D2C Brands Grew 15% in H1 (But At What Cost)

[00:00:00] Richard: Hey folks, welcome to the Ecommerce Playbook podcast. I'm your host, Richard Gaffan, director of digital product strategy here at Common Thread Collective. And I'm joined today, as I've...

[00:00:08] Richard: You've been joining us probably like once, once every month, once every couple of months. But I'm joined by Steve Recook, who is our heads up our data science wing here at Common Thread Collective. And Steve is joining us to talk through a big report that we just put out for our monthly D2C Index subscribers around essentially a recap of what happened in H1 of 2026.

[00:00:28] Richard: And there's a few different storylines I think that are relatively interesting there, both in terms of platform performance, in terms of overall performance across our data set, in terms of some interesting results from incrementality, and then of course, some interesting trends i, i- in terms of consumer confidence based on our D2C compu- Consumer Confidence Index.

[00:00:50] Richard: So we're gonna get into all that. But let's start with kind of the big headline here. I'm kind of going off of the report that we just put out Steve, which is that brands continued to grow in H1, but growth was uneven. So talk a little bit about what that looked like over the last half of the year.

[00:01:07] Steve: Yeah, absolutely. So brands did continue to grow. So we saw median growth across our brands that kind of qualify for the SendX, having consistent spend for the last two years and consistent revenue that we can report on. We've seen about 15.2% was the median that we got for brands. Now, there's a large spectrum here where it went from brands sometimes more than doubling and sometimes brands like obviously going in the other direction as well.

[00:01:35] Steve: So that wound up being in total around $280,000 increase was the median that we saw in revenue. Now, that includes a lot of seven-figure brands, so that number kinda gets brought down a little bit more. When we look at the eight figure, that is significantly more. Our eight-figure brands, we're looking at around an increase of 1.2 million for their median and 13.7% in- increase in revenue year over year.

[00:02:02] Richard: Gotcha. But well, sorry, do you wanna add something to that?

[00:02:05] Steve: Yeah, go ahead

[00:02:06] Richard: No, I was just gonna say I think that it would make sense. So ov-- top line then or, or rather the big headline is that there was, there was growth in H1, but then kind of the next section here that we're talking through is that the growth required more investment.

[00:02:20] Richard: So that had of, of course, certain kind of impact in terms of channel efficiency and how much you needed to spend to fuel that growth. So talk about some of the trends there.

[00:02:30] Steve: Yeah, absolutely. So it did require more spend. So we saw a median increase in spend of 28% meaning brands were spending significantly more year over year compared to what they were gaining in revenue. So like a decrease in efficiency. But for a lot of brands that makes sense. You can increase your top line to offset some of the your OPEX.

[00:02:49] Steve: So it can make sense to increase your spend to get that more reven- to get additional revenue

[00:02:55] Richard: Mm-hmm. Okay, so then-- And actually, yeah, I guess we can talk about incrementality here because that was a big-- And this kind of leads into one of the biggest shifts here, which is around incrementality and then specifically around AppLovin. So within-- So Google and Meta remain the largest sources of ad spend.

[00:03:14] Richard: That's not gonna be a surprise to anybody. AppLov- AppLovin, however, increased more than 1,000% year over year which is pretty crazy. So talk a little bit about what we're seeing in terms of spend shift over to AppLovin and then maybe some of the, the particular things around incrementality we saw there.

[00:03:32] Steve: Yes. So around this time last year, we were running some of our first tests on Apple 11. It wasn't a platform that we tested a lot out of the gate. We had a couple brands interested in testing and had some fantastic results come back, well over 100%. And so we wound up testing significantly more brands.

[00:03:49] Steve: So over the 18 tests that we've run on Apple 11 in the last, like, 13, 14 months we've had one test come back with less than 100% incrementality. So in general, you're getting significantly more revenue from Apple 11 than even what it's reporting. So that gave us a lot more confidence to spend significantly more.

