A Complete Guide To Advertising To Existing Customers (Yes, You Should Be Doing That) transcript

I am going to start today by showing you a chart. This chart, and if you're listening only, that's okay. I'm going to explain it to you, shows two lines and you can see them very clearly, a blue line on a line graph here that is a daily meta ad spend. And the red line is daily returning customer revenue for the same brand. Now, that meta ad spend is not our entire meta ad spend. It is just returning customer ad spend.

So, it's only spend that meta has marked as targeting existing customers. And what you will see very clearly, if you look at this chart, is that the blue and red lines move exactly with each other. They are very strongly correlated. I actually ran the R squared, the correlation coefficient, if you know that number, is a point eight between these two lines. So, if you don't know what that means, don't worry about it. Basically, just means that the two numbers are very clearly, from a mathematical perspective, impacting one another.

They are correlated very strongly. Now, which direction does the causality go? The correlation coefficient does not answer that question. Nothing answers that question. It's possible that what's happening in this chart is that increasing amounts of returning customer revenue are driving increasing amounts of ad spend on meta for whatever reason. Maybe more people are coming to the site because more emails are being sent and that's triggering people into retargeting audiences, etc.

Or, more tantalizing is the possibility that the returning customer spend for this brand is driving returning customer revenue. And today, what I want to talk through is exactly that. Right now, I want to tell you our approach to something I don't really see much content about, but that I think is really important and has actually made a meaningful impact for my clients. And that is our approach to returning customer ad spend.

Ad dollars targeted towards existing customers. Many people ignore these people entirely or even think it's bad if your ad spend is targeting returning customers. I think it's good and I think it's good for a lot of reasons. And I want to start by by by honing in one part of this chart that actually was one of the things that triggered me to record this episode. And it's specifically this range right here. If you're looking at my screen, I'm I'm highlighting a portion of it.

You see there's a big spike towards the right end of this graph, and I didn't put the dates on this just because uh it's anonymized data. I didn't want to show any of it, but it's relatively recent. So, so you take my word for it. What What I want you to see is that uh there was a huge spike uh from one day to the next in this chart where the ad spend went from, you know, less than 5 grand in a day to just under 10 grand or right around 10 grand in a day.

And with that, returning customer revenue went from uh just under 25 grand to over 35 grand uh something like that. Now, uh uh that spike happened day-over-day in a manual bid environment on our ads. And that is part of what made me want to think through what was going on um in this chart and to to record an episode about it, like I said. And so, for the rest of this episode, I'm going to tell you what I see happening here because in that moment, what very clearly happened, and I think this was actually sort of beyond doubt when I looked at what else is happening for that brand that day.

They had a very small product release at that day, but if you actually look at the product revenue from that product release, it was it did not make up for the entire um change in returning customer revenue. So, like uh in fact, it made up for a a pretty small portion of it. Overall, it wasn't a particularly big launch. What it seemed clearly to be the case to me is that Meta was actually driving additional revenue, and Meta spent more in manual bid environment because of that.

And so, I want to talk a little bit about how to think about this. And I want to start by talking about what people think of in general with retention ad spend. And that's what I'm going to refer to this as as retention ad spend. Is it good or bad for your brand to be spending ad dollars on existing customers? Now, of course, very large brands have known for a very long time that you should spend money on people who have bought from you in the past.

But at some point in the D2C discourse, it became a truism that spend that is targeting new customers is the same as incremental spend. That those two are basically proxies for one another. And that is simply not true. That is actually the core argument I want to make to you today. Some spend going towards new customers is actually not incremental, and plenty of spend targeted at existing customers is incremental. There's plenty of spend that actually goes that you spend on existing customers that drives additional purchases that would not have happened if the person did not get your ad spend, okay?

And I have seen this over and over and over and over again for brands. Because we actually have as part of our strategy spending ad dollars on existing customers, I can actually watch what happens to various brands' retention rates over time. And one of the things that consistently happens at AJF Growth is that we under-forecast returning customer revenue because the future looks too unlike the past. What I mean by that is we go to forecast returning customer revenue with a cohort-based forecast every client of ours.

