Building a DTC Marketing Budget with Ronak Shah and Abir Syed

Understanding the Role of a Fractional CFO in E-commerce

0:00If you as an ecom brand have a fractional CFO, and they don't understand the most important and the largest line item on your P&L, which is your marketing expense, it really limits the scope and quality of their advice. The better the data that you have and the better that you are interpreting it to be able to draw conclusions and make decisions. That's the one thing you need to improve at to be able to become that version of you that's 10 times bigger.

0:23You need to be able to understand how many days to cash, how many days of inventory in terms of working capital being tied up, and what are your actual true net blended payment terms that you're getting back. Because if you're not [music] factoring those things in, you're actually just looking at it from a marketer standpoint, and you're probably going to burn through a lot of cash. The smarter approach is actually not to just set a fixed target for an ME and spend as much as you can, but rather flex your [music] ME target to maximize profitability. Go back to your systems.

0:51Go back to your CFO and say, "Teach me how I'm learning every day." Don't teach me based on how whatever principles were created ages ago.

Introduction and Background of the Speakers

1:03All righty, guys. How's everyone doing? Good. So, before before I get started, I found out for one of the most boring presentations of the day. So, I actually brought my fractional CFO to make it even more boring. So, pay attention. and I really really need you guys to focus here. so without further ado, let's get into it. Who am I? My name is Ron Shaw. I am the co-founder and CEO of a brand called Obby. We're a health and wellness brand focused around collagen. I'm also the host of a podcast called Chew on This. and one of the things that Obby that we focused on was efficiency and trying to do a lot with a little.

1:41So, we turned our $10,000 investment to doing a little over 100 million in revenue so far in our five and a half years. and we've been profitable every year. We launched nationwide in Walmart as well as 17,000 other retail doors. So, if you have any questions about retail, we can talk it through. we have a 13 13 person team. So, we're super lean. And, on my free time, I do some consulting and advising with brands like David Protein, Snow Teeth Whitening, Bau, and the Wellness Company. That's a good beer. So, I can see you're sitting there thinking to yourself right now, "Wow, that Ron guy sounds super impressive. But who's that mysterious yet strangely attractive man on stage next to him? Well, firstly, my eyes are up here. But secondly, my name's Air. Like he said, I'm a fractional CFO for e-commerce brands like Obby. But my special sauce, if you will, is that I also run ads. I've had the fortunate background of having run a brand for several years. I've run an

2:37agency as well. So, as a result, I've been a lot of my time or spent a lot of my time in Google ads, in Facebook ads, in Amazon ads as well. Even to this day, I still do run ads for a few brands that I'm really close with that for whatever reason specifically want me to be doing their media buying. One of the better known ones is the French cookware brand stove. But the opportunity that it's given me is a unique ability to bridge the gap between finance and marketing which I believe is very important because ultimately if you as an ecom brand have a fractional CFO and they don't understand the most important and the largest line item on your P&L which is your marketing expense. They have no idea how it works. It really limits the scope and quality of their advice. So I think right now you have two of the people who between Ron and I are the best positioned to be able to bridge that gap between the finance and

3:28accounting side and the e-com and marketing side. So I think hopefully this presentation is going to be quite interesting and something that you've never heard before. Awesome. before

Setting Up a Marketing Budget in Today's Economy

3:36we get started, who here has set up a marketing budget before? Who here has made a mistake in the marketing budget they created? Amazing. so what we're going to cover today is what does it really take to set up a marketing budget in today's economy and today in building DTOC brands, some of the mistakes we made at Obi, and then at the end of it, we're going to speed through some really cool ecom hacks. So stick around. It's how we got to keep you guys till the end. but let's jump in. So to begin, I want to start

The Importance of Quality Decisions and Data Interpretation

4:08with a framing question. What is the difference between your brand and the version of your brand that's 10 times the size? Fundamentally, it comes down to one thing. It's the quality of your decisions. The better the data that you have and the better that you are interpreting it to be able to draw conclusions and make decisions, that's the one thing you need to improve at to be able to become that version of you that's 10 times bigger. Envy and the All right, you got to please I got you. And the hardest decision of all is how much should you be spending on your marketing and how exactly should you be deploying that marketing spend.

