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Success on Facebook is as much about what you sell as it is about how you sell it. In this episode, Richard and Taylor talk about an overlooked aspect of paid social success: merchandising your ad account. Then, they dip into the podcast mailbag and give some advice to a listener who runs a high-SKU online retail business.

Show Notes:

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[00:00:00] Richard: Hey everyone, welcome to the E-Commerce Playbook podcast. I'm your host, Richard Gaffen. Now with brand spanking fancy new title of Director of Digital Product Strategy here at Commonary Collective. Yeah, I know, exciting stuff, so, essentially that means the guy behind the Scaling Guide and D2C Index and a couple of our other products that we're trying to get out there, but I'm joined as always by Mr. Taylor Holiday, the CEO of Commonary Collective. Taylor, how are you doing?

[00:00:29] Taylor: Doing well, except I am now like batting a thousand on spilling coffee on the shirt that I am wearing everyday of my entire life, and if I could make any self-improvement this year gotta be around that action.

[00:00:42] Richard: Yeah. I remember those commercials for those pants where like that are hydrophobic. So the liquid just rolls off them, I just feel like I need a whole tracksuit made of that stuff, it's the only way to do it. 

[00:00:53] Taylor: Sometimes I don't even know how it happened. You didn't feel it, I didn't notice it, but it's there, and it doesn't come out that well, it's annoying too. 

[00:01:01] Richard: Yeah, I know. It's like I'm an adult, how did I miss my mouth? I don't understand. Anyway, so we have an exciting episode in front of us. We're gonna cover a couple of different topics, so first we're gonna speak a little bit to a blog that we're recording it this, the week before it comes out, so it'll be, last week we released the blog about merchandising the ad account, which I think is a really fascinating concept. So we're gonna dig into that a little bit.

And then we're also going to dig into something else I'm very excited about, which is the podcast mailbag. An interesting question from a listener that we wanna address and I'll just remind you up top that the email addresses If you wanna write in, if you have thoughtful feedback or question we will probably read it on air, give your business a shout out speak about your situation a little bit, so if you want some sort of live advice a great place to get at. 

So we'll get to that at the end of the episode, but at the top here, let's go ahead and dig into this idea of merchandising the ad account. So just to give us a little bit of setup, the I concept here or I guess to make sure we're all on the same page.

So, merchandising in the world of Brick and Mortar retail is essentially deciding A, which products you wanna show on the floor, and then B, how you present those products. So, a great example would be like the storefront window of anthropology or something like that, where everything is just flawlessly executed.

So you get a certain feeling about the products when you see them in that context. And our concept here, Is that your Facebook ad account is like your store window, it's people are you can imagine your Facebook feed or Instagram feed being the street and they're strolling past a bunch of storefronts.

Maybe it's if they're friends' stories or whatever, and then they come across your product, and so the way that you present it and what you present becomes absolutely critical. So, this is, there's four parts to how you think about merchandising the ad account, but we'll start with step one here, which is thinking about budget. 

So Taylor, I'll kick it over to you to maybe add some more context around this concept and then get into that idea of how you use budget to merchandise your ad account. 

[00:03:00] Taylor: Yeah I've started thinking about this after experiencing a lot of brands that felt like they had to show sort of everything everywhere, all the time to borrow one of my favorite movies, of the year. Have you seen it, by the way? It's great. For me, I think that the opportunity is to be much more intentional about what we sell and why. And so I love the idea of a store window and thinking about your Instagram or a user's Instagram feed or Facebook newsfeed as the modern mall where they're walking around, hanging out, and your job is to capture their attention.

and a retail store window is fascinating, cause there's a constraint, there's a limited amount of space, you can only show a certain number of things and you gotta get people to come into the store and then buy. And you also want to influence what they buy, and then there's a whole set of merchandising decisions once they get into the store.

Think of that as CRO or your website or whatever, but you wanna be really intentional about thinking about what you display in that window. And so I started to build or ideate around this process of, okay, what would be the way to merchandise your ad account to decide specifically and intentionally what you're displaying and why.

