Cody Plofker On Ad Messaging, Contribution Margin, and Forecasting DTC Brands transcript

[Music] Cody pler is back on the inter Paris podcast hello and welcome to the show last time Cody came on the show it was my most popular episode ever it actually ran past all of my other episodes and so obviously being the content creator that I am who's just in it for the numbers 100% I had to get Cody back so I could get those downloads and those views no I'm kidding what that tell me actually is that people just really liked that conversation and were really helped by it and so obviously what I want is to be as helpful as possible and so today on the show I brought Cody back he graciously gave me more of his time so that we could chat some more about uh what's on our mind as marketers today on the show Cody the CMO and cro both at Jones Road Beauty which is a monster e-commerce but really Omni Channel brand now in the beauty space Cody and I are going to talk about am versus contribution margin how we're using that to measure success we're going to talk about forecasting and we're going to argue viciously about whether or not direct response advertising is a good way to think about advertising right now it's I you can the tension is even on the intro here is really thick so be ready for Cody and I to just be rate one another so not really Cody's great and we will perhaps present some different opinions on that let's not to late you know Cody I don't need to introduce him anymore let's jump in thank you cuz I hate intros but super excited to be back uh it was really cool to get a lot of positive feed back on the first one and of course always love being number one so let's see if I that number two spot as well one two back to back the funny thing is for a long time Isaac madero's episode that he did with me I'll link it in the show notes but Isaac's episode with me where he no don't link it I don't want that to geted no I Isaac did an episode with me a while back he'll never catch up because that was in my pre-youtube days so now I get two channels versus versus one but um Isaac for a long time was my number one episode and actually he had already been passed but when the moment that he saw on Twitter or whatever that you had passed him he like immediately dm' me he like I'm coming back I'm gonna take over number one that's great yeah that episode is really good it's it's him talking about like insane content machine he built to get to $10 million in Revenue with zero dollars in ad spend which is like remarkable so go listen to that it's crazy but Isaac's an insane guy but I'm glad you're back it's funny that it has come since we kind of rescheduled this you know the notion of like you and I are just gonna fight or something you know the whole time so I love it yeah why do you hate intros what you why' you say that I don't know I just feel like a lot of podcasts are the same where it's just like you know tell me your backstory and it's like 15 minutes to get into like you know your childhood and what school you went to and it's like people just want to hear us talk about Facebook ads and and grow so let's just get straight into it yeah that's funny that's really funny yeah that's a good point I bet you're right about that people are annoyed like Skip Skip Skip Skip Skip just go forward okay let's get into it then so let's start there's a few things we could talk about but you actually said when we were talking before before we started something about how I had I had pushed on something last time we talked and of course I'll link that show that episode in the show not as well but last time we talked we were talking pretty tactical about cost controls and meta ads and that kind of stuff but we got into a little short conversation there about contribution margin versus am and you said that had spurred some thoughts for you so maybe just use that as a jumping off point what were the thoughts that it spurred for you and what are you doing with that and thinking about yeah yeah of course so we I guess when we were last year we had kind of always optimized for for margin and and margin being a percentage you know an m and AMR so we would have a you know Target M and Target AMR that we would have and we you know forecast that on a annual monthly weekly daily basis and I don't really think that that is the best way to operate depending on what your goals are you know I think we've been really fortunate that we have had incredible growth and we haven't really had to choose between growth and profitability and obviously you know a lot of our industry has changed and now it's everyone is really focusing on it we're almost coming at it from the other perspective where I think we were you know so lean and so profitable and for us to continue to grow and stabilize the business we actually might accept a lower margin but what we don't want to do is we don't want to grow at the expense of profitability right and that's very possible to do to create more revenue and actually produce less profit and so you know in talking through this stuff and presenting scenarios to our board it kind of Hit Me based on you know conversation we had uh some stuff that you know Taylor's put out there that is just like yeah like all else being equal assuming fixed costs are truly fixed the way you maximize profit is to maximize contribution margin and just like a quick disclaimer most things in finance margin is a percentage contribution margin for whatever reason is a is a dollar amount so I mean like the dollar amount not the percentage and so I just had this like aha moment because I even presented two forecasts to the board with two scenarios just to look for some guidance on this is probably back in like October look for some guidance on kind of like growth trajectory and plans and like what are strategy is in terms of how much do we grow and are we willing to accept a lesser return and you know showed that we could probably hit like the same e number with multiple and they were kind of like well what's the point and like after reflecting on it like it just really hit me like I didn't have a great answer to that and it's again all else being equal the goal of marketing is to maximize contribution margin dollars you know so you want to keep fixed cost low and and you want to maximize that and really regardless of whatever your M am is so we still forecast m it's no longer our North Star this is I guess the first month we kind of played around with it in December but this is really the first month where we really have you know I I don't like the word Northstar because I think usually people talk about it in terms of like attribution and there's no one thing but I guess really in terms of like having a marketing team just focused on hitting a daily and monthly contribution margin number has been like incredibly refreshing and it's again it's early but like it's so nice to just really have one number to focus on and and go from there so there's a lot there that I really love the can you just for people who don't know can you quickly Define those three terms and and acronyms I I think probably most people listening know but am M and contribution margin what do you mean by each so is a marketing or media efficiency ratio it's essentially Revenue divided by spend so it's just what percentage of your Revenue are spending on ads totally basically a p&l metric right it's like essentially bakes your entire entire ad spend against your total revenue and uses it percentage Yeah and any of these again everyone's going to do them differently you can do just paid media spend or you can do all marketing cost we kind of calculate me just paid media but we also have like when we do contribution margin we have just paid media but we also have all spend that we look at like monthly and just have different but BEC You Get Paid Media stuff so much quicker so it's easier so that's M am is similar but just looking at new customer Revenue so this might be equivalent to like a blended rows this is revenue from new customers divided by spend that's to