dollars to give. So I'd say he was a very reasonable negotiator, and a really, really nice guy, and ended up connecting you with other great people in the industry and stuff. So that all worked out really, really well.
Felix: Awesome. So thank you so much for your time Andrew, so headphones.com is the website. What would you say needs to happen this year for you to consider this year a success?
Andrew: I think if we continue to grow at this current rate we'll be really happy. This is the kind of the year where we're expanding beyond my brother and I. We've got five employees, now two of which are part-time. But I think we're going to be scaling our workforce a little bit and hiring new employees. So being able to bring them in and to keep the same culture of incredible customer service when it's not us doing all the work ourselves, I think, is going to be a challenge and if we can do that successfully, I think we'll have had a great year.
Felix: Awesome. Again, thank you so much for your time, Andrew.
Andrew: Thanks, Felix.