Truths We Learned from 67+ Eight Figure Brands That Actually Produced Profit in 2024

So with that, enough of me reading from this, give it to our fearless leader, Taylor Holliday, CEO.

I'm not going to do the agenda. Aaron wrote everything down. I wrote nothing down. Um, I just basically copied a few tweets we're going to go over. Not really. But um, what I do want to do is I really believe that an agency's primary responsibility is to share with you the context that we gather in working with so many of you.

That's sort of the point is to take the institutional knowledge that we have and be able to deploy it through every end node of the system through our people into all of you. And so, uh, this year has been really unique. There's a set of dynamics that are playing out in our industry that I think are truly fascinating and, um, I want to share with you what I've seen and how it informs the system and the things that you're going to hear from our other people today.

Um, and the first thing that I've learned really is this, is that your system is perfectly designed for the output that it's getting. This is, uh, a gentleman by the name of W. Edwards Deming. He's a sort of polymath, economist, uh, composer, uh, management consultant, um, that, uh, came up with this phrase. And this reminds me, um, so, Dane, where are you?

So everyone, this is Dane. You're going to get to meet him later. He runs, um, the new version of CTC HR that we call employee performance and development. Um, and he also runs this community called M wad, which is men and women of discomfort. Uh, and it's a fitness community. Okay. And When people join this community, a lot of them are there primarily for weight loss.

Dan would like to call it life transformation, but in many ways it's about getting fitter and healthier. Um, and the first thing that he has to get them to accept in order to buy into the system is this idea is that your present reality is just a byproduct of your system. And there's nothing I am more confident in right now than that it is possible for every eCommerce business to produce profitable growth.

Every single one of them have the potential to do it. And if they aren't, it is strictly a product of the system that they are operating in. And so you've heard us use this language. You've probably interacted with CTC around the idea of the profit system. And a lot of our language and product movement have moved out of the idea that we're providing you individual services and that we are providing you a way of being a system for working that actually involves you collaborating with us to accomplish that objective.

And it is more true than ever that it really requires that this is a system overhaul that changes the way that we behave collectively for the purpose of producing growth. And that, um, is the first thing that I've learned. And we see it across all of you. We have matured in our market where most of the customers that we serve are now North of eight figures, right?

So that's the I. C. P. The ideal customer profile that we go after is brands that are North of eight figures. And some of you upwards of the hundreds of millions of dollars. And it is remarkable how common and consistent the story is today. If brands are eight figures now, it likely means that they grew up a lot during Covid.

That a lot of the revenue generated in creation was during that time. That leads to a very specific set of dynamics in the market today, and we're gonna discuss a little bit about what those are. But the first thing I actually have to go over is some of the things that it isn't because a lot of times we want to grab onto an externality before we will accept full responsibility for the state of our business.

And so we're going to try to deflect onto the surrounding environment and its cause on what might be happening in our business. So this first section I'm calling macro economy is fine. Um, it's been better, it's been worse, but it's fine. But there is a larger problem looming in what I'll call the micro economy, the e commerce industry specifically that I think is important for us to understand.

Um, some data that validates my idea that the, uh, Uh, macro economy is fine. So this is a data set that we've shared through the ddcindex. com, which is an aggregate data partnership that we created with Veros. So if you guys don't yet have an, uh, an interaction with Veros, I would encourage you. It's a completely free product.

Uh, it's the largest publicly available e commerce data set in the world, over 7, 000 stores, like 20 billion in revenue, 10 billion in ad spend. It's just a massive, massive data set that has tons of industry slices. Um, so we work with them because while CDC has a lot of data, I wanted access to more data and Yarden and the team have the most.

So we created this partnership so that we could get visibility into everything across the entirety of their data set. Um, so we're constantly publishing insights and working with them to generate what's happening. And in general, this is one of the data points that we publish at the halfway mark of the year.

That's so far this year, the median year over year growth rate for eight figure stores is about 14%. Okay. Um, I don't think that many of you knowing your forecast set out or like, you know what I want to do this year, grow 14%. I don't think that's usually people's growth rate. So you can imagine that comes with a general sense of a little bit of dissatisfaction, but nonetheless.

Uh, it's growth and you can see that there's a lot of people that are growing more than that. There's some people that are growing less than that. Uh, and if you were to take the average, a different measure of central tendency of the same data set, the average is closer to 74%. So depending on how you tell the story, the market sort of peers in different angles and different viewpoints.

But. 14 percent is sort of fine. If we think about the actual growth rate, and I think Orkin's going to bring up some of these stats later when she pulls up her presentation, um, e commerce prior to COVID as a percentage of retail was growing about 18 percent annually as a percentage of retail transaction.

So when we think about 14 percent annual growth as a median for business, it's fine. It's not massively up. It's not massively down. It's fine. Um, In addition to that, this is sort of the view of how that's sort of played out month over month for both seven and eight figure stores as the median growth rate by month.

And you can see there's been periods where it's been stronger. June was oddly Um, uh, a poor month. March was sort of the best month that we've seen. August was kind of in between, but we are seeing some trends around smaller stores. Smaller stores are actually struggling more than new stores. And we're going to talk about a little bit about what that's the canary in the coal mine for is because new stores depend on what for growth.

What do you guys think? What's the difference between new seven and eight figure stores. That's right. New customers drive the growth for small stores. They don't have existing customers. They have to drive new customer acquisition. And so whenever I start to see that downtrend, it starts to go, Hmm, that's a bit concerning to me that the growth is stalling out for seven figure stores.

Um, if we look at consumer sentiment, so for those of you that don't know, we published something called the direct to consumer confidence index, uh, which is a survey done to 5, 000 e commerce customers every month, asking them a series of questions about their perception of the economy, their plans for their own spending.

This is modeled after something called the consumer confidence index, which was developed by the university of Michigan and the OECD board, which are both just institutional attempts at generating a view of the macro economy. So Steve leads Uh, the development of this, the DTC CI, where we've been tracking and surveying customers for over a year now.

And you can see where we're at today. Uh, the most recent week, the week of September. And again, is it better than the previous months? No. Is it down a bit since the middle of July? Did we experience a weird drop? Yes. But is it better than last year? Yes. And so again, the conclusion is we sort of look at this as it's fine.

It's not really crazy in either direction. And in fact, there's like some of these really interesting positive indicators. So one of the questions that we ask if we were to break apart the survey to the individual questions that we asked to these consumers, um, one of them is, is do you believe the economy is going to be better or worse in the future?

So it's just asking people a qualitative question about their perception of the economy. And you can see on the Y axis, the percent of consumers that think the economy will be better in the future versus worse. And you can see generally speaking, people are by default, primarily negative. Most of the time they're saying that they think it's going to suck, but they're thinking it's going to suck less right now.

Why? I don't know. That's a, that's a complex question to tease out. Maybe it's rate cuts. Maybe it's who knows what, but you can see that we're seeing a downtrend in negative sentiment and a slight uptrend in positive or neutral sentiment. In addition, one of the things, the other questions that we ask is, do you plan to spend more money in the future?

Um, sort of a spender saver question about trying to understand people's plans to spend. And in our world, e commerce customers plan to spend in Q4. And so we saw this trend similarly last year. And the good sign is they're getting ready to do it again. So they're beginning to express the intent to spend money coming in the future.

