E028: MOperators Hotline! Pre-BFCM Targets, Marketing Spend, Moving from Amazon to DTC & More

Summary

Marketing Operators E028 Summary: Pre-BFCM Targets, Marketing Spend, Shifting from Amazon to DTC & More

In Episode E028 of Marketing Operators, hosts Connor Rolain, Connor MacDonald, and Cody Plofker dive deep into strategies essential for e-commerce businesses gearing up for the high-stakes Q4 season. Introducing their new segment, "MOperators Hotline," they address listener-submitted questions, offering expert insights on optimizing marketing spend, transitioning from Amazon to Direct-to-Consumer (DTC) models, and tackling advertising challenges.

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1. Introduction to MOperators Hotline

At the outset, the hosts announce the launch of the "MOperators Hotline," a dedicated segment where they answer questions from their audience. This initiative stems from positive feedback and engaging interactions at events like the All In Summit, showcasing the community-driven approach of the podcast.

Connor McDonald [00:12]: "What we have today is a couple of those questions, which we answered."

2. Setting Marketing Spend Targets Leading Up to BFCM

One of the primary questions addressed focuses on adjusting marketing spend before Black Friday Cyber Monday (BFCM) with the expectation of improved Return on Ad Spend (ROAS) during the holiday season.

Key Insights:

• Historical Data Utilization: Cody emphasizes the importance of leveraging past performance metrics to set realistic monthly and daily targets.

  Cody Plofker [12:11]: "This is where it's really helpful to have a monthly, weekly daily plan versus actual that you can compare back to for previous years."

• Seasonal Adjustments: Connor highlights the role of seasonality in planning, ensuring that targets align with expected fluctuations in consumer behavior.

  Connor McDonald [13:49]: "We start with this year end target, and then we just get more and more granular with it. And we're using like, like Cody said. Exactly. Seasonal data to."

• Flexibility in Projections: Both agree that while historical data provides a foundation, flexibility is crucial to accommodate unforeseen changes in the market landscape.

3. Determining the Point of Diminishing Returns in Marketing Spend

Another significant discussion revolves around identifying the threshold where additional marketing spend no longer yields proportional returns, ensuring that budgets are allocated efficiently.

Key Insights:

• Unit Economic Profitability: Connor introduces the concept of evaluating profitability on a per-unit basis to determine optimal spend levels.

  Connor McDonald [26:59]: "If we can spend $0.50, if we get a 2x incremental ROAS, then in theory we could spend an infinite amount of money. At that rate, we're unit economic profitable."

• Sensitivity Analysis: Utilizing tools like sensitivity charts helps in visualizing how incremental spending affects overall ROAS and profit margins.

  Connor McDonald [29:07]: "We have a spreadsheet that uses that exact variable... you can calculate."

• Avoiding Non-Incremental Spending: The hosts caution against increasing budgets without validating results, which can lead to diminishing Returns on Advertising Spend (ROAS).

  Connor McDonald [32:07]: "Marketers understanding this concept is essential."

4. Scaling DTC from Amazon: Advice for a HomeGoods Brand

A listener's query about transitioning from a predominantly Amazon-based sales model to a robust DTC strategy is explored in depth, providing actionable steps for brands with extensive product catalogs.

Key Insights:

• Focus on a Hero Product: The hosts stress the importance of identifying and scaling a flagship product to drive DTC success.

  Connor McDonald [38:34]: "If you want to scale in DTC you have to find like a thing that works... zero in, find the thing that works and then focus on that scaling."

• Leveraging Existing Demand Capture: Cody suggests utilizing established channels like Google Ads to capture existing demand before expanding into demand generation.

  Cody Plofker [39:48]: "Maybe they shouldn't do demand gen at first. Maybe they should do demand capture because there's clearly demand already by people searching on Amazon."

• Data-Driven Owned Media Strategies: Emphasizing the value of CRM data, the hosts recommend setting up post-purchase automations to enhance customer retention and cross-selling.

  Connor McDonald [41:18]: "Using the data clarity they get that you just can't really do with Amazon because you're not getting those emails or phone numbers and they're not opting in for owned media."

5. Addressing Declining New Reach in Facebook Ads

The episode also tackles a common challenge: declining percentages of new reach in Facebook advertising campaigns, which can hinder growth despite high ad spend.

Key Insights:

• Creative Diversity: Cody points out that repetitive ad creatives can lead to audience fatigue, reducing the effectiveness of campaigns.

  Cody Plofker [43:27]: "I would say creative diversity. I would be shocked if you looked in their ad library and all the ads didn't look the same."

• Exploring New Audience Segments: The hosts suggest diversifying ad content and targeting to tap into new pockets of potential customers.

  Connor McDonald [43:38]: "These ads are getting a really high click-through rate... but an incredibly low time on site. I don't know what to make of it."

• Optimizing Ad Structure: Adjusting the placement and messaging within ads, especially those featuring celebrities, can improve engagement metrics and ensure that new audiences are genuinely interested in the product.

  Connor McDonald [45:56]: "Maybe like if you didn't open with him... and it's going into this like low intent, like Sean O'Malley fanboy audience."

6. Insights on Marketing Tools and Strategies

Throughout the episode, the hosts discuss various marketing tools that have significantly impacted their strategies and outcomes:

• Prescient AI: Highlighted for its effective media mix modeling, particularly in evaluating the performance of TV and YouTube ads.

  Cody Plofker [19:02]: "Prescient AI... it's really going to help us lean into Q4."

• Rich Panel: Praised for enhancing customer experience management, offering seamless migration, and improved reporting capabilities.

  Cody Plofker [33:08]: "It's really helped our team our CX function and I'm super happy with it."

These tools are recommended for their ability to provide actionable data and streamline marketing operations, making them invaluable for scaling and optimizing campaigns.

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Notable Quotes

• Connor McDonald [03:53]: "It's the super bowl of e-commerce."
• Cody Plofker [25:23]: "Marketers understanding this concept is essential."
• Connor McDonald [38:34]: "Find the HERO product and then scale up around that."
• Cody Plofker [43:27]: "Creative diversity is crucial to avoid audience fatigue."