So we'll go through those four steps today. And the first one that you mentioned is really important. It's the budget, because the budget defines the container. It's the limitation on how many things you get to show. Think of it as the size of the store window, right? You can't show everything here, you don't have budget to run every imaginable offer to promote every sku.

So the budget's gonna define some sort of container for how many ideas you need to come up with, how many different campaigns you're allowed to run. And so having a method for determining that is really important. And so a simple way to begin to think about this process is you have a budget, let's just use simple numbers to make on-air math less challenging,

you're spending a hundred thousand dollars, and you have a hundred dollars AOV product and you desire a two to one return on your advertising spend, so that would be a $50 CAC. So every purchase costs you $50. You have to spend $50 to get a hundred dollars, right? Facebook would tell us that in order to get outta the learning phase or to get to a definitive result that I can trust, I need to get through 50 purchases a week. So 50 purchases at $50 is $2,500 that I have to spend at minimum on every idea that I'm running. If I have a hundred thousand dollars that I can spend in total for the entire month that would be a max of 40 ideas that would run for a week. 

But in reality, you're probably gonna run some of them longer, so you can whittle it down to an idea that say how many ads do I have already running? What's the gap in my performance? And you're gonna get somewhere to 20 to 30 ideas maybe that you need.

Now, because we run everything on cost caps, we know that not every idea is actually gonna stand. So we've developed this idea at C D C, we call $2 of ideas for every dollar of spend. So if I have to get through a hundred thousand dollars of spend, I need 200,000 ideas, so maybe those 20 ideas turn into 40.

You get the idea, you can begin to build a framework. We like to look at revenue per add spend, so there's all these other indications you can use, and we're gonna talk more about that in a future episode about thinking about forecasting production on the creative side. But the idea here is you're gonna get to some number of ideas that is the container that you now have to begin to fill.

How many ideas do I need? And now that's the constraint of the creative exercise and this idea of like creative constraint, richard, this is something you would help me think a lot about in other ways, which is that the constraint actually now builds a trellis, if you will, to begin to ideate around.

So share a little bit about the sort of creative constraint you think about as a writer. Sometimes that helps you get to ideas quicker. 

[00:06:33] Richard: Yeah, so the idea that, or actually this first came up when Taylor and I did an ad philosophy course together and as the head of digital product, it would be fun to package that up and distribute it together.

But one thing that we talked about in terms ad creative ideation is that the restraint is actually a creative benefit, it's not a drawback. And the example I used is in one of my, it probably won't surprise anybody given my backdrop here that I was an English major and in one of my writing courses.

We were asked to produce a piece of writing every week, but we had to create an artificial restraint around that writing, and I remember one girl in my class wrote a series of short stories based around this idea of a girl who was in an MRI machine, and she was daydreaming when she was in the MRI machine, and so every story had to be set in something shaped like that. 

Either she was in a submarine or she was buried underground, or she was in a rocket ship that was like really small and she was like flying through space or whatever, and she came up like all of those concepts were fascinating and we all loved them, and she would've never come up with those unless she had actually generated that restraint.

And so I think in the case of advertising, there's a lot of restraint that exists already in terms of you only have a square, 1080 by 1080 square to create your Facebook ad or whatever, but even beyond that it's your budget limits the amount of ads you can create, which forces you to be more creative because you have fewer swings, so if you can only make 30 to 40 ads or whatever, which is maybe covers, I dunno how many ad concepts, that would be like five total messaging concepts maybe. Better make them five good ones rather than just crapping out a bunch of different ideas and expecting that you can actually run them all.

[00:08:11] Taylor: That's exactly right. So in CTC world, we've tried to define specific parameters. So if we say 40 ads, What we actually mean is 10 concepts. Campaigns. So every concept has two variations and two corresponding ads. A 9 by 16 and 1 by 1. So for every concept, another word you might hear used is campaign or angle, every concept has four ads. 

And so you start to begin the structure of okay, what is the actual problem to be solved here? The problem to be solved here is 40 ads, 10 concepts, okay, here we go. We now have a beginning output that we're trying to generate, let's go, begin to think about where we go, and that takes us into steps two and three, so that's the container. So the budget is step one in merchandising your outcome. 