All signs that we go, Hey, That's a good indication that things are moving in the direction that we want, um, as it relates to those survey responses. Now, You may have heard data related to household debt. This is a concern that people are expressing a lot. This graph is something that got shared a bunch on Twitter as it relates to concerns about the increase of consumer debt.

And it certainly is true that since 2019 consumer debt on average has reached its highest per household number. But if you widen that out to a broader context, you'll see that that number is actually still substantially lower than the decade that led up to the financial crisis in 2008. So when we think about that as a single indication of consumer debt, uh, as an impetus for an immediate crisis, I would just caution, I would say, Hey, there were 10 years where consumer debt levels were higher than that before we reached the financial crisis in 2008.

So nothing that I would say as a single indication that we were on the precipice of an immediate problem seems fine. Um, Oh, Oh, did you lose me? Can you go to the next one for me?

Oh, there we go. Oh, I went like way many. That's fun. There we go. Okay. So inflation, this is the other big topic, right? Um, concern about rising prices. Many of you probably feel this in your supply chains, and it's been a contributing factor to concern about our industry. Um, but again, this is, uh, also cooled.

Right now we can sort of debate the quality of the inputs of these numbers. And I would, of course, hold them loosely. I'm by no means representing the specific accuracy of how people are measuring CPI, but for the most part, we're also seeing a decline there. And there's a really interesting dynamic. I had this theory that, um, Our industry in particular is actually deflationary.

So one of the things that happens in e commerce is it's highly competitive, right? If you think about what happens to price is basically every marginal dollar gets compressed out of every industry. Um, that's what happens when you sort of have a perfect capitalistic engine driven by search engines results page with limited supply that are a pay per click bid model is that eventually someone's willing to pay a little bit more and a little bit more and a little bit more until all the margin disappears and then price comes down.

Amazon's a big contributor to this. And so I was wondering like, there's all this talk about inflation, but is it showing up in e commerce? Are we actually experiencing inflation? So I went to the guys at particle. Um, so particle for those of you don't know, is a data supplier that provides, um, specific tracking related to inventory levels and sales velocity for skews and price for skews over time.

And I said, all right, Hey, I have this theory about e commerce being deflationary. And that we actually move sort of counter to the trend of the narrative about inflation. And this is tends to be true. If you look at like, you ever seen the graph of inflation where it's like healthcare through the roof, like college through the roof and TV prices like down, right?

Well, government regulated industries tend to suffer from inflation the most. And then you see competitive industries. The price gets driven to zero. Well, let's move on. e commerce is like maybe the most price competitive industry in the world. Um, and it's actually true. This is what's happening as it relates to, they took all the products in the entirety of their particle data set, and they built this table for me of tracking the average price over time of both, uh, a similar, uh, existing product prices and then new products that were coming to market, which I thought was an interesting, um, setup because their theory was that the ways that brands actually fight or, uh, Uh, try to move off of inflationary cost in the supply chain can't happen on the products that already exist.

It happens on the new products that they introduce. They try and move price up market as they introduce new product to expand margin. And so this is what's happened is that since the Q1 of 2022, you'll look at the average price for if you were to take the same set of items. Okay. So the same products and you were to track their process over time, the price gets compressed because demand is not constant and fixed.

It tends to wane on the same pair of leggings, right? You have to introduce something new and novel often, uh, but price gets compressed. And then even the new things, there was actually a period where new things that were introduced, we're growing in price. And if we go back to this chart, if we look at this, you see June, 2022 was sort of the peak of inflation.

Right? And then you look at this price chart, and you see the same thing sort of happening here. Where at the end of Q3 2022, and Q1 was peak of sort of the price inflation, and since then it's been on decline. Um, and so you're seeing that inflation isn't really affecting the consumer in our industry.

It's actually a haven from it in many cases is that e commerce drives deflationary economics that benefit the consumer. Amazon is a big factor in this, and you all have probably experienced this, where if you list your product on Amazon, you are going to see every marginal dollar from a competitor get eaten away.

Now we'll see if the new 3, 2, 1 trends change some of that and alter those dynamics a little bit where we won't see as much of that competition coming direct from manufacturers in China. But nonetheless, again, inflation fine. Um, now one of the ways that this is also playing out is that we have seen now a four year trend of an increase in discount rates.

from e commerce businesses. So there is a consistent perpetual pressure on all of you to drive price down. Um, that comes from competition. It also comes from the mechanisms that are used to drive new customer acquisition, all of these things. But if you think about the blue line, blue line being peak, really COVID era, especially in early 2021, we could all go back and probably think that that was a very healthy time for many of your businesses.

And basically every day, Since there's been pressure for you to offer more and more value to the customer. 

Um, and so the discount rates across the same store set, just keep going up over time. Uh, you can see that the 2024 line represents the largest sets of average discounts across the stores that we see.

Now there's sort of an upper bound to this, which is what we see. I won't, I don't actually expect that November is going to be much higher than the 22 percent because at some point it just becomes marginally destructive. And so there's sort of an upper bound to where this can go. I would expect it to be similar, but there is a pricing pressure.

For sure. That exists in our industry. Again, to the benefit of the customer, they are reaping the benefit of these discounts. Um, now. The more concerning trend that sort of couples with this. And I think that when you see an increase in discount rate, it tends to mean that there's also a struggle to drive demand at full price.

Also probably difficulty driving new customer acquisition at the efficiency that you want. And so we've also seen this paired with a. Continued long term decline of the efficiency of new customer acquisition. Um, so this is AMER. Those of you that work with CTC closely know that that is a metric we care a lot about.

It's just new customer or new customer revenue divided by ad spend. And this is a three year trend where, again, the glory days of, uh, even early 2022. We have 2021, Steve, like, Didn't even want me to put the line on there because it looks so ridiculous. He's like, just, I don't know. I'm just not confident in it.

Don't put it on there, but it was ridiculous, right? It was hyper efficient new customer acquisition. And now it's a grind and you can see that we're battling, like we're in the fight. We're able to comp to 2023 in many periods. Uh, early August was an, uh, an odd outlier, uh, in many cases, but we're, we're battling and see a trend.

That's pretty similar, similar to 2023, but a lot of that hyper efficient acquisition is gone. And this is where the microeconomic factor begins to play out. Um, this is a challenging setup for large brands that are looking to keep growing. Many of you are on the, or have matured as a business into the part of the customer curve, where naturally you're going to be facing an increase in price, but you're also facing a very competitive landscape, um, that exists.

And so this is where I want to hone in on, uh, What I think the unique challenge is for us. So this is a report and stat list. We can tell you whose business this is. It's nobody that's here, but this is what we would call a net active customer graph. And this illustrates The net change between customers that you add to your file and customers that lapse or churn out.

And that just means they've reached a period in their life cycle where they are unlikely to purchase again. And so we sort of track that net change in this graph to try and illustrate the overall growth of your active customer file. Your active customer file is the best predictor of your future returning customer revenue.

So a lot of times brands think, well, my customer file grows like this. I every year have more customers than I've ever had before, but it's actually inconsequential. It's not an indicator at all of your future returning customer revenue because many of those customers have declared they're not coming back and they're just gone.

