Natural CAC & the Meta Auction: Scale Without Killing ROAS transcript

There is a concept right at the center of your meta ads account that I'm almost certain you have never thought about seriously and that you probably don't really understand even if you've been running ads for a while. And I know that cuz I've rarely heard people talk about it until some recent conversation on X. I want to explain to you today why you can't scale your ads the way you think you can and even why you can't pull your ad spend back and get the efficiency that you want the way you think you should be able to.

If you want to understand how your ads actually play out in the meta ads auction and if you want to think about what you can do to set up your business for meta ad success at the fundamental levels, lock in for this episode. We're going to get into the weeds and into the details. I think this is going to help you. All right, let me say it up front. If you have any questions as I go on this episode, make sure to leave a comment in the comments here.

Um, I'm going to try and do my best to interact with as many of them as I can. uh because I think there will be questions on this episode. So do that. And while you're at it, why don't you subscribe if you like this episode as it goes wherever you watch or listen to it. Uh you will like a lot of my content if you like this one. So go do that right now. Okay. Uh Jordan Menard, uh very smart, very good advertiser, uh who's going to be on the show very soon.

It's another reason to subscribe. Uh he uh Jordan has been recently tweeting about uh something that he has called natural CAC. It's a it's a nice little phrase to explain the idea that it seems to be the case that uh meta ads settles in at different points uh to where it just sort of does seem to want to deliver you a certain CAC no matter what you do. And almost everybody who's ever run ads experiences this. Here's here's Jordan's uh tweet.

I'm going to read it now. Um and the way he frames it, he says, "Natural CAC is the cost Meta wants to charge you to acquire a customer. you hit this number and Meta will give you nearly infinite scale. That that phrase I think is overstated, but I'm going to come back to why I basically agree with this point in a second. Um, the way he says it is, raise your budget 100%, CAC only rises 10%. For subscription brands, the game is finding this number then scaling into it.

Trying to push it lower is a fool's errand. Meta's ALGO knows the price. And I think this is a very insightful tweet. Again, I'm going to express a little bit of disagreement with it later, but I agree with like 80 to 90% of the point of it. And I think it's important that people understand what Jordan is getting at here because it's it's very very helpful. Particularly this notion that you raise your budget 100% and your CAC only rises 10%.

Or the the opposite can be true, right? You try to reduce your CAC by 10% but then maybe you reduce your volume by 50%. Or something. And and that way of talking is something that everybody understands about meta, which is that there is a uh an inverse relationship between scale and efficiency. Right? the more you spend, assuming you're running the same ads, the more you spend, the less efficient your ad spend will be, which is to say your rorowes will go down.

But what people don't talk about enough is that that inverse relationship is also nonlinear, which is to say it doesn't work where if you spend 10% more, you get 10% lower rorowass. If you spend 20% more, you get 20%. The the relationship between those is often disproportionate uh and not nonlinear, right? So, like I said, like Jordan said, right? might you might spend 100% more and only have a 10% reduction in CAC. You might spend 50% less or you might try to reduce your CAC by 10% and your volume drops by 50%.

Right? So you have to decide at that point, do I want more volume or uh or or can I find a way to make my business work with 10% worse CAC? Okay. And and so that's this question that happens. And again, every advertiser who's run ads at sort of any scale at all and even at a relatively low scale has probably experienced something like this. And Jordan's point is that what you ought to do uh to in order and to make that work is is that you ought to figure out a way to make your business work at whatever that natural CAC is.

Okay? And uh and and you know, again, that's a nifty phrase, natural CAC. So, you got to try to make your business work at that natural CAC. And if you can do that, you can get a huge huge amount of volume. Okay? In fact, many people will point out that Meta is primarily a volume machine. And that's the true power of it. is what you really really want is scale with meta and if you can make that work that's that's the way to make the machine work for you because it has so much reach at relatively good efficiency.

Um and and I don't think Jordan is suggesting that you should be unprofitable in your business or anything like that. Uh he references it in reference to a subscription business which is the kind of business that he runs. But I think I think you know in in that case he's saying you know I'm I I get so much LTV off of my subscription customers that I'm going to I'm going to try really hard to spend at as low of a cap as I possibly can because I can get so much volume that if I can make that work at the level of LTV and margin then then I can make the business work.