4:47So I think what it comes down to is and I and I hope many of you can relate to this. There's kind of like this TTOC reality check you need, right? You kind of have the framework. You've heard it at every conference you've gone to. You've talked to consultants. You've been on mentor pass. You've talked to everyone you need to. You know incrementality matters because that's all you're talking about with your team. and you understand the cash timing stuff too because you probably heard me talk about it. But I think you're still not spending optimally and it's because this is where execution on how you're supposed to really approach it. This is where 90% of the brands fail. So we're going to get into that now. Now

Traditional vs. E-commerce Budgeting Approaches

5:20traditionally budgeting was especially boring. Essentially a CFO would say something like we want to increase revenue 10% year-over-year. See? And so we're going to increase our advertising expense by 15% and our travel and trade show spend by 20%. It was a very stable environment, very conservative, safe. So it was a system that worked. But e-commerce on the other hand, I got a clip for me. E-commerce is like glorious chaos. You've got algorithm swings from day to day. Ad accounts can get banned.

5:51A Tik Tok can go viral. You can triple your ad spend in a few clicks and you can go from spending 50k a day to the next day spending 3K a day. That kind of chaos means you need to take a very different approach to budgeting, something that didn't work in the traditional world. So, at one extreme, if you're very lean, you have no fixed expenses, you're basically a dude sitting in the basement clicking buttons and making money, you can have a pretty simple approach to budgeting. You can just ride the wave of ad performance up and down.

6:21But most of the brands in this room, I'm going to assume, are a little bit more sophisticated. You probably have employees. you are probably expanding into different sales channels. You're probably investing into different brand building activities. So, you carry a lot more fixed expenses and some of those expenses are things that take a long time to actually materialize into value. So, in a world like that, you've kind of got the best and worst of both worlds.

6:44So, you got to cl me a couple. Next one. You got the best and worst of both worlds. Essentially, you can enjoy the benefits of a very quick rise into the heavens because your ad performance is doing well, but you also have the downside when that comes crashing down that you still got bills to pay because you have so many fixed expenses. And I think this is where the reality check came in. Right? When we started off, we were spending a lot on Meta.

7:10It's the only channel we were spending on. and we kind of started to build our infrastructure around that, right? hire this person, hire this consultant, get this agency, get this other agency, get the agency's friends agency, right? And you start to build these cost structures and you know, the minute you have meta start to decline, that's where it's like, wait, I need to start getting rid of these things. I need to fire this agency. I need to get rid of this consultant. and this is the classic scale dilemma. It's everything everyone here has faced at some point. and I think this is where budget allocation strategy has to evolve as your cost structure becomes more complex. We're going to get into that a little bit, but I think it's something that I've seen people talk about literally every day.

7:53>> So ultimately given that kind of framing, how do we budget? Now it's a

Complexities of Budgeting for Growing Brands

7:57very complex topic and when I tackle a complex topic, I like to build it in terms of layers of complexity. So if we start off with easy mode at the beginning, you're a new brand. You're doing just one-time sales, no retention yet, you're only running on meta, and you have no fixed expenses. In a situation like this, let me ask you a question. How many of you determine your marketing budgets by just setting an ME target? So, as long as we're at a 4x ME, spend as much as you can.

8:27Okay, it's a pretty common approach that a lot of brands use. So, that's what we're going to call stage one, budgeting from using your me. The thing is that if you have a situation where you're just going to set an ME target, you can inevitably just ride those waves of ad performance up and down. So if you set a target at 2.5, when the ads are doing well, spend more. When they're doing worse, spend less. Seems pretty reasonable. Or is it? The problem with an approach like this is that you're leaving money on the table.

8:57Were I to ask you, would you rather have a 10% return on an investment or a 50% return on an investment? and I offer you both. Assume I have a trustworthy smile, you're probably going to want the 50%. But what if I told you that 50% return is on $1,000 invested and the 10% return is on a 100,000 invested. Now, you probably want the 10K instead of the 500. And that's the thing, diminishing returns on ad platforms, they're not linear. They kind of oftentimes go in in either step-wise functions or it can be a little bit chaotic. So the smarter approach is actually not to just set a fixed target for an ME and spend as much as you can, but rather flex your ME target to maximize profitability. So sometimes you're going to drop that MER target if you're spending a lot and sometimes you need to raise that target if you're not able to spend as much.

9:49Ultimately, you're giving yourself an opportunity to maximize profitability, not just maximize ad spend at a fixed target. And that is stage two of budgeting where you're prioritizing your contribution margin and your profitability rather than just focusing on ad spend. So I think the the big problem that at least we've come across at Obby, right, is you're all trying to optimize for contribution margin across channels, but the problem is attribution is still broken. Doesn't matter if you're using NordV, triple whale, whatever you're using, it's still broken, right?