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Conclusion

Episode E028 of Marketing Operators delivers a wealth of knowledge for e-commerce marketers preparing for the pivotal Q4 season. By addressing listener questions through the "MOperators Hotline," the hosts provide practical solutions and strategic insights that empower brands to optimize their marketing spend, effectively transition to DTC models, and overcome advertising challenges. The integration of powerful tools like Prescient AI and Rich Panel further underscores the importance of data-driven decision-making in achieving sustained growth and profitability.

Listeners are encouraged to engage with future episodes by submitting their own questions, fostering a collaborative environment for continuous learning and improvement in the ever-evolving landscape of e-commerce marketing.

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Subscribe to Marketing Operators: Stay updated with the latest strategies and insights by subscribing to Marketing Operators on your favorite podcast platform. Share with fellow marketers and elevate your e-commerce game this Q4!

Transcript

[Connor McDonald]

Welcome to another episode of Marketing Operators. We're a couple days out from Q4. Everybody's super excited. I'm pumped.

[Cody]

I could spend years on this topic.

[Connor McDonald]

We got a lock in. Guys know this. Dilly dally. I was. How was your week?

[Unknown]

What we live for. It's the super bowl of E Comm.

[Connor McDonald]

We introduce a new segment of sorts, Moparators Hotline. I've been talking to a bunch of people, as have Cody and Connor, with lots of great questions on content we've discussed throughout our 28 or so episodes so far. What we have today is a couple of those questions, which we answered. Can I ask you guys a personal problem that I've been having? Not personal. Brand related. It's ridden.

[Unknown]

I was going to say. I was going to say. Where's Connor going? I need new deodorant. I can't stop sweating.

[Connor McDonald]

Thanks for letting me tune into Operators Hotline, Cody.

[Unknown]

That was a good tag team.

[Cody]

Yeah, he's. He's given out a lot of pro bono consulting, but he's also getting a pro bow.

[Connor McDonald]

And if you've got questions of your own, hit the link in the show notes. What are you working on? What do you need help with? What problems are you having in your brand? As always, thank you to our sponsors, Motion, Prescient AI and Rich panel. I say we just get right into it. How do you guys feel about that?

[Unknown]

Let's do it.

[Cody]

Let's do it foreign.

[Unknown]

So once Black Friday comes around, it's. It's basically pencils down at that point with your ad creative, you pretty much need to have all of your testing done, understand what's working, what's not working, so you can roll those ads out for, for Black Friday, Cyber Monday and Holiday to execute on your biggest time of the year and just really be in execution mode during that time of the year. So at Hexclad, we are all about naming conventions. Connor McDonald often says naming conventions are the lifeblood of any E commerce business and we really believe in that. We set up our naming conventions in a way so it is incredibly easy to visualize what is working, what is not working using a tool like Motion. So we are tagging static ads, video ads, ugc, hi Fi, Lo Fi, Seasonal, Evergreen offer any variable that you want to test in your ad account as long as you input that into your naming conventions. You can then organize by your naming conventions in a tool like Motion to visualize data and compare those ads to one another and see which ads are performing above your benchmarks at your benchmarks. Below your benchmarks, you can figure out which new ads are incrementally or marginally better than the aggregate performance of that similar category. So if you launch a new batch of statics or a new seasonal holiday ad, you can compare to all your statics or all your seasonal holiday ads. That is how we approach it at Hexclad. It is so, so important for us optimizing our creative stack and just understanding what's working both in an evergreen period and during a holiday offer period. So if you're ready to learn how the best DTC and e commerce brands use Motion to ship winning meta TikTok and YouTube ads, book a demo today or create a free [e-mail] Motion offers a monthly subscription plan so you can dodge those annoying annual contracts. And if you mention marketing operators, podcast Motion sales team, you can get 50% off your first month. Check them [e-mail].

[Connor McDonald]

All right, here we go. Getting another episode in the books. No special guest day. We've got the big three. It is Thursday, September 26th, 6pm Mountain Time. We're a couple days out from Q4. Everybody's super excited, and I say we just get right into it. How do you guys feel about that?

[Unknown]

I'm pumped.

[Connor McDonald]

We're locked in. We're. It's almost Q4. We got a lock in. Guys know this. Dilly dally. I was. How was your week?

[Unknown]

No more small talk. No more.

[Connor McDonald]

Yeah, we're here to work.

[Unknown]

Yeah, we've been working on. I've been like, working with the team on our Q4 key results and initiatives for the next quarter. For the last couple weeks, it's been, it's fun to like, officially, I feel like for me, the sweepstakes, like, launching was me, like, closing that door and now Q and now, you know, headed into Q4, we're opening up the BFCM holiday door and I'm like, feeling reinvigorated, setting and collaborating with the team to set their KR and eyes for the quarter. And like, looking at the, the BFCM plans and the numbers we're trying to hit, it's what we live for. It's the super bowl of ecom.

[Connor McDonald]

That's a very healthy outlook on it, I would say. Reinvigorated.

[Unknown]

Yeah. Well, I'll be beaten down by it in three weeks.

[Connor McDonald]

Yeah, yeah, yeah. So you tweeted that this week you said, why isn't someone built like a universal analytics clone? Have you found an answer yet?

[Cody]

A lot of companies that, you know, you guys are familiar with a Bunch of us use are, seem to be building something or working on kind of a, an, an add on product. I don't want to, you know, air it out, but happy to tell you guys individually. So I'm going to, you know, do some demos, check it out. I don't even know they were like what exactly are you looking for? And I'm like, I don't really know. I don't really know what I'm looking for. But it's almost just like a better user face just to be able to get like three basic reports. Like you just want like a source medium. Like what do you guys think? What do you think you miss about UA that you don't really have in GA4? And like if you were to build a product you'd want it to have.

[Unknown]

Well, I was texting you guys this weekend about the, the server side tool that is, is kind of building in stealth right now, which to me is just a way better, more accurate version of GA4 because it's server side, it's not relying on any web page load. And because of that you get more data and you get much like you get infinite Attribution windows. Now the downside is they don't have impression logs, so it's clicks only. But I mean they're, I think they're gonna disrupt attribution in a major way. I won't mention them because they're building it in stealth right now. But I'm, I'm really impressed with the tool and like we've been kind of a, a design partner with them. So it's been fun to like be like, oh we, we can't do this with anything else right now. Can server side do this? I'm like oh yeah, I think we can do that. And then two days later they'll be like, all right, we built out this filter. Is this answering the question you want? And for the most part they're, they're answering a lot of our questions, which is cool.