me you know our our biggest kpi in terms of attribution and how our uh you know how efficient our our spend is at acquiring new customers and then you have contribution margin and again so those are both percentages right so they're not looking at total dollar amounts and you know a lot of people say you can't cash percentages in the bank right so total dollar amounts are more important contribution margin is feel free to correct my definition if you give a better one well people have disagreements about this but go ahead yeah yeah well it's essentially what's left over after all variable costs so you know you have variable and fixed costs in your business variable cost is anything that is more or less a one for one with Revenue as Revenue goes up this goes up and a fixed cost stays relatively the same so you know fixed cost might be Personnel rent Insurance things like that now yes if you're a$1 million doll business versus 100 they are very different but if you go from one to two they actually might not change variable cost might be something like like shipping to get orders you know cogs things like that and so after all of your variable costs so the way I think about it is like you have gross margin which is just your cogs right so if you take your Revenue minus your cogs as gross margin then like landed gross margin that's what to get it to somebody's door so that's all other variable costs that are not marketing so that might be your Shopify fees your payment processing your shipping your three PL fees that is really important number to know because that tells you what you can spend to acquire customer and break even and then you subtract marketing or paid media from that and get that gives you contribution margin and again A lot of times this percentage with dollars so really our goal now is we want to maximize that contribution margin dollars because if fixed costs are truly fixed and those are staying the same beginning of month then the best way for us to guide the ship and land at the best profit possible with the right combination of volume and efficiency is to maximize contribution margin yeah yeah I it's that's really helpful I like there's a simple illustration of the point here which is that if I if I spend $1 in advertising and I generate 100 $100 I've now got a 100me amazing right 100me incredible metric okay but the problem is that's actually much worse than if I spend $100,000 and I generate aund and let's call it $2,000 of contribution margin right so not just Revenue but about actual contribution margin right or not $12,000 let's call it $2,000 of contribution margin right so if I actually generate if I could actually generate a very thin percentage return but generate quite a few more contribution dollars along the way and the thing is as you alluded to and that right percentages don't pay bills and so so the problem that I have seen sometimes is that people start getting into a mentality where they optimize for for a metric that is an efficiency metric when in fact they ought to optimize for contribution dollars and you could even take this another step further and say there there may be even some consideration for LTV based contribution dollars because there's actually another layer to this and I'm actually curious how you guys process this if you have a I've seen oh I actually have a debate with you on this one I have I have a debate with you on that one Great's AR St well okay so so so I I've I've talked to a couple of clients recently and I should be clear these clients have extreme levels of LTV extremely high levels like very high subscription oriented Brands right but they there are a couple Brands I've talked to recently that measure their performance on a daily contribution margin Target and so they say we want to hit a certain amount of contribution margin but there's a problem here which is that I actually may have a it may be a better use of my money to spend at a number that lowers my daily contribution margin performance but actually increases my total contribution margin over a longer time Horizon and in order to get there like let me try and illustrate this let's say I have customers who who return who produce $5 in LTV over the course of a year after producing you know let's say an initial $1 on day one of their purchase Okay so essentially there's five additional dollars after the first dollar they produce it may be in my best interest to spend at a loss or at like straight up break even like lose money on cogs whatever where I would spend at a loss today bring my contribution dollars down today right in fact the more successful I am the more money I'm able to spend at a CA Target that's a loss the lower my contribution margin is going to look so it's going to make it look worse and worse and worse and worse and worse but over time I'm I might produce a 200% annualized return on those dollars that like imagine putting imagine you had a stock that you could where it's like you know you could borderline guarantee a 200% return and let's call it the risk on that return annualized was that it came in at 50% like you actually may have that much worse so now your now your return is on the downside down to 100% annualized return okay like in that world it is still completely rational for you to go freaking take out as much debt go put a helck on your house and plow as much money as you possibly can come up with in cash today to go get those people and get a return over a longer period of time because six months from now and N9 months from now and a year from now is coming it's coming it's not it's going to be here and those customers will come back you think it's coming you you think it is you plan for it to you don't know well you don't but you also you can also reasonably assume some level of risk and calculate what the level of risk is and so to some degree right and you could even take that an extreme level so the point that I'm making is that like so to come back to your early point I totally agree with you like contribution dollars is actually a better measure than than an efficiency metric over time and and my actual approach would be to just measure both like you just said right you may switch to oh yeah we still do them it's just like hierarchy of them and by the way like I felt I don't know if I felt really smart or really stupid when I figure it out because it's so simple like if you think about it and communicate it is so simple but like the clarity it has given me and again we did you know $100 million last year so it's like we did that not ideally maybe we could have done more but like the Clarity has given me to like really have like a Northstar and just to really think about like what we're optimizing for has been like really refreshing it it's so simple but it is that important but but yeah I mean the simple idea and I think actually it was Taylor who put this this way once but just it's like the profit in your business is like your contribution margin minus your fixed costs like that simply so if your fixed costs really are fixed and your contribution margin goes up it's more profit it just goes straight to the bottom line your business is a really it's a helpful thing so anyway the the point being like you know optimizing for contribution really helps but there can even be that I think this is where it actually does need a dovetail in my view with a an intelligent forecast in terms of in terms of how to do this now the situation I slay out a second ago 500% LTV in a year is freaking extreme like so few Brands can actually do that but go ahead argue with me all right so I think non withstanding the zero interest rate businesses that you know we're just focused on growth right can we agree that everybody is focused on producing Enterprise Value by having Positive Growth but with maximum iida dollars right yeah yeah yeah we're still trying to maximize cont iida right you and I are both assuming here that the way to maximize the value of your business which is what you mean by Enterprise Value right like the the sellable value of