The past few episodes of the Ecommerce Playbook focused on the profitability struggles that will define 2024. But this week, Taylor and Richard demonstrate how you reach profitability: a clear forecast that sets daily expectations across dozens of key metrics.
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Hey folks, Richard here. Before we kick off the show, we wanted to let you know that version two. The E-commerce diagnostic toolkit is now live. Improvements to the toolkit include simplifying several of the metrics, adding more tutorial videos to make it easier to find the data you need, and adding more detail to the results.
And next step section, including a. Average scores across our dataset so you have some understanding of where you stand relative to everyone else who's taken the assessment. Here's the other thing though. The diagnostic toolkit will increase in price next week from $297 to $499. So if you haven't purchased yet, now is the time to pick up your diagnostic toolkit.
Just head to commonthreadco.com/pages/ecommerce-diagnostic or follow the link in the show notes. Alright, onto the show.
[00:00:48] Richard Gaffin: Hey folks. Welcome to the E-Commerce Playbook Podcast. I'm your host, Richard Gaffen, director of Digital Product Strategy here at Common Thread Collective. And I'm joined as I always am by Taylor Holiday. Who is the CEO here at CTC Taylor? How are you doing today?
[00:01:01] Taylor Holiday: I'm doing great, Richard. This today's topic is my passion. So I'm super excited to dive into what is really the ongoing culmination of everything I've learned in this space over so many years in the form of a product and service that I think can, can make a big impact on our industry.
So I'm excited.
[00:01:19] Richard Gaffin: Yeah. Yeah. Here we go. So, so what's Taylor so excited about? And we will tell you so essentially what this is, is we're calling it the systems implementation project, but the idea here is, is like you mentioned, , Taylor, this is the culmination of a lot of the way that our philosophy has been evolving over this year and kind of brings it all together into a package that we sort of present to potential clients as a way to put into place for them a system that will allow them to grow profitably.
And I think like one of the main premises of this is that like The thing brands crave the most is predictable, profitable growth. And so Taylor and I talked probably two or three weeks ago now about what 2024 is going to look like and what 2024 is gonna be the year of one thing that we talked about there is it's gonna be the year of margin innovation.
So profit is going to be king. That'll be the most important thing. And then we talked a little bit last week, Luke and I talked about what it's gonna take to get there. And, and part of what it's going to take is sort of a daily Paying attention on a daily basis to the targets that are, get you to profit.
So the system implementation project is a combination of those two things. And so I'm gonna walk through, step-by-step kind of what is involved in this process. And I think, like for our listeners out there, even if this is something that we don't do for you, I think that these steps are steps that everybody is going to need to take in order to get, get to the position that they need to get in next year. So …
[00:02:43] Taylor Holiday: I,
[00:02:44] Richard Gaffin: oh, go ahead,
[00:02:44] Taylor Holiday: Can I lay a little more context to Richard before we get into the specific steps? So, E-commerce, it's very common for people to do as they grow what's called an ERP implementation and ERP systems. For those of you who have ever gone, it probably just sent chills down your spine because these are complex systems integrations issues, but what brands recognize is that in the process of maturity, the connection between their operations and their finance, Their ability to understand their inventory and where it exists and what the marginal value of every unit is, is actually critical to the success of their business.
But somehow it got left out in the process of building the infrastructure of scaling e-commerce businesses, for many of them that the same level of sophistication would need to be added to bridge marketing and finance. And what I think about is that, For brands as we go forward. Part of the margin innovation is about the underlying system that governs our growth expectations and our day-to-day execution of our marketing tactics.
And so what I have experienced over the last three years with e-commerce brands as our partners in our own business is that many times we engage together around tactics, but it is very actually difficult to alter. Something as fundamental as the bottom line outcome of a business at the tactic level only.
It really requires that we anchor together around the core expectation of what is possible to accomplish, how we're going to accomplish it with clarity, what the milestones are that are gonna show us that we're accomplishing that thing or we on or off track, and ultimately ensures that where we're even trying to go will be
In the interest of the shareholders of the business, and so this, this idea of what is the underlying system that would connect the dots between marketing and finance and help us build predictable, profitable growth in a healthy way. Is what I have spent so much time thinking about and so many people at CTC have contributed to building and that we're now deploying on behalf of our customers.