And so like I said I think Jordan is basically right about this but I want to dig into it a little bit more. Okay. Um this notion of a nonlinear relationship between volume and efficiency is important. Taylor Holiday and Comic Thread Collective have have the idea of a marginal frontier. Um, which is which is a a sort of related concept that there's some point there's some frontier at which your spend no longer creates marginal value.

And often there is a massive drop off between the between the two sides of the marginal frontier. And so you got to figure that out as well. And they actually seek to quantify that dynamic um in in their forecasting which is a which is a really cool idea. Um but but um but the volume can really pump. and and I want to tell you now why I think the the natural CAC is a real thing and understand what's happening uh more in this dynamic.

Okay. So the the first and most important consideration for why natural CAC happens is because your brand also has what I'm going to call a natural customer. Okay. And everybody who has ever run a brand agrees with this notion of a natural customer the moment they make something called a customer avatar or customer persona. Okay. Uh what they mean is there's a certain kind of customer who makes the most sense for me to acquire and I'm going to speak primarily to that customer.

And the thing about a natural customer is that they have a natural CPM. Okay? because that customer uh h is is worth a certain amount of money to a certain amount of companies. And therefore in a giant auction with which which Meta is uh the the dynamics work out as such the giant marketplace works out as such that uh that a CPM the cost to reach that customer just sort of settles at a certain price as all the brands can figure out what they can afford.

And so actually the idea of a natural CAC or a natural CPM is misleading. In Jordan's phrasing, it sounds a bit like what Jordan is saying is that Meta has some number at which they sort of want to deliver to you a customer. And I actually don't think that's quite right. And I'm not actually saying Jordan is saying that. I think he's he's simplifying on purpose, right? I think Jordan probably understands this. But it's not really like some arbitrary number that Meta assigns the value to.

It is a reflection of a marketplace dynamic. And it is particularly a marketplace built on auctions, which if you talk to an economist, an auction is actually almost always the most efficient way to um to make a market work because it is so good at setting the sort of true price of a given uh item for purchase. In this case, a customer's attention. Okay, ad space on a customer's feed is really what it is. Um auctions are very good at efficiently distributing uh or efficiently distributing uh a scarce good and and so because of that and and again uh there somebody's somebody's feed space is a scarce good.

There's only so much of it to go around. Okay. So um auctions are really good at this because what it allows a bunch of people do is take a bunch of rational actors who all have rational reasons to pay what they're going to pay for that item. again, in this case, the customer's feed placement. And it's really good at saying like, "Okay, we're going to set up keep keep raising the price until somebody stops being willing to pay for it." And and once everybody but one person stops being willing to pay for that little bit of of digital real estate, okay, once that happens, that's the price.

Actually, the price the second highest price because it's a second price sealed auction at Meta, but that's a conversation for another day. Uh the highest price is is uh is go uh the the space goes to the to the person who pays the highest price. And because of that uh because of that the highest price gets set at massive scale extremely fast by a bunch of rational actors who are all willing to pay the same amount of all of this.

And here's the thing about these marketplaces. Um, as many people have noticed and noted before, if you look at almost any large data set of meta meta ads, what you will see is that the blended average rorowass across all the advertisers, you put you throw 500 advertisers into a data set and look at all of their blended rorowass measured basically according to like the true contribution of their ads. Okay, the blended rorowass always settles somewhere right around a 2:1. like you look and you just say like okay well how much can a you know how efficient can your ads be uh you know on meta and and and somebody will answer that question by saying well you know on average across 500 brands it's a 2 to1 rorowass right and I've seen that number for forever I've seen it in CTC's old numbers that they used to publish it's a 2 to1 rorowass and that's what kind of everybody gets and again it's easy to misunderstand what's happening here the reason the average rorowass for a bajillion brands is 2:1 or something like it is not because Meta is unable to deliver a 3:1 rorowass class, but because it is rational for brands to deploy as many dollars as they can as long as they deliver profitable contribution margin.

