← Brain Driven Brands
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- [00:00]
A
This is something that like, exposes a mistake I made early in my career. The time I was like, yeah, ops can't keep up with me. Like, I'm on this shit. Life's good. But slowly matured a little bit and realized that, like, oh no, I wasted money doing that. Like, we could have pulled back ad spend much earlier, ran more efficiently, acquired customers for less and sold out on time. Welcome back to Brain Driven Brand. We are super excited to bring you another guest episode today day. So you guys get a break from just me and Sarah yapping. But Sarah, what's up?
- [00:36]
B
How are you?
- [00:37]
A
How's life?
- [00:37]
B
Hello. Hello. Which is. I love these guest podcasts because these poor guests. We just threw you in here. Aar.
- [00:43]
C
I'm so sorry.
- [00:43]
B
We didn't even tell you what we were going on this podcast. That's how we do. Somebody told us, like, you guys are really good creators, but I don't have any knowledge about like, where I'm supposed to go to listen to this stuff or what I'm supposed to do. And I really wanted to tell that guy, neither do our guests.
- [01:00]
A
He was like, hey, why is there not a link to the podcast on the podcast?
- [01:04]
B
Because I'm bad at this.
- [01:07]
A
We have other full time jobs, that's why.
- [01:09]
B
Yeah, it's fine. So you are our guest today. Everybody. Welcome up here. I'm so excited to chat with you. This looks gonna be good. You and I actually did a YouTube video, which I'm currently gonna do. Last week on all this conversation, I was like, we gotta get you on the podcast because this is the stuff that I don't know how to do and I need more knowledge and education on it being her. You and I have actually been friends, I think honestly longer than Nate and I. Sorry, Nate.
- [01:34]
C
It's possible. I actually checked. I think so we worked together back maybe 2022.
- [01:42]
B
Oh, okay. So it might have been same year. Because I think.
- [01:46]
A
Okay, I think we met in 2022, sir.
- [01:48]
B
All right, so we're both. We're all. Nate is actually probably the first person that kind of called me out of my bullshit and was like, you're so good at creative, but you are kind of bad at finance, Sarah. And I was like, I know, I'm sorry. So anyway, I bring you two together today to talk specifically about dtc, E Comm. Finance. Because I hear nobody talking about it and like really giving me a good overview. What am I supposed to know about this? Because I'm a great strategist, so I spent a lot of Time in ad metrics, Very little time understanding the business metrics.
- [02:24]
A
Yeah. And for me, like, when I became a CMO and like had a CFO as a counter part, I couldn't understand half of what they were saying or asking of me or showing me. And like, some of the finance content out there is like super in the weeds, I think more than marketers need to know. But there needs to be a level of understanding on the marketing side of like, hey, how do the dollars that we spend affect the bottom line, affect the top line, affect our cash flow? So, Abir, welcome to the the pod. Teach us, teach us your ways.
- [02:59]
C
For sure. I appreciate it. Thank you for having me. But I completely agree with you. I mean, I'll often tell people my dirty little secret is that I actually hate accounting. I just happen to be very good at it. I'm a cpa, done the CFO stuff, all that, but I actually used to run an E Commerce brand and I also built out a performance marketing agency before I switched to the CFO firm that I have now. So like, I have the unique privilege of bringing three of the most important lenses to any sort of like E commerce conversation. Having been an operator and a marketing agency guy, spent a lot of money on ads and then also on the finance side. And so like a lot of times when I am trying to craft either any sort of explanation of things or education or even like the dashboards or the tools that I build, it's very much framed from the perspective of like, how would a founder who doesn't love accounting actually be able to use this in a way that helps them? So it's, it's like it's always coming from that particular angle. Because I totally agree with you. There's certain depth and nuance that's just like not really relevant for a CMO or a marketer to understand. But there is a certain amount with, if framed correctly and explained well, will give them enough of a command of what's happening so that they can make better decisions and do their jobs better. And fundamentally, I think maybe the framing that helps is that a lot of times people will maybe have this perspective on finance that is kind of like this extra thing. Like it's finances over there. It's a thing that happens just like supply chain is over there. But it's like it's not really 80% of the story, what's going on in your business. Maybe 70% is within the finance. It's just, it's a very thorough lens that gives you a very good perspective and it gives everybody a bit of a shared kind of view of things. But this is one that's a little bit more shared. And I'm not going to pretend that it has 100% of the context of the business, but at the very least it's structured in a reasonably reliable way and grounded in data that's honest. I suppose a little bit harder to lie with some of that data. So at the very least it just, if people have that frame on it, understand that like it's not finance, like this foreign scary thing. It's really just a very particular lens on everything that's happening. And it's just a way to understand your own business. Because in a perfect world, finance people wouldn't be necessary because everybody would understand the business through that lens.
- [04:58]
A
Already every E Comm brand I've worked at, our like Quote finance department was like a series of Google sheets that were like kind of a mess. And that's not entirely true. I worked with some great CFOs, but I think it's something that's like not dialed in at all in most ecom brands. Where should people start? Like, what's like the, the first two or three things that people need to get a handle on when they want to start taking the finance part of their business seriously.