And that you can take whether, like you said, whether you take the learnings and apply them yourselves or whether you work with us to do it. I think this is some of the underlying architecture that's gonna be critical to the future of margin realization for the brands in our space.
[00:05:08] Richard Gaffin: right? Yeah. So what this is, is the culmination of our cons. Disrupting a system that doesn't exist really out there at all. Like this is tying two things together that have never been tied together in the way they need to be in order to be successful in the way that we want. So let's go into the steps that are involved here.
So again, It's more or less a three step process, let's say. But step one is to diagnose the problem. Essentially, when a business comes to us, what we need to do is discover the reality of that business, what specific struggles they have, what opportunities they have, what strengths they have, and how we're specifically able to affect that business and what we should expect that from that business based on their ability to grow.
And of course, the way that we diagnose problems around here is with the diagnostic toolkit and establishing a growth quotient score. So maybe talk us through a little bit. Specifically how we use the Growth Quotient score and then how it ties into the rest of this process. When a client comes to us.
[00:06:04] Taylor Holiday: Yeah, and I wanna try and give specific examples because this can sound very hard to understand practically. So in order to set a growth expectation for your business, I. In other words, what is the potential financial outcome that is available to you in 2024? I have to understand many of the underlying attributes about your business, and this includes many of the things that are included in the e-commerce diagnostic.
I have to understand your business's LTV I have to understand your gross margin. I have to understand your current opex. I have to understand, you know, what your current 60 day LTV to CAC is where, how much organic traffic you're driving. All of these things represent variables in the velocity of your growth, and some of them cannot just be assumed.
Many brands will look out into the future and want for themselves. Some percentage expectation growth, that's an externality of pressure. What do I mean by that? There's an investor that's demanding it. There's your peer group who you're comping yourself to. There's other people in the industry that you think about, and so you want to grow relative to the desires or influences of externalities, but that unfortunately doesn't matter.
What matters is what is true about you and your potential for growth. And one really obvious example of this is I. That your LTV and not just the total lifetime value over many years, but the velocity of the realization of that LTV. In other words, how quickly do your customers come back And repurchase is perhaps the single greatest influence on the velocity of your growth.
Now there are other inputs for sure. The amount of organic demand you can create, the efficiency of your new customer acquisition, the volume of potential market that you're addressing. All these things are pieces in it. But for brands in particular, and this is where I'm gonna get specific about an example.
We have a partner right now that we are doing that we are having a conversation about their 2024 plan for, and they've done really well this year. They've grown almost 20% year over year. And they're asking the question of what would it take to grow 50%? Like what if we innovated more? And the problem is that they have almost no LTV.
[00:08:23] Richard Gaffin: Hmm.
[00:08:23] Taylor Holiday: And so every month their growth comes from. New customer acquisition driven in many cases by product releases and novelty that drive disproportionately efficient new customer acquisition, and they are already in like the 85th percentile of new customer acquisition efficiency. I. And so in order for them to meaningfully outperform last year's growth rate, it's not gonna come from an increase in their LTV.
The product category just will not yield that, and the current makeup of product mix will not yield a sudden change in LTV in a very dramatic way. So the existing customer revenue is fixed at a growth rate that's consistent with how many new customers they acquired this year. But it's not changing much.
This is what doing a lot of cohort specific LTV forecasting helps you realize is that a really hard truth about our industry is that LTV doesn't change much no matter how good your marketing is. LTV doesn't change much unless you really fundamentally change the offer concept and products that you're selling or the mechanism by which you're selling.
Now, all of that can be done tactically, but in some categories it's challenging. And so on top of that there, they have to go out and acquire new customers and any volume increase. Of new customer acquisition is gonna come at an efficiency cost. So to say, I want to suddenly change 50%. You'd have to start playing a game, which is, you'd have to take really big swings on campaign ideas that, and opportunities to produce big moments or cultural impact in ways that have low probability of success.