Okay? And as long as the the contribution margin is profitable, uh then brands will keep spending. They will keep reaching additional customers and therefore bringing down their rorowass to some degree as they increase their scale. And most successful brands have somewhere between 50 and 70 points of landed margin which means something like a 2 to1 rorowass give or take okay delivers a high volume of profitable contribution margin customers you put more simply if I have 60 points of margin okay and a two and a half r rowass why not spend more money if I'm trying to grow my business this is why by the way you can anytime somebody posts a screenshot of like a six to1 rorowass on Facebook and talks about how well they're doing you you just like you just can tell you know right away, especially if they don't put the spend numbers in.

Okay, you can just throw that out and assume the person is lying about what's really happening because if the rorowass was really got that good, they would spend more money because there's it's irrational for them to take a six to1 rorowass and be like, "Nah, I don't want anymore. I'm getting $6 back for every dollar I put in this machine minus cogs, which are I mean even the worst cogs are still going to deliver a profit at six to one." Okay?

And uh and so I'm getting $6 back, but I'm going to stop spending. I don't want to do 5 to one. I only want six to one. like it's just not the way things work and it's a it's a silly idea and so so again people will keep spending until they reach that that uh that rorowass and the reason that's significant is because that behavior extrapolated out across a bunch of brands like all the brands in the Facebook there's three million advertisers on Facebook three million advertisers on Facebook okay uh across all of these advertisers across shared categories okay somewhere there's overlap for all these categories What it does is it has the collective effect of setting a market price for ad delivery and that ends up being this idea of the natural CPM.

The market prices are quantified in CPMs. Those CPMs, what a Facebook CPM is, what a meta ad CPM is, is a giant reflection of the equilibrium of all of these brands dollars flooding into a ra rational auction-based marketplace. And so therefore, Meta uh has a price for a customer. Uh and of course, the more that Meta can efficiently distribute everybody's dollars in that system, the more those CPMs can go up and the more that everybody can still win because now each uh each dollar you spend uh is more is more efficient.

Now you can pay more for the spend because you can sort of optimize conversion more. This, by the way, is also why uh the notion that like, oh man, meta CPMs have gone up so much over time, it's so bad, is so silly. Uh the reason meta ads CPMs have gone up so much over time is both because of number one, inflation. Okay, so that's part of it. Yes, they have gone up, but so has everything gone up over time in price. Number two, because Meta has gotten better at efficiently distributing dollars.

Uh you know, they have done a number of things along the way also to increase the total available inventory. But like Meta got all the users especially in the US they got all the users already. Okay. Everybody is using Meta products in some way or another or just about everybody. Okay. And for a while it was probably Facebook first then Instagram and then Instagram stories opened up a whole bunch of new um inventory and then after Instagram stories Instagram reels uh opened up a whole bunch of new inventory and now over 50% of time uh on Instagram is spent on re like just you know like uh it's just there's they've been pretty good about this.

Maybe they'll make threads work and to where threads actually creates a whole bunch more inventory for people. I don't know. But uh but they they've sort of m in some ways it seems to me maxed out the the total number of active users on the platform. What they have uh continue to do as they have done that as they have sort of reached some kind of a diminishing uh or some kind of a plateau on how many users they've got on the platform.

At the same time uh they have made the the efficiency of the distribution of dollars in that platform more and more efficient. So the CPM goes up because of that. And that's fine because ultimately as long as it's generating conversions, you're in a good place. If you are thinking through the issues in this episode and your brain is working carefully on how to make every click more valuable to your business, then Intelliggeems is a critical tool in your DTOC business tool belt.

Intellig is not a conversion rate optimization CRO tool. Is a profit optimization tool and all of my clients, literally all of them use it. And I have one who just did something really cool which they went out of their way to make double triple sure that all of the data that they give to Intelligjam about their cogs and their shipping shipping costs and all those things are up to date. So that when they just launched a new test about the design of a build of a of like a of like a custom bundle builder on their site, when they went to go do that, they now know that uh that that at all the different possible outcomes that they might have in that test that the actual key metric that they will end up looking at will be the profit per click.

Because that's what Intelliggeems gives you. Intelligjs evaluates helps you evaluate every test that you run. Every landing page, website optimization test you run, offer optimization test you run with Intelligjs, they help you evaluate that based off of the actual profit per click uh on your site and that allows you to do all kinds of creative and smart things. Plus, Intelliggeems lets you test bigger things than just simple design changes on your website.