10:24platform realities are saying, "Hey, Meta is saying we're getting a 3x." Google's saying, "We're getting a four." And your email and Claio is saying you're getting an 8x rorowaz, but your bank account reality is your actual cash flow tells you a completely different story, right? And I think this is where the solution is like you need operational truth, not just what's on the platform and what it's telling you. and it starts with getting to really know your cash reconciliation and working backwards. I know this sounds super boring, but stick with me. And I think this is where knowing your profit matters more. And I think one of the most exciting things we did was I completely stopped using QuickBook exports for my cash flow statement, my P&L and my balance sheet. we're all trained, right, to look at dashboards all day. Shopify, you open up, it's a dashboard. Clavio, it's a dashboard.

11:10Triple wheel, Northbeam dashboard. Yet, when it comes to the end of the month to find out how we actually performed, we got to look at this black and white sheet and figure it out, right? It's impossible. so what we actually use with with with the help of upcounting and and what they built is they actually go and look at it from a standpoint of if you're evaluating your numbers all day through dashboards your P&L should 100% also be a dashboard. So our entire P&L, our cash reconciliation, our balance sheet, everything happens on a dashboard level. I know my top 10 expenses as much as I know my profit by month, as much as I know who owes me money and where money is about to go out. my new versus returning customers all on a dashboard literally getting updated my DTOC contribution margin literally by month by week by day right the point of why I'm showing you this is we have to go and also look at our systems and say hey I'm learning this

12:04way I'm not going to stop executing another way when it comes to my P&L or understanding my statements right so again even our cash reconciliation this is a cash flow statement right a cash flow statement when you read it doesn't really tell the story because it's a bunch of black and white numbers on a Times New Roman font. this is much better because now I know exactly what we need to go and fix heading into Q4 if we need to fix anything at all. But I also know right and day I have days payable outstanding about 154 days on average. Right? So this is where I need Okay, cool. I really need to make sure whatever promo I'm going to work on is going to generate cash more than it's going to generate profit. And so you start to learn differently, right? So I think point of this is force yourselves to go back to your systems, go back to your CFO and say teach me how I'm learning every day. Don't teach me based

12:51on how whatever principles were created ages ago. All right. So we've established the importance of profitability and contribution margin. So now let's let's make it a little bit more complex. Keep adding those layers. Let's say you have a target to be able to generate $50,000 of contribution margin in a particular month to cover your fixed expenses and generate enough profit to live your life, pay for your Lambo or Gwagon if you're a family man. And because now your brand is getting a little bit more popular, people are liking your products, you're getting repeat purchases. So people come in the previous in the subsequent months and they buy a little bit more. And that pattern repeats, that pattern repeats every month. So every month you acquire customers and the ones from previous months are still purchasing. Now that is going to start to create a stacking effect where all of a sudden because of the new customer contribution margin and your returning customer contribution margin, you're actually wake making way more than just the $50,000 per month. The thing is that

13:51sort of reality doesn't often happen because when you get too profitable, it attracts attention. You're going to get more competitors. Ad costs are going to rise. And when they say the house always wins, in this case the house is the ad platforms. So often times what happens in a situation when you're in a niche that has high LTV, you're going to have to acquire customers a lot less profitably. In some cases, you may even have to acquire them at a negative contribution margin. Now, this will make your budgeting a lot more complex because now you're losing money at the beginning and you're going to make it later. At this sorry, at this point,

Optimizing LTV to CAC Ratios and Cash Flow

14:24we're at stage three where you're going to be budgeting using your LTV to CAC ratio. What that means is looking at the lifetime value or profit that you're getting from every customer you're acquiring and comparing that to how much it costs to acquire them. One question I think everyone is always like, "What do what can I do to bring my CAC down?" Right? You talk about, "Oh, I could do different ads. Maybe I need to be testing 50 ads a week instead of 10 ads a week or maybe you can build a new landing page or do some CRO, right?

14:51Maybe two or three things that are really in your control, right? You really can't go and change the algorithm. Whereas if you look at what you can do from an LTV optimization, right, you can look into your email flows, your loyalty program, subscription models. From an AOV optimization, you can look at bundles, upsells, cross cells, in increase or order value from your customer experience, right? You can go and make sure that the quality is better, the product satisfaction is there, the reducing churn rates, maybe you start a phone number so that people can call in, maybe you can have a really good exchange policy. The point here is there's so many more initiatives that are in your control to increase LTV than the initiatives that are in your control to decrease CAC.

15:34The other piece is unit economics over channel economics. I think I've had like so many conversations just in the last couple of days where I still see people talking a lot about their channel economics. The point here is and and and I think this visual is super important, right? When you look at the left, right, the different platforms telling you a certain type of rorowaz, right? But when you look at the right and why cohort views are so important, right? Look at the model here. You have January customers who gave you $127 LTV, a February customer cohort of an $89 LTV, and a March cohort of $156 LTV. These are live scenarios. Okay. what matters here is which one are you going to use for budget decisions, right?