And so what we can help the brand wrestle with is like, what, what is wrong? Or what if we did 20% a year for the next five years? Sometimes I think what people get stuck in is when they look in single windows, the number next year doesn't sound that exciting, but compounding is a hell of a drug. And if you can actually help them see the vision for where this business is headed with the steady, healthy increase, it's really powerful.
But all of that planning and decision making about setting expectations with a partner requires the underlying diagnosis of the attributes of this business relative to the other things we know. And so that's where I, that has to be the starting point of the conversation, is to get clear on these items.
[00:10:32] Richard Gaffin: Right. I think it's, it's always a hard conversation to tell people that certain things aren't possible, but I think it's also like a. A conversation that needs to be had, like we've talked before many times about people coming to target setting and, and just setting it arbitrarily. And that's very, very widespread in kind of a weird way.
Like people who have been successful in business for many years coming in and saying like, we're gonna grow X percent. And just because we kind of want to, and part of the purpose of the diagnostic and the growth quotient score is to say like, actually no, here's a hard and fast truth about where you're at right now.
With that established and agreed upon, now we can make a plan that actually makes sense for your specific business and where you're at.
[00:11:10] Taylor Holiday: Yeah, and I, I try to avoid ever talking and saying what is possible or not possible and more what is likely or not likely. I think our job as your external partner managing the data and doing the modeling is to provide to you a view of what is likely to occur, and then using the diagnostic to show you the key inputs about your business that's preventing more rapid growth, or are the potential accelerants and the potential limitations to your growth so that you can then build business strategy to go solve them.
If gross margin is your core problem, there's lots of business strategy ideas to go solve that, but if I say to you, Hey, , Your gro gross margin is an impediment to the acceleration of new customer acquisition because the efficiency will drop too fast and you don't have the LTV to make it up. So this is a prohibitor on your growth rate.
Well, now you at least have something that you can go effort towards to try and solve.
[00:12:05] Richard Gaffin: Right. Yeah, that makes sense. Maybe a better way to put it is that like a lot of people can come in and say like, in order to grow X percent next year, we just have to do the same thing but do it harder. And this is Maybe acts as kind of a remedy to that to say like, actually some fundamental changes would be, need to be made for that to happen.
Okay. So let's go then into step two. So once we've sort of established the reality the opportunities and the weaknesses of a specific brand where they need to focus, step two, we create the forecast, which is to, to say we build a P&L level forecast for the business. So walk us through what that looks like.
[00:12:38] Taylor Holiday: Yeah, so I'm even gonna go further. We build what we call a growth map, okay. And a growth map contains lots of critical elements that I think you need to have for your business. The first is a P&L level forecast. So when I say a P&L level forecast, I mean an income statement for every future month.
That includes all of your cost of delivery, all of your OPEX. You've gotta forecast your OPEX down to predicting what your actual profitability is, and hopefully therefore your cash flow into the coming year so that you at least have an expectation. And the way that you get to those revenue numbers is using a combination of
Quantitative modeling, which we're gonna talk about, and qualitative planning. This is really important. Any great forecast includes both qualitative and quantitative planning. So a growth map is getting you to a two-year p and l level forecast, and it's gonna do it inclusive of a marketing calendar channel, specific media plan, and then a sheet that allows you to play with and alter the inputs and do scenarios planning as well as retention models and spend in a MER models. so let's start with the quantitative part of the growth map. And that involves thinking about how we get to predicting your revenue. And I think great revenue forecasting involves thinking about your customers in two specific groups. One is your returning customer revenue, and this is the easiest part to predict.
Of all of the revenue stack, and it's using a method called cohort specific LTV Forecast. And this just simply means you take every cohort, which is just a fancy word for group of customers by month for every month that you've existed as a business, and you look at their value in each subsequent period of time.
Then we use a linear regression with a little bit of seasonality consideration depending on each brand's individual dataset. You have to do a lot of data cleaning often in these cases. 'cause there's this period where we're out of inventory and then this was going on over here. So it requires some thoughtfulness and some custom work, but you get to the ability to with reasonable accuracy.
And this is like you can be the most accurate about this portion of the data stack. Depending on the size of your business, you can get to the ability to predict your future existing customer revenue. In other words, for the customers that you have, let's just use 2024, starting the year, 2024. The customers that are already in your database, how much revenue will they produce for you in the future?