Um, so instead what we really care about and what has the highest correlation to returning customer revenue is the size of your active customer file. So think of that as the sum of all these bars above the red line. So if you just track the top of the chart, you can think about that as the size of somebody's existing or their active customer file.

So what do we see happen here? Well, this is illustrative of an experience that many of you have had. I know this cause I've looked at this graph for all of you. It's that the business existed prior to 2020. Then all of a sudden in the middle of COVID, there was a massive run up of new customer acquisition.

Customer file grew immensely. New customer acquisition was Uh, super efficient. And there was a ton of growth and it felt like you were going to rule the world forever. Um, and then like many businesses, there was a point at which that became difficult. That could be related to I. O. S. It could be related to market dynamics where suddenly there were 20, 000 paddle boards for sale because everybody was doing it.

Whatever it was, there was some dynamic that made that more difficult. And what happened is that new customer acquisition sort of plateaued. But you were still winning because you were reaping an immense benefit off of all the existing customers that you acquired. So for a while, it wasn't even really obvious that there was a business problem because so much of the revenue inflation off the existing customer base carried you for a while.

But what happens is if you have a decline in your new customer acquisition, so this is the green bars. If I just take the dark green bars on that graph and I plotted, it looks like this. Suddenly new customer acquisition plateaus and begins to decline and eventually this becomes a really big problem.

Eventually your existing customer revenue begins to decline and as you're trying to scale your new customer acquisition and your efficiency is degrading and you're not benefiting from the excess margin of those existing customers. Problems exist. The other thing that tends to happen is when we're on this growth curve, we ramp up OpEx, we go, wait a second.

I have to make an investment in the future of my infrastructure for the future. I got to get that big office. I got to hire all those people. I got to get everything ready because this curve tells me I'm going to be, I'm going killing it in the future. And so you have an underlying infrastructure problem related to the size of the OPEX.

You have degrading new customer efficiency and declining existing customer revenue. It's a bad combination of inputs. Um, now, if we look at this new customer acquisition graph, setting aside the COVID piece, there's also just the The general maturity problem that many e commerce businesses are facing, which is to say that if you look at sort of the classic product adoption curve, uh, if we were to think about this as the total addressable market for your product, right?

And all of you exist in Tams of different sizes, right? There's difference between women's fitness apparel and cold plunges as an example, in terms of how many people are in that market, right? So your TAM and what this curve represents is different in every case. The same thing is true, which is that there is a rule that I call the law of mom pyro, okay?

So the rule of law, the law of mom pyro goes like this. So that's my mother on the left there. Moms cost zero dollars to acquire. Right. They are totally free. They buy everything that you sell, no matter what it is. Okay. Uh, and they do it at zero cost. They are the cheapest customer you will ever acquire.

And on the other side is the father of skepticism. That's pyro. He's a Greek philosopher that is known for being the ultimate skeptic. You can never sell him no matter what you do or how hard you try or how good your ads are. He will never purchase and you will try endlessly to acquire him. And the problem is, is that the cost to acquire the customers moves up as you move out.

Pretty straightforward. This is just a very basic marketing principle, but for many of you, you are very latent in this curve. In a way that actually means that there's a natural progression to cat that has to be planned for and accounted for, uh, and actually consider it in the way that you think about your future growth.

Now, of course, it's not a linear line. And yes, you can go backwards and you can improve and all sorts of things can change the dynamics here. But as a law of gravity. Customers become more expensive to acquire as you move through this curve. And part of that's because of the amount of education it requires to solve for them.

Um, is that each of them need more and more information or convincing in order to purchase. And in fact, the people in the late majority will only buy once you've acquired all these other people because they just are a herd mentality where all they just want to make sure that they're making a decision.

They won't get made fun of primarily. So this is a reality that as we think about, and we look at how many customers were acquired. In this product category. Okay. Let's just look at these bars. 80, 000 customers in a month. Now this is a very big business. Okay. But I want you to think about e commerce as a general industry size, still only representing about 17 percent of all retail.

And then imagine that for a while you were acquiring 70 to 80, 000 customers a month. Guess what's going to happen. There's going to be a natural increase in the cost of the next customer that you acquire, because eventually everybody has the thing that needs the thing. Um, and you all are at various stages of this problem, right?

Some of you are very early on and you haven't even begun to tap this out. And some of you are much more further along in the maturity of the cycle. Um, and so the end result of that is like you get declining efficiency in measured in very practical business outcomes. So this is that same business that I was displaying there.

This is their MER and AMER over that time period. So their efficiency of acquisition is declining over time. Um, as they are growing and attempting to reach that next tranche of growth. Um, now this unfortunately doesn't often also correspond with a decline in ad spend. It usually corresponds with an increase in an attempt to finally solve that customer acquisition problem.

Um, and the end result of that is like very negative new customer acquisition where you are basically subsidizing this negative growth to try and prop up a top line ambition that exists for all sorts of reasons. Okay. So this is a different business, but this is illustrative of. What we see all the time when customers come to us.

I know this probably sounds crazy that this happens. This happens all the time, wherever every customer they acquiring is creating negative contribution to the business. And they're only able to survive this because they have a bunch of existing customers that are subsidizing this growth. Okay. And these customers, like if we look at this January cohort, as an example, we're talking about a negative first order margin of minus 50 and 270 days later, we still haven't paid ourselves back.

That is a net, never profitable cohort. Like that will never make money for the business. There is no justification for ever acquiring customers under that premise. It doesn't work. Um, but this happens all the time because And what, what is so hard for brands to understand is they're not actually doing anything that different from what they were doing two years ago.

They don't feel worse. They don't have worse employees. They don't have worse ads. They don't have worse tactics. It just isn't working in the same way anymore. Um, and so it becomes very hard, but there's no stopping because they have to figure out the next tranche of growth to cover, uh, whatever obligation exists on the OPEX side or wherever else they might be telling themselves.

And this kind of conversation happens all the time. This is a real text message conversation between me and the CEO of that enterprise, where he says, looking at this chart, it's amazing. We are still in business and we've been profitable all but one year. This still is a business that produces profit.

That's crazy, right? This is why this gets hidden. So, uh, seditiously, it's just like, even though this negative contribution every month, in some cases, hundreds of thousands of dollars in negative contribution, the business can still make money because it has so many existing customers. Um, So he says, man, 2020 and 2021 were the golden era, wasn't it?

And I say, yes, it was fake. Retail literally shut down a black swan event that will probably never happen again. Again, trying to get people to anchor into the reality of their present state, because the temptation is to go back and look at 2020 and 2021 and go, but you got to do that again. We were, what were we doing?

Let's just go do that thing again. That day is gone. It doesn't exist anymore. Um, and what's happening is the only reason it's able to work is because the growth is being subsidized by excess available capital that was generated in the previous era. Um, in particular, these three different forms of capital, one venture capital, two cheap debt, risky lending models, and then three, the hyper efficient customer acquisition fueled by inflated demand.

All of these things enabled this behavior set. Um, Um, in all sorts of various ways, uh, the first is venture capital during COVID era. There was almost 5 billion of venture capital that flowed into e commerce, um, that, uh, I'd say like 90 percent of that went to Facebook. Right? Like this was just growth capital intended to help businesses try and drive growth.