[00:08:56] Richard: Okay. So then let's move on to another, essentially another restriction. Maybe all four of these things that we're gonna talk about are that, but step two is this idea of thinking about the calendar and essentially thinking about the expectations of your consumer.

It becomes easy as marketers to get into a bubble and ignore the work around you, honestly, which is ironic I suppose, but it's easy to just let's say produce evergreen. Just say hey, these are the four concepts we think are gonna work, let's just throw 'em out there. When in reality, when you're picking what you're going to display in your ad account, you have to think about timing, so yeah let's dig into that a little bit, Taylor. 

[00:09:32] Taylor: I would say rather than a constraint, this is a prioritization. So you could maybe a similar thing, but now we're beginning to answer the question, okay, we need a certain number of ads, which ones should we start with? And if you go back in less to whether it was, I think it was two weeks ago, we talked about four peaks theory and the value of the marketing calendar.

My argument is that at the top of the priority list should be the things that create the greatest imperative for purchase. And in my belief, that tends to be promotions, product releases, and cultural events, okay, and we give examples of those in a previous episode. So if I'm going to build a certain number of ideas, I'm gonna start with looking at my marketing calendar and saying, I will prioritize the things that fit in this world.

So do I have any product releases coming up? That has to be one of my ideas, right? That's gotta be your thing that I'm doing in my conversation. Number two, is there a promotion? Do I have a sale or an initiative that I'm running that's going to be distributed broadly as a business, right? And then three, when I say cultural moments, It's January and I'm a health brand, we're gonna talk about getting into New year, new you language. 

If I'm selling coolers and it's Memorial Day weekend, I'm gonna talk about going to the beach and using my, like you can begin to tie the imperative for purchase right now, to the product. And I would say those ideas, those concepts need to make their way into merchandising first.

And if you, again, walk through the mall in winter, you're gonna see some snowy themed gift looking Christmas stuff, because that's the imperative for purchasing that moment. And so I think that concept has to apply here is that what has to rise to the top before we get to Evergreen is the calendar. And we begin there in our ideation.

[00:11:09] Richard: I think a lot of, especially a lot of creative ideation starts with reasons to buy, and those tend to, in many creative meetings that I've had, we tend to knee jerk or revert rather back to why would people buy evergreen? People need shorts because they're comfortable.

Whatever really reason one people would buy is because it's summer, what is the time of the year like? They need it now. They've made a New Year's resolution, they're trying to follow through on, what I mean? So what's interesting is first two points.

Touch on two things at the same time. So one is creative, like actually what do you make? And then product. So the, yep. Going back to that idea of merchandising retail, it's both what you display and how you display it. That's, and we've been talking mostly about how you display it. And we'll get maybe a little bit more into creative at the end cuz that's our fourth point, but let's get into the idea of choosing what you display, and there's a lot of stuff that goes into it.

Obviously, calendar and budget both play a role in that. But one thing I wanted to talk about maybe before we get into product or rather another point around product is there a relationship between budget constraint and the product you choose? My expectation is like, certain products have better c that's a higher a o v perhaps.

And so sometimes your choices about what products you're gonna show are directly tied to your budget constraints. 

[00:12:27] Taylor: Yeah, that's, it's a great question and in a lot of ways it could actually be one of the circles that we're gonna mention here in a second. Yeah. For thinking about this. Yes. If I, so we have a brand right now, I was just talking to one of our strategists that is a home goods.

And they sell everything from napkins to expensive sofas, right? And they sell sofas that go up as high as $10,000. Okay? If you are going to run the campaign on the basis of the $10,000 sofa, , you get way less ideas for your budget than you if you're gonna sell linens, right? Like they're just wildly different costs, which again, we've gotta think about Facebook as an input machine that I have to leverage its machine learning capabilities, which means I have to expect that there needs to be a number of purchases, a number of conversion events that inform my optimization.

So yeah, absolutely the price and really it's comes down with the target CAC that you have for the product is going to inform for sure. A data point around the number of ideas that we have. 