[Connor McDonald]

Yeah, totally. For, for me it's, you know, I use or I struggle through GA4 for the exact same reason you just described. It's like how do I better understand the quality of this site traffic with like on site events, with time on site pages per session, which is universal analytics still. Or GA4 supports that, but it's just so unintuitive and it's frustrating to like not get those answers quicker. And then the second one is at least something like a north beam or a triple whale. Like at least from what I understand they're mostly anchored around like individual users and then like ads, ad sets, campaigns, platforms. Like that's really the main form of dimensions. Whereas Google Analytics is based largely around or you can use it for landing pages for pages per session. You get all of this page data and that's super, super valuable and that's just hard to find other places. So now that, that becomes like completely counterintuitive. That's what I find myself longing for up at night, just hoping somebody, somebody recreates universal analytics.

[Cody]

Dreaming about naming conventions and missing ua.

[Unknown]

I was gonna say the server side tool I mentioned is lacking in that stuff. Like you don't get average time on site or like average pages per visitor, stuff like that. So that part is still. I don't know exactly what the better option is.

[Connor McDonald]

Yeah.

[Unknown]

Can I, can I ask you guys about a new channel that, that we're considering? I want, I want your guys take on it.

[Connor McDonald]

Yeah.

[Unknown]

Have you heard of Adflow?

[Cody]

No.

[Unknown]

So have you, have you ever, ever like gone to United or a big airline, bought your ticket and then you get that follow up offer. It's like do you want Sirius FM for free for three months? Do you want. So these guys, Adflow, they're partnered with all sorts of these online checkout, you know, all sorts of brands like Marketplaces, whatever where you can do an online checkout. So their pitch to us was like, well we were partnered with like Hy Vee and all these grocery stores. Like we can hit someone that just spent 350 on groceries for the week with you know a post purchase ad for Hexclad. Now granted I think we'd probably be one of four in that like flow. Much like you see it looks like Sirius XM and then you get another offer, then another offer and then another offer and then it's done. But I'm like well that is a great time. Like if they just bought 350 hours worth of groceries, I don't think it's unreasonable to put a you know, 400 cookware set in front of them. So we're kind of noodling with that. I'm not sure how I like it as far as like brand valence, but I do think it could perform well. And I like the, I like the moment in time that they're presenting and the intent that's like associated with that.

[Cody]

Is this, how, how different is this from like network offers by Rocked? Have you seen that?

[Unknown]

No.

[Connor McDonald]

It sounds similar to Rocked.

[Cody]

Just on the site it seems pretty similar where like so if somebody goes to jonesborobeauty.com and they, they might see then like a pop up for Hexclad. Is that right?

[Connor McDonald]

Yeah.

[Cody]

After exact same order.

[Unknown]

Interesting. But they don't see. But they don't, they don't partner with like it's not like disco where you would show up like. Like my products would show up on another brand site and in exchange for that I'm showing other brands products on hexcloud site which we have. I think that is a, is a cool ad unit. We have decided just for like brand marketing reasons that we don't want to promote too many other brand products on our site. So we've decided not to do that. But it's more so like marketplaces is my understanding. And we also don't have to like I don't need to reciprocate because we're advertising on Hyvee. Right. Like, I don't also need to like push Hy Vee which is. Was a big totally thing for us. But I don't think it's brand to brand. I think it's only like brand market.

[Cody]

Okay. I think that's pretty similar to network offers. I mean try it. You know, dude, I think, I think.

[Connor McDonald]

Thank you pages are like the most valuable real estate online. Like people online actively spending money. It's like, yeah, if you can get. I was bullish on disco for a while. We don't use it currently. But yeah, same idea. And for you guys, since you're like, yeah, if you can serve in for groceries, there's all sorts of like relevant products that would crush. I actually I just had the thought this morning around Rock. I'm like, you guys could probably make a killing with like hello, fresh affiliate offers in your post purchase.

[Cody]

Oh, that's the perfect one.

[Unknown]

Yeah, well we are doing something like that. We have a partner where basically we can put inserts into complimentary brands boxes. So we're using this, this company called Incremental Media. It's basically it, it's a direct mail.

[Connor McDonald]

Wow.

[Cody]

We're giving out all the alpha today.

[Unknown]

It's basically direct mail just through other brands. And like you think about using a partner versus having to source all those deals individually. It's just like a huge time save. So we're excited about that. We think that'll work well.

[Cody]

Oh, I feel like that would crush for you like Connor said. And you know, Hexcloud in a hellofresh box.

[Connor McDonald]

All right, we have a new segment, I guess we'll call it I little bit of backstory here. I was at the All In Summit a couple of weeks ago and I met a bunch of people who said they listened to the pod and they had some fantastic questions. I had a really good time chopping it up with them and I'm like, oh, dude, yeah, this is like, I get to talk about my favorite episodes from the podcast, but in like a more applicable sense. So I proposed, let's start some sort of like sourcing process so people can submit questions if they have them or issues or whatever else, and we could potentially discuss them on the pod. So we're tentatively calling it Moderators Hotline. We're working on the branding, but I, I think it'll stick. So there will be a link in the show notes for people to submit questions. If you've got questions about the episode or problems with your business. And there's a chance that we will talk about it on the pod. But we've got a couple lined up here that we can talk through today and I think we'll, we'll cover some good ones. How does that sound to you guys?

[Unknown]

Let's do it.

[Cody]

Let's do it.

[Connor McDonald]

I've got a good one. I know this came up. Another place this comes up is the operator's newsletter, which some people respond there and ask questions. And I know there were some questions around this one. Cody, we talked about it a couple weeks ago, but let me run through it. This question is, how do you go about quantifying how much you can lower expectations on pre Black Friday Cyber Monday spend with the expectation of RO's improvements come November? Example, you normally take a 2.5x MER, but you decide 2x is fine for October because you know that will eventually lead to a 2.5x. How are you mathing that math? In short, how do you set targets leading up to BFCM to fill the funnel? Cody, this was one of your contributions we talked about on the pod. It was mentioned in the newsletter. I was hoping you could, you could take a pass at this.

