Spending More, Making the Same? Here's Why …

[00:00:00] Taylor Holiday: If you are experiencing the sensation that you're spending more money to get less, there's three things that I would look at.

One is have you expanded distribution? Into places that might be competing for the realization of that revenue. And is it a question of how you're going to measure the allocation of your dollars against things like Amazon and wholesale, et cetera, two is have you gone into media channel diversification such that more of your dollars are being allocated to less efficient channels that can create a similar sensation. And then three is more about the individual channel performance results that you're going after. Have you attempted to increase the budget such that your overall degradation has dipped exponentially into a place where you are actually increasing spend and getting less revenue in total than if you were to pull back?

That could be related to optimization settings. Maybe there's too much view creeping in. Maybe there's too much budget being spent on existing customers as you're increasing. Customer base has grown and you need to get back to religiously focusing on incremental clicks to net new customers against an incrementality read that makes you really effective in an individual channel.

[00:00:58] Richard Gaffin: Hey folks, welcome to the e commerce playbook podcast. I'm your host, Richard Gaffin, director of digital product strategy. And of course I'm joined today by Taylor, who is our CEO here at CTC. Taylor, what's going on today? Repping the pirates, huh?

[00:01:13] Taylor Holiday: Yeah. P for Portland to support you. Richard. Also P for the coast, the Mesa pirates, my son's little league team. This was my practice hat. Love the spring training vibe there. So, and I'm also out of hair products, so I had to 

just, I've been wearing a hat more. 

[00:01:27] Richard Gaffin: I was trying to think of like what a pea city in Southern California would be. It could be repping. And the only one that came up with was Placentia. I don't know if they

[00:01:33] Taylor Holiday: Oh, the Placentia Mustangs, that was 

One of my biggest competition as a, as a youth 

baseball 

[00:01:38] Richard Gaffin: you go. All right. Well, we're up in the Placentia Mustangs. It's Taylor holiday today. And

[00:01:42] Taylor Holiday: a hair product guy, Richard? What do you put in your 

hair? Just, 

[00:01:45] Richard Gaffin: I, let it, this is all natural right here.

No,

actually. Okay. 

[00:01:47] Taylor Holiday: It's like you do water, like, give me your routine to get there. 

[00:01:50] Richard Gaffin: a hot tip. I have, there's like a dry shampoo called tap secret that my wife

introduced me to,

and it makes it look like your hair is clean, which is helpful. And then the second part is that it has this like perfect hold. So

I also have like very, very like fine hair, so I don't have thick, luscious hair. So, the, the dry shampoo definitely helps with that, but anyway,

[00:02:14] Taylor Holiday: we we were across the street, so stay on this cause it's 

going to tie to e commerce here for a second. So, across the street in this little area where our office is, is Jack Henry. So Jack Henry e commerce brand that has built a So they have like a salon that they sell their products.

It's where I get my haircut shout out to the crew over there. Awesome people in the e comm space. But so I, I usually get their product and they turned me on to like a a pre, so it's like a foam that you put in right when you get out of the shower that sort of gives your hair. Kind of like a dragon, like a, almost a shapeable, it almost feels textured.

Like I've been in the ocean, 

like I have, like, almost like a salty, that feeling. And then I'm a Hans de Foucault guy for my pomade usually, 

but I'm just out right now. So

big shout out to those two small brands making it happen.

[00:03:05] Richard Gaffin: Yeah. All right. Well, this has been a, the e commerce playbook hair corner over here. I was going for the I was trying to do a Jeremy Allen white from the bear for a while, but that requires like a whole sea salt spray

[00:03:15] Taylor Holiday: You got to really spend some time on it. 

[00:03:17] Richard Gaffin: boy, that was tough. But anyway, okay. Those brands hit us up.

We want to work for you. So here's speaking of brands hitting us up, I guess that'll be our segue. So we have a, a sort of. Our sales team has been obviously talking to a lot of brands recently, and a lot of the time our sales people are sort of our ears to the ground in terms of what's going on with the day to day, I guess, lived experience of people running e commerce brands, because they get a strong sense of the problems that everybody is going through right now. And the question that one of our sales people had for us. Was or rather the refrain that they've been hearing from a lot of brands recently has been that they're having an issue with quote spending more to acquire the same amount of customers. And so we thought it would be interesting to dive into that specific problem.