- [05:30]
C
So I think in terms of, I guess process wise, there's an aspect of just making sure that you are categorizing all the transactions at a level of granularity that helps you understand what's happening and just building out a habit around monitoring what's happening. I'll very often, I think we're talking to a founder two days ago and he's running like a seven or $8 million brand. And he was telling me that he hasn't had his books closed in the last six months and he's just kind of doing napkin math on like the way the business is running. I was like, I mean it's stuff. And in fairness, like, he's not the only one. It was just a most recent example. It was two days ago. But like there's a lot sort of situation. So it is difficult to understand what's happening with the business if you don't at least build a little bit of that cadence. But in terms of like actual things that you should prioritize, number one thing. And it is kind of difficult at times, but it's just make sure that you have really good inventory costing and like just have a genuinely good understanding of like how much it actually costs you to fulfill things. Because like, that's fundamentally the. The linchpin number that determines everything else. That determines what your CAT can be, determines what your pricing should be, how much profit or cash flow you're generating. So it's a very, very important number to understand. And the second major thing is then use that combined with a couple of little other numbers, just math, like your aov, your LTV stuff and whatnot, to determine what your proper scaling targets should be. The one habit if I could just wipe it away from E Comm land is using mer, because I just find it. It's completely worthless. I don't find that New York actually tells you anywhere nearly enough about business. It's just super easy to get.
- [06:53]
A
Amen.
- [06:55]
C
Like, I don't know why people use that. I think I was talking to the financing of. I think there may be like 80 million or something two days ago. I had a lot of conversations two days ago and they were like, okay, well, how do you support the growth team at this business? Like, oh, they just have like a 2.5 mer target. I'm like, yeah, like, that's just how you run.
- [07:12]
A
At every CMO job I've had. The ownership team has given me like, hey, do this revenue at this mer. And it's taken me a long time to get good at explaining to them why that is not a thorough way of doing things. And when I first started at og, they were running like most E Comm brands do. They say, we want to do, you know, X million a year at. I think the goal originally was like a 3.3 MER. And we did that for the first year and like, we chipped away at growth. I think we grew like 15% that year. And then I spent my Christmas break forecasting a bunch of different scenarios and showed them like, hey, so we tested out some days where like, we increased ad spend drastically. When we did that, MER dropped from 3.3 to 2.8. But the volume we did produced X amount of dollars more in profit on day one. And then we're acquiring many more customers that have an LTV that'll produce this amount of extra revenue over the year. Is the goal of this not to spit out as much cash as possible? And they were like, well, yeah, kinda. And I was like, okay, then like, we need to get rid of this arbitrary MER glad goal and just focus on dollars coming in. And that next year was our biggest year of growth. I think we, we grew like 130% this year because all we were looking at was like, daily contribution and cash flow.
- [08:41]
C
Yeah, you 100% nailed it. Like, that's the thing that most people just don't realize when they're just plugged to an M number. Like, if I had to pick my. Maybe my favorite metric or the one that I would want to, like, popularize amongst everybody, it would be just understanding your. Your cohort profit. So, like, what is the lifetime value of all the customers that you acquired in a particular month, week, Whatever your is, but their lifetime value relative to what you spend from an ad spend perspective, because that, to the point that you were making, essentially encapsulates current profitability as well as all the future value that you're able to accrue from them. And that's ultimately how you grow a business. If you're operating at like, max cohort profit, that's how you build the business as fast as possible. Prioritizing just like an arbitrary 3.3 is. What does that even mean?
- [09:24]
A
Yeah, well, and like, as we dug into that further, like, that didn't even make sense. Depending on, like, what products I sold and like, depending on what offers and. And discounts we had, like, the, the quote profitability that they planned on with that MER goal didn't hold up through, like a bunch of different variables. So, yeah, to me, like, I always tell marketers, if you can look at something as a dollar amount rather than a percentage or a ratio or anything, look at the dollar amount. I always tell brands like, you cannot pay your mortgage with your mer, you cannot pay payroll, you cannot buy whiskey with your roas. Like, you need dollars. So that's what we should be hyper, hyper focused on.
- [10:11]
B
This is the reason why I was so excited to kind of like, chat with both of you, because you both want to have similar views on this. But it's something that Nate and I have been asking ourselves the last couple of weeks especially, which is like, are we in the ad business or are we in the money business? Like, what are we here to actually do and generate and hopefully do better over time? I think a lot of people are in the ad business and not in the money business, and it scares me. So Abir, you have like a framework that you shared with me that I was like, oh, this is super interesting. So do you want to walk through what you kind of chatted about last week?