[00:04:08] Steve: And yes, we've seen over 1,000 increase-- 1,000% increase in spend in Apple 11 in the last year

[00:04:16] Richard: So, then just to give some, some specific context around that, like again, we've run 18 of these tests, like you were saying, the-- at the very least, the, the mode, let's say, or the most frequently occurring numbers where there's two. So one is between 125% to 150% incrementality, and then shockingly, I would say, the other we had five tests that, that re-returned 225+% incrementality.

[00:04:41] Richard: So what that all points towards, I don't know what the average of kind of all of these tests are, but as, as you were saying, only one was below 100%. The bulk of them are reporting between 150% and 200+% incrementality, which obviously points to the fact that, like, this is a very lucrative channel where that's well worth your time in, in terms of if you have the budget to do it.

[00:05:02] Richard: Yeah. Anything else you wanna kind of call out about some of that testing that we've done?

[00:05:08] Steve: Yeah, the, the average was around 171%. So yes, we do have some of those outliers. The larger incrementality results, like, came back really strong. And I think that might be because AppLovin defaults to, like, a zero day or a one day attribution, so they're not catching stuff, purchases that happen significantly later.

[00:05:28] Steve: So you take two or three days to decide on a purchase that's not getting caught or captured by AppLovin in their pixel. So that is, or it's being ignored in the, the attribution there. So I, I think because of that, that's one of the reasons why AppLovin has such strong results on incrementality, and it gave us a lot of confidence to spend significantly more into it and to get more brands onto AppLovin

[00:05:51] Richard: Yeah. And this is also one of the reasons that, you know, we've talked about Ap- AppLovin a few times. I've talked with Kana, who kind of runs that, those tests for us. I've talked with Tony a little bit. But one, one thing that drew us to AppLovin in the first place was the fact that they did one-day click attribution as the default, and maybe as the only attribution window.

[00:06:07] Richard: Is that what you were saying, Steve?

[00:06:08] Steve: I think well, I haven't looked into it, but brands were telling me that they've tried seven-day or that they found a seven-day,

[00:06:14] Richard: Okay, there's

[00:06:15] Steve: way to do that

[00:06:17] Richard: So anyway, the point being that, like, Applovin default reporting is the most conservative report, which is to say there's no inflation of the numbers happening here, and in fact, what we're seeing is that it dramatically underreports, in some, in some cases by 225% plus, underreports the actual impact of Applovin on your revenue.

[00:06:36] Richard: Which then again indicates, A, sort of the idea that you're doing business with people who are being upfront with you, so that's part of it. But then also just it gives you a high level of confidence in what's actually happening with your spend on Applovin. Any-- So anything else from our incrementa- incrementality testing over the course of the last half that jumped out beyond just Applovin?

[00:06:59] Steve: Hmm. I think the spread in results was astounding to me that we've seen in, like, the last year. We can kind of-- we have benchmarks that we wind up using around 120, 115% for Meta, for example, for Meta acquisition, but it winds up being a sig-very significant spread. We've seen somewhere between some tests as low as like 25% and some tests above 200% on Meta.

[00:07:22] Steve: And sometimes that, that depends on your AOV, the consideration time, and how much you're pushing into Meta. If-- is it trying to grab as many customers as possible? So if it's already using Meta's attribution making up 60 or 70% of your new customer revenue, you probably are not running above 100% on the incrementality there.

[00:07:43] Steve: That's where we've kind of seen it be lower than 100%, is when you're relying on Meta a lot

[00:07:49] Richard: Interesting. Yeah, I think that's worth calling out a little bit here. So, we have-- the number that we have in terms of sort of the average incrementality factor for Meta is 113.4%, if you wanna get precise. In the past we've done it as 120, so it's kind of around that range. But what you're saying, Steve, is that the, the spread of results on Meta is wide enough that obviously like figuring out what that is for your brand specifically is going to be the most helpful, maybe specific or particularly with Meta.