Maybe talk about some of the macro reasons that's happening. Maybe some more specific tactical reasons that that can be addressed or counteracted. But basically. What we're going to do today. I'm just going to tee you up with that question, Taylor, and you're going to give us a masterclass on what to do when you feel like you're spending more to acquire the same amount of customers.

So I'll throw it to you.

[00:04:19] Taylor Holiday: Yeah, well, first I want to talk through a few of the causes, okay, because this is a very common thing. My ad spend has gone up 30%. My revenue has gone up 10 percent or I've had to spend more and my revenue isn't up at all like that. That's the situation we're describing. So imagine you're a business that's increased your media spend 20 percent and you're flat or you've increased your media spend 40 percent and you're up 10%.

And so you are finding that the marginal return on each next dollar of ad spend is being diminished. And it actually starts to feel like you're having to increase spend just to sustain your present state, which obviously impacts your overall profitability. Okay. So I want to talk through a number of the things that I've seen cause this experience.

The first one is related to channel diversification. What happens when businesses expand into Amazon other online retailers wholesale is that they are distributing the demand capture across multiple points, but continuing to allocate the media dollars into one point. So I'll give you a very practical example.

You're a business. And you've decided this year that you're going to expand to Amazon as a channel, and you are excited to launch into Amazon. You have Amazon over here on this separate P and L where you are realizing demand and also spending in that channel. So you have Amazon ad spend and Amazon revenue over here as if it's its own isolated experience.

And then over here on the P and L you have your. com revenue against your meta spend and your Google spend and all your classic media dollars. And what you're not doing is assuming or allocating any of the metadollars against your Amazon revenue as if they somehow are disassociated from each other and have no impact.

The reality is is that in the customer's experience, you are still generating demand for a product that can be satiated at two separate points. So what happens is. The idea that you're experiencing a less efficient return on your dot com revenue could just be fractional demand capture being realized in multiple plates, but measured in just one.

So this is very common and there's a great Olivia Corey from house who I respect their work a lot has a great tweet that we should link in the show notes where she talks about the evidence that they have for the incremental impact of paid media on Amazon in particular. And so the simple reality is that meta spend or less so Google spend primarily paid social spend is driving Amazon revenue realization.

And especially if your merchandise is duplicitous in both spaces, meaning you have the same things for sale on Amazon that you do on your. com, you will see your. com efficiency of acquisition be diminished. Because of that reality that applies. If you're also in Nordstrom's or Walmart or Best Buy or other online retailers, where you're creating competition for yourself.

So this causes you to reevaluate how you measure your dollars. And so when we talk about it, I feel like I have to spend more to make less. The first question I ask is. Where are you measuring the realization of demand and has that changed over time? This is very common that changes in distribution create changes in revenue realization.

[00:07:48] Richard Gaffin: Okay. So then, so, I mean, it's interesting cause that's sort of seems like it's not a problem or rather it's not what you're not really doing is spending more to acquire less, it's just distributed and it's not being measured correctly, or like the attribution is being managed correctly, but to what extent is

[00:08:03] Taylor Holiday: Right. Well, that's the first thing that, yeah, that's the first thing to check. You're right. It may not be a problem. The problem tends to be that what I see is that you ramped up Amazon spend as well, and that Amazon spend is brand and it's less efficient. And so now what you've done is you've introduced increased complexity and measurement that actually makes it harder to figure out.

And that tends to create a quagmire of decision making that makes it harder to allocate against the most incremental opportunity. So, So that tends to lead to increased inefficiency in your media dollars because the measurements more complex and you're not actually then allocating the capital appropriately.

So yes, step one is to try to answer the question of what is the actual incremental impact across all of my channel channels, then therefore, how do I allocate the dollars appropriately? So it may be a problem. It may not be a problem. But it requires you to go get more information as a first step. 

[00:08:56] Richard Gaffin: Gotcha. Okay. So I think like when I, when I see this question, a lot of what I think about is just sort of this idea that, I mean, this is a refrain I've heard over years and years, which is that CPMs keep going up. It's just harder and harder to make money on Facebook. To what extent is that, is that true?