But guess what? It all went away. There is like 0 now. It went down 97 percent in 18 months. People went, Oh shit, that was a really bad idea. Not doing that anymore. We're going to move over here and now we're going to try and fund SAS products. So, um, it's gone. Like the venture dollars are gone. There is no venture capital equity for people.

Or if there is. It's in these like very subtle, uh, there's very common like a venture debt models that are propping up or other ways where people are trying to protect their downside. But very few people are bent betting on these businesses becoming a venture outliers. Uh, the other thing that happened is that interest rates went through the roof, right?

So the cost of debt that was incredibly cheap during this period is obviously not anymore. So that golden era of e commerce that the founder referenced, what he really just means is like money was free. So from the period of March of 2020, when interest rates were cut because of COVID for the subsequent two years, interest rates at prime were 3%.

Um, what that means is when there's really cheap debt at the federal level, all of this layer of lending gets built on top of that, where, uh, lenders can push the risk curve way out. And so there were literally a lot of businesses, uh, where you could upload your Facebook ad account and they'd be like, Ross is good.

Cool. Here's some money. Um, and that was like the entire risk modeling that they would do was an analysis of your Facebook ad account. Well, we know from, uh, looking at some of the other data, how. Poor of a predictor of future cashflow that was, um, but this is a massive change. Now, all of these guys got built on top of this, right?

And this is not a knock on any of these systems. You could, uh, haggle with your concerns about their lending, uh, transparency, uh, in theory. But the point was that a lot of people got access to a lot of debt at really cheap prices. Um, or variable prices based on a revenue based financing model where they are still today having a direct vig coming off of the top of their top line revenue being paid back at a rate that they don't actually even totally know what it is.

Um, that's very common in brands that we work with is that they have some debt stack related to this group of suppliers that existed as a really good idea to access cheap money in a period that is gone. Now of course our friends at Parker, where are they? Would never do any of that. Where are you? I don't know where he is, but these guys are awesome and I do actually think they do a great job.

And so they're here to help you if you do want to have these conversations because there are still great ways to access capital, um, that exists, but it's just more expensive and being conscious of that, uh, is important. Um, the other thing that happened, uh, was of course that, uh, cost of acquisition on metal went up.

Um, now it wasn't because of CPMs. This is just another caveat because this is like outside of the macro economy. This is the second boogeyman that we fight all day long. Um, and this is actually meta CPM versus global meta usage over time. One of the things that people do not appreciate is how incredible meta has been at driving Daily engagement on their app.

It's insane to be that big and continue growing attention in the platform is incredible. And it's basically allowed for the inventory to remain a constant in price. And so there is no, uh, external CPM factor that's driving these things. It is about your conversion rate and it is about the interest in your ad product on the platform, but it's not a macro CPM issue.

Um, but there is. An increase in the cost per purchase driven on the platform. And you can see that for last year it was actually lower, but this year, almost entirely year over year, the CPP has gone up, um, on, on meta. So you have this combination of things occurring where venture funding has decreased 97%, the debt has increased 195%, and the media in efficiency has gone down 130%.

There's no money. Your acquisition is less efficient, and you have to figure out how to grow the business by producing free cash flow by inventory. Like that is the arena and the context in which we all sit today. It's really important to understand this dynamic. This is the fundamental issue that we're all facing is you have to self fund your growth.

Now there are inventory finance vehicles in ways that you can get your suppliers and others to help flow on cash conversion, et cetera. So it's not that simple, but the general idea is there is no money available to fund the growth. Your growth has to be profitable when your growth has to be profitable.

It changes. Everything about your behavior, your system that was perfectly designed for the previous output does not work in this environment. That's what we've learned more than anything else, working with all the customers that come to us. That is what they come with. My acquisition is not profitable.

It's not driving net incremental gain for my business into the next tranche of growth. Um, And now I want to go into some of the specifics of what is occurring within that and what that sort of manifests to in the practicals of the problems and how we're helping you to address them. The number one thing that we run into that I'd say of every new customer that we acquire at CTC, 95 percent of them are here because of this problem.

Nobody has any idea how to allocate their media dollars. They don't know how to set targets in their platforms. They don't know what channels to be in. They don't know how to manifest it, despite the fact that there are more measurement tools than ever before. And in fact, there's actually a perfectly inverse relationship between the increase in measurement solutions and the decrease in clarity.

The more measurement solutions you introduce, the more obfuscated the outcomes become and the easier it is for anybody to justify any spend. It happens all the time when we go into an organization. This also has a lot to do with organizational system design. And the problem is if there's a media buyer who's responsible, whose job it is to make a channel work, I promise you they are never going to tell you it's not working.

Their entire life depends on convincing you that it does. That's the problem. And so if you have a channel buyer who's responsible for Pinterest, they're going to find a measurement solution that says it's working. And it's out there. It's available. If you go to last click or an MTA solution or you try and find something, you will find a view that says it's working.

You can get a post purchase survey to tell you that TV or YouTube or Sirius radio is working, whatever it is. Um, and you will find it if you look for it. And if you incentivize someone to find it, they will find it. That's what we see over and over again inside of organizations. Um, we are very much living out this midwhip meme right now in our industry, in this like crazy way where if you just think about like, how should you measure marketing?

Like with your bank account? Well, right now what we're doing is like some version of this. It's first party rocker box data feeds my triple oil dashboard powered by my North beam apex MMM, which triangulates our post purchase survey data into our predictive prescient model. Like I kid you not, we walk into companies and it's like, What are you doing?

What's the matter? It's insanity. It's all over the place. And I understand. I'm actually deeply empathetic to it because it's a hard problem that many people don't even have access to the financial data to create for themselves an alternative view. Um, so there's all sorts of reasons this exists, but we live in this world all day long and we're trying to get out of it.

We're trying to merge back. Why do I talk so much about bringing together marketing and finance? It's because at the end of the day, I want you to measure the success of your business in your bank account. I want to grow the actual incremental cash that you make. Um, and what's happening with this increasing complexity is that Brands are just not able to increase their spend at scale in a way that allows them to produce consistent growth.

And so they're just now starting to pull back. They're panicking. Um, so this is, uh, month meta monthly ad spend year over year change, and you can see That even for meta, this is becoming more and more of a complicated issue. Now, there's a couple of factors. Some of it is discipline, that's beginning to be introduced out of necessity.

Some of it is ambiguity and lack of clarity. Um, and that's even more illustrated by, uh, Google. Is Kurt here? I don't know if he's here yet. Okay, good. I can talk freely. Um, there, there, if, if meta has confusion problems, Google is an absolute quagmire disaster. People do not know what to do. Like, no idea.

Everything has been thrown into PMAX and nobody had idea what to do with the ROAS number from PMAX. They have no idea. Um, and the challenge has been that in that Google has lagged and I'm excited Kurt is here because we are partnering and we are working very hard with them to try to get them to hold themselves to more incrementality standards of performance.

And they are, they are leaning in slowly and we're kind of dragging them and there's a lot of resistance, but they're coming along because people are fleeing Google spent. They just do not know what to do with this channel anymore. Ever since we lost Shopping and search in particular is these really powerful ad products, but their attempt at bringing us into demand creation using YouTube and the display network and these other inventory bases that were on their default attribution view of a 28 day click one day engaged view one day view sort of obfuscates performance relative to the incremental reality of their impact is just left people confused.