- [10:42]
C
What would happen is that I do a lot of consults, because I do these one off consults with brands. And it was very easy for me to just kind of look at a dashboard because I build up, I pull their data, I build out A dashboard, like a standardized thing that I have that shows me kind of everything I want to be able to see. And it always just have, like, very quickly I know you need to fix that. That's an issue. That's a constraint. Fix that cash flow. It was always obvious to me, but it was kind of because it was a soup in my head of just like E Com brand guy and then CFO dude and marketing agency person. And like, because I just knew all that stuff, a lot of that stuff came to me intuitively, but I was never able to kind of really break it down into like, what's actually the. The sequence of thoughts that are happening in my head when I give that advice. And it became necessary as our team grew, because I was like, I need to teach other people this too. So eventually I came up with this framework and it's relatively new. I only came up with it a few months because I finally just clicked. I was like, oh, so this is what's happening. But the more I've shown it to people, the more like scrutiny I put it through, it does seem to hold up. I think that this is the approach that it encapsulates what I think is the most elegant usage of finance to be able to help an E Commerce brand so that they can build out essentially strategy to scale. So the first pillar is essentially determining your scaling targets. So the fundamental idea here is that you're just trying to figure out what is the optimal combination of ad spend and CAC that will generate peak cohort profit. So the most amount of cohort profit that you can generate, that's what you're trying to aim for. If you spend less, your lifetime profit on that cohort would decrease. And so you're leaving money on the table. Or if you spent more, that means that the lifetime cohort profit would decrease, which means those additional customers you acquired, those marginal customers were acquired at a lifetime loss. And why the hell would you do that? This overlaps a fair bit with what we're talking about earlier about kind of just doing the dollar math behind how much you're spending and what the CAC is and all that. This is fundamentally you understanding, like, I have a particular marketing engine, and that marketing engine is a combination of the creative that you have, the people who are writing the copy, the landing pages and their conversion rate, the skills of all the. The individuals insofar as you know who they bring on. From a branding perspective, what you do from an influencer side, how you split your spend across different channels, that's a marketing engine. And it has a peak performance, like a given amount of ad spend. And it'll give you. It'll spit out just the most covert profit that you can generate. And the idea is that a lot of brands will take a particular engine, hit a certain amount of revenue, and they're like, well, I want more revenue. And so they'll just over rev the engine. Beyond that efficiency, they will start acquiring customers that are actually not profitable. The average will look fine, but the marginal customers are acquired, are technically acquired at a loss. That's why your profit went down. If I spent 10k more, my profit decreased. What does that mean about the customers that 10k brought in? Even if my revenue went up, I
- [13:18]
B
feel this in my soul. Like every brand, every single brand I've worked with has this.
- [13:23]
C
I see it all the time. Like, it doesn't matter if they're seven figures, eight figures. It's like all the time. I see this, but it's because they want the revenue to go up. Almost every person that I've seen run a brand has run into a situation where they'll do their back of napkin math on the CAC or what their, what their profitability is. Like, oh, you know, I have a product, I sell it for a hundred bucks. My product cost is 15. It's $10 of fulfillment and $5 of, I don't know, merchant fees, returns, all the discounts, all that kind of stuff. So I have a 70 break even. So they'll start spending according to that 70 break even. And so when they hit say 55 and they look at their account like, okay, my, my CAC is 55 bucks blend, what do they do? They just spend more. Because, like, well, my break even 70, so I can spend more. But the truth is the 50, say you're at 55. That's your average CAC. You didn't acquire every one of those customers at the same cost.
- [14:11]
B
Exactly. At the same cost every time.
- [14:13]
C
A total amount of money and divided it by the customers. But we all know that the earlier customers that you acquired or had your spend been lower, you would have acquired more C customers more cheaply. And as you go up, it gets more expensive. But it's all blended. When you hit 70, which is your break even, that just means that you've wiped out all of the profits of that cohort. Your entire cohort will be break even. You don't.
- [14:34]
A
You're actually acquiring some customers at like 140. Yes, exactly.
- [14:41]
C
That's it. So if you were to like slice up your Cohorts into thin slices, some of them when by the time you've hit 70, yeah, you're acquiring 80, 90, 120. But even at 60, there are cohorts at 80, 90, and those slices are lifetime unprofitable. So just doing the math around this is like probably the fastest and most impactful way for a brand to change how they go about spending and deploying their marketing dollars. To understand, like, okay, this is actually what I should be running at. And there's logically outside, like, you know, strange examples of where you need to build a brand or like, I don't know, occupy a mode of whatever. Generally speaking, there is going to be no reason for you to spend more than what your peak cohort profit would be.
- [15:19]
A
So let me ask you, because everything you're saying is like, hit me in right in the field. And like, I, I've been here with brands and like, it's such a frustrating concept to try to dial in. Like, today is the last day of the month. We're gonna have a customer that buys at 1am tomorrow. I'm going to do the CAC math as if none of that July spend influenced that customer at all. But we all know that makes zero sense to anyone. And that's not what happened. That the customer who buys tomorrow is going to be influenced by my last 90 days of spend, not what I spend on ads tomorrow. How do you reconcile that? How do you build a marketing system that, like, has a more accurate view of your true cac?