So there's this, like you just mentioned, there's this issue of, of sort of diversified distribution, but how about on the single channel? Like, is that

[00:09:20] Taylor Holiday: Well, let's, let's do that 

third because I think, I think it's, I think it's the least of 

the problems. Okay. I think problem number two, so problem number one is diversification of distribution. And that would include wholesale, wholesale. If you make your product available at every 7 Eleven on earth or whatever retailer you are going to see people think there's like a halo lift of incremental impact to your com revenue.

I actually think it's very often the other way. But that's a whole separate conversation. It probably differs more brand to brand than anything else. But the second problem is a problem. One distribute diversification of distribution problem 2 diversification of ad spend. Okay. Is that people what they tend to believe this is just be a pervasive.

Narrative that people buy into without with very little evidence to support it is that you need to be spending in lots of different media channels. So let's imagine last year you spent 80 percent of your budget on meta and 20 percent on Google. And then as a initiative, you said in 2024, we are going to diversify our media mix.

So now you take 30 percent of that budget that was on meta and you take it to TV and tick tock and Pinterest and Snapchat. And testing podcasts and newsletters. What you've done is you've moved from the most incrementally impactful channel in many cases to lower incrementally impactful channels that are harder to measure.

And so you've made your overall media mix less efficient. This happens. All the freaking time. And it's done almost entirely because people believe you should more than that. There's evidence that it's the right decision. Channel expansion beyond meta is almost always destructive to your efficiency especially in the short term and can be net beneficial to volume.

An opportunity, but it was almost always destructive to efficiency. It introduces measurement complexity it introduced and generally speaking, the reason those channels don't get the bulk of dollars is because they're less effective. They are just less effective. So the idea is that channel expansion is great.

If you're winning in meta and you can go to another channel and even taking a lower return, you can still be incremental.

And so you're expanding volume, but you shouldn't channel diversify under the pretense that it's about efficiency. Consolidation for efficiency, diversification for volume is generally speaking the, what you're trying to accomplish with those two strategies, but I see people pursue diversification as if it's a solution to inefficient, inefficient meta problems.

And that's generally not the case. You're only going to make it worse. And that creates this experience that I spent a bunch more money and got less out of it because you spent it on shittier 

mediums. 

[00:12:08] Richard Gaffin: I was going to ask you like, so yeah, maybe dig into some of the reasons that people seem to feel like that they should expand into these other channels. I mean, it sounds like the core issue is almost like this is creating some sort of a loop. Like you feel like you're spending more to acquire less on meta.

Therefore you expand your spend into other channels. Which then only exacerbates the problem, maybe is that, does that, is that accurate or like, what, what do you think is going on there?

[00:12:31] Taylor Holiday: Yeah, that's right. And, and the other thing it introduces is. So the spending more also comes from like, you know, what's harder to do make a great Long form YouTube ad and a meta ad and a billboard ad and a podcast read and a newsletter medium They're different creative exercises with different creative processes that often require different people.

And so you introduce immense complexity There's less clarity about what works and what doesn't so you're sort of entering back into the testing phase of a channel where you're trying to figure out what works and That's generally more expensive. And so you really have to think about those channels as an investment with a long term payback period, not as a short term solution to efficiency problems.

So those channels have merit. And I've talked about this before, where diversification of media is a lot like. When I want to when I, when I have an investment portfolio and I'm like, you know what I would like to do buy some real estate. And it's like, well, you don't buy real estate. If the goal is to make your money back in 60 days, you do it.

If you're trying to create a long term channel where in the short term, it's going to be all costs. I bought the house, that was a big expense. And now I'm remodeling this X, Y, and Z. And you know what? Four years from now, this is going to be a really great asset that I'm going to be able to have as a part of my foundation.

That's what those channels are. But people think about them as I've got a problem to my business efficiency. I need to go try Pinterest. That is not going to solve the problem. It's going to increase the sense of inefficiency across the board in the short 

term. 