So, for example, you can change sitewide offers. You can change free shipping thresholds. You can change shipping prices, shipping prices and test them. You can even change the price of your product and run split tests on the actual price of your product, which has a massive impact on how customers relate to your business. And you'll find all kinds of trade-offs between volume and efficiency there. Intelligence is a tool that simply put is sort of critical for smart, savvy, profit-minded entrepreneurs who are try and DTOC operators who are trying to make their businesses work harder and better for them uh as their teams go to work trying to drive CAC as low as possible on as much c on as many customers as possible.

They intelligence is a critical tool in making every click more valuable to you. Again, all of my clients literally use it. I just don't know how you operate a DDC business right now without making that part of what you're doing. Go to intellgeems.io to get 20% off your first 3 months with the code ferris 20. F a r i s 20. Go to the ferris 20 intelliggeems.io. The link for that is in the show notes. If you lose it, go check it out today.

Get started. Make every click more valuable to your business and measure it the right way at the level of profit, not just conversion rate or AOV. Intelligjs.io. The CPM uh reflects that giant equilibrium of the marketplace. And in this respect, meta ads is much more like Google search ads than people usually realize. The challenge with search ads, okay, is that uh this sort of rational marketplace dynamic that I'm describing is actually even more fixed because there are a fixed number of searches for a given term.

And all the advertisers who would like to win the search clicks on that term will pay up to exactly whatever that click is worth to them. And that makes some CPMs like in CPCs insanely high. I I once was on vacation chatting with um a guy who was an inj uh injury attorney, personal injury attorney, like some of the biggest advertisers around in any city. You see um billboards for these folks all the time. And they were talking about the Google ad spend because we got talking about work stuff, you know, and I mentioned that I had run metads and some Google ads along the way.

And he was like, "Oh yeah, you know, we pay like um $150 CPC." $150 CPC cost per click. Why are they doing that? Is that because Google is rigging the auction against uh against injury attorneys? Now, of course, we should allow for that possibility. Google has actively been sued for auction rigging in the past. So, there is a possibility that they're setting a very high reserve price for u for their auction space. And so, we should also generally have some suspicion of big tech companies, I think.

Uh but I actually don't think that's what's happening here at all in this case. I think what's happening uh or at least not mostly in this case. I think what's happening is that a click for personal injury attorney, somebody searching for that is so freaking valuable to a personal injury attorney that they are willing to pay $150 for it because it still creates uh outsiz profit for their business and therefore they will keep going up in price in a fixed system with an auction where they can set a price for how much they're willing to pay.

The click is worth $150 so they pay $150. And that's why you and I don't pay $150 for a for a search click on an e-commerce business because it is not worth $150. So it's not an auction rigging thing. And and I think this is very similar to what's happening on meta ads. And it's is most obvious with inmarket audiences. Okay. So uh so search for any given product and everybody's experienced this at some point. You search for any given product and what happens of course is that you start getting in your feed ads for a whole bunch of related products in the same category.

Okay, go search for uh I don't know a multivitamin. Okay, you're going to get all the multivitamin ads from all the multivitamin companies all next to each other. Um and that is like really really common. Okay. Uh the multivitamin customer here's here's the thing about this, right? The multivitamin customer is worth whatever the multivitamin customer is worth. And just like the personal injury click is worth whatever the personal injury click for the injury attorney is worth.

Okay? And so just like those injury attorneys, the multivitamin brands will pay whatever it is worth for them to get the click. And the CPMs therefore for let's say wealthy middle-aged women in market for health and wellness products are so high because they're worth it. They're worth it to the brands. And so the CPM goes up a whole bunch. And this is where Jordan's natural CAC idea becomes really really clear. Natural CAC is a reflection of that marketplace dynamic particularly for incategory um for incategory clicks like that which is a huge amount of what makes effective is is those incategory markets those incategory clicks.

Okay. Uh sort of once you're in that category and then you can be shopped against all these other ones and and compared to all the other ones. I think it's it's a it's a really big part of of people's media mix whether they realize it or not. Of course, you can't always tell where your ads being delivered and what it's being delivered next to, but that's the idea. And in that scenario, especially, the brands that can find a way to afford paying the most for those ad placements are going to simply outmuscle the brands that can't.