[00:08:18] Richard: So you'd mentioned one of the factors being how much you're spending into Meta, and I guess it's like the percentage of spend of your overall spend that's going towards Meta. If the bulk of your spend is in Meta, you're going to find a lower incrementality factor. That's what you were saying?

[00:08:30] Steve: Well, if you're depending on Meta for a large percentage of your revenue, so if

[00:08:35] Richard: Of revenue. Right, right, right.

[00:08:36] Steve: of your new customer revenue is coming from Meta, then it's gonna be hard for Meta to be at 120%,

[00:08:43] Richard: Yeah.

[00:08:44] Steve: Because there's no more additional customers for it to grab essentially

[00:08:48] Richard: that makes sense. Okay. Well, so I-I'm curious then, like if, if you have any sense of what the other factors, mm, or, or any other factors that play a major role in affecting sort of the wideness of this swing. So I'm saying like you had mentioned AOV, which is interesting. Can we say something along the lines of like, if you are in X industry with a high AOV, you can expect meta incrementality to be a little bit higher?

[00:09:14] Richard: Or is there any sort of general directional guidelines we could give in terms of thinking about your specific brand and then the sort of result of what meta acquisitions incrementality is gonna be?

[00:09:24] Steve: Well, the higher AOV means, typically means a longer consideration period. So if you've seen an ad on Meta, then you might fall outside of the seven-day click window that we typically recommend. So i-if it's something like furniture where you're $1,000 AOV, then I'm gonna think about what couch or what bed I'm going to purchase a lot more, or what cabinets.

[00:09:46] Steve: That's gonna be a far longer consideration period than if I am buying some bamboo earth skincare that has a lower AOV

[00:09:54] Richard: Right. So it's, it's, it's as simple as that. It's just a matter of consideration period, which, I mean, makes sense given the attribution windows or the fact that what we're measuring is what, what may or may not fall outside of the attribution window. So of course, in the case of a longer consideration product, you're going-- it's gonna be more incremental, and in, in case of a shorter consideration product, it's going to be less incremental.

[00:10:15] Richard: But is that sort of the, the primary factor under

[00:10:18] Steve: think that's one of the factors, but I've also seen them just spread in general. I think it, it winds up lending itself-- Seeing the spread of these results lends itself to the importance of testing. Supports the fact that figuring out your incrementality factor for, for a channel as big as Meta that probably makes up a lot of your spend is extremely important

[00:10:38] Richard: Yeah. Okay, cool. So let's let's then jump into some of the conversation or some of the reporting we did here around consumer confidence. So, we saw some interesting trends. Last month, we-- certain kind of metrics in our consumer confidence indic- index hit all-time highs. Those same measures have come down significantly in July.

[00:11:00] Richard: But so kind of one of the headlines here is that consumers kept spending but became more selective.

[00:11:06] Steve: Mm-hmm.

[00:11:08] Richard: so to talk a little bit about kind of what, what's happening in that world right now.

[00:11:13] Steve: So what we've seen what we saw last month was actually a really strong sentiment in, "I enjoy spending my money." That's one of the questions we ask: Do you enjoy spending or saving your money? And that hit an all-time high right before Father's Day in June. And we-- That's a fantastic signal to see.

[00:11:33] Steve: That means consumers really enjoy, like, going out and spending their money and actually utilizing it. But after a number of holidays, Father's Day, Prime Day, 4th of July, we actually saw this number come down significantly, and it dropped to the lowest level that we've seen at this time of year. So it, it dropped lower than the previous three years for July.

[00:11:56] Steve: And so more consumers are saying they enjoy saving their money at this time. At the same time, we've seen future purchase sentiment, which was running below to 2023 and 2024, but still greater than 2025 at this time of year. We saw that drop and dip below all three years recently. So that was, like, two weeks ago that number dipped.