[00:13:28] Richard: Okay. So, and then that, that kinda leads into the sort of four subcategories here of product around like, Where you should focus.

And I remember we, we talked about this a while ago when we were, I was preparing an article about creative Generally and my five step process on creative ideation. And step one was choose what product to talk about. That's right. And so there's that graph, that Venn diagram we can maybe have someone throw up here, which is basically what.

In that article was 60 day L T v contribution margin overlapped, an event diagram with volume and demand, and then the kind of crossover point being the gross profit per skew. And that's essentially what you're trying to find, like what is the highest gross profit pers skew product, and then how do you build creative around that.

But there's other considerations as well. So let's get into some of those. Yeah, so one high volume, high margin, lifetime value creative. 

[00:14:16] Taylor: So, yeah, go for it. Yeah. So let's, so Corey, let's link that article because Richard wrote a great article on creative strategy that outlines all of this in a step in, in an additional steps.

And he and I used to brainstorm on this of okay, when you first start with a brand, there's a process you have to go through of going, okay, what am I gonna sell? What am I gonna merchandise? And so one of the things that we don't always look at is you want to understand, a classic thing that everybody starts with is okay, what are the best seller?

So you're gonna go in and look at volume. So that's like one of these, what are gonna be concentric circles that we're trying to find the overlap of. So I guess not concentric Venn diagram. I always mix those up. Concentric is like they're within . Yeah. Yeah, it's a Venn diagram of circles here.

Thatn, we're trying to get to the center point of. . So one is volume I need to know where the demand for the product is because I don't just get to pick a product that nobody wants and say, just cuz it's high margin, we're gonna sell that one. There actually has to be a sense of the demand external to us, right?

So we're gonna look at the top selling skews. That's gonna be an important data point. But what I actually wanna look at is the gross margin. Volume. So I wanna look at the relationship between your top selling SKUs and the gross margin that product is, because the reality is that in a landscape of paid advertising, We have to insert CAC into the contribution margin calculation to really make sure that this works.

And a product that has low gross margin, even if it's high volume, is likely a bad skew to use on an advertising basis. Now it gets in less, which is our next circle we have to look at, and you just mentioned it has a really high L T V, and so in the article that you would read, we would talk about the 60 day L t V of the first product.

Now 60 days in that sense is arbitrary. You get to define the window that you wanna look at the value of the customers in, depending on your capitalization, et cetera. But if we're speaking to people that have a consideration for short-term cash flow, 60 days is a really good number. And you'll see wild distinctions in those variations.

So in looking at volume of gross margin, 60 day ltv we can see big differences. And I think, Richard, you're gonna point out an example of one of those big differences that Steve from our data team has been looking. 

[00:16:22] Richard: yeah, so Steve, our data analyst just tweeted this, what was this yesterday?

So on the 24th. And we'll put a link to Steve's Twitter in there cause it's worth a follow. And essentially what he's breaking down is the relationship between first product purchase and customer repeat rate. So the example that I think he's using in here is, Bamboo worth, I would expect, right?

Yeah. And the idea here is that for two specific products, the sample kits or rather, sorry, there's a sample kit and a full size kit. But anyway, these are sample samplers in a sense. You're getting a bunch of different products, right? When people purchase that first, their repeat rate within the first 30 days of ordering.

Is, let's say for the sample kit it's 18.66% for the full size kit, 14.23%. For every other product it's 11.38%. So that's a meaningful difference. When people are their entry point into the brand is those sample kits, they come back when it's something else, they're much less likely to So a and Steve's gonna continue to map the relationship between this across a few different brands.

But yeah, let's speak to that, your thoughts on this correlation, Taylor. The data's 

[00:17:23] Taylor: really interesting. So he looked at three specific products. Okay. He looked at the sample kit, the full price purchase, and then what we grouped as any other purchase. And what he found that's super interesting, and this is why this is so, so important to think strategically about what is the thing you're trying to accomplish is that one in a 30 day window.