[Cody]

Yeah. But I want to hear how you guys would look at it as well. I would say this is where it's really helpful to have a monthly, weekly daily plan versus actual that you can compare back to for previous years. And so especially if you do a very similar, you know, promotional calendar, you can see, you know, hey, Black Friday, I get, you know, my normal MER is a 4. Black Friday, I get an 8 or something like that. And so what we do when we, when we finalize like a month and we have like our, you know, our KPIs which is, you know, let's just say we have MER spend, you know, contribution margin revenue for a month. Like we'll then break those down into dailies. I'll have on one tab open. I'll have my this year as well. I'll have my last year's on another tab open. And I can actually see, you know, how a month normally trends based on historical stuff. Obviously if there's any differences, like this year, you know, you got Cyber Monday in December. Like you, you will have to adjust for that. But I think that's the best way to do it and just to kind of see looking at your, your historicals but then making any changes and then some of it is probably a little feel like maybe you want to be more aggressive this year. Well, you're not necessarily going to have historicals, but I want to just map that math and I want to say, all right, well, what if I decide to spend 40% more and that puts me, you know, way, way more on the whole, way less efficient. Maybe I'm running out of two and a half, you know, most of the month, but does that allow me to recoup a lot more value? And some of that. I don't have a great answer. You know, you're just trying to feel it out, but you just want to make sure those projections that you have equal out to the total mer, the total contribution you want for the month, even though you're going to be much lower in the beginning.

[Connor McDonald]

What would you say, Connor?

[Unknown]

Yeah, I mean we. I agree with everything Cody just said. I think, you know, we start with this year end target, um, and then we just get more and more granular with it. And we're using like, like Cody said. Exactly. Seasonal data to. It's not. All right, you're in MER divided by. That's not. It's not like if our year and MER goals are five, it's not like it's a five every single month. You know, we're seasonal. We know it's going to be lower months and we know it's going to be higher than that some months. But all up, we need that to add into the year end target. And yeah, you just need to lean into your, your seasonal historical data to understand how your revenue and efficiency are going to distribute throughout the year. And especially important in, in a November month where like, like as an example, this is not our actual goals last year, but let's say we were shooting for a 4x in November last year based on expectations set from the Previous year of how our total revenue as a percentage each day and total efficiency each day as a plus or minus against the month end, we would have run the, we ran the business at like a 2 from November 1through13 and then above that 4 slightly for the rest of the month. And then that netted out to our four. Like that expectation setting is everything. Otherwise you would have gotten to November 13th and be like, Holy crap, we've only done 10 of our projected revenue for the month and we're, you know, 78 below our projected MER for the month. Oh my God, we are screwed. No, like we expected that to happen and it, and it went according to plan and then we launched our offers and then we were above MER target.

[Connor McDonald]

Right.

[Unknown]

For the, for the month. But yeah, if you just take your last year's data, your revenue, and then like give each day a percentage of that and then do the same for mer. We like to take the MER from each day and say, how high or below was it compared to the month end goal? And then we just take our, our November projections, for example, and just plug those into those percentages and that's our starting point. And then we might, we might fudge them up or down like Cody said, based on, you know, dates year over year or offer year over year. But generally speaking, that's like the starting point and, and gets us pretty darn close.

[Connor McDonald]

Yeah, I would, I would obviously agree. Yeah, we use historicals. If we, if you didn't have historicals, a couple of the things we've talked about are looking at you compare the delta between like a, you know, a one day click or a seven day click or. It doesn't really make sense. If you can compare 1 day click and 30 day click. This assumes you have some sort of MTA because you can't do this in Facebook anymore. Um, then you can look at what period in time does that delta grow. So obviously we typically see just as an example a 50% delta. In the weeks leading up to Black Friday Cyber Monday, we see a hundred percent delta. So we can be a little bit more confident that we could spend more dollars there as they will be worth more over time. And that might help someone with maybe not strong historical data guide how they might distribute spend throughout the period.

[Unknown]

So are you saying if, if you have, if you're seeing that 100x delta from 1 day to 30 day does, can you like apply that growth to like revenue? So it's like, oh, I can expect double the revenue to start coming in once we launch the Offers compared to pre offer and like try to scale it to like top line revenue projection. Assuming that maybe that ad channel is your number one channel.

[Connor McDonald]

I wouldn't, I, I wouldn't try to like stack it up into revenue. I'm just walking through the scenario of like, how might I decide when to scale spend and when can I have some certainty that it's okay for my results to be worse currently. Right. So I just the kind of logically it makes sense. Hey, your MER can probably be lower on November 1st because we know from last year the delta between November 1st, one day click and 30 day click was twice as big as normal. That sort of thinking. And you can look at that.

[Cody]

And that's such a good point. I actually forgot we did that last year. We had North Beam actually pull some of that data and we were actually talking yesterday about pulling that, you know, because they pulled from 2022. And we want to now look at last year. It's so interesting because you get the, you get a huge lag. You're probably like October spend is probably some of, you know, the most profitable spend in terms of having the highest, you know, the highest Delta between a one day and a 30 or whatever it is. You can also look by channel. Like, we found YouTube had a higher delta compared to some others. But did you find like there's no lag during your Black Friday spend? Like if they don't buy, then they're like not buying after that?

[Connor McDonald]

Yes, exactly. Yeah, that's exactly right. Once you, once you hit Black Friday, that delta gets smaller. Yeah, it's actually, you should be post Black Friday running above your typical targets because those people that you prospected who didn't purchase are just less likely to buy in the future because there's no big sale opportunity waiting. So you can be, I mean, that's like as simple as it gets, right? Your targets can be lower early in November, getting closer to your targets. Black Friday's every Monday week. And then post, you should actually completely adjust because that, that traffic is just categorically different. All right, that's pretty good.

[Unknown]

That's pretty good. That's a, that's a, that's a tactical roadmap right there.

[Connor McDonald]

Yeah. Yeah.

