Pete here. The below analysis of Omaze is part of the premium newsletter.
Last week I talked about the concept of product market fit and how it’s a moving goalpost for many.
This week, I want to build on that with an example.
A brand that’s…
- Closed $42MM in funding
- Been featured in multiple large news outlets
- Has raised a lot of money for various charities across the globe
… and is also making a healthy profit themselves.
The brand is Omaze. And they’ve done something pretty special.
What is Omaze?
Omaze is a for-profit fundraising company.
They sell something at a hugely inflated price (through scale) and donate a large portion of the profit to charity.
They started out offering people “celebrity experiences” like…
- Blowing things up with Arnold Schwarzenegger
- Hanging out with George and Amal Clooney at Lake Como
- Accompanying Emilia Clarke to the Game of Thrones final premiere
You buy a ticket to enter a randomised draw to win the prize. At the end of a few months of promotion, one winner is chosen to receive the experience.
Over the years Omaze has adapted and grown their prize pool offered through these draws.
Celebrity experiences are still part of the equation, but there are also now a huge selection of other offers like…
- Exotic sports cars
- Expensive houses
- Luxury trips to desirable locations
It’s been a smart pivot for the brand because these prizes have a much larger potential market (more on that later).
Regardless of the prize, the process for taking part is the same.
You purchase a ticket to enter a draw. Omaze runs the “entry period” for a number of months. At the end of which, one entry is chosen at random to win the prize.
Simple, but highly effective and profitable.
Let’s quickly assess their financials.
How Omaze’s financials (probably) work
Omaze haven’t published a full breakdown of how they give very expensive goods away.
And on the surface of it, it should be near impossible to make it work.
I mean, below is one of the draws I recently entered to get a better look at how this all works.
It’s a £3.5MM (~$4.8MM US) house in South London.
You might think selling £3.5MM in tickets is an easy ask for such a desirable prize.
And it kinda is.
Here’s the thing though.
Omaze gives a whopping 80% of the profits to the charity that’s linked to that giveaway. In the above, it’s the Great Ormond Street Children’s hospital.
And according to that disclaimer in the promotional email, they estimate they’ll pay around £500,000 to the charity.
They also guarantee a £100,000 payment to the charity regardless of what happens with the giveaway.
If $500,000 is 80% of the total profit, that means Omaze would make around £125,000.
Not bad, especially as they do a handful of these every quarter, but hardly the profit margins I’d expect and hope for myself.
Here’s the thing. Omaze is likely making a lot more in terms of revenue than that $125,000. However, the costs to get these giveaways up and running is HUGE.
After searching around, it seems the general consensus is that Omaze buys the house or prize they’re giving away.
So there’s £3.5MM that needs to be covered before any profit can be made.
Add to that their huge advertising costs and the staff fees to be seen on all those networks with a compelling message (they’ll hit you with ads on every platform) means you’re looking at another huge cost.
To cover all of the costs they need to…
- Run the competition effectively
- Pay the estimated amount to the charity
- Ensure they turn a profit for themselves to ensure they stay in business
… you’re likely needing to generate at least $4.5MM in ticket sales.
Which is a huge amount.
And thanks to the charity cut, Omaze themselves are taking a very small % of that home.
Basically, the flow of money made would look something like this.
There’s huge risk on the part of Omaze with these physical product draws.
For the houses in particular, they have to purchase the property up front. So they’re taking huge financial risk on the potential the giveaway is successful.
The risk is a little different when it comes to the pure celebrity experiences.
The celebrities themselves often donate the time so Omaze only has to cover the cost of getting you there and the activity for the day.
This is important for later. Omaze didn’t start out taking such large financial risks and used the success from the cheaper giveaways to later fund and justify the more expensive mass-market offers.
More on that soon.
What I do think is a shrewd move on their part is the donation they then make to the charity (between 15% – 80% of the net profit) is done as a charitable donation.
Which means it’s tax-deductible.
But I also think that featuring the charity donations is extremely smart for another reason.
The charity each giveaway contributes to is front and center on all sales pages. they do this by embedding who the giveaway supports in the primary navbar.
In addition, there are multiple reminders throughout the sign up page, and they even include a full section explaining what that charity does.
This is a smart introduction because it reduces last-minute hesitation and removes the guilt associated with spending money on what a lot of people know will be money down the drain.
I know the £10 entry I just purchased is highly unlikely to get me a £3.5MM house.
But I don’t feel like the money is wasted because a good portion of that money is going to charity.
When someone says “What a waste of money“, I can respond with “Yeah, but the money goes to a good cause so it’s not really wasted“.
Which will go a huge way in pushing the fence-sitters over the line.
What I really like is how Omaze pivoted from experiences to products. It’s a smart play from them masterfully executed for greater scale.
They started with a low cost, high-demand experience before segueing into the more expensive offers.
It all started with…
Channeling “celebrity culture” desire
As I mentioned last week, finding product-market fit is step 1 to a profitable business.
You cannot create demand, but you can channel it.