The repeat rate was highest on the sample kit. That's what it's designed to do. This is why offer design is so powerful, but if you looked at a much larger window, I think a year is what he's looking at. The repeat rate was highest on the full price product, on the full size product. the question is one of cash flow and consideration of value capture for time.

And so this is why understanding the window that you need to realize profit is gonna inform the product or offer that you're running in your. And knowing this data is critical. And so before you can decide which product you want to merchandise your ad account with, you have to understand what is the problem we're trying to solve.

Is it short-term cash flow? Is it a quick Roy, quick return on invested capital, or is it a long-term view of it? And every business gets to decide this for themselves. But as a media buyer, as a merchandiser of an ad account, it is your obligation to understand and connect the actions you're taking to the overall business.

[00:18:33] Richard: Yeah. Steve phrases it this way, the first product purchased impacts both the likelihood to repeat and when that repeat is likely to happen. And so if there's a positive correlation between what they purchase and when you can expect them to come back, then that's a a one consideration I think when you're thinking about what you advertise.

That's exactly right. 

[00:18:52] Taylor: So that's our third circle. So our second circle right is, so we have volume of gross margin. We have 60 day l t. . The third consideration that I would add into is that we have to actually acknowledge what assets we have available to us, right? Because the problem often for media buyers, and now if you're a creative production team and you can make something, and this is a decision about what you're gonna produce content around, then okay, we don't have to worry about that.

You get to choose anything. But oftentimes that's not the case for us as an agency, we're dealing. Here's our asset library, here's what we have to work with, and we have to make a decision that corresponds to it. So even if I have the best skew, again, let's use BA worth example. If they're like, it's the Minikit, and they're like, oh, we don't ac, we've actually never photographed the Minikit.

We have no U G C, we have no video, we have nothing. Then that's gonna limit your ability to advertise with it. So you have to have a consideration for what assets you have available to tell the story in the most compelling fashion for the business objective that you want. So that has to be a consideration for it.

[00:19:47] Richard: That makes sense. Yeah. If you're running after a goal this month, you're not gonna be able to make anything in time. That's . That's just the way it works. That's right. That's just the reality. But, yep. Yeah. So just to summarize that real quick, cuz I think it's important, focus on your products with a highest volume.

B highest margin, three longest lifetime value, which I guess would be combined with second into gross profit pers. Or rather, sorry, 60 day ltv, perq, and then for the most readily available creative assets. And once you have a sense of what lives in the confluence of those four things, you're gonna have a pretty good answer, pretty clear answer to the question of what you should be advertising and how you should be building your ad account.

That's right. So speaking of building the ad account, we just talked about creative, the assets that you have most available to you. But our step four in this which you went over in this video, Is the idea of creative, your ad account will only perform as well as the offer and audience tied to your product.

So speak to that a little bit. Like how do you think about, we talk about creative a lot, but how are you thinking about it in terms of this specific issue? 

[00:20:45] Taylor: Yeah. And in this issue, what I'm trying to do is connect, a lot of people want to put at odds with each other, the idea of account structure or creative, like which one's better?

And I'm, in this case, trying to tie together two ideas, which is that your campaign structure, literally the build of your campaign should reflect the concept. That you're running and what you're trying to answer. So a great campaign structure should have a consideration for three things. It should have a consideration for the offer, what I'm selling.

For all the reasons we just discussed and really technically so that I can inform a cost cap, a specific order value with this, or a specific offer value that translates to a specific order value that I can design a specific CAC against to be able to leverage cost caps, which is something that's gonna protect your downside, right?

It should have the angle, which is the concept or the way in which I'm selling this. , and that should relate specifically to an audience. One of the things I see us fall into a trap on as advertisers is because we've moved to broad audiences as the Facebook technical distribution mechanism, we've removed for ourselves the idea that I'm actually speaking to a person still, I still have an audience in mind who are gonna respond really well to that value proposition and this level of specificity.