It's even, even we suffer this all the time where I still have Google buyers that They'll see a result and they'll distrust their own results so much that they won't actually make the decision relative to the outline framework for what we have laid out for them to do. It's just really hard to look at something every day.

That's like a 4. 7 and try to tell yourself that it's really a 1. 6 and you should behave in accordance with that. It's like, it's just not intuitive to be constantly discounting the thing that you see. That's not a mechanism for trust development. It's really hard to figure it out. Um, so, uh, what are we going to do about it?

Well, I think it's our job to provide a solution to you for this problem. It's the number one thing we care about solving for you. And today, uh, Luke and Tony. We're going to come up with orchid and they're going to explain to you about Pam. So Pam is going to be a friend of yours that you're going to get to know, uh, and it's how we're helping you to solve and create clarity around this problem.

Um, that allows us to connect the financial plan all the way down to the channel level expectations of performance so that we have clarity. Clarity is the goal. Complexity is the enemy. We need to get to a level of simplicity that allows people to make decisions. That's the key. We have to eliminate ambiguity and create clarity of action.

Um, and when we do this. It works really, really well. Okay. So this is that same business that we talked about earlier. They started with us in September. We're 15 days into the month. That cohort is way more profitable than any we've ever had before it. We're halfway through the month, 2, 800 new customers so far.

If we look at September, September usually comps to July. We're going to produce more new customers and we're going to do it at substantially higher profit by just creating clarity of how we make decisions. Moving the decision making framework up the hierarchy of metrics out of channel level expectation, conflation with view and other things to drive real meaningful business at impact.

This is transformative to their business, and we see this all the time. This is a very common result. So that's the first thing. The second thing that we have to wrestle with is that the creative process is broken. Um, that the systems that we designed, both you and us to create and support paid media growth on meta under the buying framework that we suggest, which is related to cost controls, does not work.

And the primary problem is this cost control suppress volume. Okay. They switch the variable dependency from every day. You're guaranteed volume and the variable is efficiency. We'll see what we get to in our world. We flip the script. We say, no, no, we're going to guarantee the efficiency by bidding to that expectation.

But what we don't know every day is how much volume we're going to get. Okay, when that's the case, what has to be solved for is the increase in volume of ads that allow you to be successful. Okay. Um, that changes the dynamics of how we have to work together. And candidly, we haven't done a good enough job of it yet, but I want to, I want to illustrate something because this is a really important principle to understand.

So this is, you guys may have seen me do a series called outliers and I do this series to help people conceptualize something that is hard to understand about ads. And it's a truth that we wish wasn't true. Um, but it's that, that the reality is that most ads do not work. The vast majority of ads you make.

Do not work. I don't care how good you are, how awesome you think you are at writing copy. The most of your ads will not work. Okay. So this is a scatterplot. Um, I think this is actually, this might be skull candies. Um, and I've, I've publicly put this data out to their approval, so it's fine sharing it, but you can see if all of those dots at the bottom, there's 1, 855 ads.

In this ad account in the period I'm looking at, the average spend is 2, 600. The median is 300, the modal, the most common is 1567, that important. The max is 251, 000. The standard deviation in the data sets about 13, 000. So high performing, we would define as ads that perform one standard deviation above the mean.

So out of 1, 855 ads, 3. 56 percent or 93 of them spent 16, 000. Okay. Most of the ads, the media, the median was about 300 bucks on every ad that you create. Okay. Um, when you think about this, what this means is that we can turn that scatter plot into this log normal distribution. Okay. So, uh, this allows us to model the expected value of every ad that you create.

And this is the framework I need you to think about is that making ad creative is like gambling. And the key to understanding it is what is the expected value of every bet you're going to make. If you can understand that based on your historical data, you can model an expectation of what you should be willing to pay to create each bet, right?

If we go to Vegas and I know that I can look at this table and I say, if I spin the roulette wheel, the expected value of this bet is four cents. It's the reward times the likelihood of outcome, right? Well, if they would offer me that bet with an expected reward of four cents for less than four cents, I can make money.

That's a positive expected value and it functionally becomes infinite available money. If you can get into a positive Evie relationship relative to the value, but to do that, we have to build this for each one of you. So we've done this, we've built this distribution and expected value calculation for every one of your brands.

And the curves all look like this, where if you look at and you think about this scatter plot being represented on this curve, where the Y axis is the percentage of ads that reach a certain threshold to spend. This is that same idea. This is that 80 20 principle or the idea that most ads fail. The vast majority of ads spend very little amounts of money.

And then there's this tale of ads that spend a ton of money. The problem is nobody knows which one is which. And again, anybody who tells you they do is a liar. Um, so what that allows for us, though, is a really, really important input that has to be solved for in the creative process, which is how many ads do we need to make?

This question is like the fundamental problem to solve because creative production is expensive. And if you want to ask us to make 100 ads versus 500 versus 1, 000, the costs on that are wildly different. And the kinds of ads that you might make would be wildly different. So what we've built is the ability to model for each one of you based on the budget input that we build into the financial plan, how many pieces of creative get us to a 95 percent certainty that we'll reach that spend threshold.

Now here's what might happen. The first ad that you put in might spend all the money. It might be the last ad that spends all the money. But if you make this many ads, There's a 95 percent certainty that you'll get to that spend threshold. Now it's really important. All of you have different dynamics here.

Candidly, if you're Josh at Nike, his percentage of ads that succeed is higher than most of yours. He has large levels of unaided brand awareness that he benefits from. He has an easier time, has to make less ads to drive the same levels of outcomes. Some of you have to make tons of them. Your expected value on each ad bet is not very good.

It's just the reality of it. So we can be frustrated with that. We can try and fight the law, or we can lean into it and say, okay, well, what does that mean about the system we need to design in the same way that some brands have to have a lean OpEx because their gross margin will never be very good.

Some of you have to design creative systems for cheap bets because your expected value per ad, it won't be very good. It oftentimes a genetic attribute again, can change, not quite genetic, more like weight than height, but it is a reality that you have to design your system to produce uniquely. And even better, the thing about it is there's actually not an upper bound to the problem.

So if I can keep making positive EV ads at a price that is lower than their expected value to me. Then I can just keep making more and more and more and more and more and more and more and more and drive more and more and more and more spend. So this is why the best brands in the world, I've, you guys have probably heard me talk about loop.

They're my, I'm a fan boy. I think they're the smartest group of marketers I've ever interacted with. They have like 4, 000 ads live in their out account. Some of you have eight. I just want you to understand the differences in the games people play here as it relates to succeeding on meta. They are not the same thing.

You will not win launching 10 ads next month. This is not going to happen when someone else is competing with you in an environment where they're coming up with 4, 000 variations and they're really thoughtful and good, right? It just is a very different system now. Um, and the data backs this up. So we did this thing because I get a lot of criticism for this idea.

People hate this idea. They hate that this is true. They so badly want me to be wrong about this and I want to be wrong about this. This is actually really friggin hard to solve. Um, but the problem is it's just true. Uh, so we went and looked at the average numbers of ads. By meta advertiser by spend bucket using Veros.

So we looked at all these ranges of spenders and we looked at how much spend they had per tranche of category of spend bucket. And as you can see, like you spend more money, make more ads. It's just like a perfect linear relationship between these ideas. Um, so this is like the average number of ads live in accounts of different sizes.

