With just 3 weeks until Black Friday, now is not the time to pull back. In this episode, Taylor and Richard debunk common arguments for pulling back spend ahead of Black Friday. “We are here to affirm your commitment of making the most out of this moment, because it’s necessary.”
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[00:00:31] Richard: Hey everyone. Welcome to the E-Commerce Playbook Podcast. My name is Richard Gaffin, and a copywriter and sometime professor here at Common Thread Collective. And of course, I'm joined again by, the Common Thread collective CEO Taylor Holiday. How are you doing, Taylor?
[00:00:45] Taylor: Doing great. Three weeks out, four weeks out, three weeks out. Showtime, baby.
[00:00:50] Richard: That's right. Well, we're, where we're sitting. It's. Four weeks out from Black Friday when this episode goes up, it will be a mirror three weeks. Uh, it should be November the 10th when, uh, when everyone's listening to this. So Black Friday's getting closer and closer, and at this point, generally speaking, you should have most of your strategy set up, but.
As we approach the big day, I think like one thing that we want to make a point of in sort of the, the thrust of this pod or this particular episode, is that now is the time to pour on the gas. And as Black Friday approaches, there's no point in holding back. And so, Taylor, I wanna break that down a little bit.
First off, coming from where I'm sitting, which is having been on growth teams before, worked with a lot of clients on Black Friday, the idea of holding back on Black Friday doesn't initially make any sense to me. But what are some of the arguments about that people are making, preventing them or that might predict them?
Underspending on Black Friday?
[00:01:50] Taylor: I think around this time of year, everybody knows that Black Friday, Cyber Monday is a thing. So two pieces of content become sort of, Contrarian take that gets a bunch of attention. One of 'em is like, Black Friday's bad, it's not gonna work. Don't do it. Right? Like that becomes a thing that somebody writes that article because it's beneficial and they usually take one of two approaches.
Either it's gonna not be profitable. There was a thread from Drew Sunki that I think is a good cautionary tale about running a sale without really having clarity of your unit economics. Running a bunch of net negative contribution sales, which you shouldn't do. Or I've seen some content around like Black Friday, Cyber Monday.
Customers are bad customers. Be careful you don't actually want them. Right? and so these two things become sort of like tropes that pop up every year. And so we're here on this podcast to reaffirm your. Making the most out of this moment because it's necessary and it's actually the right thing to do, and we're gonna provide some data to validate that opinion.
[00:02:58] Richard: Let's do it. All right, so let's, let's address that second argument head on then. This idea that you may not want to spend as hard as you might into Black Friday because the customers that you acquire are just gonna fall off anyway. They're not great customers. You're better off spending your money elsewhere at a or at a different time.
So what's the, what's the counter argument?
[00:03:18] Taylor: Right. So generally speaking, you would think, okay, people who buy things at discount tend to be worth less to you as a business, or it's a gifting season, so they're not the purchasers, not the end user. So there's gonna be some LTV deficiencies, and these are fair arguments.
I love a good hypothesis. I'm all for a hypothesis about why something may or may not be true. I'm also just for the validation of that hypothe. Through analyzing it. So that's what we've done. We took, three different cohorts of customers cohort. Fancy word for group. Okay. Three different groups of customers.
Group number one, new customers acquired on Black Friday Cyber Monday weekend. So Friday to Monday. New customers acquired in that time period. Group number one, Group number two, customers acquired in what we would call gifting. Tuesday following Cyber Monday through December 19th, gifting season, new customers acquired in that time period.
Cohort number three is all other customers, new customers acquired outside of that timeframe, and we compared them in value. We compared them in three different ways. Their percentage increase against their average order value over 60 days, 90 days, and life. We looked specifically at stores from 2021. I think there was almost 500 stores in this, uh, subset of data that we looked at, and we found out a few really interesting things.
Okay? One, it's true, this cohort of customers in both Black Friday and gifting produce less total lifetime revenue. Then the other cohorts by about 20. And that's true in 60 days, 90 days and lifetime, about 20% less overall revenue. So what do I mean by that? If the AOV was a hundred dollars and you normally get $140, they would produce 20% less than that, Which would be what?
$112? Right? So they produce less total revenue over their lifetime as your customer. Okay. Well, Taylor, that's a flag that would reinforce the premise that I don't want those crappy customer. We'll pause. When we think about the value as in a financial standpoint that we capture from customers, we have to think about the efficiency at which we can acquire them.
So what is the cost to acquire them, and then also how many of them we acquire. Volume is an important consideration when you think about total value capture as a. I would rather have $101 bills than three $20 bills. Right? So if we think about these customers in terms of value like that, there's a point at which the volume offsets the deficiency and value, right?