We we forecast the returning customer revenue down to the level of like, you know, past monthly cohorts and and what do they do in the future? And one thing we've experienced a lot recently is that when brands come to us for the first three to six months at least, we find that our returning customer revenue outperforms the expectations in the cohort forecast. And part of that is because we spend ad dollars on existing customers.

Now, occasionally, we spend too many, certainly, just like for all media buyers, there's times when you spend more money than you should on something or whatever it is, and you have to make course corrections. But, all in all, that money tends to be pretty profitable. And there is no indication stronger of incrementality than having revenue that suddenly shows up that was not forecasted to be there before, right? That when you spend ad dollars, the dollars go up in the bank account.

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So, um so just a really awesome organization. I've been working with them for years. Go check it out. morestaffing.co/af. Go to it today. Everybody likes to have this idea that returning customer revenue is just sort of like free on the back end of your spend because of email or SMS or whatever. And of course, as much of that as you can get, go get it. That's awesome. Go get as much email and SMS revenue as you can, although SMS revenue by the way is not free.

But uh but email revenue is great. But you and I also both know something about our email inboxes, which is that they are full of junk. And many people will never open your email in the first place. Open rates are inflated and still top out at like 50% for most brands. And that's again, super inflated. Click rates are actually pretty low with the number of emails you send. It just becomes very clear very fast that email and SMS do not explain.

They cannot fully reach all of your past customers with whatever you have going on in your brand today. People ignore your emails, they unsubscribe, they stop reading, they stop caring, they never got it in the first place because you end up in spam, like whatever. Whatever the reason is, people miss that kind of stuff. They're just busy and they don't think about it. And so, sometimes the way to alert people to things that are happening in your brand is to spend ad dollars on targeting them a second time.

Now, how you approach that is what I want to walk through right now and I want to tell you the lens through which we view this for all of our brands. So, the first question I want to answer is, what kinds of brands should spend on retention? Okay? If it is the case that there are ad dollars to that can be profitably spent on retention campaigns, who should be spending it? Because this is actually very different for different kinds of brands and different kinds of categories.

And in fact, part of the reason the discourse around this subject is muddy is because people are not making good distinctions about what kind of brands ought to do this, okay? The first kind of brands that ought to be willing to spend on existing customers are brands with what I'll call low natural retention, okay? Brands where it's very unlikely or retention rates are really low in the first place. People just are not on their own going to come back and buy again.

Normally, it's a category issue, right? Think about furniture. If you're selling sofas, okay? If you sell somebody a sofa, there's a good chance they don't need any other furniture from you for years. And so, retention rates in furniture can be really really low. Or they just they buy your sofa and they go to somebody else and buy their end table or whatever it is. That's just kind of how it goes. There's plenty of other brands like this.

You've seen plenty of them. I saw The Operators Podcast recently did an episode with somebody selling cold tubs. Like you probably don't need multiple cold tubs. And so, if you're running manual bids, it is no problem to include existing customers and new customers. And maybe somebody will buy a second cold tub for their lake house or for their friend if they're really rich and they want to, you know, hook up their friend with something really nice.

But on the whole, they mostly will not and therefore mixing up new and existing customers in the same ads, it's just it's not going to lead to a lot of waste. As long as you're running a manual bid, you can let Meta sort out which people to spend on versus which ones not to. And if your existing customers are not going to very likely to purchase, Meta just won't spend very much on them. If they are likely to purchase, it will spend.

And so for some of our brands that have a pretty low natural retention, this is our default setup. We do not separate out retention campaigns from prospecting campaigns. And we don't do that is because we basically consider every one of the purchases for those brands to be roughly incremental. It's very unlikely the person was going to come back and buy in the first place and therefore if they come back and buy again based off the click from an ad, it's probably because the ad drove it.