16:17Cohort performance actually tells you about your customer quality, your channel performance, and what to actually do further with that channel. Whereas a lot of us are looking at the traditional view and saying, "All right, here's how we're going to spend more or less." Now, here's the thing. When payroll time comes around, you can't pay your employees with LTV. At the end of the day, what matters is cash flow. And that's the next wrinkle that we need to add to this. If you have two brands, say brand A has a $900 LTV, but it takes 12 months to recoup that. And brand B has also a $900 LTV, but they recoup it in one month. Brand B is going to recoup their cash flow faster, which means they can redeploy their cash faster, which means the cycle spins faster, which means they can scale harder. So thinking about your cash flow when you're making these sorts of decisions is extremely important.

17:08There's three numbers you guys see up here, right? 30 days to cash, 45 days of inventory on hand that's tying up work working capital, and then 15-day average payment in terms of delay in receiving customer payments. Okay? The reason I'm showing you these three numbers is these are numbers that we're all thinking about all day, every day. Okay? And what that truly does to operational reality is that it means your effective budget capacity is often 20 to 30% lower than pure LTV calculation, right? Because there are these factors to consider. And so I think the other piece here is is it's really important as whether you're a marketer, operator, founder, investor, whatever it is that's related to your brand, you need to be able to understand how many days to cash, how many days of inventory in terms of working capital being tied up and what are your actual true net blended payment terms that you're getting back. Because if you're not factoring those things in, you're actually just looking at it from a marketer standpoint and you're probably

18:08going to burn through a lot of cash. Now, all right, we've covered a lot so far. We've talked about budgeting with your me, then talking about your contribution margin, profitability, then we talked about LTB to CAC ratios, and then we incorporated cash flow. But all of this has all just been considering that we're marketing on a single channel. Now, how many of you are spending on more than one marketing channel? Probably all of you. That's what I'd

Incrementality Testing and Its Importance

18:33guess, which means we're now at stage four, which is considering incrementality. How do I get the most revenue bang for my marketing buck? Or to put it differently, what is the way to know the actual impact of a particular marketing initiative, spend, or configuration of deployed dollars? So, the way I like to talk about it, it's probably unnecessary, but I just enjoy talking about this is a little thought experiment. Let's say we had two parallel universes. They're identical in every way. You your brand's in both.

19:05It's the same. and you have the same customers and the same competitors, but the only difference is that in one universe you decided to spend 50K on a Pinterest campaign. And then let's say you waited an infinite amount of time and measured the amount of increase in revenue in universe B versus universe A. That would be the incremental impact of that Pinterest campaign. If you made $10,000 more, not very profitable. If you made $400,000 more, then it is profitable. That's ultimately the question that we're trying to get at with incrementality.

19:39The thing is, I don't have the ability to manipulate the fabric of spacetime, though if I did, I would use it to run incrementality tests. But in the real world, our next best option are things like media mix modeling and hold out tests. to get into some of the incrementality testing. I'm sure you guys have heard a lot of the stuff that's already on on the presentation, but when you get into a little bit of it, it's how you're actually planning it, right? Think about geosplit testing, right? Actually testing markets with and without specific channels to really understand is that channel driving impact holdout groups like talked about, right?

20:15Excluding percentage of audience from certain campaigns to understand the impact of what you're sending or whatever messaging you're using. Is it actually creating any impact? time based testing onoff periods to measure true impact. we did this a lot with app loving too, right? Where when it first came in it was showing a really really good return and then we said all right well let's turn it off and are we able to see the same revenue or is it did some things drop off? So really doing some timebased testing and then attribution modeling trusting the platform that you're using to understand how things are attributed is also a great way to use their models to understand what is bringing incrementality right so I think just even simple incrementality tests I think a lot of people talk about it I don't actually see enough brands doing this on an active basis some people say yeah I've done it I' I've done it a couple of times you have to be doing it constantly the obby case study here pretty pretty

21:09I I think it's it's this picture that's been painted so many times. early days pure DDC meta-ependent 4x rorowaz scaled to $50 million and did really really well. iOS hits meta rorowaz stays the same revenue drops 40%. Right? And I think this is where we realized high reported rorowaz does not include does not equal high incrementality. Right? Platform metrics, they're in some way meaningless. if you're not considering the cohort-based unit economics, which was super important for us incorporate.

21:48So obviously we know what the best options are when it comes to incrementality. But for some of us humble folk, that might be a little bit inaccessible. So what do we do? We have to rely on things like in platform metrics. We have to use wonderful multi-touch attribution tools like the sponsor Northbeam. Please pay me money. we also have to rely on the most honest of data which is finance. And then we just have to use our our goods.