[00:13:59] Richard Gaffin: Okay. So then let's, let's dive into reason number three, which is potentially that you really are spending more on meta to acquire less CPMs up, whatever CPAs up or the case may be. So let's dive into what might be happening there.

[00:14:12] Taylor Holiday: Yeah. So, one of the things that happens is that. We like to believe that there's this like perfectly linear relationship between spend and efficiency, whereas Metta always like perfectly sequences through like the lowest CAC upwards. And so then like, you only have to worry about your next marginal dollar being bad, but the reality is, is if I set a budget today on a Metta.

And I set it for a million dollars. What wouldn't happen is that the first purchases were like really efficient and then the ones later in the day were inefficient. That's not how it works. What you've given that of the authority to do is to bid to win every individual auction more aggressively.

And so it reduces the efficiency of the total spend, not the next incremental 

dollar. And so as brands attempt to scale their budget, they degrade the efficiency of all of the budget. Versus if you can do this with cost controls, where you say never bid unless the efficiency is within expectation, when you bid lowest cost and raise your budgets, you actually can degrade the entire budget stack such that as you move up and down, you don't experience like this slowly planed off like linear, it becomes exponentially degratory.

And so that's another experience is that as brands begin to try to push budgets aggressively. They go from not just like that next tranche being degraded, but their first tranche being degraded as well. And so I think that it makes the overall efficiency worse. So that's, that's part of it. And then, and then there's just this sense by which, yes, the, as you move out the customer curve, the next customer to acquire becomes more expensive.

But that wouldn't, Lead to the experience you're describing, which is I'm spending more to make the same amount. If, if the next March, if all the current tranche of customers was the same price, then I wouldn't actually be experiencing that because that would just mean that the I'm paying 5 and 5 and 5.

And so I can maintain that base, which would keep my revenue base the same. And then just the next tranche would become inefficient, but that's not really what happens. It's the whole thing is becoming inefficient in some way as well.

[00:16:21] Richard Gaffin: Gotcha. So is, so let me, let me just make sure I'm understanding here correctly. It's like, the idea is that. Okay. This is you're perceiving an inefficiency problem when in fact, what may be happening is that you are having some sort of incremental gain on Facebook, but the overall effect feels that it makes it feel like the overall effect on the ad account is degrading.

Even though there may be benefit to expanding into that 

[00:16:49] Taylor Holiday: That's right. It's you don't actually know where the marginal frontier is and what the incremental impact is. And that, and that's, that's the challenge, right? And that's why there's so much energy right now around this idea of trying to understand. What is the incremental impact of this channel? And what people do, generally speaking, like if you go read a bunch of the tweets I put out of like, You got this incrementality read from meta and Google.

What would you do next? Almost always people say like pullback spent. Okay. Because they assert this linear relationship between spend and incrementality. And I would just say like very dangerous idea. What you actually want to do is to figure out how to maintain the spend level, but increase the incremental impact, 

which I think has to do, which, which I think has to do with the way in which you're spending the tactical structural setup of the account or, and the optimization settings more than it does that you just need, you've over, you're overspending there is no guarantee that if you pull back spend that you increase the incremental impact or your IROAS in a perfectly linear fashion.

Okay. And so that tends to be what happens is like, if you just cut as the solution, you're going to suffocate your business likely down into death. And so you actually have to figure out how to increase spend, but increase incrementality along the way. That's really the key to the 

game. 

[00:18:05] Richard Gaffin: Okay. So, cause I was going to, let's say, say, let's jump into solutions here, but I think you're already suggesting an interesting one for that last piece, which is that, yeah, generally speaking, and like, let's say some of the AMER models that I've been a part of or whatever it does sort of the, the obvious solution that recommends itself is that like, at this level of spend, every dollar you're spending is losing money. Therefore cut the spend all the spend that you're spending is going to be profitable, but you're

saying, okay, so. Okay. In that, say, incremental 10 or 20 K that you're spending, what are, what are the, those tactical things you're alluding to that you can put into place to make that incremental spend efficient? Basically 

[00:18:40] Taylor Holiday: I, I'm sure this is going to be a boring refrain from me, 

but increase the amount of shots on goal that you take against a rigorous standard of obligation, right? So the first thing you have to introduce is the boundary and the boundary says I can only spend if my i ROAS is profitable using whatever mechanism that you want.