So that is the first thing. So low natural retention brands, you don't need to go separating out new and existing customers. Just lump them all together. You may find that existing customers do want to come back and buy again from you at some point for a bunch of reasons, okay? So there's that. Secondly, brands that have lots of product releases. These are the brands that I think have the strongest case, who have lots of marketing moments, product and sales, okay?

Product releases and promos. These are the brands that have the best case for spending on retention. I'm thinking here of brands and categories like accessories, like uh jewelry, like apparel and fashion, brands like that. Any brand that is spending a bunch of time and money producing new products that are going to come out over and over again, there is simply no way that people are going to stay up on every one of your emails all the time and every one of your SMS messages all the time.

They're just not going to. And so if you want to create some kind of exclusion where existing customers who have opened uh your email or clicked on your email or clicked on your SMS, you know, you take that list from Klaviyo and you sync it into Facebook and say we're not going to target those people at the same time with this, that's fine. You can exclude them. But on the whole, most people, even if they are opening or even if they are like uh relatively engaged with your brand, if you're releasing products often, which brands in those categories should be, there's just no way they're going to keep up on all of it.

And so, spending additional ad dollars to tell people about all the things you're doing is often a very high margin way to generate contribution margins, contribution dollars, okay? And that's that's really what I mean here. Often, that person has quote-unquote churned from your business, not because they don't like your product anymore, but just because they've got lots going on. And they're happy to be reminded again, and therefore they're sort of warmed to you, and they're excited to purchase again.

And so, if your account exists at like a two-to-one ROAS, then maybe your existing customers come back at like a three-to-one ROAS or something like that. And even if you run your manual bids more aggressive than that, and you put those people in the same campaigns and the same ad sets, and you don't even separate out retention and prospecting, even if you do those things, you can still end up in a spot where your existing customer spend outproduces your new customer spend, etc.

So, for brands that are releasing products and having sales a lot, you should do those. And I'm going to actually make the next case to you that in most cases, if you are one of those kinds of brands that I just mentioned, from a media buying perspective, you actually shouldn't even separate out new and existing customers into separate campaigns. You can play with this a little bit. You can think about doing 30-day exclusions for existing customers or something like that, so it's only when customers have gotten past some period where they don't seem to be opening emails or whatever it's been a while since they purchased if you want.

But but on the whole, if I can, if it makes financial sense to, I'm putting new and existing customer spend together. And the way to monitor this is if your existing customer spend, you know, just according to Facebook's reporting, and define your audiences clearly in Meta, and I'll tell you how I do that in a second, define your audiences clearly, so just look at the audience segments breakdown and look at your spend to new customers and existing customers and see how much spend is going to each place.

And then watch your existing customer spend over day and build yourself a chart like the one I showed at the beginning of this podcast. Is your existing customer spend producing value in excess of the spend at a margin that makes sense? So, if you needed two to one to be making profit on that customer or two and a half to one or whatever it is, and you can hold those existing customers to a higher ROAS target if you want to, it makes sense to me.

Then, just watch. Are you getting returning customer revenue dollars in your Shopify account in excess of the target that you suggested? And that's your sort of measure of incrementality there. Okay? So, if you have a $5,000 increase in spend one day and you need a two to one, look for a $10,000 increase in returning customer revenue. So, that's the way to think about this. But, I think you should put those together wherever possible.

And there's two reasons for that. First, it creates simplicity in your management. There's just one less campaign to think about, one less campaign to watch out for. But, secondly, it's because of uh signal quality. By combining existing and new customers in the same ad set, you are getting more purchases into less ad sets and therefore giving Meta more signal of the kinds of people who buy from you. You also are limiting any problem of existing customer campaigns having very little signal cuz they don't get enough purchases.