[Cody]

So one thing we talk about a lot on this podcast is upper Funnel investment measuring, YouTube measuring, TV measuring, you know, out of home, all that kind of good stuff. It's something that's top of mind, but it's not very easy to do. Recently, Jones Road turned to Preschen AI to help us as our new MMM media mix modeling tool and we have been super impressed, no joke. It's really helped to quantify some of the things that we thought were true, some of the things that some of our tests, you know, showed us, but especially TV was very hard to measure. We were spending about 10% of budget on TV and we just weren't really sure how it was doing. Spoiler alert. Test of the week is actually looking great. It's actually looking like our most efficient channel thanks to Pression AI. So we are in the midst of scaling it up and results look good. We are very happy with it. YouTube looks great as well. You know, been been spending and scaling up YouTube a lot based on this data. So we are very happy with it. It's actually not something that we were getting. We didn't feel like we had confident data back from other MMM providers that we worked with before. And so we are thrilled with some of the prescient data that we are getting. We're getting halo effects. We're actually able to see, you know, how much value are we driving directly from clicks on channel versus how much is coming through organic direct and it's quite a bit. Being able to measure TV has been really difficult until now, but it feels very accurate and it's giving us a lot of confidence. Things are volatile in D2C. We're able to build these new optimizations, these new scenarios, you know, within days. Setup was super easy, unbiased, cross channel, you know, measurement. We're not on Amazon but I know brands like hexcloud will use it to also measure and validate, you know, spend going to Amazon. And so we're thrilled, we're super happy with it. Couldn't believe how easy it was and the team is getting a lot of value out of it. There's reason you're used by top brands like of course Jones Road, none other than Hexclad, Good American Symbiotica, Timbuktu and many, many more. Mike, the co founder hits me and Connor up pretty much every day just telling them about some of the new brands that signed a lot of them from listening to this. So we are thrilled with Prescient. It's made a huge difference so far and it's really going to help us leaning into Q4. So if you want to be like us, like Hexcloud, like Jones Road and many more, go to pressure.com operators to book a demo and see for yourself.

[Connor McDonald]

Good starting spot. All right, we've got a couple more here. This one's a little Bit of a longer one. So. So stick with me. It'd be helpful for you guys to dive into marketing spend as a percentage of revenue. What do you see as a healthy percentage to spend on total marketing based on size of the company and product margins for E commerce company trying to scale and I think we're gonna have to like lay out what some of these considerations should be coming from a brand that's 35 years old and has made the full pivot from retail to E commerce. It's hard to communicate with owners of the company on what is a healthy amount of a healthy amount to spend on marketing as a percentage of total revenue. I think I spoke with this person and I'm pretty sure that like the historical business ran at like a 10x mer. They're 35 years old. Multimillion dollar business. 10xmer he's trying to justify internally. If we want another dollar in revenue, how much should we be spending on ads? Who wants to take this one first?

[Unknown]

I'm happy to, I'm happy to kick it off. I, I think I. First off, I'm assuming this business ha. If it's a, if it's like a legacy brand, it probably has ton of repeat business going on. Is that, is that the case or is it, is it mainly like an acquisition oriented business?

[Connor McDonald]

But let's make some assumptions. Let's say, let's say there's, it's really just like a high intent category. They've got good SEO, maybe there's some amount of retention.

[Unknown]

Okay. I mean I'm always a huge believer to like simple. I think this is one of the things in E commerce that gets so convoluted so quickly and everyone starts like just being over precise to the point where they can't make a decision. I mean the overall equation you should probably be trying to solve for is just what's your first order aov? What's the cost of delivery associated with it? Maybe if you want to apply like some sort of SGNA cost to get closer to a bottom line minus X equals you know, goal margin where X is your cac. And then and like great. That's like generally speaking what you need to be solving for and deciding what your, your first order margin should be or if you're a consumable, like what, what CAC will net out to your goal like 12 month lifetime value margin or whatever like margin metric you're optimizing towards that is like the starting point always I think. And then you need to consider business objectives. Right. If top Line growth is more important than just like per order efficiency. Like, great, you're probably going to optimize towards a lower margin and grow top line. Whereas you might, you might change what that, you know, what you're equaling in that equation, which will change your cat target. But that's how we approach it. I think that's the simplest way to approach it. And I think you can fudge that around based on your business objectives. But I think that's like the starting point probably no matter what your business objectives are.

[Connor McDonald]

Would you add anything, Cody?

[Cody]

I could spend years on this topic or I could spend like a whole episode because. No, because I literally spent years trying to figure this out because I just, I just would always wonder like when I was like, you know, when I was like growing up as a media buyer, just like, what's a good roas? Like what, you know, what should my target be? And like I talk to everyone, they're getting different ones and you know, that's kind of what's, what's drawn me to like a lot of, you know, where we are today and a lot of like the bringing finance and marketing together. So I would say there's a few different ways to look at it if I have to give an answer because I think I don't want to not answer the question. It depends on so many things. But if I got to give 1,25 to 30% of your revenue on marketing is probably a good place to be. Just like as long as you have fair, appropriate margins, you know, reasonable things, that makes sense. But it's going to depend based on your, your first solid, your goals, what's how profitable versus growth oriented do you want to be? Right. And what are your company goals based on that? What are your margins? So what are your variable costs? You know, your cost of fulfillment and delivery? If I have a 70% landed gross margin compared to a 50%, well, now I can, I can, you know, spend 20% more on CAC and have the same level of profit. So you know, that's going to play a factor. And then also what's your, what is your OPEX as a percentage of revenue? And obviously, you know, if you're looking now at ebitda, the lower your OPEX is, the more you can then put into CAC and have the same, you know, net profit number. So those are all kind of things I would think about. But I would say what I really would do is, what really helped me is, is actually Sean sensitivity tool that he kind of, you know, created that you guys, I think use at Ridge, where you just see like what is the contribution margin and hopefully what's the EBITDA at different levels. So you know, if I spend a million out of 4 MER or you know, 1.5 million out of 3, how much more revenue am I making? And what's that incremental contribution margin of that extra, you know, I've read the numbers, I said let's call it, you know, 500k and spend. How much extra revenue is that producing? But more importantly, how much extra contribution margin or profit is that extra revenue producing? And it's very possible to grow revenue while actually producing same amount of profit or less profit. And I think that's it. So what it ultimately comes back down to every time we have a board meeting and we're planning and trying to hit our targets is what is going to produce profit with a bias towards growth. How are we going to maximize that contribution? Margin number margin, meaning the dollar amount. Most finance terms when it says margin, it's a percentage. This is actually a dollar amount. What's going to maximize that profit? Dollar amount. Because all else being equal, you know, fixed costs, if they're truly fixed, that's how you maximize profit. And if you're talking about valuations or growth or future, let me get the scenario that maximizes contribution margin while also getting more impressions and spend out in the market acquiring more new customers. So I would probably be rather be spending a million dollars at a 4mer instead of 500k at a 8mer. But ultimately it's going to come down to the business and their goals, right?