My idea would be like a weight, a weighted factor against an optimization setting in the channel, a TROAS or a cost control using an incremental weighted factor. And I only spend, if I'm achieving that goal, now go develop the creative system to solve for that constraint. So you have to alter the constraint.

This is the key. Your whole organization will pivot its behavior. If you say, sorry, y'all, we don't spend unless it's efficient, but you still have to spend. Now, what? Well, I better figure out how to win against that new game, which probably means I'm If I was trying two things before I might need to try 10 things or 20 things or 50 things.

There's a great I'm going to post shout out to Dara Denny, who I think makes great TikTok content. She has a breakdown today of loop earplugs who I think, I just think these guys are the best. They're the best advertisers. They have 5, 314 ads live in their Metta account. They're just, they are relentless at pursuing every angle with different audiences and really trying to solve for the problem.

This is a product with minimal LTV and they are scaling aggressively and they are trying everything thoughtfully at scale. You gotta do more. This is, I, I, I hate that this is the solution. I wish it was easy. That was just like, just spend another couple hours in the bath thinking about a better idea, but, but I just don't know that person.

I don't know the person who can go do that and come up with the ad that works every time. It just, it's really, really hard. So 5, 314 ads to produce large scale, efficient outcomes in a channel that welcome to the game 

you're in. 

[00:20:40] Richard Gaffin: that's fascinating. Yeah. I was going to say, like, one thing that we've talked about before is, is that there's an analogy in. Add creative to like the film business, which is that fundamentally there's no formula. You're just trying to trying to have a hit and there's nobody who really knows how to do it. And so the advantage that we have over the film industry is we can make 5, 000 of these things relatively quickly. And so that's sort of the the logic of it is just clearly like you have to make as many as possible. And if you have a bad idea, don't worry, nobody's going to see it. Cause Facebook will kill it.

Cause no one will respond to it. You know what I mean? But yeah, no, that's fascinating.

[00:21:15] Taylor Holiday: Yeah. And in. I think that the movie thing is interesting too, right? Like, because there would probably be people that would say, There are some things like make, make Avengers seven 

and you're going to have some, some success. And, and I would just say, sure, I will concede if you have 500 million and a bunch of A list celebrities, I like your chances of success more than most, but that's not the game we're playing.

What we're, what we're, what we're more akin to is like, we're all indie filmmakers. And the question is, Can you guarantee that your thing will be a hit within the context of that environment? And the answer is no. Now you are much closer to the random lottery game that you described or like you are a musician.

Like I was listening to the story of like Noah Kahn recently. And I think this is much more akin to like thinking about advertising, which is Noah Kahn was functionally a failed musician who moved back home to his parents house and was just ready to give up. And in his. Depression and drinking made a random tick tock song with a hook that goes mega viral and becomes stick season and a hit and changes his life forever.

What is that? How do you try to replicate that success? Like there is no, like, You can't go like, let's break apart the component parts of that TikTok ad and figure out how to become a viral superstar sensation. Why did it work? I don't know. But that moment in time, it has struck some cord with people in some way that has compounded with his actual underlying skill and blah, blah, blah.

I don't know. So. I think we have to recognize the game that we're in. And it's, it's much closer to like, yeah, the last podcast we did, and hopefully you all are listening to it with the guys of baseball lifestyle is we're all over here looking at their million dollar day that they just did on back to school.

But that starts story starts with the founder, Josh Shapiro for six straight years posted from 12 PM till midnight, every hour on the hour on Instagram for six years. For six years, every day, 12 times a day. How many of you are actually willing to do that? Like how many of you actually have that relentless commitment to just gutting it out on volume to become a thing that maybe hits someday, like that's, that's so much closer to this 

game.

[00:23:32] Richard Gaffin: Definitely.

[00:23:32] Taylor Holiday: so, but, but it's also relentless commitment in the same place. Like the, the thing I think about this efficiency game is that like, until you have meta cracked. And I mean, scaling efficiently, creative system, consistently producing results that work for your business. Do not even think of touching another channel.