And I'm coming to the conclusion more and more all the time that it just really, really, really matters to get out of learning wherever you can in your ad account. And therefore, having more purchases in less ad sets gives Facebook more data to spend and and uh grow spend more effectively. So, that essentially what I'm saying is that your existing customer spend, by being combined with your new customer spend, can actually help your new customer spend by giving more data to Meta to go target more people.

And so, for simplicity's sake, for not duplicating ads too many times, for the sake of management, and for the sake of more signal, if you can combine those, then you should do it. One of my very favorite free tools right now on the internet, I'm going to share my screen and show it to you, is Intelligems uh a free audit tool. Really, really cool. Um intelligems.io/audit. Go check it out. What it will do is you just tell Intelligems uh a little bit about your store, you tell it your URL, you tell it your um goal, increasing conversion rate, subscription rate, number of orders, whatever it is, AOV, and then uh give it your email address that it is, of course, a lead magnet for Intelligems, so they're going to get your email address out out this.

And uh and tell it what you want and it will give you with AI looking at your store the three tests that it thinks you should run next for free. Just really really cool. Um really really cool uh tool. Go check that out. Intellimize is an awesome tool to do exactly the kind of thing I just said, which is to go increase subscription rates and AOVs and conversion rates and ultimately ultimately the thing you really care about, which is >> [music] >> profit.

Profit per visitor. It is a CRO beyond the basics tool that helps you do that. It's really beyond CRO at this point. Intellimize has all kinds of really cool stuff as part of the tool including post-purchase upsell, upsells at the level of the cart, the checkout, PDP, like all kinds of cool stuff built into the tool on top of being the most robust testing tool in e-commerce for people who are serious about getting more value out of every click that comes to their website.

So go to intellimize.io/audit to use the free tool and check out what tests it thinks you should run next to see where there's opportunity for your website to convert more customers and generate more profit. Or go to intellimize.io if you're ready to take the next step and use the code ferris20, f a r i s 20, get 20% off your first 3 months with Intellimize. Go check it out today. So if that's all true, who shouldn't who shouldn't?

And by the way, at this point, if you have a question, leave a comment with your brand and I will tell you my quick back of the napkin look based on my sense of your brand. Just leave a comment on on on this uh video. I'll tell you my quick back of the napkin estimate on whether or not I think you should be running retention campaigns at all and if so, should you be combining them with your your prospecting campaigns, okay?

So just leave the comment there and do that. While you're at it, like this video, like this uh podcast, subscribe, share with a friend for whom it will be useful. Those things really help me. Thank you. Okay. So who shouldn't? Who shouldn't be running retention ad spend, okay? The most obvious brand here who shouldn't is the opposite of what I said before. Brands that have less products to focus on in general and brands that have huge natural retention.

So single SKU supplement brands are the most extreme and obvious version of this. If a single SKU supplement supplement brand has a 300% annualized, you know, retention rate or whatever, right? Or or let's call it like revenue retention rate, right? So, if somebody spends $100 today, they spend another 200 throughout the year to make it 300 total. If that's the case, and you have one SKU, you shouldn't be targeting existing customers with your ad spend at the same level that you're doing new customers.

Um those people are subscribed very often, and they're subscribed and therefore they don't need an ad to click again. If you are running retention campaigns, you should have some stronger exclusions here, okay? You should exclude people who are actively subscribed, so you should have an active subscriber list to exclude them. You should also have some kind of timeline here. So, it's like if the person hasn't bought in 90 days, it's fine to have them in a retention campaign.

You should also almost certainly have that as a separate retention campaign, not combined with your your new customer campaign, cuz the value of those audiences are just so different. Your new customers you're probably acquiring at like a 0.5 ROAS or whatever, 0.7 ROAS, one-to-one ROAS, whatever it is, however aggressive you're being. 0.5's pretty aggressive, probably. I don't know if that's aggressive. But like at a one-to-one ROAS or something like that, your existing customer should be much higher than that.