And in the modern era, there’s huge demand for celebrities from the average potential customer.
Omaze identified this and simply gave people an opportunity to meet the celebrities they most admired with a much easier method.
Before Omaze, the methods for getting any sort of time with a celebrity you liked were…
- Spend hours outside a stage door or frequently visited location for a 10-second interaction and maybe an autograph
- Hope you just happened across them in the street and that you had the time and courage to say hi (and the luck to get past any bodyguards)
- Pay a huge amount of money to book their time for a day if that’s something they offered
Basically, your options before were either…
- Extremely expensive
- Were very effort intensive – you’d have to research where they were and stand within a huge crowd of people for hours to catch a glimpse of the celeb
- Had a low reward. After all that work you’d get maybe 5 seconds with the celeb as they signed a pic you’d brought along.
Omaze comes along and makes the process of hanging out with a celebrity ridiculously simple.
You need nothing more than $10 and 30 seconds of your time to tap a few buttons on a website. All of which can be done from the comfort of your sofa.
As mentioned in our Morning Brew growth analysis, you can easily draw a crowd of users if you find the existing problem and offer an easier, faster, or cheaper solution.
Omaze did that by offering fans a lengthy meet and greet with their idol for a few bucks.
It plays into the basics of creating what Alex Hormozi calls a Grand Slam Offer.
It’s something people want, can afford, and requires very little effort on their part to get.
Sure, the chance of success is still low with Omaze. But it’s a lot easier than standing outside the celebs favourite hangout in the rain for the chance at a 5-second interaction.
Omaze only shifts two of the levers below, but that’s more than enough to feel like a worthwhile effort.
The potential reward massively outperforms the cost of tapping a few buttons on your phone and the price of a beer.
Omaze then made super-smart use of the celebrities that were helping out.
Leveraging existing reputations
Every new brand thinks that bringing an influencer on board is going to solve all of their acquisition issues.
Rarely does that work so simply.
Primarily because the celebrity they’re using has built the audience and there’s an insubstantial overlap with the product they’re pushing.
- Ozzy Osbourne’s fans probably eat toast. But I don’t think seeing him on an ad for I Can’t Believe it’s Not Butter is going to drive a huge increase in sales.
- Do John Cena’s wrestling fans really care about Crocs?
- And… this. Not sure what sort of persuasive power Cristiano brought to the below product.
I love how he obviously refused to use the product on camera.
Brands are quick to pay for a celebrity endorsement even when it often makes no sense and there’s little overlap between the celebrity’s fan base and the product’s ideal customer.
The result is often a huge financial spend for a celebrity’s time that has little to no measurable effect on product sales (there are of course exceptions ot this rule – like George Foreman and his Grill).
However, when the product you’re pushing is time with that celebrity, the uptake of the offer is going to be huge.
People will be entering and paying for time with the person they follow and admire. There’s almost a 100% overlap with the audience and the product.
In addition to selling to a hungry market, there are 2 distinct marketing benefits.
Take one of the offers to spend a day with Arnold Schwarzenegger as an example.
On one hand, you can have the celebrity share out the offer to their audience directly. Which they will because the end beneficiary is a charity.
If that celeb has a huge audience, you’ve reached a huge number of people for next to nothing in ad spend.
In addition, you can leverage the celebrities image in your advertisements, which will immediately grab their fans’ attention.
The targeting for these ads such ads is going to be super easy – especially on Facebook.
In the Arnold example, I’d simply need to target people who expressed an interest in Arnold and were located within the geographical limits of the giveaway.
Feed them an ad which says “Spend a day with Arnold” and you’ve got an easy winner. Bonus points if the celeb crafts great ad content.
What’s wonderful about this is that Omaze is slowly siphoning off each of these celebrities audiences to grow their own audience for future remarketing and new offers.
An audience of people they know will pay to enter a giveaway for a product they want.
The problems with this model
Leveraging the celebrity appearance for an experience is a great way to get easy traction.
You have something people want, a compelling and charismatic focus for your advertising, and easy targeting.
Thing is, that audience is somewhat small (in the grand scheme of things).
Even Arnold, who’s a megastar that’s been at the top level of fame for decades has only…
- 4.9M followers on Twitter
- 16.9M likes on Facebook
- Around 18M people can be targeted if you use his name as a targeting parameter on FB ads
Great numbers for sure.
But the audience is limited by the celebrity’s stardom.
So, as mentioned in last week’s piece on product market fit and their ever-moving goalposts, you have 2 options for growth once you’ve hit saturation within that celebrity’s fan market.
- Find other celebs and leverage their audience
- Find something else people want
Omaze has done both.
First, they ran experiences with various celebs.
It’s smart because the model works and it’s a much cheaper option than buying houses.
It also allows them to grow their own audience to seed future campaigns. 10% of 20 celebrities’ audiences can go a huge way into building a profitable email list.
With that seed list established, they pivoted to physical goods.
From experiences to products
The story the Omaze founder cites as the inspiration for branching out into physical products was down to a giveaway that included an experience with Daniel Craig.