And I just go like, well, most people have that, that, that channel is like a nightmare while they're trying to nightmarishly solve every other channel. And it's like, I don't, yeah, it's chaos. Like you can't, each of these things is such a complex system. And this thing where you're spending all your dollars until that works.

Don't worry about the next thing.

[00:24:05] Richard Gaffin: Yeah, no, totally. No, it's yeah. I think like we could probably summarize some of these solutions as make more creative, don't expand beyond meta until you're ready, which is obviously those have been refrains for, of ours for a long time. I think it's fascinating though, that idea of like, if, if let's say your incrementality report says that. The next 000 of spend or whatever isn't efficient, efficient, that should empower you to try to make that spend efficient rather than to cut back that spend. Cause I think the way a lot of people react to that sort of report is this idea that it's just a fact of life that if we spend 150 K this month, we'll be efficient.

And the next 10 K just won't be efficient. And that's just kind of how it works, but you also have some control in that to actually affect that, affect some change there, I guess. And then, like, the other thing would be, this is sort of like a data, a data transparency to pop back to that first reason you mentioned about, like, the sort of diversification of distribution, then not really understanding the attribution there. So you say, like, the solution to this is just sort of increment, incrementality studies, or which is sort of like the broad,

[00:25:12] Taylor Holiday-1: Okay, so, so the question is, do you just do incrementality studies? Well, I think, so I'm gonna share my screen real fast for those of you that are following along. This, this is an image that Ron Jacobson but I think he's a smart dude to be clear from rocker box shared the other day about like, so it's a pyramid and on the bottom.

And so it's like intending to represent the idea that evidence strength moves up as you move up this pyramid and on the bottom is surveys and third party data. The next tranches attribution. Data driven multi touch, then attribution enriched with durable ideas, then marketing mixed modeling, and at the top is experiments, geo experiments, one party holdout, channel list studies. And that the thing that says evidence straight moves up. And the question is just like, well, where, where's the threshold where the evidence is actually

useful at all? And I would just argue that like, there seems to be consensus around the idea that the top of the pyramid, Google calls it the gold standard is this idea of do you hold out an experiment now?

That's still subject to real limitations in lots of ways But we should always have to often operate around our best available truth And so we should seek out the best available truth And if everybody's telling us this is the present way to achieve the best available truth Then as much as possible we should use that information.

That's what I would just say right now while acknowledging its potential limitations in its ability to be recreated consistently given the dynamic nature of the variables that it's assessing it still often will provide for us best available truth, which I think is the best source for

[00:26:30] Richard Gaffin: Gotcha. Cool. All right. Well, I think that unless there's anything else you want to hit, I think that wraps, wraps it up for up for us today. So I was going to mention that the this Obviously we've been talking a few times over the last couple of weeks about what CTC is offering in terms of including incrementality in our service offering in order to give you not only transparency on exactly or specifically the incrementality of your spend, but also offer the sort of the service to address some of the other two issues that we talked about just now in terms of spending more to acquire the same amount.

So, obviously hit us up, common thread, co. com. 

Hit the high risk button. We'd love to talk to you more.

[00:27:07] Taylor Holiday-1: So in summary, if you are experiencing the sensation that you're spending more money to get less, there's three things that I would look at.

One is have you expanded distribution? Into places that might be competing for the realization of that revenue. And is it a question of how you're going to measure the allocation of your dollars against things like Amazon and wholesale, et cetera, two is have you gone into media channel diversification such that more of your dollars are being allocated to less efficient channels that can create a similar sensation. And then three is more about the individual channel performance results that you're going after. Have you attempted to increase the budget such that your overall degradation has dipped exponentially into a place where you are actually increasing spend and getting less revenue in total than if you were to pull back?

That could be related to optimization settings. Maybe there's too much view creeping in. Maybe there's too much budget being spent on existing customers as you're increasing. Customer base has grown and you need to get back to religiously focusing on incremental clicks to net new customers against an incrementality read that makes you really effective in an individual channel.

So that's where I would start. If you're experiencing that sensation, check those three things.

[00:28:10] Richard Gaffin: Cool. All right, folks. Thanks for joining us and we will talk to you next week. Goodbye.