22:12So when we're thinking about incrementality, I often bring up this concept of an incrementality coefficient. This is the gap between what your platform is reporting and what you're actually experiencing in terms of an incremental impact. So say you take a

Challenges with TikTok Attribution

22:26platform like Tik Tok, you have two issues there. Part of it is that they have pretty poor attribution. So there's a lot of attribution loss. The other part of it is that a lot of people who see the videos on Tik Tok will just go and purchase from Amazon. If you as a brand run Amazon as well, you see how much of that halo effect exists and how all of a sudden the sales on Amazon will go up when you start pumping a lot of more a lot more money into Meta or Tik

Understanding Incrementality Coefficients

22:48Tok. So that's the incrementality coefficient that we're going to think about. But I'll give you a few examples just to kind of make that a little less theoretical based on how I often see these platforms perform. So we'll create

Creating an Attribution Table

22:59a table here. Let's say we have non-branded Google Shopping. Pretty good attribution, fairly straightforward customer journey. It reports a 4x. I'm going to say it has a coefficient of a one, which means it has an iRoaz or incremental rorowaz of a 4x. Then we look at non-branded Amazon. Now, Amazon's interesting because it has this unique mechanic where the more that you spend and the better your performance on a non-branded keyword from a paid ads perspective, the better your organic rank. So, you have a very direct halo effect. So, there I might be reporting a 3x, but I'm going to give that a coefficient of 1.5 and call that an IRO as a 4.5.

23:33Next, I'm going to have Google branded search, one of the most useless campaigns there is. So, you're going to get a reported 8x, but I know that that's really just cannibalizing organic clicks. It's not actually that valuable. So, I'm going to give it a coefficient of 0.2. and an iRoaz of a 2x. Then I have meta ads. This is a little bit higher up in the funnel. It's how you're really generating a lot of the demand.

23:52So say I'm running it at a one day click because I want to make the algorithm work a little bit harder. I might report a 2x, but I'm going to give it a coefficient of three and that's giving me an IROZ of six. And then on top of that, you might have other channels like influencer or events where you're not even getting a reported rorowaz, but you know that there is an actual return on the investment that you have there. Now, if you're able to build out a table like this for yourself and oftentimes running those hold out tests and doing things like that can kind of give you a little bit of idea of what the coefficient should be. Again, you might have to incorporate a little bit of your gut and an understanding of how these channels work. But when you have a table like this, the approach that makes the most sense generally will be to maximize your spend in whichever channel has the highest I rorowaz until you start to hit

24:36diminishing returns. So, be talked a lot about different channels. I'm showing you guys a

Budget Allocation Framework

24:42framework we use just for meta. so the way we do our budget allocation is it's a 5030 20 break. 50% goes into proven performers. This is where you know channels with obviously six plus months of data. predictable rorowaz and incrementality testing has been done. that's where 50% of budget goes. 30% goes into scaling experiments. So this is where you know you're expanding on the proven channels or the proven ads or or different campaign types. And then 20% goes into future bets. So completely new channels. So this is outside of meta, right? Where we're like, hey, we really want to test app loving or Pinterest or Tik Tok, whatever it may be. this ensures that our current performance will be able to fuel taking the different bets and different scaling environments. So this framework has been really helpful for us over the last five and a half years.

25:33>> All right. So we know that we need to be able to invest in these channels to be able to kind of get the value and prioritize wherever we're getting the most incrementality. But again, we

Considering Payback Periods

25:42mustn't forget time. We have to consider the impact of the the payback period that these channels have so that we consider our cash flow. So let's say for example, we have the opportunities to spend in something like Google, non-branded shopping, meta, and influencer. Each one of these channels will have a different amount of time that they take to be able to recoup the value. So Google, you might recoup that value pretty quickly, mostly within the first few days, maybe up to 30 days.