the business the way to maximize that is to produce the most amount of profit possible right so neither of us are talking about like a grow it all costs profit be damn scenario right yeah and then if let's say you have the same profit number same dollar amount but different growth trajectories probably the one with better growth trajectory is going to be worth more correct yeah and then assuming fix costs are really fixed the way to maximize profit is to maximize contribution margin correct so I think then what we're both trying to do in either scenario whether it's a CA to LTV or whether it's a first purchase profitability is you're trying to maximize contribution margin it just depends over what time period you're looking at 100% yeah I like I would think about this differently if if I was within six months of selling the business versus and depending on how sophisticated the investor is Right some I've actually talked to a brand at one point who was on the verge of selling to an investor who was like no plow more money into advertising we're not going to lower your valuation and as it turns out the the deal fell through and they got a little bit nervous when they actually did that so who knows but but like it depends on how sated the investor is and and and all those things but yeah I I mean I I think that's exactly right it depends on the time Horizon on which you want to sell your risk tolerance a number of other and and crucially the cost of capital and how much cash you have ailable to go do this kind of thing that this is like a huge factor in this whole thing exactly and yeah so so we we we looked at it and we have we have good LTV we don't have amazing we have very good longtail LTV We're Not subscription so it's not like front weighted and we're profitable on first purchase and we actually worked with you know Taylor and CTC to help build us a model to understand what is the right balance between volume and and efficiency yeah right and and what we found and again be partly like we're still in a growth phase where we don't need to accept a lower return profile meaning like losing or break even like we can still be profitable and hit our growth goals but let's say we wanted to forecast it out where instead of maximizing contribution margin on first order we actually try to maximize it within the year for next year meaning we could actually set you know using their model maximize uh contribution margin for after 11 months for a January cohort and after 10 months for a February cohort and on I was a little surprised it didn't add as much margin to the bottom line as was expecting by optimizing for a longer term LTV essentially by taking less money on first purchase yeah exactly it didn't yeah so let's say it puts it somewhere around break even right or something like that for us it didn't add that much it wasn't like it was adding 10% e or 10% contribution it added I don't know honestly but it it added you know not that much and then to think about what are the downsides of that there's potential risk for us it was acquiring a break even but that break even can go negative really quickly there's cash flow risk in there as well there's there's always risk that the LTV that you are expecting doesn't come that has happened to a lot of businesses you know and then there's also just like the headache of growing faster you're probably hiring more people or whatever so for us it didn't make sense yeah you take the the LTV that doesn't come can you think of a brand and a scenario and this is an honest question this is not a gotcha question can can you think of a scenario for somebody you've talked to consulted with looked at their business whatever where they carefully measured and forecasted their business off of cohorts and then the cohorts were wildly less valuable than they expected not if they did it carefully I think a lot of people have did it with like a glass half full mentality proba maybe they looked at like a golden cohort and obviously sometimes that degrades over time or maybe they they forecasted in increases like for example pelaton they had used to have amazing retention during the pandemic I don't think their retention is nearly as good now so maybe something like that like there is a risk that's like a a Black Swan event but I also see your point I just think there is a risk to that well people have this story out there that like yeah but what if those cohorts don't come through and they've heard of Andrew Chen shitty goorts and they've heard of this idea that like that like you know you forecast your courts and they become less valuable but my experience from looking at a bunch of businesses is that I don't I actually don't know I don't have a single example of a business that carefully forecasted their courts and I don't even mean that carefully like I mean just like go to lifetim Le or Shopify you know cohort forecast and look care and look and see like bu product to some degree but just look at the Blended average of cohort retention over time I don't have an example of a business and and it probably exists right but relative to the way people tell this story I think what is happening actually is two stories are being conflated into one and so the story that I'm talking about here is like the brand that actually forecasts CS relatively carefully and then people are always worried yeah but what if those courts don't come through what if they're not as valuable as you think they are and I think that's possible there's definitely some risk risk there right but on the other hand like I think what people are doing is conflating that story The careful measurement story with the Venture back story which is the like you know we raised a bunch of money tried to grow get a revenue multiple whatever and then the and then the cohorts will become valuable over time and we didn't really care we just told us we just told a story yeah we're gonna have 100% LTV growth we're gonna introduce all these products and people are going to buy them and it's gonna be great like that's a very different thing than what I'm talking about like yeah I agree that's a bad idea like that that doesn't really work in e-commerce but I like this thing that like you're going to forecast your CTS to have 100% growth over the course of a year and they're not really going to grow to me is not something that I've personally seen and I can hear Taylor holiday in my brain going I've seen it a million times Andrew he might have you know I don't know maybe he'll come on and argue with me about this but like I just have not when I've seen this go wrong it's because people aren't measuring it in the first place it's not the problem and this gets back to something you and I started to touch on which was this forecasting question like like how do you actually do that and this is where like a good cohort based forecast really really goes far to answer some of these questions but like I I think I think there's also risk on the other side that people undervalue first of all the more profit you drive today and just be careful like if you're a us-based business every dollar of profit that you drive over the course of year the course of the year at the end of the year you are going to give away 40% of it right to the government so this this is like a real thing people people do not Factor this in that money is just going to evaporate R versus going and putting it into something that could actually generate this and and people are not considering that in the return calculation as they think about this bet now again that could get you into a place where you're like oh I never want profit or something I'm not saying that but I'm just saying people people are like they just sort of assume that as a given and they go like well that's just taxes it's just what you got to do but they you are going to get tax that money is going to evaporate it's going to just it's going to disappear and people don't factor in that risk first of all secondly they also don't factor in another thing which is that one year is a completely arbitrary