[00:12:19] Steve: So we've seen that number decline as well. And then economic sentiment was on a slower decline, but now is it's more noticeable in the last two weeks

[00:12:29] Richard: Yeah. Interesting. So, I mean, part of what we're saying there is not just that these numbers hit all-time highs in June, and then relatively speaking, there's been a big fall off because they were so high. What we're saying is that there's a fall off to a point where even if they were at all-time highs in June, now they're at not all-time lows perhaps, but some of those figures are lower than they've been in a long time.

[00:12:51] Richard: Which indicates that this is just an overall maybe it's just sort of like the factor of people pr- prepping for Father's Day created this init- or this sort of little rush of like, "Hey, we are gonna buy stuff," but then we're gonna go back to tightening the purse strings and being, you know, putting austerity measures into place after Father's Day is over.

[00:13:08] Richard: So yeah, anything else that y- you see, you're seeing in sort of the consumer confidence landscape? Like what, what is that pointing to in terms of customer behavior?

[00:13:17] Steve: Well, we also saw Prime Day move from July to June this year. So what would normally have been like a nice boost in mid to early July actually moved to June. So that, that probably boosted the sentiment in June about people, "Hey, I wanna spend my money. There's a lot of great deals going on," to seeing a decline at this time.

[00:13:38] Richard: Yeah

[00:13:39] Steve: so I haven't calculated Au-August's consumer confidence yet, but I expect it to kinda be down from what we've seen in June or in July. And we hope this kinda turns back around and consumers are ready to spend again soon. But this might be an indication that the next probably one to three months might be a little bit slower than normal

[00:14:00] Richard: Yeah. Which is, I mean, it's always the case that it's slower than the rest of the year, but in this case, it may be a particularly slow summer which nobody wants to hear. But let's, let's talk a little bit then about sort of this next headline here, which is around performance marketing entering a new era.

[00:14:14] Richard: So we talked a little bit-- W- I, I talked with Joy, Joy Sharma, who heads up our seven-figure brand kind of service offering here at Common Thread, and he had talked about the-- like what you have to consider as a smaller advertiser is the difficulty of winning in the auction against brands who can afford to spend more than you.

[00:14:33] Richard: And it looks like kind of that's what we're seeing in terms of what-- how s- performance marketing spend is shifting. So obviously, overall acquisition costs have increased, and then you had mentioned here the brands generating 50 million-plus annually consistently outperform smaller advertisers. Higher AOV brands benefit from stronger margins, more flexibility and competitive auctions.

[00:14:56] Richard: And of course, if you have a higher AOV, then you can take a higher CAC. If you can spend more money in the auction, then you can get your message in front of more people. So, yeah, talk to us a little bit about what you're seeing there. Yeah, and, and, and kind of what trends to take away from this.

[00:15:09] Steve: Right. Yes. So that, that is a little bit more of a challenge that they face in that the larger brands can be more sophisticated, and they can advertise in more channels, and they have more-- they can win more auctions against you, basically. What we're kind of-- some of the incrementali- well, part of that sophistication too was running incrementality tests and getting MMMs done and having models done.

[00:15:32] Steve: And that's something that we're, we've kind of expanding and, and that is offered to our seven-figure brands as part of Joy's program. So that, like, that is our kind of answer in a way to some of the sophistication that the larger brands have

[00:15:49] Richard: Mm-hmm. Sorry. Un- unpack MMM

[00:15:52] Steve: Oh, mixed media modeling, sorry. That we help allocate between different channels, especially for brands as they're onboarding to have an understanding of what your incrementality factor is before running the test and indicate where you might be able to spend more or less and what should be tested first or not

[00:16:09] Richard: Yeah. So the idea there is to find like little, little moments of arbitrage for something maybe where you can, where the f- you can... Yeah, yeah, sorry. The fact that you're smaller is, is not maybe so much of a liability in certain places if you move your budget into a certain platform at a certain time or something along those lines, right?