[Connor McDonald]

Yeah, and I think that's a really important point. Like you said Forex MER just now, 25% of your revenues going towards ads. That means nothing without scale. Right? Like I think that's where people, like this is where people get it messed up all the time. It's like, well is it 3xmer good or bad? And for Ridge that would be horrendous. If we were doing like a million dollars a month, we wouldn't be able to pay for anything. So you have to take that into account. So really all that matters is like, or at least the way that, that we think about it and this is kind of the sensitivity chart is like, let's just say there's some base. Let's say for instance Ridge is doing a million dollars at a 4xmer. So we do a million dollars in revenue. We spend 250k on ads. Awesome. Forex. What really matters after that is to produce an incremental dollar of revenue. How much of that do I need to spend on ads? And that's going to be way different. And that's where it just matters. Unit economic profitability. So what are your variable costs associated with that extra dollar and how much do you need to spend to get it? Ridge will spend like 60 at times. 60 cents to get that next dollar because we've been ruthless about driving down cogs, being super efficient, getting variable costs as small as possible. So we could be really aggressive in those incremental dollars then. So let's say we can spend 60 cents and let's say that's break even. If we can spend $0.50, if we get a 2x incremental ROAS, then in theory we could spend an infinite amount of money. At that rate, we're unit economic profitable. Every additional dollar until our entire business just goes to a 2xmer, because we have a big, big chunk of revenue that we got at a 2xmer, and at this point a tiny chunk that we had at our original 4xmer. And I think people missed that. People miss that volume point. Maybe we could put Sean's sensitivity chart in, in the show notes because I think that's a good starting place for people who might have questions around this. The last thing that I'll say, which I'm sure we can all agree with, is marketers understanding this concept is essential. And then marketers being able to get the rest of leadership on board with these principles is a. Is it like a different battle? Yeah, yeah.

[Unknown]

Yes, it is. Yes, it is. Can I, Connor, which question for you? So you're basically talking about this idea that as you scale, efficiency diminishes. Right? And like that's another concept that marketers are intimately familiar with that I think a lot of finance folks that have never bought an ad aren't. So you're saying like the business as a whole, if you're spending a million bucks, might be at a 4x but. And so you're spending 251k but that next that $250,001. That's not at a 4x just because the whole business is. How do you, how do you think about, like finding that point of diminishing return, like from. For the business as a whole? Maybe. I'm not asking that, like, because we can obviously use house for like the channel level stuff.

[Connor McDonald]

Right, Right, totally.

[Unknown]

Like, how do you figure that? How do you figure out when you're going from 4x to 3x to 2x? That's kind of A hard thing to do. Right.

[Connor McDonald]

This is another good operator's hotline question. I got, I got that exact question in DMS yesterday. I've got another spreadsheet that we use that like, uses that exact variable. When you go out to spend another dollar, what's your roi? And that's going to be typically worse than what your blended results are. And then we also assume that even from there it's going to get worse as you spend more. And that's like the general cost curve. So how do you get that blended? Like, let's say our entire marketing mix was scaled up a single dollar. Like, what did we actually get on that? I don't know. I don't. I have no answer for you. Yeah, yeah, no, I would say it's like, I'd say it's kind of impossible. Like, how I answered was, you get, you obviously don't scale up the entire marketing mix one dollar at a time. So like you do, if you, if you have a way to measure incremental returns of channels, you might have a good sense of that. Maybe for a smaller brand you just use like Facebook rows to say, hey, if I scale up 10% here, 50%, like, what is my roas?

[Unknown]

Like what, what happens? Right. Like what it was here and then it went here. And you could apply that, that, that rate or that change to maybe the, the business as a whole. If you're like very driven by Facebook as your core demand gen. Yeah.

[Connor McDonald]

Or I would say, like, if most people are just scaling up by increasing Facebook, so it's like whatever you got there is likely what it is for the business. The other way to do it is just to look at did revenue increase. Right? Like, like, yeah, you just scale up and then you make sure like you're seeing a top line lift. You can calculate. And this one, it becomes much softer science. Like, what was the delta in revenue period over period? What was the delta and spend period over period? What's the delta roas between those? We'll do stuff like that. Especially when we're in a smaller market like EU or whatever, we can like double Facebook and like, yeah, we want to see revenue increase that amount plus another 50% or whatever if we want to get a 1.5x return. So yeah, nobody likes that answer because it's so unclear. Like, he can't go to your board and be like, yeah, Connor says you can't really do it. Like, we just got to see like, like, that's a hard conversation to have too. But, but there are ways to like kind of validate it over time.

[Unknown]

Yeah.

[Connor McDonald]

The other thing that I'll say here quickly, this is an easy mistake to make is people will scale up and they won't like properly validate the results and they'll just like blend down their results. I see this on like non branded search all the time. We're getting a 2x roas. That's awesome. We're way above profitability. Let's spend more. Okay, we spend more. The only thing that happens is cost per click goes up, revenue actually doesn't increase. We're hitting 1.6 row is now awesome. Still profitable, still above our goal, but we actually just did a net negative because all we're doing is spending more money to drive the same traffic and, and conversions. There's like non incremental return that is really easy to kind of get lost in the shuffle, especially if you're being super growth oriented.

[Unknown]

To summarize, Connor has five different models that he's triangulating or Quint Pentagon, whatever that word would be across to answer that question. So it's complicated.

[Connor McDonald]

Yeah. But the base, I would say we all hit like the base stuff is like relatively. It's a relatively simple equation.

[Unknown]

Yeah.