And so like I said, people may have churned for all kinds of reasons, and they may be ready to come back, but most times too, in those kinds of businesses, they're subscriptions, Super Bowl TV, people churn cuz they have too much. So, at that point they're going to probably reorder on their own, hopefully anyway, and in many cases so it's a very likely that your spend is less incremental there. Or if they don't reorder, it's cuz they're actually kind of done with the product and they're not going to come back to it.

Um and and so it's just it's just less likely that they need a bump in some way to do that. Now, if you have new products that you want to advertise to existing customers, absolutely great case for some retention spend. I would just make out a separate campaign most likely, and exclude people who have bought that particular product from you at that time, okay? There's a bunch of details here, but getting these details right really, really matters.

Super high retention brands ought to be more careful than others. But I actually think almost no brands shouldn't spend anything on retention. Or put positively, I think every brand should be spending probably at least something on retention spend. The question is like how much? How much should they be spending on retention spend? And so for the kind of brands I'm talking about here, probably a much smaller portion of their total budget, etc.

Okay, what about audiences? Who How do you do this? Here's a media buying detail for Meta in particular. There are three ways that you ought to be defining your audience here and you should give Meta all three of those in your audience definitions and combine them all up. If you want to define who an existing customer is or isn't, use pixel-based, purchase-based audience, use your Clavio list, your entire list integrated with Meta so that it's just sending constantly updated.

You just create just keep an all purchasers ever list in Clavio and make sure it's syncing with Meta. And then if you're on Shopify Plus, this is actually a really important one, use Shopify existing customer plus. So in Shopify audiences, there's a tool called Shopify existing customers plus. That tool works really, really well for for getting really tight exclusions in Meta and really clearly defining your audience.

If you have, like I said, if you're Shopify Plus, um use all three of those. My Shopify Plus options, those work especially well, like I said. If you give Meta all three of those, it'll do a really good job of hitting your existing customers and defining them properly and therefore you can actually measure this thing pretty well, okay? So there's that. Number three, how should you bid? How should you bid in this case?

If your natural retention is low enough or if your targets for um existing and new customers are close enough to each other, it basically the default, if you can, I think it's pretty helpful to combine prospecting and existing customers in the same ad set. The problem is sometimes Meta will overspend on existing customers relative to new customers and that's the case where you have to split them out. You know, sometimes brands will have something where new customers will be spending at a 0.5, existing customers will be spending at a three ROAS and if you look at it all together without being careful, and this happens in audits that I do all the time for brands, it's one of the things I point out as sort of lazy and and non-detail-oriented media buying, you know, it'll look like a 1.5 or whatever, you know, or 1.2, something that's sort of close to somebody's ROAS target.

When in fact, they should really recognize that their new customer spend is dramatically under profitable and their existing customer spend is maybe actually too profitable or or should just be separated out and just less budget total should be going to new customers, etc. This problem is mitigated if you're running manual bids pretty significantly, cuz as long as you're giving Meta a target across the board of how much they can spend to acquire a customer, it'll do a pretty good job with that.

And I think in this case, our manual bids are extremely helpful for doing this very well because it just sort of, like I said, mitigates against the problems of measurement to some degree um and of separation and of volume and how much should you be spending on each and all these kinds of decisions that you have to make, but you still have to watch out for that. Just pay close attention to that. And that gets us to number four, this question of measurement.

The problem here in all of this is that not all retention spend actually is incremental. This is the reason people are concerned about it. I think more of it is incremental than people think, but less of it is incremental than probably what is reported. And so, I think there's a couple things you can do here. First of all, one of the things you should be doing is running incremental attribution because a machine learning-based approach to a- attribution uh should help you should help Meta know what steps people are taking relative to an ad's performance that lead to a a likely incremental purchase.

So, incremental attribution makes all the sense in the world here. That's what we are doing in our incremental cost cap campaigns right now. We just often are combining retention and prospecting spend for the brands for which for which it's appropriate, like I've been talking about in this episode. And when we do that, um we it seems to be actually pretty incremental, okay? Um the second thing here is make sure you do not have any view attribution in here.