Is something that I think is really powerful. The, this example that I give is there's this Meemaw on TikTok that I fall for every time, . Okay. Which is it's like this low voice. It's this man's voice. And it's if your wife's name ends in a. Watch out. She's a crazy one.

and, okay, so my wife's name is Amanda. And so it speaks very personally to me, and I'm like, at first I like almost sent it to her. I was like, oh my gosh. But then I realized wait, there's like a thousand names that end in a Right. Exactly. And so it's this way of it catches people very personally and specifically, but it's also still a pretty big audience.

It's a very impactful form of copywriting, in this way that like has an audience in mind. With the angle that's gonna create that value proposition. So what I should be able to do is go into your ad, And c in the syntax of the campaign, what the angle offer an audience is so that then I can report on the validity or impact of that hypothesis.

And again so, so that's connecting this idea of every creative should be this sort of triangle of three things. Angle, offer an audience, and then that should show up in the way that we structure and think about the budget, the cost cap, and the design of the campaign, and tying all that. Leads to a beautifully merchandised out account.

[00:23:19] Richard: Okay here's a question. So what this is maybe a chicken or the egg thing. So what comes first, suppose? Angle Offer audience like that thought work or the constraints of the building of the campaign. Every 

[00:23:31] Taylor: brand decides this for themselves at a very personal level. I know founders that are running a business that say, actually, it actually matters to me who uses the product.

Like it doesn't matter to me if the offer is better than for specific. I don't care. This is who we are. We have a point of view on selling to this customer set. And so we start with audience. There are brands that start with who they do and then there are brands that say, no, I don't actually care who buys my meal delivery product.

give me the best results. And we're in the exploratory phase of who, and we'll let the results dictate who, right? They're two different strategies. And so I think it's really important to understand who you are and what you want. And I'll inform your partner in that way. Like I remember when we worked with the gun early on, Richard, and I think you did.

, you did some work there, right? Like I did. Yeah. They actually. Think very specifically about going from segment to segment. And part of what they did is they used the creative production process and the partnerships and the influencer relationships to say CrossFit's gonna be a segment we care about.

And so we're not just gonna remove the who. We're gonna start with building and embedding ourselves into this community. And so we need ads that do that job in support of the broader marketing efforts. And so in that case, we're not looking for you. Run to anyone. We're looking for you to help us accomplish this specific objective with this specific audience.

That's cool. Like that. I often think that's the best way, because now you're bringing in a more holistic approach to engaging and impacting that audience with more marketing beyond just the ad account. But I think a lot of people go the other direction. They just start with offer and they go I don't care who buys the offer.

And either one has the potential to be impactful, but I think it's a question of as a brand, what are you trying to accomplish and how much does it matter to you? Who buys the product? Yeah. 

[00:25:21] Richard: There's, it's a deep personal question in a sense of yeah. Who do we wanna be? I think another good example of that is we had knee brace, knee sleeve brand for a while, and the branding and the, yeah, this is a great deal.

Ideal audience was all around athletes essentially. And a lot of athletes do wear it. But what they discovered is that people who had arthritis essentially or had joint problems, people who were over the age of 60, let's say, and were just having trouble sleeping through the night cause they had joint pain.

Love the knee sleeves, and in fact, there's an element of these knee sleeves. It's incredible where I think we can say that, where they they're so, they're comfortable because there's no bracing in it. Like the thing that actually causes the healing essentially, or the pain relief is it increases circulation via copper.

Fabric or something like that. And it really works. My wife just used it and worked like a charm. And the reason that it was so easy to do is cuz it's comfortable. And so through this sort of organic process, they discovered that there was this massive untapped market of people who are specifically helped by their product.

And so we started leaning into that and that becomes, there is like a question of Do we start to show a lot of senior citizens in our ads and branding? And the answer ended up being no, because there's a way that you can validate the product with the athlete and then have the actual core audience still be a completely different demographic altogether.

That's right. So it's not necessarily that those things have to work against each other, per se, but it is I think there's value to being open to the fact that your product may be for somebody you didn't expect. 

[00:26:51] Taylor: Yeah, totally. And again, there are products like I think about Boom by Cindy Joseph, right?

Ezra's brand. And it's like they went from the start very intentionally to say, we're actually gonna build products for an older demographic. And that's gonna be part of our uvp, is that we actually know you specific user and we're building things for you. And all of their advertising reflects that.