Like, if a click is worth $10 to both of us, but I've made my business work so that I can pay $8 for it, but you can only pay seven, I'm going to beat you in the auction. Okay? And again, the word auction is critical. I'm just going to outbid you for the click. And that will create volume for me and lack of volume for you even though you'll be at your efficiency target. And if you play that out over all the brands that are in that space, uh it's really easy to imagine how these tipping points in volume and efficiency would be nonlinear.

If most brands in the same c in the category have roughly the same cogs, okay, and again, they probably mostly do and will charge a similar amount there's some price elasticity and um and if the rest of their business cost structures like their opex and all that stuff all tends towards similar places, then if I have a better business cost structure, if I have uh if I have better LTV, if I have something like that, I can outmuscle all of them at once.

Okay? And I can do that by simply paying more for the the click. And therefore, that will make it so that an auction after auction after auction, I'm going to keep beating all these other bid bidders. And do you see how that would work itself out to where I would end up getting a whole bunch more volume than everybody else? Because if all of the other brands are tending towards some category average, then I'm going to beat a whole bunch of them in one place.

And again, those businesses probably have fairly similar structures and cost dynamics on the whole. There is some average at which they exist. And what I think people miss here or what might be easy to miss is the way the same dynamic is in play even for non-inmarket customers. Okay, so like whether or not a customer is actively solution aware or even problem aware like searching for multivitamins or something like that, actively in market for multivitamins, she may well be in the demographic that fits your core target.

Okay, so she still may be a wealthy middle-aged woman who is who is uh has some health and wellness consideration. again, even if she's not actively problem or solution aware. And that means she probably has similar characteristics to other customers who are in market and therefore she probably costs a similar amount to reach, which is to say that probably a little bit less directly, but still to some degree. Okay, she uh she ends up costing some amount of quote natural CAC.

Her CPM will tend towards some number again, even if she's not super super um super obviously in in market for the for the product. Okay. played out over tens of millions of customers, thousands of brands, countless individual auctions for space in feeds, and natural cost thresholds emerge for these groups. And so, um, as I said, this is where Meta's auctions at large function more like Google's auctions, I think, than people realize.

And then the game becomes exactly what Jordan says it is in that original tweet that I like so much, that original post. Right. I recently spoke at a conference about the creative methodology at AJF Growth. talking about the notion of the message being the core driver of success of an ad and how we think about this explored expand process and how we really really focus on the right message for the right customer and that's what we built entire creative process around well when uh when I was done speaking there was a Q&A session and somebody asked me the question okay well that's great but what about the landing page if you are paying all this attention to making sure that your message is right okay then what happens after somebody clicks on your ad like is it are you carrying that same message through and uh that is exactly the right question to ask about how your creative works and it is the place where Ferat becomes a really really useful useful tool for good smart advertising teams who are trying to build uh great messaging at scale great creative at scale for basically what it allows you to do is create almost almost a custom website an entire custom website at the level uh of different customers and different angles for your ads so in the example I gave in this episode I talked about um you know different customers for multivitamin versus like a customer who might want sort of a general multivitamin, a better quality multivitamin.

And a customer who might want a recovery focused, you know, physical like fitness recovery focused supplement. Well, those two might be a middle-aged woman and a I don't know 25-year-old man or something like that. And it would be strange to send both of those customers to the same website. So what Vermont allows you to do is to create highly custom sort of bespoke uh funnels for each of those different customers and really build all of your messaging from the level of at the level of copy at the level of design at the level of custom PDPs uh of course like pre-sale landers all of that kind of stuff uh separately at the level of angles and if you start doing this at a real scale you can start spinning out a ton of landers really fast because Vermont is so good at making this fast and easy for brands.

And you can also build custom upsells, um, custom bundles, all kinds of things that make it easier for you to work with Shopify on that kind of stuff. Again, all built at scale. The way that I've heard them say it is they want to empower um, uh, marketer types, like performance marketers to build those kinds of custom funnels without ever having to touch the main website and, you know, piss off brand people. So, check it out today.