[00:16:27] Steve: Yes, absolutely. Yeah. If you're-- If you can kind of figure out some of the nuances and edges that some of the larger brands have a lot more people looking for those. Yeah, if you can figure those out, then you can unlock some of the, the growth that's available to the larger side

[00:16:40] Richard: Yeah, that's right, folks. So of course, commonthreadco.com, hit the high-res button. Get Steve on the case with finding some of those edge cases for you because it's really, really important. But anyway let's talk finally about the channel landscape. So we've spoken a bunch about AppLovin already, so we don't necessarily need to retread that.

[00:16:58] Richard: But you mentioned that new opportunities are emerging, Meta and Google remain dominant. That's not gonna be a surprise to anyone. But where are we seeing increased momentum that's not just in AppLovin?

[00:17:09] Steve: Right. So the other one that we've seen is TikTok shops was particularly in Northbeam's data that was in this report. They've seen a very significant increase in spend in TikTok and that lends itself from TikTok shops. TikTok GMV being a, a source to kind of promote some of those products that you have on TikTok shops.

[00:17:27] Steve: I think the other avenue that we're gonna see a lot more in that we've started spending into is ChatGPT. And I think that that has actually, you know, maybe even more so has forced Google to be better. And we've seen Google ROAS increase, I think it was 10% year over year on 13% increase in spend. So that was maybe the, the, this fear of competition maybe even helping more to smaller brands in that, like, if you're on Google, they have-- they might have to compete with ChatGPT in the future or any other LLMs that start advertising.

[00:18:04] Steve: And so they, they're trying to step up their game, I think, and improving their results.

[00:18:10] Richard: Interesting. Okay, cool. So I, I guess we should talk then finally here just, just to cover it, the, about meta-- the, the, the evolution of meta performance. So we've talked about kind of the overall evolution of performance marketing in terms of obviously be-being more difficult to win in the auction for smaller brands.

[00:18:27] Richard: But where, where are we seeing-- like, what, what interesting trends or, or like, useful trends are we seeing here in meta performance?

[00:18:38] Steve: I'll be honest, I didn't read North Beam section yet.

[00:18:42] Richard: All right. Well, we can cut that part. We can skip it. All right.

[00:18:45] Steve: thanks, Richard. I, I was like, shoot, I, I did not go through that. That was some of North Beam stuff

[00:18:51] Richard: Oh, okay. Interesting.

[00:18:53] Steve: Mm-hmm.

[00:18:54] Richard: all right, cool. All right, we'll cut

[00:18:57] Steve: Yes, which is made for a really long report. Like, this is awesome. So it's now like 50 pages instead of like 20

[00:19:04] Richard: Yeah, yeah. Okay. All right, cool. Hold on. We'll cut here. All right, well, I think that's gonna cover it then for us in terms of going over what's in the monthly D2C Index. If that's something you're interested in finding out more about... Actually, it's d2cindex.com, right?

[00:19:19] Steve: Yep

[00:19:20] Richard: Yeah. Okay. So go to d2cindex.com, subscribe there if you're interested in getting our monthly reports.

[00:19:26] Richard: We also have a weekly version of the D2C Index you can subscribe to at comethruco.com. Then of course, if, as I mentioned before, if you, you're interested in working, particularly if you're a seven-figure brand and for eight-figure brands too, if you're interested in working with us, you will-- you'll get Steve's brain and some of the tools that our data science team uses to figure out where you should, you should be allocating your spend, particularly as we move into H2.

[00:19:48] Richard: The next few months are going to be difficult for everybody. They always are in this particular year. The trends are making it seem as though they're going to be particularly challenging, so it's really, really crucial that you have some understanding of what to expect what to expect from your spend, particularly if those expectations need to maybe be lowered in order for you to have more success in Q4.

[00:20:11] Richard: So, comethruco.com, hit the Hire Us button. We'd love to talk to you more about how we can help with that. All right. I think that's gonna do it for us. Steve, thanks for joining us. For everybody else out there, thanks for listening, and we'll talk to you next time.

[00:20:22] Steve: Thank you, Richard