26:07Meta, oftent times it takes a little bit longer because you're going up higher up in the funnel. And influencers even higher up in the funnel. So you might see an even longer time to recoup that value even if the total value is a lot higher. So why is this important? Well, when you think about the channels in this particular way, then you can essentially create a matrix where you compare the incrementality of a channel to the speed to recoup the value. What that means is that depending on your cash flow situation, you may make different decisions about how you want to deploy your spend. So let's say you're a bootstrap brand and you're not sitting on a ton of cash, you may decide to prioritize channels that are a little less incremental incremental in overall but that recoup value a little bit faster. On the other hand, if you have funding or you start off in that quadrant and then over time you build up a little bit of cash reserves, you might then be able to afford in those channels

26:57that are actually a lot more impactful. It just takes a much longer time to recoup the value, but that value is much higher. Knowing where you land from a cash reserve and a cash flow perspective can help you decide how you want to navigate this matrix to decide where to actually deploy your spend. And the working capital reality and I think again this is the reality that we face. Option A, you have 4x rorowaz on a 30-day payback giving you 400k in revenue and a fast cash cycle. The other option is you'll get a 6x rorowaz on a 120day payback. Remember I told you guys those three numbers you need to really know for your brand no matter what size you are. knowing the payback is super important because in this scenario a lot of people will be like you know what I'm going to take the 6x rorowaz make 600k a lot more revenue but in a cash constrained environment like we are today right option A wins almost every single time.

27:49>> All right so we've added a lot of complexity we added in incrementality. We added in the speed to value. But wait, there's more. The last stage we

The Importance of Channel Fragility

27:59want to talk about is fragility. So essentially, it might be great to have a 6x return on your investment in ads, but if that return is something that is very fragile that you might lose at any point in time, it's not a great way to build a lasting business. So the way to think of this is that every single dollar of revenue has an associated contribution margin. And those contribution margins stack up. They cover your fixed expenses, and what's left over is profit. Now, let's say you sell THC laced sex gummy supplements that has scantily clad women in the ads and all of your revenue comes from Meta. That's not a very fragile source of or a very it's it is a very fragile source of revenue. And so you want to make sure that your portfolio of revenue essentially is built from sources that mix in different levels of fragility so that if somehow your ad account gets banned, you don't necessarily end up in a situation where you're falling into the abyss of unprofitability.

28:55So how do we actually use that knowledge to make decisions? So let's say I have a brand and I'm trying to make a decision about Sorry, I should go back one. I want to make a decision about how to invest in a channel that is lower speed but higher ROI like influencer. And I know the first couple of months I'm actually going to be losing a fair bit of money on the influencer side before I start to recoup that value. So I'll look at my portfolio of contribution margin from other sources. I I've got Google not a very high amount is search volume based but it's consistent and reliable.

29:26I've got returning customer contribution margin pretty reliable. I have the email list and it stacks over time as I acquire customers. And then I've also got Facebook, a little bit more volatile, high value, but the thing is it's, you know, I know it's not that reliable because of the product that I sell. The timing that I'm going to choose to be able to actually make that investment in influencer is going to be at a point where my reliable contribution margin channels can cover my fixed expenses so that I know I have a lower risk of becoming deeply unprofitable, especially because some of these investments, you need to make them for a while before they have traction.

30:00So then if you're in a situation where all of a sudden your Facebook ad account gets shut down, you might have a bad month or two, but those other more robust contribution margin channels are able to sustain you until you recover. So we've covered a lot and there's a lot of nuance to a lot of these things. So I wanted to try and boil this down to something a little bit simple. Obviously, I didn't expect you all to become CFOs in a 30-minute presentation, but the the way to think about everything we talked about today is what I decided to call the scale equation.

30:30So, essentially, how much that you should be spending on a particular channel is increased by its estimated eye roll as we'll say that for simplicity. You can also talk about the LTV to CAC, but it's decreased by the time it takes to recoup the value as well as the channel fragility. What that does is that it gives you an opportunity to optimize for the most incremental growth that you can find while still taking into consideration the importance of your cash reserves and your cash flow as well as not building a business on fragile sources of revenue that could keep come tumbling down and completely wipe itself out.

31:04All right, so I think besides three of you who fell asleep, I think we had both of you guys' attention. So, thank you. but I think what we're going to get into now really quickly is the bottom line, right? The brands that master the framework we kind of went through, I think are the ones that are going to dominate the next five years, right? You want to make sure that your competitors who are focusing on chasing platform rorowaz, you're here looking at true incrementality, right? The people who are looking at, you know, reactive decision-m, you're actually making datadriven budget decisions. so we talked a lot about theoretical big picture stuff and and some of the tactics on how to do it. But what I'll

Practical E-commerce Hacks

31:39get into now is some of those like little ecom hacks that's going to maybe either help with your subscription growth, maybe your AOV growth, maybe some different ways to just think about things and I'm going to fly through this because I think Nick's going to kick me off in four minutes. So stay with me. and let's get into it. All right. Number one, how we use AI. So, what we do is we have a autoscraper from that we put into Claude that takes has direct access to our Tik Tok, YouTube, Reddit, Amazon reviews, and website reviews. And we're basically telling Claude, "Scrape 20 Tik Tok videos about collagen fat loss. I identify the most common pain point, blah blah blah."