Now we could break this down into a bunch of smaller inputs and see if it's like actually perfectly linear, but there's often the biggest jump between small spenders and large spenders. It's getting at exit velocity against this region where you really see a big ramp up. And then what likely happens here is that there's legacy winners that are driving a lot of the demand forward.

So a lot of the, in the case, when you get to this exit velocity, you have this foundation of existing ads that are driving a lot of the ongoing spend volume. Um, so these are the ranges that you'll see, uh, for each of these brands in terms of, you can see that, that, uh, the average range that I talked about, but again, it just, it just increases as we go.

And so, uh, you have to spend, or you have to make more ads, unfortunately. This is where it's really important for CTC to acknowledge that we have not been good enough at helping you solve this problem. Um, it, it, it pains my soul. I, uh, I provoke you with this information and then I offer you no solution.

Um, and that is frustrating and I acknowledge that. Um, and it's in part because building creative is actually like, it, there's nothing, no problem that has fried my brain more over the years than the creative supply chain. From a creative strategist to a production, to feedback from you all as clients who have a lot of opinions about how things should look back into the creative editor, back to you again, down to a third party to review over to a creative director who has an opinion that he can't really communicate to me, but I have to interpret and okay, back to the editor live in the ad account, that process, those are very expensive people all along the way, like very expensive humans.

And when they spend an hour of time doing any of the work in the supply chain, literally, this is, this is a fact, the average creative strategist in the United States, if they spend one hour on creative ideation for an end asset, it breaks the expected value calculation. What the hell do we do? How can we possibly win this game?

If one expensive person spending one hour of work breaks the expected value calculation of the app. For many brands, because their expected value per ad is really low, it's actually sub 100 in many cases. So how do you make a bunch of ads at a price that's cheaper? Well, um, we're going to have to. Get rid of this and who created people.

You know what? This is Dean smiling. Dean has definitely showed this to a client before Dean was a video photographer and videographer prior to becoming the CEO of heart and soil creative guy. And he definitely showed this to a client. Creatives have shown this to me my whole life. And there's like nothing that antagonizes like an entrepreneur more than being given like these constraints that exist in a Venn diagram.

And so like my life's work is to disable this, this Venn diagram. But it's the idea that creative can't be good, fast and cheap. You get to pick two. Right? That's what I get told all the time. You can have two, you can't have all three. Well, I just think that anybody who says that is going to die. Like, they're just going to go away.

Because this world fundamentally changed over the last year. Um, and this is the guy that's going to kill them. So, Jacob, where are you? There he is. He's a real person. Um, for those of you follow me on Twitter, we played a little gimmick that Jacob was, uh, not real. Uh, he is real. He is an awesome engineer that I met on Twitter that is helping us to build some really cool stuff as it relates to AI, uh, and creative production.

So he's going to do a session for you later today. Um, and orchids going to tease up a little bit of what's happening, uh, to help us solve this problem. But the basic idea is that There's two pieces to production that have to occur that both have to be great. The first is strategy. Um, and if we think about what a great strategist does, like one of my favorite things to do in the era of AI is to try and take every human activity, including my own and write down step by step what is actually occurring.

Okay. And then ask myself which part of those are not replicable by an LLM, like which of those literally cannot be done. Uh, better, faster, cheaper by, uh, uh, AI. And so if you think about creative strategy, like I was listening to any of, you know, Sarah Levenger, she's like super smart, creative strategist.

She's on Twitter. Um, and I was listening to her on Andrew Ferris's podcast, describe her creative strategy process. Um, and the basic synopsis went like this. I download all of the reviews from your website, and then I use this framework from this behavioral psychologist to sort all the reviews into these categories.

that are defined benefit statements of why people buy things. And then I use that to produce headlines that meet each of the benefits. And then I use that to write a brief for a designer to respond to. And that's like best in class, like smartest person in our industry that gets paid a ton of money to do all that work.

And literally I was like, Huh? So I went into chat GBT and we uploaded a reviews and I typed in the behavioral psychologist name and I was like, could you create this output? And seven seconds later I had replicated the process. And you just realize like all that's happening is you're asking a human to analyze a bunch of words under a specific pretense to produce an output.

That's like the literal definition of what an LLM is supposed to do. But that's what creative strategy is in many cases. Now. The part of it where there is a lot of really important additional work to do and why we're going to be able to build something unique in the industry is because the other important parts of it are your inventory positions, the marginal data of every SKU, the sales history for every SKU, the historical ad performance.

So if we were to think about combining all of those data sources into a brief that allows us to combine the analysis. The methodologies that CDC develop into a point of view about what we should make and why now I think we can create something that's different than what you can create or access on chat.

GBT very quickly on your own, but I'll tell you it's going to be hard to compete with you in that because it is really powerful tool. Now, from there, we can actually get it to write briefs into a generative AI tool that just make the whole thing. And so we are beginning to play with this end to end. And I'll tell you right now is it's hard.

There's no perfect output yet. It's taking a lot of effort and, uh, LLMs work through something called reinforcement through human feedback, right? Reinforcement learning through human feedback. So if you've ever played with chat GPT and you like give it a thumbs up when it responds to you, that's human feedback.

You are training the model on the quality of the response. Was it a good response? Was it a bad response? That's the same thing that right now is happening with all of the models that Jacob's playing with in terms of the image that we're creating. So if we can take your brand image and we can get it to say, alright, here's a t shirt and then we can say, alright, put it on a person and then you go, no, that's a bad one.

No, that's a good one. No, that's bad. No, that's good. No, that's bad. No, that's good. No, that's bad. No, that's good. Eventually, over time, you get to really quality outputs, but the inputs matter. So one of the things that you're going to see from us in the not so distant future is that the training data of the image library matters.

So actually the way that you shoot the photography initially that you provide to us to train an AI model is really important. This is going to become a big industry. It's like people who are going to take photography and shoot it for the sake of training models. Um, because if you just give us a picture of like your PDP photo of a flat light t shirt, it's like there's no dimension to it.

It's only one angle. It's like it's really poor material to actually train with. But as we get clearer on the kinds of things that allow us to produce better results, um, we can do it. But we're already like at a really powerful place where we have a couple of demo clients that we're using. We're not training all of you yet because we're protective of what we create.

But you can see that these images right here, all AI generated of a men's. Polo company, men's polo shirts. And he has now replaced a lot of his photography that he's using in all of his ads with all a I generate generated ads. And we have a tool that he's demoing right now that allows him to go in and prompt, uh, our AI.

With, uh, any verbal prompt he wants about any location, any person, anywhere, and reference his product by name in order to produce an output of a person wearing that specific product in any environment he wants. Um, now you can imagine, again, there's all these little bits of human intervention that are still in this process, but eventually which product at which margin to which customer and which persona using which benefit statement.

It gets put into an odd brief automatically and the output is there where instantaneously there's a bunch of visual ads. And we're not going to be the only people that do this. There are just going to be infinite solutions that relate to this place, both in static and video. But what happens as the result of this is that you can now produce the volume you need at a cost lower than the expected value.

Um, and this is really critical is that in many cases, the problem that's prohibiting us from making more ads is that they're too expensive. It's too expensive to have us make them and it's too expensive for you to make them. And so there tends to be this real limit on how many things we can create and it's impeding our progress.