[Cody]

So we recently switched to rich panel and I'm, I'm pumped. We're loving it so far. I just can't believe how easy migration was. It was super easy. We actually were considering waiting. We just hired a new director of cx and I was a little bit bummed at first because she was like, hey, you know what, I think we should wait till after Q4. But she got on a demo with them. I asked her to do it. She actually did one before where she used to work and she told me, she was like, I can't believe I forgot how much I love it. I just, I want to do it right now. It's just so much better than what we're currently using, what she's used in the past. And we've been super pleased with it. The support has been great. And switching was super easy. I actually couldn't believe how easy it was. Our team picked it up super easily. I can't say enough good things. Just, just sincerely. I can't say enough good things about their team. And here's why else. I love it. Our response time went way down since switching. It was much higher than when, you know, than it should have been on other platforms. We were able to add in some auto tagging, some rules. Number of tickets has gone down, response times have been down. The ux is way cleaner is what I've heard from our team. The data and reporting is so much better. Better than everything else I've used. And we haven't even scratched the surface on the AI capabilities. We're about to do a demo. Their new kind of AI social moderation tool. Looks sick, looks awesome. I know Rich has been, Ridge has been using that so I'm really pumped about that. But just the migration, it couldn't have been easier. We're paying a much better price than we were with other ones. And that's all in. We've got the self serve features which are awesome to help reduce number of tickets. I just can't say enough good things. It's really helped our team our CX function and I'm super happy with it. So if you also want to be like us, like Ridge, switch over. Like I said, migration is a breeze. Just book a demo on Rich panel dot com.

[Connor McDonald]

You guys ready for one more?

[Unknown]

Yeah, this is fun. I like this.

[Connor McDonald]

Okay this one, it's a little looser. This was someone that I spoke to. I thought it was a good question. General question. What we just touched on now I think is really great actually prepping for Q4. This is more general business. One met this guy, HomeGoods brand. 10 to 15 million dollars a year, large catalog, largely Amazon and he's building out his D2C business. He said what would be the two things you would focus on? And I realize I'm giving you guys very few details but I'm curious your answers the two things and I'll say.

[Cody]

This, what kind of business?

[Connor McDonald]

Home goods, large catalog, 10 to 15 million dollars a year. So my takeaway there was like there's product market fit to some degree. Like he's clearly got a, a business that can be profitable online. He's been doing it for, for I don't know, I think it was 10 years or something.

[Cody]

That's so hard to like pick one thing without knowing that much.

[Unknown]

I do think when you, when you're only Amazon, your opportunity to generate demand is just not that you can't do it but like what are you going to do? Generate a ton of demand and just send it to Amazon where you have no tracking. Like you just can't do it as.

[Connor McDonald]

Oh they're building out selling on Shopify.

[Unknown]

That But that's going to be a new channel right for them.

[Cody]

But that's the question is like how, what, what do you recommend they do for the new channel? Right? Yeah, yeah.

[Connor McDonald]

Because the way it happens now is they, they do millions on Amazon. He thought of that as brand awareness because they don't do much DDC marketing but people would find the brand on Shopify and purchase there. So he thought of like almost all of their Shopify sales as like spillover from Amazon, which I thought was really interesting. So yeah, now he's trying to build out like the D2C flywheel and that's.

[Unknown]

What I would focus on. Demand gen is one of the, and that's a pretty big, that's a pretty big answer. But at the end of the day he, he needs to validate like how much top line scale this thing has. And the only way to do that is take a big swing at demand gen. And since he's going to be doing it through Shopify, everything will be better. His, his data clarity, the contacts he gets post purchase. He doesn't have to worry about like not being able to remarket to people because he's sending it to his.com now. So I'd be, I'd be really excited to take some really strong demand gen swings just starting with Facebook ads and really trying to get the best like minimum viable product up for, for you know, the DTC specific funnels.

[Connor McDonald]

I'll jump in with one and then.

[Cody]

I don't know, I'm trying to think, I don't know. Yeah, let me think about it.

[Connor McDonald]

One, one, that one that stuck out to me that I think I see brands like take a misstep around is they'll try to acquire customers off of two like broad of a catalog. Basically. I was like trying to like I was trying to hit that point. He's got this really large catalog and that's typically what you see from like an Amazon brand. They're just, they have listings that rank organically like all over the place. So they sell a ton of stuff. Same with dtc. I was like, yeah, I think if you want to scale in dtc you have to find like a thing that works. Maybe you can be slightly seasonal but like you're not, you're not driving people to a big collections page and letting them find whatever. I was like, you gotta like zero in, find the thing that works and then focus on that scaling. I feel like that's what really like Facebook acquisition lends itself best to. And I think we're all examples of that. We've got hexclad cookware sets, we've got ridge wallets, we've got the miracle bomb. Like from a, from an acquisition perspective, we're relatively narrow, focused.

[Unknown]

It's a great piece of advice. Find the HERO product and then if.

[Connor McDonald]

You can find the hero product, scale up around that. It's kind of a rising tide lifts all boats. You have people browsing, browsing the site, they're buying other things. They're recognizing you on Amazon when you shop there. Like it's not as if you'll only ever sell this like one thing that you've got promoted on Facebook, but that's how, yeah, it ends up being. That's the tip of the spear and then there's a lot of things that kind of spill off from there.

[Unknown]

Yeah, that's the first thing to do within figuring out your demand gen. Right. Like figure out the hero product then, then you can think about scaling the hero product through all the creative tactics, landing page tactics, offer tactics. But if you don't, if you don't have the hero product, you could have the coolest ads in the world, but it's not going to convert.

[Connor McDonald]

Well, yeah, and you just get this like analysis paralysis. I think it's, it's really hard to just drop someone on a big page and like, hey, discover whatever you want. We've got a million things.

[Unknown]

Right.

[Cody]

All right, I'm glad I took some time to think about it. I was going to give a terrible answer because I was going to be like, all right, you need ad creative. And I'm like, all right. But you know, if, if they don't didn't nail their DTC offer, if their landing pages or website don't convert, it's not going to work. So it's probably not ad creative. Like it's not one as important as it is. Mine might be a little contrarian, little devil's advocate. We're all demand gen marketers. We're all, you know, paid social guys. Maybe they shouldn't do demand gen at first. Maybe they should do demand capture because there's clearly demand already by people searching on Amazon. They have shown they know how to play that game, especially something like home goods. There's probably a, you know, there's no demand to be captured for ridge wallets and you guys had to create your own demand. But maybe there's a lot out there and maybe they should actually play the Google game instead to start.

[Connor McDonald]

Yeah, I think that's great advice too. Different advice. We're getting a mixed bag from the.