32:15That's our prompt. And these hooks that we've been using now for the last at least 5 6 months since we've been doing this process have been the best hooks because you're taking the pain or the problem or the solution that you've created for a customer that's leaving a review including your negative reviews and creating copy around that. Next thing we do tapping into influence and creators. We use a platform that fully automated the entire thing. Seating is way too much work. We don't have the time to do it. Most of the people in the Philippines do not actually perform as well as you need them to. So what we do is a tool that'll actually automate the entire process from sourcing to also notifying you when somebody has gotten a package, when they've posted, etc. this cost of our of the build out of the system comes out to about $40 per post, which for us is a very affordable cost to go and test a different creator. Next thing we did,

33:04we saw a big drop off between order two and three on our subscription. So, what we went and did on the platform was before order two came around, we told people that they're going to get a free gift on order three. So, when they're already mentally thinking about cancelling two, they're now getting tied into staying till three because of that incentivization, right? And if you see the the the lift we got, we about 85% lift on order two, staying into order three, right? So, just just a little quick little thing. Next thing is 30% of our revenue comes from international. this has been a big piece for us. one of the biggest things that we did here though was we were able to dynamically bake in the entire cost of somebody who's shipping from let's say Australia.

33:48Okay. So instead of seeing our collagen for $40, we're going to see it for 56.24. Okay. And that includes their VAT, duties, taxes, fees, and we don't say anything about shipping, but it includes their shipping. Okay? Because you're obviously based off the IP you're able to get that. Now, when they get to checkout, which is the highest drop off for international orders, when they get to checkout, we were able to increase that by 27% conversion rate because we said today only Australia orders get free shipping. It's not really free shipping. We already baked it in, but you get the point, right? next thing, we think your popup I think the Aliia team's here. I think they're phenomenal in thinking about what you need to do with your popup. The whole thing about it is we give our customers 20% off, $5 off, all of that for free without really getting much besides email and phone number, which has kind of been commoditized. What we do is actually through the pop-up system is we're able to actually educate people

34:42while they're filling out information like, why are you here? Oh, you're interested in weight loss? Great. We have this one product. Click continue and we'll tell you more about it while collecting your email and phone number so that you're already getting into the buyin cycle right at one of the most prominent points of experience. Email optin rate went up against the industry average which is really cool too. Next thing on Tik Tok, sure you guys have talked to Zayn. If not, you've definitely seen him. but one of the really cool things that we copied as everyone copies everything is the rewards program for ambassadors. if you bring in like $500 GMV, you're going to get a ring light. But if you bring in $300,000, we've given away a Tesla, right? Building these programs to get the people who are actually driving you revenue and further incentivizing them.

35:24Again, nothing super new, but I will tell you it works. Next piece, this is the most optimal checkout. We have done 122 different tests on our checkout page to get it to a pretty good conversion rate. We'll continue to like do different tests, but the point here is some of these points of what we've tested and what we've added to our checkout has been extremely incremental, which you guys should remember from earlier in the presentation. Another thing that we do is wallet passes, right? We're also used to selling email, phone number, etc. wallet passes allows you to send unlimited push notifications. Think about that. 98% read rate, which is incredible. The first thing everyone does when they wake up or sleep, they look at their phone, right? Yet, we are, if we don't use, if you're not using push notifications, you're actually making them take another step to even get to know you through their email and through the email and SMS app. Push notification has been a huge huge incremental value for us. $242 per

36:20recipient. last thing, I think one platform that people sleep on is Messenger. Whatever you need to do to build on Messenger before Q4, before Black Friday hits, do it. we've driven a ton of revenue through it. I know it's a little bit older demo, but don't be shy of the older people. They actually have a pretty good LTV. we've done giveaways, challenges, recipes, ebooks, tons of things. we built it through many chat. you can automate the entire thing. But the point is, think about all the platforms you're not on and where you're not grabbing attention. That's all we have here today. Get the deck here. Phone numbers up there if you text us or follow us.

37:01And that's it. >> Thank you, >> Ryan. I'll be here. Well done, guys.

Q&A Session

37:04Stay stay real quick. Ron, stay up there. Any any questions for these absolute financial nerds. >> And it wasn't the I I was getting a couple text messages and they're like, "This actually wasn't the most boring one." Most boring. Perfect. It's It's not sexy, but it's it's like medicine. Like you you literally have to continue. >> She needs to listen to it. I think >> I would say like we're coming into Q4. This is a question for both of you. I'll go to the raised hand. just some things like if I can give you parting words of wisdom just make sure you are watching this. Do you have any words on that? Do you have any words on that?