end point it is completely arbitrary what about 15 months from now what about two years from now because a lot of these cohorts while they definitely degrade over that next year they still produce value over a longer time period And I get that you can't probably manage cash on a two-year basis and all those challenges are are real as well but what I'm saying is it could lead to a kind of short-termism that I think maybe isn't actually that helpful third it also assumes by only optimizing for first purchase profitability without any more consideration again I'm what I'm really advocating for is being a little more rounded in the consideration not necessarily first purchase profit oh I mean I think I think we could debate this for two hours like that's how nuanced of a subject it is and I think how poor of a job Twitter does at this because it is such a Nuance thing based on all these factors yeah but there's also there's also byproduct value of all the clicks and awareness you drive right part of the way you grow in the long term is just that like even if the person doesn't buy today like there is actually additional value to your advertising spend and you should know this Mr TV ad like there's there's like some element here where like and I know you're probably measuring that on like a narrow return window than this but like there is some real way in which like you know by spending a little more money now you're actually producing some level of additional awareness some level of additional clicks and video views and things like that as you're trying to grow and it's really hard to calculate that but this is why businesses keep growing you know it's like because because that stuff piles up and now now you have more touch points just got to find the balance because there's so many businesses that have grown at the expensive by the way the main takeaway that I heard from that is if I ever have a business that's not profitable I'm not going to call it not profitable I'm just going to call it tax efficient business you just have a tax efficient business look there could be a case for it I'm just saying in the right sit situation but but you know what I'm saying people do this they throw away all that money at the end of the year and and they don't consider like oh well I mean I don't that's a real thing you're gonna give away money at the end of the year I think there have been mistakes made on both sides I think there are businesses that are no longer in business because they have made the mistake of playing the cact L TV game not understanding what their cohorts look like and not focus that's the key though Cody they don't understand what their cohorts look like and if you do understand what your cohorts look like I think it's it's a less risky thing than people think I think you are we all live in a bubble right I think that you you are probably lucky that you've seen a lot of really good businesses and you're able to be selective with you know because of your audience and and your name you're able able to be selective with your clients you would be surprised at how many I I ran a poll a few months back you'd be surpr surprised at how many Brands don't run cohort based forecasting oh I would not be surprised my brands are confused by it they are when I present it to them it takes a lot of go over it and go over it and go over it and some of them even say this is too complicated for me I I totally get it yeah it just takes a level of sophistication and a level of risk and I do agree with you that for many businesses it is the right thing to maximize contribution margin over a longer period of time and to think about that I would say just make sure you're maximizing contribution margin over that time period net revenue and then secondly just be transparent about the risks and don't look at them you know don't ignore them that's that's my only point and then figure out is that risk risk reward worthwhile for us we are able right now fortunately to have some pretty solid growth without needing to take that additional risk so that extra 10% of growth wasn't worth the risk for us but for some brands that are more mature or growing a little bit slower you might have to you know that might be what you have to do yeah no I agree and and you're right like you should also try to play the game like when I I'll just excuse myself when I was running Brands as a CEO and an aggregator I did a terrible job in a lot of different ways and one of them was I was just not CL into this stuff and I if I can go back like I needed to play the game on easier mode than I was playing it on because there was just a lack of sophistication and that's not about how good or not I am or it's just you just have to have a little humility just like recognize what traps there are and yeah you're probably not going to get into that much trouble by like optimizing for just like having a lot of cash in the bank at a given time you know it's like that stuff will really help so I I totally agree yeah it just depends on a lot of those factors yeah and a lot of that is you know same thing as like personal investment because depends on your risk profile you know and yeah so it just depends it really just depends what you're optimizing for I think either can work you just got to be like know the downsides to each yeah it's funny I say that because I'm like to that point I'm like Mr just like plow my money into an index fund you know like I just I'm like the least risky I like so little risk in my personal investment profile relatively speaking um okay should we talk any more about forecasting or should we argue about direct response marketing yeah I we can do forecasting um I always love to talk about it go ahead no it's I mean honestly it's like one of my favorite parts of of the job and it's it's just so important because it's how we come up with what our targets are how much we're going to spend um you know what we think our returns are going to be and we have you know annual and this is what I think you know you do a great job of what I think CTC does a great job of is you know is having annual budgets that are tied to actual Financial metrics p&l numbers that can really be broken down into actionable monthly weekly daily rep reporting you know so for us you know it's revenu is divided into new and repeat customer Revenue you look at your cohorts over time what percentage of them buy again you layer on your acquisition assumptions you update it monthly based on how many customers you have acquired you can kind of tweak your spend efficiency and then hopefully you'll be able to have you know a weekly daily and yeah daily you know metric and again we've got there's a lot of metrics I think like you know I don't even look a lot of times at like sessions or things like there's just so much available in e-commerce that you can look at and it's just like ridiculous somebody asked me the other day like what how our direct traffic was was doing after you know watching I don't know like our AMR is good our contribution Mar is good like like obviously you have to look at that but I think really having Crystal Clear kpis versus just metrics is really important and so like that hierarchy that you know that Taylor talks about is great like contribution margin number one and then you know M like for example we are below M Target for the month right now in the past we would always pull back on spend we are cranking spend right now we're probably 40% above forecast on spend because even though we're maybe 10% down on me our volume is up that much more that it's actually more contribution so like having that hierarchy of kpis where you know which one to ignore if they don't agree that's important but still having those numbers that you can kind of forecast and have a forecast versus actual I just tweeted about this but I hate I really am not a fan of week over week or month over month reporting and so I like almost everything possible to be done against forecast versus week over week or month over month it's just creates so much more