- [16:07]
C
That's a great question. So there are two answers. The technically correct one, and then like the pragmatic one, the technically correct one is this is essentially what incrementality is, is based on as a concept. It's like, what would have happened had I not spent that extra money or had I spent that money and what was the impact of it? So fundamentally, that's why incrementality testing and as a concept, it's so important because what you're trying to calculate when you hit that, you calculate your 70 break even. You're trying to understand if I spent $2,000 more or if I spent a little bit longer on a particular day or whatever it was, how much did that customer cost me? That's ultimately what you're trying to. It's the marginal cost of the next customer, which is what incrementality testing is. So in theory, the correct way to go about it would be that incrementality testing approach pragmatically, because not everybody has, you know, the ability to spend 5 to 10k a month or whatever it is on some of the tools that help with incrementality testing. It's still not perfect, but it's a very, very strong approach. The other approach is basically we take the math like the aov, the LTV numbers, margins, the halo effect on different channels, all that. And we'll build out a scaling target table on the rows. You see all of your ad spends on the columns, you see different cacs, and it'll tell you in the cells, like the intersections, what the cohort profit would be on those particular combinations. This much ad spend, this much cac, this much profit. And essentially what you would be doing is just calibrating against that. So you're running currently in a particular ad spend in cac. And they're like, okay, well what happens if I turn my ad spend back? What happens if I turn it up? What happens if I move stuff from here to here? It's kind of like a form of mmm in a sense, but it's essentially that it's just calibration to be able to see what's happening. Obviously the, the degradation of your CAC is not linear. It's not like it's literally for every $10 of spending, like a 10 increase in cat or something like that. So you just have to call, calibrate and see, okay, well what happens if I increase spend, decrease spend? If you're not spending a ton, maybe do it every month. If you're spending a crazy amount, do it every week or maybe even every day.
- [17:50]
A
Can I shift the conversation from CAC onto the back end of this ltv? So something that I've seen supplements, supplement brand struggle with is not understanding how like their LTV decays as the brand grows early on a lot. Especially when they're like influencer founded or creator founded brands. The first group of customers are die hard supporters of this per person's advice. So they buy the first month the brand gets launched and they stick around for years and years and years because they're a super fan. As soon as you scale, as soon as you start acquiring customers who don't know who that guy is. As soon as you start acquiring customers that are a little bit further and further away from like your ideal customer, that CAC decays. And I don't know how to forecast that. And there's been times where like I've been working with a brand where like we baked in like, let's say, let's call it 20% LTV decay. We know like, okay, with that, we know we can scale at $100 cac and we scale at $100 cac and life is good. And then three months down the road it's actually a 40% decay. And it's like, oh, we, we just acquired 7,000 customers over the last 90 days because we assumed they would be better and they're not. Is there a more scientific way to approach this or is this all kind of guessing?
- [19:12]
C
I do think it. There's a little bit of guessing, but I like that you bring it up because I 100% agree with you. I think I filmed a YouTube video on this like two days ago or three days ago because I completely agree with the concept. I was doing a case study on a beauty brand that was like again, creator founded. If you start acquiring a lot of customers from ads, they are by definition people who are susceptible to ads because they bought because of your ads, which,
- [19:32]
A
wow, that's such an interesting concept.
- [19:33]
C
They're called somebody else.
- [19:36]
B
You got to write that one down. Oh my God.
- [19:39]
C
Because there are organic customers who like you said they bought from you because they're bought into you. They love you, they're going to be loyal to you. Those are not necessarily people that can be stolen away from you by someone else's ads, but the people you acquire from ads will be stolen away from you by ads more likely than not. Now to come to the point of how do you actually make that estimate? You can analyze data after the things have transpired to be able to get clearer and understanding. Like I'll use a very simple version of this. Like extremely simple. Let's say you had a discount code called organic for all the people coming from the organic and then paid for all the people coming from Bates. You can then split your cohorts and the data such that you can see, okay, what's the LTV on this group and the LTV on that group. So analyzing the data after it's happened, that can be done so that your LTV is not blended. The the more realistic example of this that often happens is brands that are running subscriptions. So you have a very different LTV on the subs versus the OTPs one time purchases. You're going to assume that the best that you can do from an LTV prediction perspective is just looking at their historical data. But one of the only leading indicators that I'm aware of as to future LTV decay is if the ratio of your subs to OTPs changes. So for example, there's a supplement brand that we work with and for the longest time they're running 50 50. And so they had a very strong LTV, like really, really good LTV. But then for the last like six months, I've been doing a lot of offer testing on the acquisition side because they're cac just kind of blew out of the water in a bad way. So their, their ratio changed from like 80% OTP to 20% sub. And so that was something we had to tell them. Like all of our LTV estimates. We have to be like, mindful that's probably not accurate anymore. There is a little bit that you can do. But in terms of genuinely being like, I've never run ads in my life and all my customers are organic and I'm going to start running ads and then I can predict what their LTV would be. You're probably in a better situation than a person starting a brand literally from zero.
- [21:20]
A
Yeah.