You should know this already if you've watched or listened to my content, but view attribution with existing customer spending is just going to be a mess of non-incrementality. So, get that out of there. And then what you want to do over time, and we've done this with some brands, is run conversion lift studies. Run them, and you can actually run these concurrently with prospecting spend. And so, for anybody who's listening to or watching this episode and saying, "Andrew, that all sounds good, but are you sure it's incremental?" Yes, because I've run conversion lift studies on ret- retention spend and seen very good retention numbers.

And I've seen a range. At points, the spend has been less incremental than reported. At times it's been more incremental than reported, but it has been pretty incremental, and therefore it can work really, really well. And then to watch your actual returning customer revenue closely, and your returning customer revenue relative to cohort forecast expectation really closely. Presumably, if you're adding existing customer spend, and you never had it before, or if you're adding more of it and you didn't have it before, you should beat your cohort-based retention model.

And if you don't have a cohort-based retention model, you need one. Okay? It will help you think about this kind of thing a lot, so you can watch this carefully. You should be really clued in to new and existing customer revenue in your store. So, that's the picture. That's the way we think through this for all of our clients. There's a bunch of details here, but here's the the upside of this. If you get this right, often times there's a bunch of existing customer revenue that you can get at a pretty high contribution margin that is not very hard to get.

You don't need to make different ads. You don't need to do anything different. You just take your same ads, and you run them to existing customers, and you find that you get a whole bunch more money, or at least some amount more money at a pretty good margin than you thought. It might drive down your MER as a ratio. That's fine, as long as it's driving additional contribution dollars. Um and for most of our clients, that's what we see, and uh and it makes a really big difference.

So, go and do it. >> [music] >> All right, that's a highly tactical episode. I hope it's helpful to you. If you need help with your ad account, being careful and detailed and thoughtful about forecasting, about creative, about media buying down to this level of detail, down to what kind of brands and categories should be doing this kind of thing, and AJF Growth sounds like a good fit for you, you should uh reach out to me and see if we are a good fit for you.

If we have any client space available right now, it is very, very tight, but it's possible we have one uh or two spaces, maybe even media buying only clients. I maybe have a space for that in particular. Email me at podcast@ajfgrowth.com, or even better, go to ajfgrowth.com, fill out the intake form on my site, tell me about your business and let's get a conversation going and see if we are a fit for you. Even if I'm not a fit for you, I may have some feedback about your brand that's helpful to you.

I may have a great reference for you for somebody else who is. So, give me that information either way. Tell me about your brand and let's see if [music] that can work for you. Uh also, don't forget to subscribe wherever you're watching or listening to this show. If you made it this long, you clearly like the content. Go [music] subscribe. I've got a great episode with Taylor Holiday coming up very soon. Another follow-up episode with him.

I've also got a couple more >> [music] >> um guests that are sort of part of this uh returning guest profile type thing. I've got Patrick, my business partner, every month. I've also got [music] a really cool CRO episode uh coming up very, very soon that I'm super, super excited about. Um if you haven't seen content from Dave Deetering, I don't even know if I'm saying his name right, on X, he's just constantly posting CRO tests he's running for brands with some explanation of the results.

Um some of them are counterintuitive and some are very intuitive. I've got Dave coming on next week to talk about stuff they're doing. I'm really excited to have him on. I think it's going to be really good. It's a topic I don't cover a ton. But yeah, subscribe wherever you're watching or listening so you don't miss those. You're going to like them. And of course, speaking of CRO and Dave, don't forget to go follow up with IntelliJems, one of my sponsors on this episode.

They are awesome. Dave runs his tests with IntelliJems, so you'll hear more about that soon. intellijems.io. Uh use code first20 for 25% off your first 3 months. And don't forget to also follow up with MoreStaffing. Go to morestaffing.co {slash} f to see if you need any help getting a position staffed today in your business. Thanks so much for watching, for listening. I'll see you next time.