accountability yep you can access better talent for your e-commerce business than you are aware of right now and you can do that by hiring incredible e-commerce professionals who live in the Philippines there is a symbiotic way in which just works out great for both your business and for that for those people in the Philippines incredible professionals there and that is that you can pay them better rate than what is local in the Philippines but it will be less than hiring that same talent in the US 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doesn't work out for your business within the first year they will actually rehire somebody else at no additional cost to you they'll help you re-recruit Etc it does happen it's just like like anybody else some hires don't work just like anywhere it happens rarely but it does happen and they give you a guarantee for one year on people they put into your place in your business so there's really no risk to you to hiring that person go to more more now.co tell them I sent you it will help your business yeah you know it actually as you're talking what it makes me think about is that in some way the forecast almost doesn't have to be that good like I'm a big cohort forecast guy if you go sign up for my email list on my website one of it's like a the lead magnet is like four free e-commerce resources and one of them is like the walkthrough from light speed Venture partners of how to do a cohort forecast and the whole breakdown like all that stuff I'm a big fan of Dave recook cxl forecasting course like those things are that's how I got started right yeah and he's just a good teacher he understands it really well like those things are really really useful I'll link down the show Notes too just for just for people to go get it but like I and it's a good place to start it's funny I did I did two cxl courses before Dave did his and I recommend his way more than I recommend mine I think this is so good so I yeah yeah you don't need them uh it's fine somebody might find them useful I don't know but um yeah but go get Dave's forecasting course before you do any mine but actually to your point in some way or another simply measuring some kind of forecast that includes an Opex forecast so like a fixed cost forecast basically sometimes people put C into Opex but I mean in this sense like just fixed cost sgna that kind of thing mixed in with a model of Revenue and spend Revenue cogs and spend basically if you some basic p&l forecast like that even if it isn't perfect honestly even if it isn't done that great what it will force you to do is like ask questions about where money is going in your business and my experience of like sort of building everything and measuring off of a forecast for accountability is that it just puts all of the information that is required in your face it makes it really really hard to ignore important things and also makes it really easy to see quickly if you have a prayer of success relative to what you're trying to do like if you need to Triple your ad spend at a your same efficiency for your forecast to have profit on the bottom line I have news for you it's like probably not a good way to think about what's going to happen on your business you probably need to cut costs you know like it just there there's things like that where just doing something like that and then measuring according to that and holding that accountable is really really helpful so I'm big fan of the goart model but I think there's that even if you don't quite get to there yeah like it's it's just a really really useful thing how does how does your team use yours like or is it mostly just you executive team like how does it make its way operationally through the business that's a really good question so I I do ours I'm lucky we have a very unique or structure where I actually have Finance reporting to me and so I'm a big fan because like before we kind of did this and we had like a separate order structure like they were very separate we had very different things so we had like a marketing forecast and then like you know Ops Team Finance team would have like a separate way that they were looking at things so I meet with our demand planning team so our Ops Team and our demand planning team just to like compare notes and and plan and see if we're seeing different things to obviously make sure we have inventory we're trying to have the the demand plan be higher because we want to have inventory on the high side um but we just kind of check balances there that creates like a summary of a p&l summary but it's like very directional but I really again what I care about is you know what I care about is uh contribution margin mainly and I kind of have give that to our Director of Finance and kind of builds out like you know a more thorough p&l um so we have that there we kind of lock that annually you you know we we just have that set that's our budget that we present to the board annually but our forecast changes monthly so we'll look at how we did the month prior to it there are certain things that are inputs there are certain things that are outputs you know we'll input our spend we'll input our AMR that'll output our CAC number of new customer goals and again we have you know monthly daily really it's annually monthly daily or weekly and then daily goals for that so we'll get a total spend right total revenue contribution margin like all of our main kpis we'll get a new customer Revenue repeat customer revenue and number of new customers and now we can take that and give that to various teams right we have a growth team and you know I will give them here's how much we're spending right now we don't have a director of growth I'm functioning as director of growth we kind of work on that together like myself and and the team we kind of figure out where we want to split so say we're trying to spend 100K a day hey we want 70% on meta you know 5% on Tik Tok whatever it is this perent on Google TV whatever it is uh we will split that you know and then we'll have a daily forecast of each one we just have it automatically pulled into a Google sheet this is what we want to spend a day this is what we did it's all conditional formatted color coded and we we just we kind of look on on total right you've got to look on what you spent total but then you've also got to look at it on a channel level and kind of what's your mix yeah it just gets really operationalized and everybody on the team knows you know how you're optimizing things if contribution margin is great and me is is down well you can you can push and then also when it comes to kind of deciphering spend between channels here's how we we look to get our Blended results the best we want so yeah it's just kind of the team the first thing we do when we wake up we look at total spend contribution margin all that stuff and then right next to that we have a sheet that has all of our Channel spend right next to it again I don't even look at Channel rows it's just Channel spend and we can see if we need a pull or or cut back anywhere yeah it's so helpful that's really really awesome let me ask you a question about that level of detail go back to Cody and Jones Road at a as a$ million business what of that would you tell that Cody that he should have in place and what of that is unnecessary at that stage to have in place Etc so good such a good question yeah I think what we did at that at that stage that's when we were like first just getting into like me and we just had like an M Target and it was just you know that was like to me like step one better than nothing better than like Facebook Ros it's just like hey you know you know your me Target that gives you the profit that you want and again we're we're looking mainly at percentages now and hit that and you know spend more if you're more efficient than that spend less if you're less efficient so that's like step one then step two you kind of got to start looking at new versus returning customers I think you've got a cohort forecast that but if not you know whatever however