And that's the start of your forecast. You have an answer and an expectation of that group of customers and initiatives to try and perform against it. The second layer then is your new customer acquisition. And this is the harder part to model. And it begins with. We do is we look at building a model that creates a relationship between volume of spend and the efficiency of your new customer acquisition through aMER, which is just acquisition, marketing, efficiency ratio, new customer revenue over ad spend, and.
We look at that by month. So again, every one of these models, because e-commerce is so seasonal and businesses are so seasonal, we have to have a slightly different model for each period of time. So we're gonna have an spend and aMER model that's gonna give you a relationship between volume of spend and efficiency of spend each month of the year.
Now again, now I have a model that is based on historic data to help me predict the future. Okay. But what we know about data modeling is it is useful in so much that the future is like the past, and this is where the qualitative portion of the growth map comes in, which is your marketing calendar and the initiatives that you have as a business.
So the question you have to ask after building that initial model is you have to ask yourself, am I going to be executing the same initiatives on the same calendar days as I did last year? If No, we have to start to perform some art on top of this analysis. And the way that we build our growth map is every input for every month, for every metric has a manual override that we can go in and very simply override the number and it updates everything.
So as an example, if I decide in Bamboo Earth that we are going to launch a brand new product that we've never launched before in February of 2024, something we didn't do last year. I'm gonna have an increased expectation of both my existing customer revenue, 'cause I'm going to be sending out emails, extracting value from that group, as well as some change in the profile of my first time, AOV, my new customer, CAC, my volume of spend, all of those things.
And I'm gonna have to apply some qualitative work with higher error expectations on those numbers. I've just gotta build the entire marketing calendar for every day of the year about the expectation and see how it maps to last year and make the corresponding adjustments. And this is like, think about, this is like taking a month to do.
It takes weeks to go through and go, okay, January, what did we do last year? Are we running the same promotions? Do we have the same product launches? If no, where are they different? Why are they different? How is that gonna change our AOV profile? What is the margin difference? How does that all change?
We have to be thoughtful about every action we're taking. Right? I. The combination of these things, where in our growth map, this beautiful spreadsheet constructed at CTC, all of these things, the marketing calendar and then the corresponding Facebook campaigns, the daily spend, the expectation of AOV, the marginal value of those sales.
They're all connected so that every manual update layered on top of the models that are already in place updates the entire output for the year. So by the end of this exercise, you have an entire year, every day. Every dollar planned as you get started and that this is, this is the foundation, is this what we call a map?
It's just simply, this is where I'm going this year. It is your plan to go and execute against in the coming year in a way that you can look at the bottom line and go, if we accomplish this, we will reach the business objective that shareholders are satisfied with and my boss is satisfied with and produces the cashflow we need to be successful.
[00:18:30] Richard Gaffin: Right. So actually, so that segues nicely into step three then, which is to establish clear operating targets, which essentially step three is the output of step two, which is to say that like once that growth map is in place, You have what you mentioned, which is a daily expectation around, I think 35 different metrics that you can hold yourself to.
And maybe this is like a good juncture to talk about what you've mentioned before we hit record here, which is this idea about, of daily expectation versus weekly expectation. So why is it so important to have daily expectations across all of these different metrics?
[00:19:02] Taylor Holiday: Yeah, a lot of people will dispute this and they think that looking at things daily will lead to overreaction. And I'd say that's certainly possible, but you can overreaction iss a choice. It's not an obligation to the data. So that's, that's important to understand. The second thing I'll say is that your revenue is actually comprised of days.
More than any other period because there are, in a calendar month, let's say whatever arbitrary period, there are days that represent disproportionately more revenue than all the others. So usually it's the day that you have a big launch, sale or moment. It is really critical that you are tracking an expectation of that day because it is so, if you miss that day, you will very unlikely be able to make it up.
Additionally, what I'll say is that oftentimes early in the month, a great example is like the month of September where Labor Day exists. I think it's like the fourth of it was, you know, really early in September this year, where if you miss your spend in revenue target in those first four days, it's actually almost impossible to make it up the rest of the month because the gap can get so large.