So when we looked at it that way, we did a really cool report and we'll, I think it'd be cool if we could flash these graphics on the video. So for our fancy edit team as we go, uh, when I reference these graphs, We did a graph of the total value of the cohorts by week for an entire year.
In other words, what's the total revenue captured in a week for the new customers that you acquire in that period? And the amazing part is that the cohort acquired over Black Friday side by Monday was more than twice the value of any other cohort at any other time. So from a volume amplification standpoint, it's twice as much volume potential as any other time of the year.
Second, we look at the cost to acquire those customers across the entirety of the year. Black Friday, Cyber Monday represents the lowest point, the cheapest cost of new customer acquisition of any other time of the year. by about. Almost 15%. Hmm. So what does that mean? Okay, well they're worth less total revenue, but there's more of them buy a lot, twice as many, and they're cheaper to acquire than any other time of the year.
So there's a trade off. Every customer profile presents a different potential value to your business. This one, the reason it's called Black Friday is cuz it's about realization of value Right now, get into the black, make the money.
[00:07:37] Richard: so I just wanted to ask one clarifying question. So, uh, when you talk about that LTV total, you're not talking about the per customer average ltv.
You're talking the, the sum of the LTV of every single customer that is acquired
[00:07:50] Taylor: on that one. That's right. The total value summed up of every new customer purchase in that window. Right. And what it's, and what it illustrates is that if you also did another graph, which was like, uh, the relationship between spend and cac, which are generally, uh, positively correlated when one goes up, the other goes up, the amplification measure.
In other words, how much can you spend while holding C constant? Is the best during Black Friday, Cyber Monday of any other time of the year. In other words, let's say you created a ceiling, or in our world we might call it a cost cap for what you're willing to pay for a customer. And you said how much flow we'd like to call it, like reference this in terms of pipes.
How many do, how much dollar flow could I get through at that cap? You'll get more dollars through at Black Friday Cyber Monday than the other time of the year. So it has the best magnitude potential, for new customer acquisition.
[00:08:46] Richard: Yeah, and, and it, well, it may be surprising to some, I'm not saying it's surprising to me, but the, the fact that, or the idea rather, that CAC is lowest during Black Friday.
I mean, it makes sense in the sense that like everybody is biting on this offer, but the language is almost always around CPMs being outrageously high. Yes, yes. Black Friday is an expensive time to buy traffic, but as it turns out, the acquisition cost is offset by the fact that so many people are. On your spend?
[00:09:13] Taylor: right? Well, people, People, yeah. They mistake the causal direction. Here are CPMs high because of the time of the year as if the calendar is the thing that causes the increase in CPMs. That's not how it works. CPMs are a function of supply and demand that what causes the demand to increase. It's working.
There's efficiency, right? And so what happens is the price of the inventory rises off the back of the increase in volume of spend, which is caused by an increase in efficiency. Like it's a trade off. The conversion rate outpaces the CPM price, and that's arbitrage. That's how you create efficiency. It's why it works best this time of year.
It, it continues to reinforce why CPMs are sort of like the boogeyman of our industry that are the most misleading indicator of anything ever.
[00:09:57] Richard: Right. Um, and speaking of cpm, so we were having a conversation before we hit record around one other element of this, which I think is interesting and the analogy I used anyway, was, uh, Mark Cuban's advice for starving college students, which is to buy consumables like paper towels in bulk as much as you possibly can, because next month, next year, the following year, paper towers are gonna be more expensive and you'll end up paying more for them over that course of that time.
And from what I understand, it's a similar situation. At least Facebook CPMs, but in, But just spend in general, right?
[00:10:29] Taylor: Yeah. I would just, I would, rather than thinking about it in CPMs, I would think about it in terms of the cost of acquisition or CAC over time. Right? Right. And so what happens is, uh, think about it like this.
Let's imagine, uh, our guys from Michael J. Fox shows up from back to the future. And he offers you, uh, sort of poor Richard's al Almanac of media buying, uh, outcomes over the last five years, and you get to go travel back in time and decide when you want to increase your spend over the previous five years.
Like where would you go spend all the money? Right? Well, the answer is you'd go back to the very earliest days of Facebook and you would spend 10 times as much as you thought you. because you know now that that was the golden era, that was the moment when you should have captured all the customers and the brands that did, they got to public and made a bunch of money along the way cause they went as aggressive as they could in those moments.
But now my question for you is, are you so sure that sitting here today and looking forward five years, that the same principle doesn't apply? That this moment right now isn't the most. New customer acquisition that you're ever gonna get. And so as you think about Black Friday, Cyber Monday, don't miss the ideal or don't, or consider at least the possibility that it's the best media buying opportunity that your business will ever have.