you do it I think that's am because it gives you a little bit more sensitivity uh really good repeat customer Revenue day or month could mask for poor acquisition performance if you're just going off me and then I think step three is getting the contribution margin those are like to me like the levels of it yeah so you you think yes to a daily forecast at 5 million like a daily spend revenue forecast I it's something I I I don't have a clear answer here I just go back and forth about this I wouldn't be the best person to ask because yeah it's just I don't know um it's been a while fortunately um definitely monthly and and maybe maybe weekly maybe maybe weekly yeah that's I think that's where I'm at I I like weekly at that stage because I think there's too much noise on a day-to-day basis like it it requires you to really massively forecast the difference between like day of the week effects on spend especially if you're running cost controls like suddenly all your weekends need to be bigger your weekdays need to be lower whatever and most of the you know my my brands are all my brands are all they're all sub 20 million right now I think yeah and I think they're one of them might hit 15 this year I think it will hit 15 this year so yeah but I just play in that pool a lot more that's my favorite stage of business it's who I tend to work with I love taking working with entrepreneurs who are in the sort of like mid seven figures and can push into 20 plus and like that part of the journey is my favorite so I think about this a lot for those kinds of people because that's who my clients mostly are and and I I tend to think that like down to the level of daily forecasting actually isn't that helpful for those Brands because there's too much statistical noise on a day-to-day basis and so it will actually kind of lead to a sort of again sort of short-termism that is not really the way that those clients actually can move forward instead what they I think mostly need to do is actually take bigger swings less often and not worry so much about that so weekly kind of keeps you tied to your forecast and you can see what's going on but then it's like okay the way that you take a a giant step forward like imagine a $6 million apparel brand they need to figure out how to like produce more product drops and have bigger sale moments and stuff they don't need to send another email today at some point they need to build a process where they send more emails every week sure but like they you know it's it's less about that it's like the way they're going to really move forward is like by producing their next hit sweater for somebody to buy or whatever you know and so I don't know so I go back and forth but I mean either way I think the the point is actually the same which is that like having some kind of clear measurement goal with a good forecast in place it's fairly robust really gets far and then it's it's just a goal and a plan yeah right yeah it's a goal and a plan and and the way the way I look at it is really we want to we want to land for the month right like we want to hit our targets for the month I don't think you have to hit your targets every week right I think if you have one you can have one bad week if it's not awful you don't have to hit it all right if you have two B week is going to be really tough and same thing for a week right we then want to hit our targets for a week you can have some red days right and because we have conditional form you can have you know two bad days if you have three bad days in a row it's GNA be really hard to hit a week so I don't think you should be doing especially not to turn this into a bid cap or cost cap thing but you really shouldn't be doing that much on a daily basis in terms of spend and and bids you just want to monitor it and look at the pacing of it yeah and understand what I love because I'm I'm I'm very visual is like we have a CH I posted the on Twitter we have a chart it's just like a line graph and you see pacing versus actual and like I just really want to know how we're pacing and I think that even helps that visualization helps because let's say we have a bad day or two then I can go look and say hey we're we're pacing fine like that gives me the confidence to not touch anything hey this is part of the plan sometimes we're going to miss high sometimes we're going to miss low versus if I didn't have that zoomed out view then you can be a little bit too in in the weeds and be like oh we we're not efficient yesterday yesterday we got a cut back but I I agree with you you you shouldn't whether you trp daily or not you should very rarely be touching things daily yeah I agree yeah um so what I end up doing is a lot of weekly forecasting and one of the things I do to the earlier conversation about the returning customer conversation is that like one of the ways I think you you mitigate against the risk of bad cohorts is by having that forecast in place and then by forecasting new inning customer Revenue I mean if if you are trying to make an LTV based play you must you must forecast and measure your cohorts if you have any mentality around that right so so that's like that's like a you absolutely should not go spend at a loss on first purchase without forecasting your cohorts carefully like there's just that's just like the risk for disaster or it's the recipe for disaster I mean but the so one of the things that we do a lot is we'll look at new customer Revenue versus spend really three key metrics spend new customer revenue and then returning customer Revenue relative to forecast and we we see those separately because what you'll see sometimes like oh our spend is a little low this week new customers are a little low this week but returning customer revenue is high okay that means that we got to go fix our spend but our returning customer Revenue no big deal so it just isolates where the problem in the business is versus the other thing right oh we might have over forecasted returning customer revenue and I I actually I have a business that I coach right now that has shown me back-to-back weeks of returning customer Revenue coming in at 80% of expectation this is a business that acquires at a loss they have massive LTV and to their credit they are immediately turning around going okay what happened there how do we solve it and they've got they've isolated the problem it's very clear what the problem is and they'll Sol Sol it they'll be okay and that will eliminate the risk of like that kind of issue and so just seeing those things on again day-to-day week toe kind of basis I think goes really really far so yeah yeah AB absolutely agreed I would be lost without it yeah I don't think we have I'm just saying I would be lost without it I don't think we have time to argue about direct response today should we save what we got seven minutes yeah okay you want to do it yeah all right go ahead so let's steer the conversation you you tweeted yesterday or a couple days ago or whatever that what was the tweet it was like direct responses bad and Anders an idiot I think that was a tweet yeah it was something like that I think I think that was like word forward no I said I said I am so grateful for my direct response background and everything it taught me but it's a terrible way to build a business in 2024 and I okay what do you mean what do you mean by that before I try to argue with you yeah so first all right when I say direct response like my definition of direct response like the way I learned marketing was like very hardcord like info product stuff if you're familiar with like Dan Kennedy Gary hbert John Carlton things like that like lot of like Direct Mail sales letters very hard-hitting stuff right and so the the way this this tweet came to me I was spending time with my creative strategist and I was going over Market awareness and Market sophistication and like break through advertising things and that is what I'm incredibly grateful for I I think that stuff is not talked about enough the difference between Market awareness and sophistication and