Additionally, if you go, let's say three consecutive days of being deficient by thousands of dollars on your spend, Your ability to make that up is like a hole that grows and increases over time and that very quickly, a lot quicker than people realize. It becomes insurmountable to accomplish it. And so the course, how the, how rapidly you course correct is actually really, really critical to realizing your goals.
And this is where I think our system really separates itself is that. That spreadsheet that I just described, there's actually a lot of people I believe, that build forecasts and use this methodology to build that level of forecasting. The difference in what we have is that that same spreadsheet is integrated into our data platform stat list.
So when you build in the spreadsheet, it syncs automatically to your data platform. And so as you get your metrics and you actualize them in whatever data platform you you use, if you use Triple Whale or Shopify or wherever you're doing it, the missing data point in all of that. The forecast, the expectation of those metrics every single day.
But inside of stat lists, those numbers for every day are integrated directly right there, so that every day you can log in and see, okay, it's October 18th. Today I'm recording. I can look at this month and I can see exactly where I'm at relative to expectation across new customer revenue, organic revenue, paid revenue existing customer revenue, a o v, first time, a o v contribution, margin, every metric to understand what I need to do to solve my problems.
Data matters the most in context, and that context helps you to course correct and helps you to be right in your forecast. Right. Forecasting, again, I'm just gonna keep saying it is not an exercise in modeling and it's an exercise in execution. We are not playing guest the m and ms in a jar. You have to work to make it right and that is your job as a marketer or a growth leader or A C M O is to every day ensure that you as an organization are taking the necessary actions to accomplish the goal that you set forth.
We have an ability to bring that front, that information front and center, and then to guide you around the decisions to make, to help actualize it.
[00:21:59] Richard Gaffin: Right. And actually, so I think that that kind of goes back to something you were saying earlier, which is this idea that the growth map. And a map that sets daily expectations is also a map that suggests daily action. And I think that's an important distinction here, which is to say the, the map analogy is interesting because it brings to mind like an atlas or Google Maps or something like that.
But really what we're talking about here is like we have a map of the wilderness and we've marked a trail out. What we may discover is that halfway down the trail, there's a bear den or something like that, and we have to mark a new trail and go around it. Or there's a mountain that we didn't map before or whatever.
And so the idea there is that, like this is, it's more like a log of daily progress that then you can make decisions to effect on a daily basis and the end result of the journey maybe the same, but the actual path to get there may change based on what happens on a day-to-day basis. So talk
[00:22:49] Taylor Holiday: And the Google. The Google Map thing is a perfect analogy because what happens the second you deviate from your directions on Google Maps.
[00:22:57] Richard Gaffin: It finds you a new one.
[00:22:58] Taylor Holiday: That's right. It says updating. Here's your new course, here's the change in time. And it doesn't wait a day. Like imagine if it waited an hour to tell you. That's, that's the metaphor here is that the, whether you act on it or not requires a level of sophistication and thought to go, okay, is this data actually actionable yet?
But becoming aware of the problem is hypercritical. Like, I don't know why I would want to be wait a week to become aware that I had a deficit. Whether you choose to act on it or not. Again, there's a maturity to every decision making process here that's important to understand. That is this data sample.
Actually something that gives me information and, you know, turn, like turning off all your ads or, you know, these would be, there are certainly ways to overreact to any bit of data or of information, but the second I'm off course, the second something different than I thought was going to happen has occurred.
It's critical to understand 'cause then you get a choice and from there you get to make good and bad choices along the way.
[00:23:55] Richard Gaffin: Sure. Okay. So walk us through like a day in the life of somebody who is executing against one of these plans against the growth map. So you get up in the morning. You check status, whatever, what are you looking at? What are the decisions that you're then making over the course of the day that will then affect the next day, let's say.
[00:24:13] Taylor Holiday: It's, that's a great question. So I'll give you like I got in this morning and we get stats, spits out an email. That shows you month to date. It's a screenshot of our revenue dashboard. I get it dropped in my inbox for all of my customers at 7:00 AM and I see exactly where they're at month to date, including what happened yesterday across all of these metrics.
