Lessons Learnt Over The Past 6 Months in eCommerce

In this episode, Nathan shares nine lessons learned from working with brands and running a digital marketing agency. The lessons include the importance of cost of delivery, marketing, and operational efficiency, the value of omni-channel distribution for brands approaching $10 million, the ability to fix P&L exports in accounting software, the effectiveness of Meta (Facebook) as a platform compared to Google, the challenges of measuring incremental return on ad spend for small brands, the role of email and SMS as communication channels for retention, the impact of colour variants on conversions, the benefits of manufacturing revenue spikes through a marketing calendar, and the fulfilment of working with seven-figure brands.

Takeaways

• Cost of delivery, marketing efficiency, and operational efficiency are the three core levers that drive rapid growth in brands.
• Omni-channel distribution is crucial for brands approaching $10 million in revenue.
• Fixing P&L exports in accounting software can provide more actionable insights for monthly reporting.
• Meta (Facebook) is currently more effective than Google for advertising.
• Measuring incremental return on ad spend for small brands is challenging due to various variables and natural revenue variance.
• Email and SMS should be viewed as communication channels for retention rather than direct levers for impact.
• Color variants can drive lift and add diversity to a product portfolio.
• Manufacturing revenue spikes through a marketing calendar can improve efficiency and brand association.
• Working with seven-figure brands allows for more control and impact compared to larger brands.

Chapters

00:00 The Three Core Levers for Rapid Growth in Brands
05:12 The Importance of Omni-Channel Distribution for Scaling Brands
07:10 Improving Insights with Adjusted Xero Fixed P&L Exports
10:05 Challenges of Measuring Incremental Return on Ad Spend for Small Brands
12:00 Email and SMS as Communication Channels for Retention
16:49 The Impact of Colour Variants on Conversions
18:45 Manufacturing Revenue Spikes through a Marketing Calendar
21:36 The Fulfilment of Working with Seven-Figure Brands