Ooh, If you think about it through that lens. It's a slightly different consideration for how much you would spend and why. The other thing I know about this moment is like, this is sort of like a privileged nonsense conversation about whether we want good customers or great customers, because I know everybody's balance sheets are upside down.
I know we all have too much inventory. I know we're all desperate for profit in this moment. That's the reality of the macro environment that we're in. So if you can make one incremental dollar on a new customer, you're taking that customer today and you're figuring out how to create value out of them later.
But you need that money today. You have too much inventory, you have too much product. The reality is it might be the best moment ever.
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[00:13:01] Richard: Yeah, that makes sense. You, you use the analogy of, uh, it's always the right time to buy a house in Malibu because it's always gonna be more expensive later.
[00:13:15] Taylor: That's right. you know, Gary v we, we about, what was it, Richard, like four years ago we had an event at ctc. Gary V came and spoke at the event, and one of the questions, they asked was like, How much money should you spend in this channel? And his answer was all of it. And they, the point was just, and it's funny because I was with Bear Hanlin, who's, one of our longtime clients from board and permit this past week.
We were hanging out in San Diego at an event, and he still remembers that, and it still eats at him because he's like, he was right. Like, and, and Gary's point was, Facebook inventory and the feed is sort of like Malibu beachfront property, which is that it's just gonna be more expensive. It's not gonna move perfectly linear up to the right, like when the Covid thing happened and there's, you know, peaks and valleys, but in the long term, the cost of every ad environment that's effective gets competed.
The margin gets competed down over time. That's what happens in this sort of a capitalistic system like this. And so when you're actually able to drive a profitable, marginal, You wanna take as much of that as you can. Now there's all sorts of constraints about why that isn't just like spend infinity and pacing healthy growth and being able to meet inventory and cash consideration.
So I don't wanna, But the point is just make sure that you're using this moment to That is a window. It's a window. It doesn't last forever to take advantage of it.
[00:14:37] Richard: Yeah. And I think it's worth saying too, because it, most people err on the side of underspending, not overspending in these big moments. Right. It's like your instinct is going to be to underspend, so maybe try to overspend and see what happens and your natural instinct will play it back. Does that make sense?
[00:14:54] Taylor: Well, I think, I think what I would say is that we all have a different natural instinct, and it's to recognize which one you are. I know some instinctual overs, spenders. I've met 'em. I've met the instinctual overs spenders and I've, I've met the instinctual conservatives. We have a customer right now. That runs a business that is about $30 million a year at like a 200 to one mer, and they have so much organic demand built around their product that the idea of paid acquisition is so foreign that not making like 98% gross margin or like a 98% of the margin giving away 2% to ad.
Feels like, ooh, it's too much to them. And so they're, they're predisposed to this really conservative action. And so those are the kinds of businesses that I think there's actually great risk to, which is that they had a, a leverage tool. They had a, they had a way to put their competitors, like put 'em aside by being aggressive using this.
In this case, it's an organic SEO channel that provides so much marginal value capture. They can afford to go out and get a bunch more customers, build their brand, become more prevalent and they didn't do it. Now that doesn't mean they'll die, right? In the short term they have a healthy business, but it does mean that they're giving up some potential value capture that it's somebody else will realize because those customers are gonna buy something.
[00:16:22] Richard: Yeah, that makes sense. Um, so in light of all this, The moral of this story here is don't even think about holding back this Black Friday unless you're one of these overs spenders, in which case, yeah, you know, be sensible. But besides that, what other things should people be considering going into Black Friday at this stage of the game?
So again, this will come out on the 10th, mere 15 days beforehand. What should people be doing to prepare themselves?
[00:16:51] Taylor: So I wanna call out two other specific categories of businesses. This advice might not apply to real fast. So one is you're a product that isn't going to benefit from a significant increase in conversion rate on Black Friday, Cyber Monday or in a gifting period.
And this usually has to do with like supplement companies. Like supplement companies. They're not really a gift. You don't necessarily always bulk purchase them. Maybe you do some, some of. Like pet food as an example, doesn't have a big, you know, value proposition as a gift necessarily. Practical objects, it can actually be a very difficult time for you, because you aren't benefiting, the CPMs are rising and your conversion rate isn't.
And so you have to be careful. So you do need to know whether or not you are one of those kinds of brands. That benefits from this moment. Are you a great gift product, is an easy way to think about it, Or do you have a great offer that's going to meet people in this moment? So I've, I've talked to a few of these health and wellness brands that really, I would actually reserve your budget because your moment of increased conversion rate relative to CPM price is actually January.
It actually starts the last week of December and rolls into January and you just are moving the calendar back a month against the same exercise in game, the same mechanics that make it so. , but just know that this isn't yours. This moment isn't yours, but it's coming and that's okay. The other one is, what is it, six years ago that we launched a brand on Black Friday, Cyber Monday we launched, Oh my God.