37:42>> I would say that the the aspect that you really want to pay attention to is your breakdown of contribution margin by different sources. I think it's one of the things so Ron showed you the dashboards that we had earlier. A lot of those metrics are things that I personally built out for our company and for brands like coffee because I used to run a brand. So I don't necessarily just think in terms of that P&L type of of of structure. It's more about bringing in e-commerce data, Facebook, Google, Tik Tok, whatever to build the metrics that matter a lot more. And the one that I find my personal favorite is having the breakdowns of contribution margins from the various channels, your new customer contribution margin versus your returning customer. So having that sort of breakdown, I think adds a lot more color to your decision-m versus just looking at profit overall. It's it's just not enough detail.

38:26only thing to I would say is if you're spending $5,000 a day on ads, you should be running at least two to three AB tests on your site. If you're spending 10K, you should be running at least three to five AB tests on your site. If you're spending, you get you get the point. I I think AB testing is getting to a point where we know that's the one thing we can control, right? we talked about LTV expansion, etc. Try to do the things you can control. Stop worrying about how meta is performing today. You have to worry, but it's not in your control. So, this is actually a text I was going to send you after this event once I saw you. We have Q4 coming up right now and we are for our brand. We're in like that we're like healthy better for you sort of situation.

39:08Maybe we don't even participate in Q4. Maybe we just kind of run something as is keep margin and then get ready for new year new me. Have you guys thought through that? Especially because you're a health and supplement brand as well. Yeah, I think we've thought about it and from the point of like actually doing the modeling of how much incremental profit are you really adding by running a sale, right? Yes, you're going to drive topline revenue, which is nice.

39:29You're going to move some inventory, but if you actually just plan that and reverse that planning and said, "Hey, I'm selling more. I had to sell more inventory because I bought more inventory." What if you didn't have to, right? And you preserve cash flow and you're able to stay at really good margins but still just get a bump in sales because buyer behavior is up. I think it's really important to model that. and you know, we've we've we've modeled it a few times and I and I think there is truth to saying, "Hey, I may make a little bit more. I'm a little bit less revenue, but my incremental profit is great. Why not go with that?"

39:59No, I think that's an excellent way to be thinking about it. Funnily enough, a lot of the sections of this presentation I actually inspiration that I took from working with you guys at Breeze. And one of those things that when you're in the kind of health and sub or any sort of consumable world and or in the health and wellness world, you have to keep in mind a lot of times when you're running those aggressive promos that you're just channel stuffing. You're just taking people who were going to purchase later on and you're just getting them to purchase sooner, cheaper, and then you're going to have a drought later on.

40:25So when you do deploy those strategies, be very mindful of a trying to make it very focused on acquisition offers and b in so far as what you do from an email perspective, use segmentation. I I mean, you know this obviously, but use segmentation intelligently to be able to say, "Okay, the people who are are buying on a recurring every 30-day basis, I'm not going to run the offer to them. I'm going to run to the people that I want to reactivate from 120 days ago." Appreciate you. Question right here.

40:48>> All right. my name is Amy Edamman. I actually just started working at Breeze with Nick and I have a lot of background in these spaces and I've often built budgets with the incremental incrementality coefficient that you're talking about. Question for you. A lot of times I it's kind of a static number and I'm trying to figure out how to make that a more a dynamic number based on the channel mix that I have on at the time as well as how things change over time as you scale up in those channels because the meta coefficient on day one phase 1 phase 2 phase three phase four changes a lot. so curious how you've made it more of a dynamic exercise.

41:23>> That's a great question. What's tricky about it is that if you don't necessarily have very robust tools something like a house or whatever else tools that you use for the sake of kind of like incrementality testing it does become something that can be dynamic. So essentially you just have to have the discipline of kind of going back and updating it based on how you're observing the different trends in revenue the platform performance and also your mix. So you may have a particular incrementality coefficient applied to meta but that might be before you launch Snap and before you launch you know Tik Tok or Reddit whatever once you launch those channels all of a sudden the dynamics change. So Ron for example I know that they use a lot of tools from that are a little bit more robust than professional. So if you're at a level where you can afford those tools can help you determine those coefficients for everybody else is just having the discipline of reexamining it and saying okay this was my assumption I

42:10had this at a 1.7 but then do the math. Does all the revenue add up the way that it should? Because what you're trying to determine is okay at that I roll in theory if my IRAZ is calculated correctly the spend times the incrementality coefficient should give me a number and that number should add up to my P&L revenue. If it doesn't that means your coefficients are off. >> You have a Ron Air. Thank you gentlemen.

42:31>> Thank you guys very much.