Transcript

0:01

Welcome back to the podcast. In this episode, I'll be running through nine lessons that we've learned over the course of the last three to six months, and in particular, by doing this podcast and learning from others. Diving straight into number one, we have conceptualized a framework over the last three months, which is that all brands that we have worked with, with the limited sample size of data that we have, we have consistently looked for commonalities between hyper successful brands that end up two, three, four, axing within the first one to two years of us working with And what we've end up finding is that the common traits between those brands lie in either three buckets. Number one, they have cost of delivery efficiency that enables them to have outsized gains in terms of growth. Number two is marketing efficiency and number three is operational efficiency. We put a video out about a week ago on the BlueSense digital YouTube channel directly running through these three core levers. The brands that we've worked with that have the highest net profit where they operate at 30 to 35 % if it are at scale have typically had all three or at least two of these labels, which is either incredible gross margins, incredibly efficient distribution through marketing, which is facilitated through multiple different channels, which we can talk about. And the number three is operational efficiency, which is just keeping OpEx lean in proportion to top line revenue as it continues to grow. What then ends up happening is as you keep operating expenses lean and top line grows, you end up opening margins over time. And so you actually end up with a brand that year on year is getting better percentage of it up rather than contracting as a typical brand does. And in fact, what most brands end up looking like is as they scale, they have really high margins that then thins out and then it opens back up over time. So to go a little bit deeper here before we move into the other lessons, cost of delivery efficiency means having as high as possible CM1 and CM2, CM1 being product margin, and then CM2 being cost of delivery. So it includes all shipping and delivery to the direct to consumer market. If you don't have an incredible lever in cost of delivery, you don't end up having enough percentage flow through into the rest of the P &L to actually provide the ability to ramp up marketing and acquisition and scale rapidly. The second is marketing efficiency. So you can actually have poor cost of delivery. comparatively to the market, but you can have incredibly strong distribution through marketing, which can facilitate a five to 10 % allocation while still growing quickly. Now, what does that actually look like materially? Well, number one, can be ability to create and iterate on creative rapidly. And I actually worked with a brand that had this completely dialed in. And so what they were doing is they had a very low cost of goods and cost of delivery on their product. They didn't have great margin because it wasn't a high price product. But the actual physical cost of goods was incredibly low. It was about one to $2 to get this product to a consumer. And so they leverage that significantly within the business model. And this is how they got to being a 10 to $12 million brand is that they took the product and then ran a, they got a VA reached out to as many Instagram profiles as possible, regardless of followers. If you had 200 followers or you had 200 ,000, you were getting a message from this brand and they were saying, Hey, We're willing to ship five of these out to you for free as long as you give us 10 high quality images. In addition, if you can also give us five high quality videos, we'll actually pay you $50. That VA would reach out to three to 400 Instagram accounts a day. 20 to 30 would say yes. And every single day they would be getting back 300 to 400 fresh pieces of new content. Now half of the content wasn't great. These people didn't really know how to take. high quality photos. A lot of these people didn't really know how to take high quality videos, but at that kind of volume, you still get a lot of quality within that. That allowed them to have some of the highest creative velocity I've ever seen on any ad account, as well as enormous volumes of organic content across their socials. And that's what facilitated incredibly low allocation towards marketing. They were operating at about a 10 to 12 % MER on just a direct to consumer business. And they were able to scale rapidly. The cost of delivery wasn't great because they weren't actually priced that well. Their operational efficiency actually really wasn't great. They went through the challenges that almost every scaling business goes through, which is that they went way over the top on overheads. They got an office, they hired about 15 people, and they were only about a $6 million business at the time. It's definitely not the route they should have taken. They realized that they course corrected, operational efficiency improved. But then they started having issues with marketing efficiency over time due to saturation of the Australian market. And then operational efficiency is relatively obvious. We've touched on that a fair bit throughout this video. So let's go into lesson number two. Lesson number two is that omni -channel distribution really matters a lot, particularly as you start to approach eight figures in Australia. And the reason for that is direct to consumer and paid media as an acquisition channel really helps in being able to pause or lift in all of your other distribution channels, if you are omni channel. And so if you are in Coles or Woolworths, but that's not necessarily what I'm alluding to here, it can be any kind of store presence. If you increase advertising spend marginally, you are also going to see lift across the entire omni channel presence within the brand. And so DTC working with retailers ends up being a really powerful combination to drive better profit to the business and also achieve better economies of scale. due to the increased volume in which you're pushing through into distributors as well. And so the brands that I've seen, the brands that I've worked with that are really profitable at $10 million plus have an omni -channel presence. The brands that I've audited and worked with and seen that are $10 million plus and are profitable and are actually losing money, they're typically the brands that don't have an omni -channel presence. They're only direct to consumer. They've hit a wall in terms of scale within the Australian market. They don't know how to improve efficiency. Operating expenses have blown out of proportion and they're in a really bad position. You would actually be shocked at how many $10 million brands in Australia are making no money. And it's because they're trying to do a direct to consumer play without layering and additional channels, or they've completely just saturated Facebook and Google as a platform. And the only way to increase creative diversity within the account is to continue to load up on operating expenses. So there's all kinds of issues that start to arise at that scale. And one of the common traits that I've seen within brands that are still operating relatively profitably at that scale are those that have an omnichannel presence. Number three learning is that I actually learned that you can fix your P &L exports in Xero and you can manually change them very, very easily so that you can get way better insights out of your monthly Xero reporting. And so we made a video on that on the BlueSense Digital YouTube channel. We made a LinkedIn post about it as well. But I would strongly recommend that everyone goes to the BlueSense channel looks at that video sends it to their accountant and gets them to change the way that their P &L is being exported out of zero. You can get a much more effective look month on month at your CM1 CM2 CM3 profit contribution, as well as all the way down to EBITDA. You can then group marketing expenses, can group operational expenses in a more readable fashion that's going to give you actionable insights on a monthly and quarterly basis. Right now if you do a P &L export, You're really, for majority of brands, not going to get any relevant information that's going to really tell you anything about the brand or any CEO level change that you should be making as an operator within the business. Number four is that Meta provides better incremental rise for brands than Google. I am confident in saying now that the Google product has gotten worse over the last six to 12 months and that we are shifting spend across all of our clients more into Meta as a platform. There's a lot of reasons as to why this is the case. And that's a 30 minute podcast itself. It might actually be the next podcast. A few reasons though is performance max is the main driver of that. It is a better, it is a worst product, sorry, than advantage plus Facebook is doing a better job at developing their advantage plus product than Google is on performance max. And