Opening, Opening day supply. Do you remember that? Yeah, I do. And one of the realities of Black Friday, Cyber Monday advertising is, It's a common trope that your existing ads always outperform. All the new creative that you make on Black Friday's every Monday that you spend all this time stressing out about because there's that historical data about what the bid expected conversion rate is, and the ads get delivery and you don't struggle with little to zero pixel data.
It's very hard for Facebook to price your bid appropriately for you to win E. Because there's just not enough information. And so it's really hard to get delivery on that day if you have very little historical pixel data. Um, and it's hard to do it efficiently because the ecr, the expected conversion rate portion of your bid formula is basically unknown.
And so it's very hard. And so Facebook's gonna deliver, ads that are more likely to achieve their outcome. And so it's, that's can be challenging. So I just wanna add those two caveats. If you're sort of health and wellness or this moment doesn't apply to you, be careful. If you're brand new, it sounds like a great day to start advertising, and I gave you a bunch of reasons why, but the mechanics of the ad platform specifically might limit your ability to do it.
[00:19:39] Richard: So then let's go back to my original question. So let's say you're one of those brands for whom Black Friday is, is the moment that you need to clean into what should your last 10 days look like in preparation for this moment?
[00:19:53] Taylor: You have an initial premise about what's gonna happen the day, the moment you're gonna launch the sale, what the uptake is, how the ads are gonna work in the next seven days, take at least two hours and talk about what happens if you're wrong about a lot of the key assumptions, okay? In both directions.
Spend some time reteaming your. We have this offer and it doesn't work. We send the email and less people respond than we think. The ads suck. The click through rates are terrible. What would we do? And I've talked about this before, where in Bamboo Earth, one of the things that we do to help us hit our forecast way more often is we have the contingency promotion, right?
This idea of the offer that we run the last week of the month, if we're behind on our revenue expectation. We know the subset of users that it's gonna go to. We know what product it's gonna be. We sort of hold it there hoping we don't have to use it because the new customer acquisition was so efficient at full price.
But it's there. Do the same with your Black Friday, Saturday, Monday offer. So we're gonna go live at midnight on Friday. This email's gonna go out with this offer. If within the first 12 hours the offer sucks and nobody's responding, you can. You're, you're allowed to do that and maybe have a thought exercise about what that would be, and maybe make that one email that's sort of the Hail Mary if you need it.
Email, that's like for the last two hours you're gonna go even deeper than you needed to cuz you've got to move this inventory. I would just, I would, I would do a little bit of work around that. We, we tend to have really strong assumptions about our expectations being more accurate than they're likely to be.
I just would give yourself some consideration for the, for plan B.
I've been following. Um, we're starting to keep track, you know, the, the, the questions about how early, what are the offers, if you're in a product category where, you know, competitors sell, On some of the main sites, right? Like so I was looking today. Walmarts deals are all live on the homepage. Sales start online November 7th and start in store November 9th.
Okay, So that's Walmart. And the biggest offers are like a 55 inch TV for $188. If you're selling TVs, they give it away earlier in a way that you know what you're competing against in the market. How compelling is your. There's a Keurig for $35. You can get a remote control car for 49, a Bluetooth speaker flip for 59, you know, AirPods one 60.
Like is there a product that you're selling and can you get a sense of what the market is going to drive the price to? Because I think this year might be steeper than normal. There's a lot of extra inventory, and if you can get a glimpse into what consumers are being offered in those places. Tune in and see if he can help inform what you're doing.
[00:22:49] Richard: Thanks again for joining us on the E-Commerce Playbook podcast. Please remember to rate and review, and if you're watching on YouTube, remember to like and subscribe. Speaking of offers potentially sucking, if you're having trouble figuring that out, Or you need something to fall back on if the case or if the, moment demands it.
Go ahead and check out the link, in the episode description to learn more about our BFCM database, which those of us, or those of you who follow our email have already seen us, some messaging about this before. But this is a sortable spreadsheet of every single Black Friday offer from two PM's DMV V Power List, which is essentially the top 600 fastest growing brands in e-commerce.
We sat down for hours and hours, screenshotted every single. Black Friday offer that day, put it in a database and made it sortable. So if you're interested in checking that out, check out the link in the description. And as always, if you're interested in starting a conversation about working together, don't hesitate to drop us a line at commonthreadco.com. We would love to chat. Have a good one, everyone, and happy scale.
[00:23:47] Taylor: And if you made it that far and you listened all the way to the end, here's a special offer for. Leave us a review, send me a screenshot and I'll give you the Black Friday images for free. You gotta DM it to me on Twitter. There's gotta be a review and I gotta have a screenshot. Appreciate you.