Um, I think the best example, I actually, Claire and the team at born primitive, we don't do their creative, but they have done a masterful job at ramping up the volume of creative production that they supply us with. And it's been an absolute, like. Like amazing fuel for growth where every dollar that we spent the entire year has been on cost controls and we've been able to been able to substantially increase spend over time to the point that they're out producing the creative volume for us to actually be able to put live.

We're actually backlogged in a way that's like very rare in our world. Um, now I don't think it's cheap to do it. I think it's probably pretty expensive still to produce, but The benefit of the volume is there. And what if we can get this right? So we see our role in this partnership. It's like, Hey, we're gonna help to develop systems.

And the way that our creative team is going to continue to work is we still are going to insert the mental frameworks into how we train the model. And so there's still this element by which we decide as humans what we want the system to output. Um, and what I want you then to do It's my goal is to actually free you all up as the businesses to attack the actual most important problem, which is that the way that your business actually progresses forward the most is by creating real unique marketing moments, usually built around product that at the end of the day, we have no control over what you sell.

We're not your product development partner. We don't get to decide, but the way that you transform your business actually candidly has little to do with us in terms of the upside longterm. That's all on you. It's about the quality of the stories that you're going to put into the products that you create and the way that you bring them to market in ways that are compelling to specific customers.

I don't get to decide that, but I want to show you what happens when you do. Um, because Uh, I think this is where if I could get you all to go occupy this space and we could provide supplement to the ongoing evergreen things, I think that's how we would produce the best results together. So this is, you've heard me talk about four peaks.

It's this idea that in every ad account I've ever seen, the best performing ads are always related to product launch promotion or black Friday, December Monday. And it's because what changes in those environments, isn't the headline, it's not the hook. It's the underlying context in which the ad exists.

There's an increase in demand relative to the price of inventory. Conversion rate goes up. CPM remains constant and you win disproportionately. That's what drives peaks. And I'm gonna give you an example of the best thing I've seen this year. I actually have it up here to illustrate how powerful this idea is.

So, um, Yeah, So as you don't know, this is bear at born primitive. We've worked them for many, many years. Um, one of the best marketers I know, he, I don't know if he would say that he doesn't consider himself necessarily a technical marketer, but what he understands uniquely is story. And I actually think that that's really the key to marketing is why the hell does your thing matter?

Why does it matter to anyone ever? Um, and this year, uh, they launched shoes. So initially they launched a savage one, which this is the style of that shoe. Um, but rather than just coming up with a shoe, uh, bear. Figured that there was a way for him to tap into a cultural moment that was incredibly relevant to his business to drive disproportionate demand and serve his community.

So, um, this product was a celebration of the 80th anniversary and bear. If I say anything correct, correct me here, but I think I can get it of Operation Overlord, which was the U. S. storming the beaches of Normandy. And 80 years this year was the anniversary. And as part of that, um, there was a group of, uh, veterans that served in Normandy that were going back to a ceremony they were holding on location.

So really cool story that overlaps a lot with their demographic of customer of the kinds of things that they would care about. And so they came up with this product. It was a limited edition, 5, 000 units of these shoes that were the operation overlord edition. You can see they have the date, uh, of, uh, The invasion there that says damn few on, um, the tow box and they came in this crate.

So I ordered one of these, um, good friends pay full price. I did bear just so you know, I didn't use my coupon code. Um, and it comes in this box. This was like, I got it in the mail and I was like, what the heck is this probably cost a crap ton to ship. I don't know. There was great value to weight ratio.

Probably, uh, Needed to up the Ross target a little bit, looking it back on this, but, um, um, and it came in this bullet box. Okay. Um, and if you open it up, um, you got a medallion celebrating the 80th anniversary, you got, uh, sand from the beach in Normandy that he got permission to bring back. Um, and then you got, uh, this envelope and in this envelope, um, Were a couple of really cool things.

There was a letter from bear. There was a, uh, a copy of the decree from Dwight Eisenhower. And then there were these pictures of the actual veterans that were going back to the beach on Normandy and the shoes actually helped to fund their trip going back. So by buying the shoe, I got to send these cool dudes to go to this incredible ceremony.

Um, and at the ceremony, the, uh, I'm assuming it was the Marines that jumped in, jumped out of the planes onto land in Normandy. We're wearing the shoes like every met a bit of story that you could imagine that would matter to somebody came to life in this campaign. Now Taylor, 5, 000 shoes like that's a cute marketing moment, but like we're trying to move some volume around here, right?

Well, what does that do when you start to begin to build a connection? with your customer base in a way that they see in your brand identities that they care about for themselves. Well, the practical result of that was this. Um, so in the month of June and we had, I would say, it's not that BP was struggling.

I was just, I would say that we weren't getting to the growth that we wanted. Um, at the same level, we were trying so many things for so long and in one month, we were The launch of this coincided with us being able to increase new customer revenue 100 percent while increasing the efficiency of acquisition 50%.

Okay. There is no Facebook ad strategy that creates that outcome. There's not a new optimization setting. I can't switch it from ASC to BAU. There's no P max that does this. It's all this. It's the story. And these things have to exist, and when they do, then the root and raw materials that we can create together become really, really powerful.

Um, and I've watched this play out over and over again. We're sitting inside a skull candy. The reason that this is decorated like this is not because we wanted to do a jungle theme. Um, it's because they launched this product here, uh, which is just a licensed collaboration, uh, between an artist, I think named possum that did a cool design and BG, who's the CEO of skull candy, Brian Garofalo.

He's the best marketer I've ever met personally. And he understands how to sell skull candy. Product. He understands that it's all about the story that overlaps with the product that meets a novel customer in a moment where there's scarcity and there's merchandising difference between what he gives the target and what Best Buy gets and what goes on the website so that there's reason to buy now.

Because with a Facebook ad, what we're trying to do on a seven day click optimization is give a customer a reason to buy right freaking now, not a week later, not a month later. We're trying to get you to click and buy now. And you have to create an imperative for that. And so the best brands that we work with, the best partners understand that.

Now that's not me sort of deferring our responsibility back to you to say, Hey, the results are yours, but it is actually to say that it's your business, not mine. My P and L is my responsibility. Now we're a partner. That's going to go after it. And we're going to be ruthless about ensuring that every dollar you spend is a quality dollar, but I'm not going to manufacture the sheets and I can't redesign the sauna and I can't come up with the next pair of shoes.

I'm not going to do it. But dammit, when you give it to me, am I going to be stoked to put it in the ad account with the right cost control, with the right margin, and make sure that every dollar makes money? But when you do this, it's really, really powerful. Um, okay. The last couple of things, um, this, for those of you that have been around a long time, um, this is, uh, a mistake that I think we've made that we've adjusted towards thinking about.

And it's the idea that lapsed customers aren't your customer. Um, we need to start to reimagine the idea that because somebody bought from us once five years ago, they are mine. And that they belong to me in a way that I should exclude them from ever seeing another ad and I should just be willing. to say, I don't want them anymore.

I only want new customers. No, uh, customers aren't forever and it's time to win them back. So this is a chart that exists in statless and it shows the average time between purchases. And you, each of you have a different version of this. Uh, yeah, Barry, you can smirk. I know he got mad at me because I excluded too many customers for too long.