just like how you message to different to prospects in different stages of a customer Journey or based on uh how Savvy the market is for that for that thing like I don't find that that often in Ecom or or you know even in brand stuff so I think that stuff is extremely important however I went to go and buy her the Breakthrough advertising book and it's just got all of these upsells and things like that and I could just like feel my heart pounding and I'm like it's it's just like an emotionally manipulative way to treat customers and I think it can be great for acquiring customers and doing things like that I just think it is very shortsighted and you don't see that many very large Direct respons businesses and again I mean true direct response I'm not talking like the water down like Tik Tock ugc where they say it's direct response that like it's not where it's like you've got like a a limited time like most direct response is borderline FTC violations right it's like you've got these limited time offers that aren't actually limited time offers and you're making it like set up and I just think consumers first of all it's it is limited but I also think right now or a while ago when a lot of these things were happening before the internet and consumers didn't have as much information so they didn't have as much leverage now consumers have so much information so much leverage that I think it's so much harder to build a business that way and it just seems like an exhausting way for me to do it so that's my take yeah okay we have a sad thing here which is that upon clarification I I mostly agree with you the reason that I replied in to your Tweet and said this is wrong let's argue about it is because I think that that when I think of direct response what I think of is carefully crafted messaging and offers and also measuring success doggedly and so it actually dovetails with the conversation we were having earlier about forecasting which is like like part like part of the reason I think people even resist something like cost Caps or bid caps is because they just don't they just refuse to be frustrated by the waste that is happening in their ad accounts they're not frustrated enough about that and they're not frustrated Enough by watching money get burned on on places because they're just kind of supposed to be spending and so what I what I love about the director sponsor people and like you know when you read ogon advertising which everybody should read like it's great is you know this mentality of like good Marketing sales product and that basic idea like and you know for OG he was saying I don't care if I win a marketing award it doesn't matter to me if my campaign wins Awards what matters to me is you know the recent example with Snoop Dogg and solos like you could say a lot about whether or not that was a good campaign or whether it will work out for them in the long term and I don't have I don't have a view to the metrics I have no idea like whatever right but some mentality it got a lot of people's attention but the success of it is based on whether or not it actually produced long-term value for the business you know whatever time Horizon you want to measure that that to me is like the is like the key thing and so the direct response people what I like about them is they they just care so much about getting that right and and sometimes what that means especially for businesses that don't have much LTV is they don't rest on their Laurels and they just they just go crazy trying to sell you more products like I was talking recently with a friend about a business that is like the business is like like 60 points of landed margin so like decent but not Incredible or anything like that almost no LTV and is growing at this like insane rate and they're up to like 200 million bucks in Revenue per year up from like a 100 the year before and 40 the year before and 10 the year before like just a fouryear path to 200 million and they don't even they they're playing the game on hard right like they're they're by not having much LTV not having that and the reason why they're able to do it is because like all they care about all they care about is just like selling more products to people that's that is it and so it's just like any channel they can get if they can me they are really careful about measurement they're really certain don't forget like Gary Halbert and David ogy they were telling you that you must measure all of these things like in a world where that was so freaking hard because like me like it meant like uh counting receipts or like counting coupons used you know like I just like think about David ogy in 1960 whatever telling people to to measure the results and then respond by measurement that was like a five month feedback loop probably you know I don't know so anyway so that's that's the reason I like it and and I think that is really useful and actually I've kind of pushing it myself recently to say like Andrew you have to you have to care more about building funnels that sell product and like think harder I just Rel I just released I think probably the episode that'll come out right before this one is about offers and it's just like it's a very kind of Dr way to think but like that's my push back is like that stuff I think I guess it's technically direct response I I mean I guess you're right like if you go by the book definition what you're describing is direct response you know athletic greens or mudwater having a gift with purchase but there's no like you have to buy like yeah that's technically direct response like we we we do that stuff I just I don't know how maybe I just call it hardcore direct response like the you know the the clickfunnels and through advertising and that kind of stuff so that that's more what I'm what what I'm referring to but yeah I mean I guess because yeah I don't care about I care about brand but I care about brand in in you know a way that it produces contribution margin like let's say tv ads where where Bobby TV and really the only offer is shop now Jones or Beauty on an end card what we're measuring however the best we can the effect of those channels is that direct response is that brand is it somewhere in the middle yeah well I mean what do you think if it's says by now then it's then it's Performance Marketing right if there's a CTA that's like the rule of thumb and but I agree with you because it is producing brand value it's Bobby on TV talking about makeup like that's or like uh you know yeah Beauty Supply right so to me like that that is conveying something about the brand and I think that's like taking brand as secondary as like a part of the direct response package is is really important and there may be a point where like the the business gets big enough to where you actually take longer bigger swings that are more about brand awareness and measure it on eyeballs and some of that kind of stuff but I just think most brands like yeah so I I yeah I oh oh yeah I mean I like listen we're did $100 million last year we don't measure anything on eyeballs like right if somebody if an agency or media reported to me on Impressions they they'd be fired day one like we're looking at at CPA but we're trying to weave that into reaching new people and that's that's debatable as Taylor would say and I the the worst part about this is Taylor and I have been debating TV in top of funnel in definition on on Twitter I open up Tik Tok last night I see him on Tik Tok I see him on Instagram today doing reals reals about it so it's it's all over the place yeah well it's always fun to argue with Taylor it's one of my favorite sports is argue with Taylor yeah the other thing I'll say about director response that the reason that I I think that not enough people the direct response people pay very close and careful attention to the structure of their messaging in their ads and so they have these like formats and Frameworks they use I was actually just passing one along from Alex horos the other day and like I'm annoyed the same way you are about all the upsells in