Whereas for Bamboo Earth, we actually got to a similar place where actually most of our core demographic now is I would say, Mid thirties late forties. But we didn't start there. We actually started on a younger demographic and most of the visuals were there and we let this sort of response to the product and advertising drive us there.

Same sort of end result, but different modality for getting there. I think brands sometimes have a very clear point of view for a unique value proposition to a specific group of people. And then some people it's more exploratory. 

[00:27:40] Richard: Yeah, definitely. And yeah, you have to just I don't know, you have to play it by ear whether or not hey, if everybody knows that this brand is for old people, is it gonna be a problem for us?

Maybe that's the case if you're like Trying to be like a fashion or apparel brand or something, but, yep. It's just every case is different, but cool. Okay. So is there anything else you wanna hit on the merchandising piece, specifically on the creative piece? 

[00:28:03] Taylor: I would just, I think one of the things to really avoid here is in many ways, I think some of the, like advantage plus narrative that's coming outta Facebook right now is this idea of just throw it all in a campaign and let Facebook sort it out.

And while I'm a big proponent of probably one of the biggest proponents of machine learning, let Facebook the algorithm decide. I think your job is business strategy and your job is merchandising, right? Because Facebook, especially when you're running on a lowest cost objective. What you've gotta understand is that Facebook base on the basis of that output that you're saying is the goal is going to prefer some of your products over others.

And it may or may not be what you as a business plan for from an inventory standpoint. Cuz that's another consideration here that we didn't really bring up to you actually have the skew in stock at the level that you need. . Yeah. Inventory standpoint. From a marginal value standpoint, from an LTV standpoint, those are data points that Facebook doesn't.

About your business. And so you can't assume them to make strategic allocations even in a really sophisticated machine learning model to those things that it doesn't know. And so your job is to represent those things in the structure, in the development of the account structure. And this is why I believe that account structure is such a critical part of the successful ad account in ways that I think some people tend to dismiss in how important it is to being.

[00:29:23] Richard: Yeah, and maybe we'll do a, an episode down the line. I don't think we have yet on how we think about campaign and account structure and how to build that out and make decisions there, but cool. All right. So at this point, let's move on to the mailbag. Obviously, as a fan of podcast, as a medium myself, I love a good mailbag episode.

And so we got a great question recently from. Michael Simpson, who's the ceo president, CEO of Discount catholic if you wanna check 'em And he asked an interesting question because a lot of the brands that we work for have a smaller skew set and Drive most of their traffic, or rather, we drive a lot of their traffic via Facebook, Instagram, demand generation that way.

But this is I'll just read the last couple paragraphs of his email here and then we can respond to it. I run an e-commerce business that is on the demand capture instead of demand generation side of things. 60% of our traffic revenue comes from Google Ads, mainly pax, which basically replace our shopping campaigns, and we don't use Facebook at all.

People are searching for our products and we're capturing that long tail search traffic with Google Ads and SEO plus a healthy amount of repeat customers from direct traffic and email campaigns. My wife and I purchased this 20 year old e-commerce business 18 months ago. Been trying to grow. Okay.

I'd like to hear more about that type of demand capture e-commerce business as opposed to the demand Gen Facebook at side, looking at companies with larger catalog. Of hundreds of thousands of product, or hundreds or thousands of products, rather. Many of the ideas that are applicable to a brand with less than 50 SKUs of branded private label products just don't seem relevant when you're a retailer with thousands of products across multiple brands, including unbranded products.

I'd love to craft individual offers and sales funnels for each sku, but it's just not feasible to do it with the size of our catalog and resources available. So I love this because. Really, plays into what we've been talking about product and creative and the confluence there, but yeah let's respond to that.

Taylor, so what are your thoughts around Yeah, the differences between what we're talking about and what he's talking about? Two, 

[00:31:18] Taylor: two things. I actually think if he follow the framework though, step one, he defines a constraint that answers how many of his products he gets to choose, and he'll figure out which ones to, choose for the demand creation side of things.