If that's the kind of thing that you are doing, go check it out today. It's a really cool uh, it's a really cool tool, really cool product. Vermont.com veratcommerce.com. Go check it out. Today you ask yourself the question, how do I win at those cost thresholds given the nonlinear relationship between scale and efficiency? How can I get that scale up a bunch um and and win here? Okay. And I'm going to now give you five ways to actually do that.

Okay? Actually, excuse me, six uh six ways to actually do that. And uh and so let's talk about what those are going to be. The the the first way to win at at uh given the natural CAC problem is to recognize where your natural CAC is or where it is at least right now. Where is the volume to efficiency tradeoff in your business if you improve nothing? Okay, how does this actually work for you business-wise? Okay, what's better for you?

A big giant drop off in volume as you get more efficient or finding a way to make the efficiency work with more volume? And different businesses and different stage stages will answer this question really differently. Okay. But Jordan is right in my view that the biggest most tantalizing opportunity that Meta represents for brands is the volume opportunity. So if you can find a way to make that work, generally speaking, you should try to make more volume work for your business.

Generally speaking, now there's a whole bunch of other considerations here including your goals, your financing, your um your your skill level, your self assessment of your skill level. I think if you are less financially savvy, uh then you ought to make not ought to not play this game on hard mode, right? you should take a little more efficiency even if it means slower growth because your death risk goes down quite a bit.

Like I think back to my time running brands at 4x400. That was an incredibly complex system where you had a mixed up cap table with six different brands in a portfolio with different ownership structures for each brand and trying to figure out how to share money across brands and how to build a central organization within the brands. It was like really complex financially to figure out all these things. And the thing is I wasn't very good financially.

Like I just wasn't that savvy. Even now, I'm decently financially savvy, but I'm not amazing at it. And there's people who are much much much more financially savvy than I am. And therefore, I ought to be honest about that and play play the game in a way that is not going to create a giant problem for me in that way. So, it's a starting place. Recognize what your natural calc actually is. Like, what is actually happening in your business right now as best as you can tell, be honest about it, own it, and then start to think about what's best next.

Okay. Number two. Okay. There is an important point about creative here and it's that better ads help you penetrate deeper into audiences while maintaining your natural CAC. Okay, because and there's this is the sort of clear reasons for this among other things. There is an auction adjustment for user engagement and it's called estimated action rate in Meta's auction calculation. One of the things that goes into it is your bid, but another thing that goes into it is the estimated action rate and then the user value is factored in there as well, right? the actual um the actual formula for a bid, okay, used by Meta's uh ad auction to to to determine the total value of an ad to the advertiser and and to figure out how to distribute your ads is uh advertiser bid times estimated action rate plus user value.

Okay, that is what the the formula is. And because of that, uh, that means that the estimated action rate is a real consideration here, which is to say that the more effective your ads are at driving a certain estimated action rate, the more you can maintain your bid at the same level while driving up the value of the ad space to you, if that makes sense. Okay? If you can give you you you sort of set a bid that's the same amount whether you are doing a manual bid or automated bids and that bid uh times the estimated action rate uh is is significant there.

So this allows um certain biders dollars to go forward because based on how users engage with your ads and how much value you can get from the user. Uh they have strong incentive. Uh Meta has strong incentive of course by the way to make make sure users are having engaging experiences on the platform. Um and and so this is one of the arguments for having a good process uh for creating good quality ads. The more good quality ads you create, the more penetration you're going to have at that natural CAC.

It's actually one of the reasons particularly to have what we call our expand process. Good process here where we take winning ads where you have a certain message that is winning and therefore reaching some natural CAC ceiling. Okay, you have ads reaching a ceiling of natural CAC. And when that happens, uh you uh you then want to say, okay, this ad is working within this audience. How can I create the same message and make this go further?

Okay. uh use the same message but change up like make sure the the actual new piece of creative is highly variable diverse from that. So I can take this further by increasing the user value basically uh of uh or the estimated action rate on these ads and and if you can do that you can penetrate further into a certain category or a certain angle or whatever it is. Okay, but better ads basically is one of the solves here.

So this is why sometimes without changing your rorowass targets or your bid caps or or um your daily spend or whatever it is, suddenly your performance will massively increase as you launch new ads. This is this is that very basic idea that everybody's chasing all the time anyway. Um made explicit, okay? And into into the process of how the auction works. Uh better ads push you further there. And it's a really big part of how to do this.