- [21:20]
C
Who has no idea. But you're just kind of guessing with a little bit of information based on the fact that you know how sticky your organic customers are. Because there is something to be said about the fact that if you have a really strong organic profile and a lot of trust, your acquisition is going to be very strong. But there is still like, if your product sucks, they're probably going to leave skin.
- [21:39]
B
Right.
- [21:39]
C
So indications that you can rely on. But like to know if should I discount at 20% or 40%?
- [21:46]
A
I want marketers to listen to this episode and like proactively go talk to their CFO about like, how they can help them. What are even the right questions to ask to get marketing and finance on the same page, working to together? Because like, some of the most beneficial conversations I had with CFOs was about like, hey, listen, I'm going to go spend a bunch of money. How can I spend that money in a way that makes our cash flow better? The way that makes the bottom line grow, that makes your job easier, not stressful, that lets everyone sleep at night. How can marketers kind of try to bridge that communication gap?
- [22:27]
C
That's a great question. So I, like I mentioned earlier, I hate accounting. So because I know what our reputation is and like the way that they traditionally are. I think there's almost this, it's almost kind of like a pendulum swinging the other way. It's this almost aspect where a lot of finance people feel like their responsibility is to just say no to everything. Like that's how they help the business because everybody else is saying yes. I was like, I just got to be the no guy.
- [22:49]
A
But in reality, they're usually the only one at an ecom brand that says no to spend money. Usually everyone else is like, let's go.
- [22:56]
C
Like, no, I totally. Look, I'll be honest, a lot of the console calls that I do, I actually tell people they need to be spending more because to me, there actually is a correct answer. But if a finance person just kind of comes with that lens of like, my job's to say no to everything or anything, just like they're not going to come on the same page. So I think the way it helps is that there's broadly maybe three things that a finance person mostly should be caring about and can get on the same page with a marketer, such that there shouldn't be so much head butting, so to speak. So the first one is what I discussed earlier. Essentially, like, when you're talking about the actual ad spend that you're deploying, how do we make sure that we're doing it in a way where we're maximizing the efficiency of that marketing engine so we're getting peak cohort profits? Like, it should be very clear math. It's like if we spend more, we make more money. If we spend too much, we're making less money. So we should be able to come to a relatively good understanding on that. Now, obviously that does not encapsulate all there is into marketing. That's just the primary engine of like, what we're doing from an ad spend perspective. That's what we're doing there. But at the very least, it's relatively mathematical so we can get onto the same page. So technically we shouldn't have any disagreements as a CFO and a cmo. The second one then is all of the investments that are necessary to upgrade the marketing engine. So for simplicity, the number one thing that most brands are not doing that would allow them to earn the right to spend more is is investing in creative. Now you're going to spend to write copy for them.
- [24:14]
A
Exactly that.
- [24:14]
C
Like hexclad was doing a great job for a long time and they were spending a lot of money on ads and making a lot of money. But I'm pretty sure their ad efficiency improved when Gordon Ramsay started showing up in all the ads. Right. It's just at a certain point there are certain things that just take your engine. They were probably running a V8, now they're running a V16. The point is that, like there are these sorts of upgrades and so you put those into a secondary bucket. Right. Like you just on the Same page, like, do not. This is not part of me don't understand it that way. I understand this is an investment for our ability to spend more over time. Because if you do not make these investments, you will have a particular scaling target for this marketing engine. That makes sense. But inevitably there is always going to be downwards pressure on that and you have to be fighting that downwards pressure even to maintain revenue. You don't just stick to where you are. If you're like, oh, let's just not touch everything, it's kind of cool. You have to be able to constantly make the investments from a creative perspective in the expansion of the brand, looking at your competition and making sure that you're also like, keeping up with what they're doing. Not in terms of copying, but just in terms of like the. From a growth perspective.
- [25:07]
A
Just to be clear, that could include employees, that could include content creation, that could include software that helps you be better at acquiring customers. Anything that's essentially going to make you better at marketing, that's not ad spend, Right?
- [25:22]
C
Exactly. So it's improving the marketing engine, your ability. Like if you get an MTA tool and that allows you to better understand like your split reallocating money. Like for some reason you were spending a ton on Reddit ads and you're like, oh, we just realized I wasn't actually driving the value. Let's just put it into meta. Like that's an improvement to your marketing engine. And some of those could also be the long term bets. Like I think if we do this particular campaign with all these influencers, like it's going to take our brands to stack up or we have to do this partnership with, I don't know, you know, Tide or something. As long as you can parse those out and say these are the investments we're willing to make. Maybe you have a particular budget based on what the company can afford and you're like, look, worst case scenario, none of this works out. But we have to be comfortable that these are the, these are the bets that have to be made for us to be able to upgrade the marketing engine. Because if we don't make these bets, we're just going to inevitably die. Because like, without the investments, the market agency gets less efficient over time. And then the third bucket is just the cash flow side of it. So coming back to the supplement brand example, in a lot of supplement cases, pet supplements in particular, you're going to lose money on acquisition.