And so what I'm sequencing through is our hierarchy of metrics. That's what our revenue dashboard is built through. Contribution margin. My head or behind of expectation. Okay, if I'm behind, why am I behind? There's usually too, it's either volume or efficiency, right? So behind on contribution margin, okay, am I behind on revenue or am I behind on efficiency of spend?
Each of those is a doorway to a different set of problems. If I'm behind on volume and then I go, what channel am I missing my spend target on? Is it, or then I go, is it existing customer revenue or new customer revenue? Oh, it's, I'm be, I'm ahead of my existing customer revenue volume. I'm behind on my new customer revenue volume.
Oh, okay. Which channel has lagging and they're just doors. You just walk through each one. Is it? Is it volume or efficiency? Oh, it's efficiency. Okay. My new customer, my aMER is too low. Great. Where am I missing ROAS. Cool. Which campaign is missing? ROAS. Is there an action to take here? Or, is it a day where I have a cost control on?
I set it. I spent through all the budget and I go, Hey, we didn't win that day, but I like the bet. No action needed or . What, what I'll often happen is something like, Ooh, the AOV on this campaign is actually coming back way lower than I anticipated. My cost controls set too high. Tighten cost control efficiency.
That's an efficiency action. A volume action might be the opposite. Ooh, I'm actually getting a better return than I wanted. My aMERs ahead and my cost controls are actually constraining spend. I can loosen the controls a little bit. Or, Hey, can we launch more campaigns to get going here? So very simply, most problems boil themselves down to volume or efficiency in any given day.
There's some action to take. AOV is one of the ones that I think is often the most underappreciated metric to keep an eye on, on a day-to-day basis, meaning that I'll have an expectation of AOV and then suddenly it'll be way higher, which means my new customer CAC can be more aggressive. I also have to ask myself like, which campaign is driving this disproportionate?
Is it a single order, was it, or is there a very clear trend that there's a bunch of orders moving the, the value up in a way that I can actually be more aggressive on my spend? So there's all these little . Intimate details that the more you look at it, there's a very clear sequence to walk through.
That's like contribution margin, spend revenue, new customer revenue, existing customer revenue down to the channels. If you look at our hierarchy of metrics video, you'll see that pyramid. And that's basically what we walk through every day. And we teach our people to walk that path every day.
Now, it doesn't always lead to an action. It doesn't. We ask ourselves these questions, what happened? So what, what does it mean? And now what am I gonna do about it? And that forced every day, look at this set of metrics, understand where I'm at on my forecast. Are there any actions to take? If so, take the action is a critical daily exercise.
[00:27:08] Richard Gaffin: Yeah, I think that's also like illustrates too. The beauty of setting targets at such a detailed level as well, because as you walk through each door, you have an instant understanding of whether the current result is maybe good or bad, is the wrong way to put it. But if the current result is expected or unexpected, I think, and I think often too often, what can happen is you set certain high level results.
Let's, let's say, I don't know. Contribution margin and then roas and then maybe nothing else. And the thing is like, there's the, when you dive into the factors that affect roas, you don't have any expectation for what those factors should or shouldn't have done. But sort of in this setup, what you, you have some sense of where you are, no matter how detailed you go and how far you
[00:27:47] Taylor Holiday: And, and here. And, and here's the thing is that the only thing I know about the model that I put out is that it's gonna be wrong, but the exercise of understanding, where was I wrong? What it actually forces is thought work about your thought work. So you're reflecting on why did I believe this was gonna occur and what happened different?
And that refines your thinking all the time, and it gets you into a deeper, more intimate understanding with the business and the levers that control the growth. You're gonna understand what doing X does to generate Y revenue, and you're gonna understand how each of them impact. Because every day as you push them, you're analyzing the reaction.
You push them, you're analyzing the reaction all the time. And so I think that it just, it forces like the, the exercise of forecasting is should, is, is it's a great way to, to crystallize your own thinking process because it forces you to reflect on why you were wrong or right all the time. And so we do this thing at the end of every month where our growth strategists meet as a group.
Anybody who was plus or minus 10 to target has to write, literally write a reflection on what they got wrong. And a lot of times it's like we ran out of inventory on X, Y, Z. I didn't know that. And then that, you know what that does? It forces a refinement where they go, I need better visibility into their inventory.