That's the beauty of what we just talked about is that I don't care if you have a million SKU. there can be infinite options. This is to help you sort through what to choose in light of that, right? And so follow this framework and you'll still get to a decision about what you should focus on the demand creation side.

Now, that doesn't mean necessarily that it'll work, but you'll get to your best choice, right? Which is what we're trying to help you decide there. Now, in this kind of business, what I'll say is that this business is one and lost in the search environment, not in the social environment. So what do I mean by that?

The benefit of being let's start with the challenge. The challenge of being a retailer in this business model is that generally speaking, you're dealing with wholesale margins. You're dealing with way lower margin products because you are buying from brand. and they, you are paying some markup on the actual cost of goods that they're making money on.

And then you're selling on the basis of that margin. So usually, you've got 50% or less as your actual gross margin on each sku. And in some cases, if you're drop shipping the product, it might be as low as like 20% on a sku. And so what that means is that there's not a lot of room for cac, right?

And if you think about the cost of demand creation versus the cost of demand capture, demand creation's always more expensive. You're having to move people further down the funnel, and the cost of that movement is just energy. It's just dollars and those, so it's more expensive effort. So you have to live in the demand cap.

Sure. Game. And the way that you have an advantage in that world is you have 10,000 potential. Products that have some amount of preexisting demand for them. And so what you really have to be great at in this world is you have to be great at building your shopping feed. Okay. And curating feed that you wanna provide to Google.

Now, there's a similar exercise here in merchandising your shopping feed which is you have to understand which products you want to index with Google, and if you have really low margin products that are unlikely to generate a return for you, you might not want to index them at all, right? You might want to.

Do more work around the keywords that you give to the shopping feed for certain products at different seasons or different moments of time, right? And really ensuring that all of your keywords and titles are done really well for the product feed. But if you think about it, basically what you have to do is determine the volume of demand for every.

And the cost to capture that demand for every sku. And what happens is that likely, there's a bunch of little bits of marginal value capture across the entire portfolio that add up to a really high valuable advertising. This is where retailers make their money. They make their money in search. And so for you, it's really about building the deepest, most robust search catalog and Google campaign structure that it is anything else.

So I, I am willing to bet that you. Hundreds of hours to go in, squeezing every bit of value out of your search catalog before I would even worry about the demand creation side. And that's just the reality for your business model. And that's cool. It's actually a really fun, even more, in a lot of ways for my logical brain, it's actually The most structured way to win because there's really fixed constraints in the game, and you can go down the list and figure out what volume is available for every sku, what the cost of that volume is, what your capture would be on it.

And you can one by one take the entire catalog and go out and try and capture that portion of the demand. And now maybe it's a really competitive environment and there isn't much, but I'm willing to bet that there's a long tail set of stuff here that's really valuable.

That you've just gotta work and work to find and hone in on and isolate and phrase match to exact match to broad match to get the feed titles right. So just ongoing basis, that's your business. So dig deep into that. 

[00:35:09] Richard: Yeah, I think, no, it sounds like you're already digging into to PAX and making that kind of like the bulk of what you're doing, but we'll probably link also in the show notes here just some of our stuff PAX and Google shopping and how we think about that.

Because in some ways, this is just the ultimate merchandising exercise here. It's just like there's so many things to choose from. What are the 10 things that appear on the. When people search certain keywords. So, Michael, appreciate your question or your feedback. And again, we'll encourage people if you got any ID or rather any questions for us anything you want advice on, please don't hesitate to email podcast com, thread and we will get on into it on the air.

Thanks again for joining us for the E-Commerce Playbook Podcast. Remember to rate and review, and if you're watching on YouTube, remember to like and subscribe. Really helps us out. If you wanna learn more about both merchandising the ad account and thinking about demand capture via Google Shopping and Performance Max check out the links in the show notes.

We'll have more information there and some resources that you can use to think about these topics yourself. If you wanna know more about how you can work with us learn from. Just interacting with us in any way. Go ahead and drop us the Fill out the form there and we'd love to chat.

So have a good one, everybody. Happy scaling.