Okay. Uh number three, once we get past the ad, we talk about what happens postclick. Um and so so a simple way to make your natural CAC work for you more and to be able to spend more uh at that CAC is to have um a better postclick optimization, right? People sometimes talk about CRO. Um I would I would say like profit optimization is maybe a better way of talking about that. Um or just value optimization in some way.

Could be LTV optimization, but uh but this is lander optimization. This is upsells. This is um spending on higher LTV customers just like making the customer worth more to you over time. anything you can do to make the click worth more money, okay, ends up making it so that you can enter more auctions more effectively without changing anything about your ads themselves. So, that kind of process is really important. And when I see people who are real killers in this kind of space, people like Jordan, so far as I can tell, I never seen P&L, but seems seems to me that he's done really well.

Zack sackstock comes to mind. You know, a couple folks who I who I just think are really one of the things I I watch happen with these kinds of advertisers is they just effort their ads and landers like crazy. They are just super tactical monsters at finding ways to do this all the time. This is the very sort of Hermoszi Russell Brunson mentality of just hammer away at your funnel endlessly and keep pushing. And if you can do that, you can end up creating a ton of value uh even beyond the ad itself, right?

Just take actions against that funnel. Okay. Number four, explore new audiences. And um and this is where you you think about this uh the idea of beating your natural CAC by getting outside of it a little bit. Getting outside of the fixed equilibriums that I mentioned. So like I said, like every customer is worth some amount and there's some some amount they're worth settled based on the sort of broad dynamics of the auction.

Um, but maybe one way to think about this is it might be really really difficult to get 10% more volume at your natural CAC uh uh where sort of wherever that is set at in your business on the same customer. But uh what actually might happen is that by by finding a new audience with a new angle, you might be able to get 30% more volume or 50% more volume by reaching outside of that core group. Okay. Uh, and again, this is the notion of creative diversity and messaging diversity in your ads played out at the level of the auction.

And by the way, this is probably the place I disagree with Jordan's tweet the most, which is, you know, he he mentions near limitless scale or whatever the exact phrasing is. I should get it exactly right. Uh, so I quote him. Yeah, nearly infinite scale. That's that's what he says. Um, I don't I just don't think that's quite true. I don't I'm also not going to push Jordan too hard on the precision of that language because um because I see what he's saying, right? the the notion that like there's a whole bunch of scale if you can do this right.

And I bet if you pressed him on it, he would say it's not truly near infinite. Um that's my guess. I don't know. We could ask him. But the the um the that but I I think there's a bunch of hard work to hear to kind of actually make this happen at the level of better ads that help you penetrate deeper into those same audiences and making each click worth more. Okay, that's a whole bunch of work. But you might be able to instead of doing the sort of grunt work that I just described above about uh about you know postclick optimization all that stuff, you might be able to get a whole bunch more volume by just reaching outside to a different customer.

Okay. Um and and so that often happens by thinking really far outside of your current avatars and personas and angles and instead having a good explore process. Again, the way we talk about AF growth, right? Two parts of the creative process, explore and expand. A good explore process to help you reach new audiences. And that leads us to number five which may be related to that which is to launch new products. Okay. Uh the probably the biggest way that you can think about getting outside your current audience and the current value propositions is to go and launch more products and that will naturally lend you lead you to new audiences.

I have uh one client that has done an incredible job targeting people interested in travel with one product and then they found a different product at some point that that was able to reach people interested in baseball. And when you think about something like that like it's similar products. there's ways in which the values are the same but really different audiences and really different values and that really had a big impact on their ability to produce volume.

Um, this is a really critical thing. Again, you can think in supplements, finding new categories of supplements to get into, new kinds of customers, right? Maybe there's maybe there's a a a supplement for u like I said, a multivitamin or something like that, something very general. And then uh somebody who's who's savvy and wants something that's um a better quality multivitamin, but then maybe there's also something for fitness recovery or you know, whatever.

So, yeah, there's a million of those different things. new flavors could potentially do this. People who have really strong flavor preferences for things. Um, launching more products is another way to beat this. And then finally, and I think the thing that is really important here at the core is to design your business for volume. Um, if you actually design your business for volume, then you can really exploit this. And I've watched some people do this really, really well, where they really don't care that much about the total efficiency.