Okay, so now that becomes a part of the process. Or, you know, x, y, z sale didn't hit in the way that we expected it to. Okay? What could we learn? What could we have done to make the sale more effective? And that, that, that retrospective is a thing that often gets neglected when there is no plan, because there wasn't an expectation to reflect on.
And so this is, this is another part of what makes it really, really important.
[00:29:19] Richard Gaffin: Yeah. Okay, cool. So, I mean, I think that that kind of covers what the, the steps are and, and like what goes into this specific this or goes into this specifically in terms of the process. Maybe for our listeners, what, what, maybe we could summarize what, what does this do?
[00:29:36] Taylor Holiday: Yeah.
[00:29:37] Richard Gaffin: there's like a one sentence explanation of what this whole process does or provides, or if you try to implement a similar process, what you ought to be shooting for in terms of what it provides.
How would you phrase that,
[00:29:50] Taylor Holiday: Well, I've the phrase predictable, profitable growth is, is the output goal here. But what I'll say is it creates an intimate of, in intimacy of understanding of how your business works. And I think that that is in many ways for marketers in particular but all entrepreneurs too, is that we all have strengths and weaknesses.
And I, I've noticed in particular, many of us, our background is not finance. So it it, we tend to think in proxy metrics. We think about things in ROAS or MER or even aMER. And when you really forecast yourself, force yourself to think about the relationship between the opex of the business and the revenue I'm creating and how contribution margin relates to OPEX and its ability to produce profit.
And how every day, how much contribution margin I'm creating really dictates how much money ends up in my bank account, and then what actions I take improve contribution margin, not just roas. It really forces you into a level of intimacy and understanding that I think is critical. Critical to driving predictable, profitable growth.
And I think that that is really more than anything is you're becoming an expert on the trail. You're becoming an expert on the business in a way that allows you to get to where you want to go.
[00:30:59] Richard Gaffin: Sorry. Cool. So I mean, I think in, in summary, this is obviously something that we would love to do for you but So actually we'll, we'll drop a link in the show notes to something you can check out if you want to get in touch with us and talk about this further. But in the meantime, Taylor, is there anything else that you wanna hit?
[00:31:14] Taylor Holiday: Yeah, the, the last thing I, the, the, the area where most people get this wrong and the hardest part and where I think the data science portion of this is really critical, . The biggest error I think that has occurred in forecast in our industry over the last X, let's say five years, is the assumption of the relationship between spend and cac.
Everybody forecasts spending more money next year, and nobody wants to force themselves to deal with the effects that has on the efficiency of your spend.
[00:31:42] Richard Gaffin: Yeah.
[00:31:43] Taylor Holiday: And, and your CFO, your marketing leader is gonna want you to show them a forecast that shows you increasing spend and holding that cost of acquisition flat.
And that's not how it works. Now, it doesn't mean that there aren't periods where that occurs or where it goes backwards. And our spend in aMER model, I think is really like one of the centralized points of this that forces brands. Reckon to reckon with the reality of when they, if they increase their spend to that threshold that they have in their plan, they're actually gonna create negative contribution and they're gonna make the business go backwards.
And that's really the thing that constrains your growth rate, is that you can't just write more, spend down and not increase the efficiency. And it, the question of you can't, and you also can't just say, I'm gonna increase spend 50% and efficiency is gonna go up 30%. That might not be the degradation rate of your spend.
Like everybody's elasticity of those things is different, and you need a data-driven view of that as a base assumption. Again, our goal is to always beat the model, but you don't wanna start that. So often I see brands starting with a plan that was gonna fail, even if they execute it against it. And so just getting to a point of view on the relationship between the increase in spend and the increase in your efficiency.
Is a critical assumption that for e-commerce brands in particular, you have to get right and it's the number one, one, number one thing. I see destroying plans.
[00:33:05] Richard Gaffin: It makes sense. Yeah. We talked earlier about the maybe not impossible. Impossible, but improbable. Improbable. And once you can build a plan that accepts the improbable, you can actually build around that and see success in it. So cool folks, well I think that'll do it for us this week. Appreciate y'all spending time with us, and we will see you next week.