In addition to the experience, they gave away an Aston Martin.
The success of the giveaway made the founder wonder if a giveaway of a product alone could work.
And so Omaze giveaways for exotic cars and lavish houses was born.
Here’s the thing.
Whilst I don’t doubt the founder’s story, I think this might have always been a potential and they were simply biding their time to ensure success.
As an unknown brand, they couldn’t offer a £3.5MM house.
Especially if entries were as low as £10.
It feels too much like a scam and a lot of people wouldn’t take the risk.
They’d end up with very poor profit margins and soon end up out of business.
However, because they’d begun their life by leveraging the reputation and trust celebrities had built, they were a known brand.
Because they’d siphoned off large portions of these celebrities’ fans, they had an audience they’d been building a relationship with.
This gave them a seed pool of new customers for physical product offers. Effectively meaning they could supercharge the offers and get them off the ground with an existing audience.
The social proof of which would help attract new customers by proving it’s not a scam.
And the wonder of these new offers is there are far more people who would be interested in the prizes.
The physical goods have a much larger potential audience.
Arnold might have an audience of 5M on Twitter. But I’d bet 95% of Twitter users have a house. And a huge number of those people would love to win a multi-million-pound house.
The percentage uptake from that larger audience will be lower than from the celebrities audience.
However, they’ll still end up with more entries and thus, more sales and revenue.
Omaze actually explains the concept themselves pretty well on their about page.
A smaller percentage of a much larger audience offers better gains overall.
What’s great is the way they’ve linked all of this together to craft a simple, but effective, growth model.
How Omaze markets their offers
I should start this section off by saying that the key thing Omaze did that makes their growth model so effective and – let’s face it – easy to implement, was a great offer.
I’m going to break down their approach into 2 sections.
- Celebrity experiences
- Physical products
Let’s jump into the first one.
Celebrity experience growth model
- Run ads that feature the celebrity AND target their audience directly
- Get the celebrity to promote the giveaway themselves on their social channels
- Direct everyone to a simple sales page that explains what the experience is
- Hit abandoners with a retargeting ad for the duration of the giveaway
- Put people who sign up into the regular email pool for Omaze and their future promos
It’s super simple, and it works because you’re leveraging an audience someone else has already built up.
However, whilst most celebrity endorsements only use that celeb as a trust builder, Omaze are also using them as the prize.
So you’re building trust and desire at an incredible rate.
And the more celebs you do this with, the bigger that email pool of people you know will pay to enter a sweepstake becomes.
Physical product growth model
Omaze now has an email list of proven buyers.
People who will open their wallet to be in with a chance of winning something.
That audience is going to be made up of fans from multiple celebrities. So, pushing the same kind of experiences is only going to appeal to a certain percentage of the audience, massively limiting the list’s profitability.
Omaze switched gears here to then provide offers and products that would appeal to a much larger segment of this audience.
They used their email audience as a seed to kick off their wider appeal products.
Here’s how the model looks.
- Leverage the existing list of established buyers to promote a mass-market offer to them
- Bolster that audience with mass targeted ads
- Retargeted abandoners
- Add people who join this giveaway to an email sequence that…
- Warms them up and keeps them up to date on the giveaway
- Lets them know of the other upcoming giveaways (further building the “buyer” list)
- To upsell them and get them to enter a complementary draw
4C is a point I’ve not yet touched on.
Omaze has taken to offering “bonus” rewards if you join a giveaway within a certain timeframe.
For example. I received this in an email after entering the Wimbledon house draw. If I added more entries to my entry before a countdown timer ran out, I could also potentially win a new BMW.
As with all cross and upsells, it’s a simple, but great way of increasing AoV and LTV.
From influencer audience “theft” to a perpetual growth machine
In my experience, the hardest step for a business is to go from 0-1.
From the point of 1, you’re able to leverage the revenue and audience you have to improve your product, reach a wider audience, and generate repeat sales.
Omaze did the 0-1 by focusing on an established audience with an existing desire. And, of course, they leveraged the need for celebrities to assist charities for a cheap product.
They simply improved on the ability for people to connect with their idols.
It enabled them to generate their own audience which, when it reached a level they thought would enable them to take larger financial risk, allowed them to pivot the product to focus on a wider market.
Which has now enabled them to create a growth machine that should enable perpetual growth until they hit saturation within their market.
They basically stole their seed audience from celebrities and then converted them to Omaze fans by offering them something they couldn’t get from the celebs.
And a great lesson in effective influencer marketing.
Key lessons from Omaze
- Work on finding incredible product market fit to ensure easier scaling
- Don’t be afraid to start small, just make sure all small steps feed into your owned audiences for future growth
- When leveraging influencers, ensure their audience aligns with your ideal customer – star power alone is useless
- Pivots and growth are fine, as long as it’s the right time to change and grow
- Simplicity often works best in advertising
- Make sure the value of your offer massively outweighs the cost – both financial and energy
- If you can leverage some form of “guilt reduction ” like donating money to charity, people can more easily justify paying for the product
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