- [26:14]
A
Yep.
- [26:15]
C
And so if you're using say a 12 month LTV, you may have a let's say 4 month payback period. Now that could be fine if you have the cash reserves, but if you don't, then maybe you can't afford a four month payback period. And so you say, okay, for now let's do a, let's calculate our targets on a six month ltv because that's going to come with a two month payback period, for example, and that we can afford just from a cash perspective, the inventory, what it's going to do from an inflow and outflow perspective. We have the reserves and our financing opportunities can, can bridge that gap. So that's the part where that's like really the core, I guess, value that the CFO side would bring into it. And like, okay, look, with these sorts of decisions, this is what's going to do to the business. We can handle that. So it's cool. Thumbs up to you. Because I don't expect the marketers to go and do cash flow forecasting. Yeah. But for me, fundamentally, like the way that I approach it with brands and the way that I tell my team also is like our job is to essentially enable brands and in particular the marketing team to just do their best and we just have to like make sure everything else is in order. They have all the visibility, all the cash is con, like constraints are considered inventory, demand, playing all that's done so that they're just all those distractions. Anything that could like screw their, their momentum is, is removed and then they can just operate and do the best job that they can. Because fundamentally that's the only way to grow a business. Not by getting better at demand planning, that you're gonna go from 10 mil to 50.
- [27:31]
A
Right? Yeah. This is something that like exposes a mistake I made early in my career. I used to wear selling out of product like a badge of honor. I was like, yeah, I'm so good at marketing that we sold out early. I'm so good at marketing that it's December 4th and I'm cutting ad spend already because we sold too much in November. At the time, you know, I became a CMO at 23. I was a huge douchebag at the time. I was like, yeah, ops can't keep up with me. Like I'm on my shit, life's good. But slowly matured a little bit and realized that like, oh no, I wasted money doing that. Like we could have pulled back ad spend much earlier, ran more efficiently, acquired customers for less and sold out on time, sold out on December 20th instead of the 5th and put a Bunch more money in the bank account to fuel growth for next year. And that's something that, like, I didn't understand early on. And then I got another reminder of it when I launched my own brand this year in my Excel spreadsheets. We're profitable, but I keep having to transfer money from my personal account to the business account to fuel inventory and growth because cash flow sucks. I think a lot of marketers, like, don't get exposed to, but need to understand, like, hey, what, what's best for the business is not necessarily to spike revenue today or this month. Like, this is all about growing profit month on month on month, year on year on year.
- [29:01]
B
This is the reason why I. I get really, like, interested in these conversations now. Because, similar to Nate, my entire career has been built on marketing. I never once thought about what it was doing to finance. It was just like, my job. It's just, go get people. Like, I'm just supposed to be interesting, creative. Like, I'm just out here for the art, basically. And then I got into paid and, like, performance. And it was very clear very quickly that my entire job is connected to the health of the business because I'm on the front lines. Like, I'm bringing in customers, so I have to be super careful about who I bring in, how fast I bring them in, and why I brought them in.
- [29:36]
A
One thing that I want marketers to understand is your job. Even if your boss tells you your job is to do, you know, 20 million a year at a 3 MER, that's not actually your job. Your job is just to make the owners of your company rich. Sometimes the owners don't understand that, but, like, that's what you need to get to. Between your. Your ownership group, the CEO, the cfo. You need to understand what moves the most cash for the business. This is why you need to share all of the numbers with your marketing team. Because there were years early in my career where I didn't have access to the P and L, I didn't have access to all the numbers, but I had a MER goal. And they said, do as much revenue as possible out of three. And I said, great. And I did that. And we did a ton. And then they came to me at the end of the year when I'm feeling good and asking for bonuses and raises, and they say we didn't make any money. And I'm like, well, how? Like, I. I did what I thought I was supposed to do. But if you guys aren't sharing the data, like, I think that's so Important for anyone who touches performance to have an idea of like, hey, how is what we're doing affecting the bottom line of the company? So do that more. Okay, I will shut up for the rest of the episode. A beer back to you, killer number two.