[Unknown]

I like that. What I was going to say for number two would be it sounds like they have a big product catalog. Sounds like they have, I should say it's only they have a Big catalog of categories and now that they're going to be selling more through dotcom, they'll be able to email and text people in a more effective way. So basically what I would recommend is once they start getting market basket analyses pulled, like hey, if someone buys the hero product then I know the top three products that they're next most likely to buy are A, B and C. I would be taking advantage of the, of all the owned media like CRM data they're getting and setting up post purchase automations, but using the market, like not being random about it, like actually using real data to say these people coming in on these products are most likely to buy these next. And we can enhance that if we just create that experience for them. And then maybe they have some, maybe organically there's something that's not happening, but they think they could make it happen. Right. Like people aren't buying this product organically but maybe that's because we're not marketing it well enough. I think it's a natural fit. There's. And maybe they could kind of unlock some like post purchase, second order plus product market fit by building out and like utilizing the data clarity they get that you just can't really do. I mean not really you can't do with Amazon because you're not getting those emails or phone numbers and they're not opting in for own media. So that would be number two, I think.

[Connor McDonald]

Totally. Yeah, I think that's a. These are all good answers. The other one that I told them, which I was excited about frankly was I guess I kind of mentioned this earlier but just like ensuring he continued to look at the business blended like I, I do think growing DTC efforts via demand capture or demand gen will benefit Amazon like probably significantly and it's easy to lose sight of that as well. I mean it's the same with retail, right? Like brands that have distribution via retail, like sell through in Walmart benefits from your D2C effort. So just figuring out a way to think about your business a little bit more holistically and understand you're capturing value elsewhere. Because I think people would make the mistake of being like, you know, Facebook says my roas is bad and I'm going to turn all these things off now and like not, not maybe zoom out, look at the bigger picture.

[Cody]

For sure. Definitely.

[Connor McDonald]

Cool. All right, we've got one more. It's, it's a hairier one but I'll get into it. Background. We're a low eight figure skin brand. Skin brand skin care Brand and our new reach is only 3 to 5% every month. So, yeah, this is about rolling reach. We talked about it a couple months ago. We spend six figures on Facebook ads without problem every month. But we've been having this problem since last July or August. Before that, our new reach was maybe 10 to 15%. But this whole year it's been a struggle. I talked to these people on a call as well. I've, I've been, I've. I found myself in a lot of pro bono consulting work via the newsletter.

[Unknown]

Pass. Come on.

[Connor McDonald]

But yeah, that is the, that's the premise. They're really concerned about rolling reach. They're convinced their ad account just will not serve to new people. They've reached a very small percentage of the whole US 300 million people here or so I think they've reached 30 or something. So it's not as if my first thought was, hey, you've reached everybody. Like, you got to think about that. It naturally declines over time. You guys have any, any thoughts on what could be going on here?

[Cody]

I know you think I'm gonna say they should run reach campaigns, but I don't think they should. They're just not spending enough. So I don't think that's it. I would say creative diversity. I would, I would be shocked if you looked in their ad library and all the ads didn't look the same.

[Unknown]

Yep. You got to find new auctions. Right. New, new pockets of people that different ads will reach, different messages.

[Connor McDonald]

Okay, can I ask you guys a personal problem that I've been having? Not personal. Brand related. It's written.

[Unknown]

I was gonna say, I was gonna say. Where's Connor going? Deodorant. I can't stop sweating.

[Connor McDonald]

No, but it's around creative diversity. So we had, we did an awesome integration with Sean O'Malley before his fight. Unfortunately, he lost. But we, we did an IG post with him and it's going to be on his podcast. And we got rights to that content. So we've been running ads with his likeness and these ads are getting a really high click through rate. They're not necessarily reaching new people. Really high click through rate, but an incredibly low time on site. Like it. I've, I've brought this up before. It seemed body. It's why I was in GA4 today, trying to figure out how many, what the time on site was for this traffic. It was like three seconds where our average ad is like 30 seconds plus. And we see this kind of consistently with like ads with celebrities in them and I don't know what to make of it. Do you guys have any initial. So some proposed solutions?

[Cody]

Yeah. I'm curious your take because you probably also have more, you know, celeb ads and it's something we're planning to do more of for next year. I mean, as long as you can verify it's not, you know, bots. Maybe these people are just like very interested in the celebs. Are you, are you either whitelisting or running partnership ads from their pages or it's coming from Ridge?

[Connor McDonald]

No, these are coming from Ridge.

[Cody]

Is there any evidence, like what's like percent new visits 90.

[Connor McDonald]

So it's like slightly above average.

[Cody]

That's high. Wow. That's like. I wonder if you're reaching this person's audience either through, you know, just a model of people, you know, that met is creating that thinks they're going to engage with his content and it's just people that are interested in like what's he doing rather than. Yeah, this product.

[Unknown]

Totally agree. Also, I love this ad. I'm watching it right now in the library. This is cool. This is, this is a fun ad. I mean something about something about it. It's purchase conversion, right?

[Connor McDonald]

Yeah.

[Unknown]

Like something about it is just like for what? I don't know why, but I think Cody's reason is, is like a good one. Just like found a. On like a low intent pocket on Facebook. What if, I wonder if you like didn't open with him like to like address Cody's hypothesis. Like if you didn't open with him, you opened with Ridge and then you transition.

[Connor McDonald]

That's a cool idea.

[Unknown]

So maybe like if, if the first five seconds aren't Sean O'Malley, it won't be going into this like low intent, like Sean O'Malley fanboy audience that it seems to be going into. And I wonder how much like having at Sugar Sean is the first line of copy like affects things. Who knows?

[Connor McDonald]

Yeah, I'm gonna try that. I think that's a really good point. So yeah, thanks for, thanks for letting me tune into operators hotline.

[Unknown]

That was a good tag team.

[Cody]

Yeah, he's given out a lot of pro bono consulting, but he's also getting a fair bit.

[Unknown]

Well, Cody and I. Cody and I take a percentage of ad spend. Just so you know, we're. We're on the no cap. No cap on it 10 though. So competitive to some of the other, the other services out there on advice.

[Connor McDonald]

Dude, that's a high margin services business.

[Unknown]

We didn't even produce that. We just we just had an idea.

[Connor McDonald]

Yeah. Awesome. Well, cool. You guys want to wrap it there?

[Unknown]

Yeah. That was good. That was fun.

[Connor McDonald]

All right. Hope you enjoyed the episode. If you've got questions of your own reminder, there's a link in the show notes, so submit whatever you want and it might make it on a future episode. And if you found this valuable at all, make sure to subscribe. Share with your friends. We appreciate it. As always, thank you to our sponsors, Motion, Prescient and Rich panel.