Alex horos you know books or whatever and I'm not like a big horos guy or whatever I've barely interacted with his content actually but I found one little framework he had about like you know the belief breaker framework or whatever and it's really helpful it was just like a really helpful way to organize organize thinking and so much bad advertising is because nobody's thinking about a true structure and framework for their messaging and and that's what I love about direct response people is they like they more people need to think about unique mechanism the not enough people in e-commerce think about what so a unique Mech and you this is how I kind I've been described but most people in your Market have tried other things before so most people are problem aware but they're not necessarily solution aware right and a lot of times they are not solution aware because they've tried other things and they're actually reverse solution because they've tried other things that are similar and it hasn't I see where this going this is great in order for somebody to to purchase from from from you they have to believe that it's going to work for them right and obviously you can do you know free shipping and and or free returns and exchanges and things like that but really you have to make make them believe that it's gonna work for them and exactly and so that's how it is different and so the best example I can give let's say somebody has tried to lose weight and you told them you you have to work super hard and do that like they're going to be like oh that's not going to work like I'm I'm not that person but if you told them it was super easy and all they had to do is this one thing and and what you don't want to say is better you don't want to say what we have is better you want to create like Russell Brunson calls it like a unique vehicle like like a different vehicle and you want to make it very different the best example I can think of is P90X if you're familiar with that like workout program yeah the unique mechanism was muscle confusion and so Tony Horton and The infomercials goes into this long thing about how youing to shock your body and muscle confusion and that's the that you were missing before and so it's taking the features of your product and turning that into creating a compelling story for why somebody's going to succeed with it that's like the most important thing um okay I did not know that F that phrase but it's so helpful I totally remember that muscle confusion thing too I just did an episode with Dave recook where we did a couple hours is long but we basically tried to craft a long form explainer ad Together live and one of the things I was struggling with as we were talking and I actually wonder if this ad's going to work very well because this because I I didn't name it that is that I wasn't sure if I got to what now I would call thanks to you or Russell Brunson would call or whatever unique mechanism because I was looking at their product going like and I even know that product decently well because I was you know basically ran that business at one point but like still like was going like what is the thing that we're saying that is uniquely good about this product and I was sort of struggling to get at it and I think what you're saying there is is right I actually did another episode a long time ago and I'll link both these in show notes and and I was trying to get at this without calling it that as well but basically saying like what I know is that most Founders that I'm aware of when they built their business and when they built their brand they're not shyers they're not snake oil salesmen they really care about their products they built them they want to serve their customers like I I know very few people in our space who are just trying to turn a quick buck and so that means that in the product formulation or creation process or whatever product development process they made a series of decisions and they made a series of decisions based on sometimes years of testing and years of playing with the product or whatever and those decisions were there in order to make the product great and to serve the customer and so the way I frame this sometimes is like listen if you're the founder of the business all I'm asking you to do in your advertising is tell people about those decisions that you made and what you're saying unique mechanism is a good way to frame that is like that's right you should go and just whatever those things are that you did that are different than other products and the reason you created yours just tell people about it and put that it's how are you uniquely different but also why is that important for for the outcome right but that but the reason the person made the decision is because it is important so tell them both exactly right so tell them we added this ingredient because it accomplishes clad is a great example exactly or hex is does that exactly and and what what I can say is we've tested and we put unique mechanism in the first five seconds of all our ads now it's just like that important for us and we you know that that's what we found the most success with it depends on the product but I mean we have a very similar customer base to to that but it's like for foundation hey a lot of traditional foundations you know don't work if they leave you feeling heavy and Cakey it's because of this here's the moisturizing ingredients we put in ours which actually makes it feel like skin care and doesn't produce that look so that's it for foundation we have a similar one for miracle bomb but it's just what is unique about the features of your product that gives the intended outcome in a way that does it better than what else is on the market especially it's really important if you're in a competitive market like beauty or something like that if you're the first selling something it's not really important like m from Lomi doesn't really have to do that because you're not comparing it to something else because that's uh what Eugene Schwarz would call a unsophisticated market it's the first time they've heard this claim but yeah if you're selling supplements like you've got to be clear why you are so different than what else is out there and what they've tried before it's really really good dude this is great this I think this a really good conversation we're gonna have to do we need to figure out a way to make this some kind of regular thing this is great okay so I'm going to link to the in the show notes a bunch of stuff we talked about here including ogon advertising including breakthrough advertising Eugene Schwarz who just mentioned those will be there I have those are just books to go get they're great anything else that you want to point people to related to this conversation or just to get that good Cody pler content no I mean hit me up on Twitter and to get some of these hot takes you can see Andrew and I disagreeing about those more on Twitter because we didn't really disagree here and then yeah yeah just follow me on Twitter subscribe to my newsletter and yeah I hope this helps some people okay great I think I think this is really good this is almost like three separate episodes I'm going to keep it as one but I may even just like cut these up into something really good ah it's good people are going to like it okay we're going to try and get you to the top two spots Cody thanks for thanks for making the efforts appreciate it man all right thanks [Music] man I love that conversation you can probably hear in my voice that unique mechanism comment was great the forecasting stuff we're getting to Cody's a smart dude and I was really helped by that conversation a lot and so I hope you were as well you should subscribe to this show if that was helpful to you I Cody and I immediately were talking about trying to do some more stuff together at some point and I've got all kinds of great stuff coming down the pipe great interviews like that one I just think there's a bunch of stuff that you going to like 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