- [30:57]
C
That's all. I completely agree. I mean like I, I think that a lot. Even coming back to the thing you mentioned earlier about like it's the CFO versus the cmo, I think the only reason that happens is because there's not a shared understanding of how the systems work. At the end of the day, it's like you said, they have the same goal. The only reason I would argue with another person at the company, assuming we're not like, you know, shitty selfish people, is because we just don't have the same understanding of things. But at the end of the day there is a, arguably a right configuration of everybody's, you know, activities and how they support one another to give that outcome of making the boss man rich. So I completely agree with you there. This is also very true for agencies. What I've noticed is the same pattern you're describing is something that happens to agencies a lot too. Because an agency, and I guess I ran an agency, so I was on that side too. But you'll go to a brand and they'll ask the questions like, well, how much, what are the targets? How much should we spend? What's your like ROAS or CAC target? And like most brands are, we'll say something stupid like I don't know if you can give me a 7X. It's unlimited. It's like, all right, cool. They don't actually know either. So that's what ends up happening. Agency will, just like you described, they'll kind of do what they need to do based on whatever targets they're given and they'll hit the targets and they'll think everything is good and then they get fired because they, the brand actually didn't make any money and they didn't have visibility into that. But so coming back to the other two pillars and it's unfortunate like the questions were in a good direction because we kind of covered them for the most part. Second pillar is really just cash flow strategy. So essentially you set your scaling targets. Say you set it on a 12 month LTV and that has a certain cash impact. So you just look at your cash flow and you need a for. And that's why forecasts are so important, especially when you have high LTV and there's a chance that you going negative on the acquisition side, because then you just see, okay, well what does that do from an inventory purchasing perspective? What does that do to our cash outflows? What does that mean from a funding perspective? That's it, really. Again, there's a lot of nerdy depth to it, which I won't get into in like, how do you do cash flow? Well, but fundamentally that's the, the principle. You just need to be able to do that math. I think any brand that takes out like an MCA or a loan, because the entirety of their explanation as to why is like, I don't have enough cash. Like, that's a huge red flag. And it's very, very common because they don't understand that the
- [32:55]
B
up.
- [32:59]
C
The challenge is that like, a lot of people don't realize that, like, you got here because your unit economics didn't make sense and so you took out the loan because, like, I get it now you're here, you need money, so you just took it. But it's like, well, what are you going to do differently? Because we're not going to do anything differently. You're just going to burn through this as well with the same unit economics. So ultimately, cash.
- [33:14]
A
Shut up a beer. I don't want to hear that right now. Next, pillar.
- [33:19]
C
So that's pillar too. And then pillar three we also did kind of touch upon. But this is so I find pillar one and pillar two are very mathematical. So that's like the one relationship financing could help very easily with because just mostly math. And then pillar three is what I call expense leverage. So it's understanding that like every dollar in your business has a job. And when businesses are obviously they're trying to be profitable, like I often say, like, I actually don't care about profit because, like, what does profit do? Just means you have dollars that are not doing anything, just sitting around idly. And so, like, it's not the profits back, it's that you have to understand why you have decided to be profitable. Like, is it good to be profitable? Because, oh, I want to actually take out a lot of cash that can buy a Lambo. That's cool. That's your prerogative. By all means, do it. Are you taking out that cash because you're ready to sell the business and you want to show that there's, you know, a lot of cash on the future. You want to get a good multiple. By all means, makes sense. Are you doing it because you just want to have a very significant buffer and you don't want to take any risk because you don't like stress, I
- [34:12]
B
don't like stress, but I'm not going to grow. It's just going to sit there. That's not a good thing either.
- [34:17]
C
It has to be deliberate. And a lot of people just assume profit is the correct way to run a business business. And I'm like, no, especially if you're in the LTV game. It's not like I highly doubt that Groo was profitable for the first couple of years because that's how you grow, by not being profitable, understanding your cash flow and understanding your LTV that like
- [34:35]
A
real IMA took out a billion dollar line of credit because they're profit.
- [34:40]
C
Right? Every month. Exactly. So the third one is number one, don't worry about profit. Understand how do you make sure that every dollar in your business is driving the most value possible? So the low value or the low ROI dollar or what I call jobs for your dollars, essentially that can be any number of things. It could be a subscription that you take out. You just like don't ever look at it or use it. So it's just wasting money. It could be you paying way too much on merchant transaction fees. It could be you paying just not, not renegotiating with your supplier to get like better cogs or whatever. Like all of those are, are wasteful dollars. Frankly, it also applies a lot to dimensions, to even people. People are probably one of the biggest categories. Not that you have people that are not good people. It's that they're giving them tasks that don't make sense because that's fundamentally you wasting dollars as well. If you hire a person whose job is to sit around and like, I don't know, just come up, I don't know, but post on Instagram or something like that when, like that's not your main growth channel and that money could have been spent on a person who could just do a lot better copywriting for the page where actually the money is made, that probably would be a better investment. So broadly speaking, the, the argument I'll often make is that the highest ROI job in almost every case is anything that moves the curve to the right that allows you to spend more money while still being at the peak. And so that includes things like the investments in influencer or partnerships or create a lot of times just a lot of creative, but even working with better marketers. I'm pretty good at media buying, but like, I don't do it as much as I used to, but there are obviously people that are far, far better than me. And so like If I'm media buying your account versus somebody or like, if I'm doing creative strategy or Sarah's doing creative strategy, one of us is going to probably create much better ads. And so ultimately the, the point is that like, for a lot of brands, they'll be like, oh, well, I don't want to spend that much. And this is the thing, like, I often have to argue with them about too when I do my content. Like, you're, you're, you're using like a freelancer to run your entire meta account, then spending $100,000 a month. Like, yeah, obviously you're going to hit a cap. You need to work with an agency. That's better. You need to invest in creative strategy. You need to invest in those things. Because how do you think the brands that got there got there? It's because they kept investing in the engine.