Um, and, and this shows you the average time between purchases for your brand. All of you have a different category. If you are, uh, selling phone cases, it's going to be different than if you're selling a consumable. It all varies. But the point is we've defined these categories of customer life cycle. Okay.

So the first, the 30%, what this is showing is what percentages of purchases happen in how many days. Now, people are always shocked to find out that the most likely time for your customer to repurchase from you is within the first 60 days in almost every case. I don't care if you're selling. Cold plunges or shoes or soup.

It's going to be the most likely time that they repurchase within the first 60 days. Um, but the time lag till they get to what we would call churned, which is the period in which that's 80 percent of people, if they're going to buy, have bought. That's what that tells us. So when they're outside of that, we just consider it unlikely that they will purchase again.

And for some of you, some of those people are like four years old and they're still being excluded on an all customer clavio list as if they're going to respond to the 7, 000th email you've sent them. It's just not going to happen. And that's, I think our mistake in the maturity of the brands that we're serving and going back to that seven and eight figures and where growth comes from and how much growth comes out of reactivating the existing customers that you have.

So if we look at this chart again, what you'll notice is that there's four categories, new customers. Active returning, active reactivated, active at risk, and churned. And then the gray line represents the net change between customers that churned and those that you've added into an active state. And so this yellow bar, Is the active reactivity.

These are our zombie customers. They were once dead and we've brought them back to life. Um, it's a customer set that we think we need to pay more attention to for those of you that have large brands that have been around a long time. Um, chip actually has a cool app that if you're interested, that is specifically dedicated to helping solve a lot of these problems.

But there is a huge number of customers that are being excluded from seeing your ads that need to not be. Um, and this is the graveyard. Like again, let's go back to this one business that I've used as an illustration all along, There are millions of people that are in this churned state that are being excluded from ads that are not responding to your emails anymore, or your 9, 000th SMS they've just left and they aren't coming back unless you do something about it.

So we want to do something about it. So we are, uh, in many cases move to our default exclusion setting being related to active customers only where we do want to take the customers that are still likely to repurchase again and try and capture them for free in email and SMS. With the exception that we also are introducing more active customer advertising where we will send an email.

We will wait the 36 hours for the email to capture as much of the revenue as possible and then go after advertising for new customers as well on key moments, promotions, product releases, etc. Because we have to capture that customer still. Um, and then the last customers we want to think about as their back end.

They might as well be a new customer. And what we found with this is that the fear when we did it was that it was going to drive all of our ad spend into existing customers in a way that was actually going to deplete new customers because there still is a delta in value between a net new customer and a reactivated customer.

A net new customer still has more future value than a reactivated lapse customer. But, um, it's not as big as you, you might be concerned about. What happened was When we gave more signal to campaigns, got more purchases, it actually drove greater efficiency of net new customer acquisition as well. So it drove more volume, more signal about who the purchaser is, more positive engagements with the ad in a way that actually increased efficiency across the board.

So you're going to hear more about that from Tony when he goes through the seven C's of the CDC media buying principles later today. Um, okay. Last thing, last thing. This next graph that I'm going to show, I think illustrates the future of what is happening or I'd say the present of our industry with a, a nod to the future about what channels are changing.

And there's some things that are the same, but there's a lot of things that are different. Um, and this graph is a representation of the share of wallet change, not by platform, but by placement. Okay. So when I say placement, what I mean is that within meta, there are. There are IG stories. There are reels.

There's Facebook newsfeed, there's Google shopping. There's all sorts of placements within an ad network. So oftentimes you'll see share of wallet by platform, but if you look at it by placement, you get great insight into what these platforms care about and what's happening. And this is where we have all three partners from tick tock, Google and meta here today that they're going to talk about some of the things that they care about and the things that they are doing that represent the future of where things are going.

But I want to highlight a few of them. First, I want to start at the top. Okay. The fastest growing share of wallet change is tick tock shops. Now 1 percent is still a very tiny amount. Percentage change when you're a small number, isn't a big change, but it represents a trend, a movement where if there was any channel that I think represents a novel potential breakout opportunity for brands to drive large scale net new acquisition.

The thing I'm curious about, I'm not saying it is happening, but I'm curious about is tick tock shops. And in particular, though, I want you to draw a distinction between tick tock standard ads and tick tock shops, because for many of you, we run tick tock ads, tick tock ads, driving off platform or a terrible idea.

They are de prioritized by TikTok themselves in many cases. And we are seeing reduced share of wallet, reduced performance across ads being driven off platform. There's a very clear incentive. I don't know if they would say this. I don't know if TikTok's here. They may, they may say I'm wrong, but over and over the data we're seeing is this share of wallet on standard ads down, share of wallet on TikTok shops up.

And this makes sense, right? The closed loop of purchase is actually a much higher value for them if they're getting the ad fee and the transaction fee on the purchase as well. Um, so there's a lot happening there. The second thing then is reels. And this shouldn't be surprising to any of you. But if you look at the very bottom, you see Facebook video feed ads.

That doesn't mean that anything bad is happening on that. It just means that reels is the product that they care about. There's a lot of energy going into thinking about that ad format and the visual that accompanies it. Um. So. The other thing I'll just say is that if you look at the next four bottom or the next five of the bottom seven, they're all Google placements, um, including Google P max at the very bottom where 6 percent of share of wallet is dropping 32%.

People don't know what to do. There's utter confusion around this ad product. Uh, and it's showing up in the share of wallet data. Now, Uh, again, I think that that is about a clarity of target and Kurt and the Google team are going to help us explain why we're going to reverse that trend because we actually, this is really important.

I am so platform agnostic. I love Walker, but I don't care about Metta. I don't get paid by Metta. I make 0 from Metta. If someone were to beat Metta with an ad product, I would love that. And I would move all of your dollars there the day that it happens. I do not care. But I do care about making you money.

And so in that sense, we see our money moving in the same direction. And this is the beautiful thing about a capitalistic ad environment. The money moves to the place where it drives incremental value. It flows there naturally. And so this is where the money is moving. So as you think about then creative systems and whatever, vertical video still remains the mechanism that people care about.

It's the short form vertical video still is the creative asset that I think has the broadest potential to overlap with the interests of the platforms. Now, can we produce that at cost? Different question. But this is a great insight that our platform partners are going to talk about today. So you're going to get from us the rest of the day, you're going to get orchid talking about the creative systems that we're developing and some of the insights that are informing what's going on.

You're going to get Luke and Tony coming to talk about Pam and the seven C's of ad buying. And you're going to get our channel partners talking about what's going on in those spaces. And all of it is for the sake of improving the system that we are operating in together. And if you leave here with anything, if I have any ask, it would be to deepen your connection to our system.

If you're going to work with us, if you hired us, don't fight us candidly, I'd rather you fire us than try and get us to operate in your system because it won't work. We will break, it'll become confrontational and we aren't actually designed to make it effective. But if we work it out together, if you lean into the concept log and the growth map, I know it's a giant ass spreadsheet.

We're trying to get rid of it. It's all going to be in salad soon, but for now log into the dang thing, look at it, set up your daily status, email, participate in the system. And I think together we can produce more predictable, profitable growth and excited to do that. So I appreciate you all being here.

Thanks for letting me rent for Thank you very much.