All they care about is is scale. Okay? They just care about pushing harder and further into more scale. And it's I think this is underrated and and maybe the most important of all these and can be done a lot of ways to push yourself for scale. One of them for bootstrap brands is to think about all the things that I talk about a lot on this podcast and that Taylor Holidayiday talks about a lot and that is to think about being ruthless about your P&L efficiency all the way.

Like run your DTOC business with a very low opex. like hammer away at your supply chain to get um better pricing to get better terms to get um to get uh better shipping costs and all that, right? Like all of these things that go into into making your business more efficient. Like uh you know, remote staffing for me is a really big one of these where I don't understand why businesses don't do that. If you can make it so that your your fixed costs in your business are really lean and your and your variable costs and your cost of delivery are really low, well, you can just reinvest a bunch of that money that you save in those two parts of your business into CAC.

Instead of just pocketing the profit, you can reinvest it into CAC. And because there's a nonlinear relationship between volume and efficiency, you may be able to get a whole bunch more volume uh when you do that. If you get five more points of margin that you can put into ads and now you can increase your CAC by X dollars, you know, related to 5% margin increase, you actually might have a whole bunch more volume there.

And if you can do that, uh, you can really win very big. Another way to do this, by the way, to outmuscle people in the auction is um, is by raising money. And I I you know, it's sort of frowned upon in some ways to raise money by some people and and and I think most people recognize there's there's cases for it and cases against it. If you wanted to uh me to tell you where I think the supplement boom will end up being a bubble or or where that bubble will burst or something like that, well, the first thing I would tell you um is that it's possible that of course there' be like FDA regulation or platform level regulation, something like that could really hurt things.

That might that might be the issue. Um but I think another possibility here is that some smart um investor types will go to or or some some smart entrepreneurs will go to investor types and say, "Hey, all of these people are goofing around being close to break even or even profitable on first purchase despite that their LTVs are so massive in this category with subscribers. And so what we ought to do is raise a bunch of capital upfront, pay more for those customers, and play a very long game because supplement customers tend to last a very long time.

And therefore, we are just going to outmuscle everybody in the auction and crush their volume, right? I I mean, I think that would be uh a difficult thing for people to do and I think for for brands that are some of the brands that are already established, they'll be fine. Like they're probably not going to have like a crazy problem there. Uh but it may make it so there just become less new entrance into the category in that case.

Um, so yes, there's there's that. If I want to sort of make the negative case for how that'll happen, but that would be a way to design your business for volume, it would be to sort of create a capital cushion, then use that really effectively within a deep understanding of these dynamics and how meta ads works and then to go push your business that way. The very best brands of course will do all of these and that's this is the day-to-day work of of many brands in our space.

Uh, they will set their CAC targets intelligently with a knowledge of their natural CAC. They will have a replicable process for creative for both exploring and expanding uh you know expanding on winner winning ads and exploring new angles and new messages. They will be constantly hammering away at their funnels to make every click more valuable to them. They will be designing lean supply chain efficient businesses. They will do that while launching products along the way that are really good and each of those products will be launched within that framework.

And if you can do all of that, businesses can be remarkably successful at remarkable scale. It just means that you must focus on these core areas to make it work. All right. If you're watching this somewhere and you notice my video looks a little worse than usual. Sorry about that. I um left my camera in a hotel room. So, it's just like story my life right there. Uh email me if you have any thoughts on this episode podcastfgrowth.com.

Like I said, I'm going to have Jordan on soon. I'm going to definitely ask him about this concept and and see and maybe I'll even try and get to him get this to him ahead of see if he agrees or disagrees with any of my points. Uh, and I would also love to hear from you um, publicly on this. Uh, that includes comments on this video would be one obvious place where you can do that. Uh, another place that you could do that of course would be on X, Andrew J.

Ferris is the place to find me there. Um, and, uh, and yeah, of course, like I said, subscribe wherever you're watching or listening. Uh, because you're going to like my other episodes. If you made it all the way through this episode and you're here, you will like it. Uh, a couple of people who I a couple sponsors I love uh, who have been a part of this episode are Intellig and Vermont. Go check out both of those, follow up with them.

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