- [36:39]
A
Yeah.
- [36:40]
C
And so that's the third pillar. Just understanding, like, where are all my dollars going? Are these dollars in the place where they drive the most value? And if not, how do I redeploy them to the thing that matters?
- [36:47]
A
I've talked about, like, one of my biggest regrets from my time at Original Grain is that we didn't take more big shots when we were crushing targets, like there were. We were on like a two and a half year hot streak where like everything we did work. We every month beat revenue and efficiency targets. Like, life was awesome. That's when I should have gone and asked for the million dollars to work with Morgan Wallen. And like, that's when I should have gone and asked for the budget to go hire a team that would make us better at marketing, like, and spend
- [37:22]
B
money when you're doing well.
- [37:22]
A
And like, we did some of that. And something that was really important for us to kind of learn was how some marketing campaigns have a really long tail. So we ended up working with a lot of podcasters and a lot of YouTube creators where like the day one and the day 30 performance was not super great. But when we zoomed out and looked at those deals on a six and a 12 month window, they were super profitable. There was a time where we worked with a big YouTube guy that was like big. Like we were pumped about it, but it wasn't cheap. I think it was like 100 grand, which for us at the time was like crazy. We worked with him for our Father's Day sale. So we did like three or four episodes leading up from like May to June. And on Father's Day we had made like 30 grand on 100 grand investment. And I was like, oh, I'm going to put that at the end of my Q2 report and hope they don't see it, like, tough. But then I checked it at the end of Q3 and we had done 100. And then I checked it at the end of that Q4 and we had done like 400. And it's like, okay, like, yeah, like, I guess we could have had an extra 100 grand a profit in Q2, but that would have prevented us from having a bunch more by the end of this year. This game doesn't end just because you have a quarterly report due or just because, like, the year's over. Like, if you are not exiting your business imminently, then there's oftentimes great ways to spend dollars to build your brand, to get awareness, to get more people in the top of your advertising funnel than spending another dollar on Facebook ads.
- [38:53]
B
Give me, like, one last tip before we end here, because this was. I want to keep going, but we can't. People will just be like, fried. They will be have so many tasks to go look in their business. One last tip for anybody who's, like, looking at their numbers this week, especially if there's somebody who doesn't like, naturally come into this line of work, what should they do? Like, just today to try and do a little bit better at this?
- [39:15]
C
I would say probably the biggest bang for your buck is the scaling targets. It's like, I, I have templates that are built out for those. They take maybe like 15 minutes to fill out. And then it'll also tell you if, like, your, your underlying data is not good because you need good data to be able to do that, especially on the margin side. But at the very least, like, that's the thing that it's relatively simple to put together and it just addresses a lot of that messiness that comes from just like arbitrary mers or weird ROAS numbers or like, especially. And if you have like zero ltv, then like, cool, a ROAS number can get you pretty close to the same answer. But if you have ltv, you have retention, you have, you know, like, different opportunities to, like, have a little bit more complexity in that. Then, yeah, don't, don't use anything silly like mdr. Like, I just, I can't understand why anybody use mer. It doesn't make any sense.
- [39:58]
A
Guys, go take notes on this episode. There's not a lot of episodes of our podcast that, like, I think people should, like, note, take and pause and think about and double check everything.
- [40:09]
B
But this is this one.
- [40:11]
A
One of them. Dude.
- [40:13]
B
Thank you. A beer. It was so good. Where can people. Where can people find you if they want to follow? If you want to work with you, hopefully hire you because yeah, this. We need more of this stuff.
- [40:23]
C
Mostly on the Internet. I mean a beer a B I R. There aren't many of you. Most profiles going to be a beer CFO or something like that. And then the name of our company is upcounting. So accounting a CFO services specialize in ecom brands.
- [40:35]
B
I'm going to come hire you for mine. Just come look at my stuff and tell me what.
- [40:38]
A
I'm so embarrassed to show you the spreadsheets I have for my brand.
- [40:42]
C
If you've seen the things that I've seen, like I'm telling you 50, like a brand doing $30 million that has like zero cogs in a particular month because they just don't focus like that kind of. I've seen.
- [40:52]
A
I did question maybe yet. I recently learned that my brand was not as profitable as I thought it was. And it was simply because I thought I had autopay set up to my 3 PL and I didn't.
- [41:04]
C
Oh my God.
- [41:05]
A
And my 3PL guy hit me up and he's like, do you know that you're 13 grand behind on invoices right now? And I was like, oh, no, I'm so sorry, dude. And I paid it right away. But I was like, oh, I didn't. I didn't have that.
- [41:17]
C
There's all the cash.
- [41:19]
B
Okay. Things you learn in business. Thank you so much for joining us on the show today. Appreciate you guys listening. If you want to follow me, I'm Sarah Levenger. Anywhere you consume content, he is at Nate Lagos. If you like this show and if you like this episode, go ahead and like, subscribe. Share with a friend. Drop us a review when you have a minute. We would appreciate it. Otherwise, have a great week. We'll see you next time.