so performance max is really being destructive to the incremental lift that we can get out of the platform. We're really struggling at the moment to get high spending clients to new spend thresholds on the platform, but we're finding it relatively easy to do it on Meta. And so we're just taking advertising dollars and pushing it over to Meta because it's more efficient as a platform for acquiring new customers at scale. Number five is measuring incremental return on ad spend for small brands is an incredibly difficult exercise. And that's something that I've learned progressively over the last three to six months as we've continued to try to measure this within the brands that we work with. And the primary reason for this is that there are so many variables that you need to keep constant when measuring incremental lift that it's number one impossible to keep even just a few of those variables constant. Number two, the natural variance that occurs in revenue and platform performance makes it very difficult to layer and spend and see whether it's actually causing incremental lift until you have a long enough time horizon of data or you're willing to make very aggressive changes in terms of spend. And so if you're willing to triple advertising spend and then wait four months to see the impact, that is a statistically relevant way to be able to do that as an exercise and determine the incremental ROAS. But if you're wanting to do very slowly squeeze up spend on hyper efficient campaigns and maintain efficiency across the board, it becomes very difficult to do it on small brands. And by small brands, mean anyone in the seven figure range. Number six is email and SMS. should be viewed as communication channels to facilitate retention lift, not as direct levers to impact retention. And this is a really important realization that I've come to over the course of the last six months. And we did a podcast with Josh Tay on this that performed incredibly well. And people got a lot of insights out of that. Email and SMS will not fix your cohort lift. And in fact, I actually got data from an industry partner on this, I found incredibly insightful. And I would recommend people do this as well. If you're watching this podcast, if you want to prove this point within your own brand is take your flows on existing customers and segmented out where only 50 % of people receive them and the other 50 % don't. And then watch the 50 % of post purchase consumers and watch how they come back and return by. And what this data set told me was that 80 % of revenue lift after a customer has purchased happens regardless of whether they receive emails or SMSes. And so when you're going and sending all of your SMS campaigns and you're setting up flows and you're setting up all of your email SMS and campaigns as well, note that that's not causing the 100 % lift in cohorts. It's causing 20 % of it. And so when you're optimizing through email and SMS as communication channels, it's just worth noting, particularly for smaller brands that are at six to seven figures or early seven figures, that email and SMS are not causing all of that lift. They're causing 20 % of it. And so if you're going and putting a huge amount of resources in terms of operational expenses into that as a growth channel, I'm not confident in the fact that that is a good allocation of resources at that size of business. Unless you have an incredibly strong uplift in retention cohorts because you're in a very specific niche, that might be CPG brands, that might even be fashion as well. Then it might make sense. But for most brands, it doesn't make sense at that scale. As you start to achieve scale, it obviously does. It also changes the way that you conceptualize the sales channels within the business. You no longer view email and SMS as a sales channel. but instead as a communication channel to facilitate retention uplift. And so the messaging is actually what matters. It's not the email and SMS as a communication channel. And so you can start to disconnect your retention efforts from email and SMS and start to look at retention as a individual strategy within the business. An example of that is, can we integrate a new product launch? And then how is that product launch going to trail into the communication channels that are going to result in a revenue uplift. How can we do some kind of event that connects to culture within the marketing calendar that can then get communicated through email and SMS that is going to cause the uplift? It's not the email and the SMS that causes the uplift. It's the idea that then gets pushed into those communication channels. And that leads into one of my final points, but I'm going to pull it forward because it's a great segue, which is that manufacturing revenue peaks through a marketing calendar is actually really important for brands. And this is something that I underestimated significantly 6, 12, 18 months ago, but is now resurged as a really important part of driving down acquisition costs across a business and also driving up profit contribution. And that is creating moments within the year that connect to culture in some way or connect to an event, whether that is a product launch, whether that's a event that the brand is actually running in person for customers, and then building that into the messaging. Not only does it facilitate a manufactured revenue lift, but it also plays into brand over the long term. And then it also allows for an uplift in retention across your email and SMS channels. So it improves those channels as well. And so looking at the marketing calendar and picking out core times within the year, in which we're going to try to manufacture a revenue lift and then build brand and association accordingly, which we can then layer into PR pieces and the list goes on, I believe is a really important part of the marketing mix. Viewing ads as demand capture rather than demand generation also leads into that idea, which is rather than going and trying to create demand through creative assets and pushing Facebook campaigns, you instead are looking to look for where you can see existing demand within the market and then capture it. An example of that, because theory is all well and good, but how do you actually tie this to actionables? An example of that would be tying your marketing calendar in some capacity to the Olympics at the moment. And we have a few brands that are doing this, which their creative assets are directly, and they're doing this because they're in the sports niche, and so they can get away with it. But they're tying in their creative assets and their messaging into the Olympics and that event. And if you can do that in real time and you can do that quickly, you can create moments of manufactured revenue lift and you can connect to culture and build brand over the long term. A very specific example of that was the Australian break dancer. If you had some kind of way where you could build that and it aligns obviously with the branding and the messaging of the way that you're approaching creative and you could have that in the ad account for a brief period of time and you could spike spend through that. That would be a very easy way to manufacture revenue and also associate yourself with a moment in culture that's going to not only uplift potentially a bad month, if you're looking forward in time and planning out, but it also allows for better efficiency across the ad account. And so looking specifically within the ad account and looking at just the ad account and creative as a lever for growth, I think is a very limiting mindset. and instead looking at the overarching marketing calendar and trying to drive efficiency into the ad account through connection to external events or through brand building exercises, I think is a lot more important than I ever previously realized. Number eight is, and this directly correlates into this, color variants actually matter and do drive lift. And so previously if a... client ever came to me a year ago and said, Hey, we're looking to launch a new color of the product. I would have said, is this really the best resource? Is this really the best allocation of your time and resources right now? Because I don't believe the color variant is going to really cause much incremental lift to the brand at all. Okay, it might give another option. Okay, it might get a couple of repeat purchases. But now you're also going to have more operational complexity, you're going to have to hold more inventory, you're going to layer in slight additional complexity in terms of inventory purchases. And then the list goes on. My stance on that has now changed. After seeing multiple clients over the course of the last six months, launch new color variants of the identical same product and see tremendous lift in not only efficiency, but actual conversions in revenue. I am now very, very pro launching new variants in new colors. I think it's a very easy way to add lift into a business. It's a very easy way to add diversity within the product portfolio as well. And so you're going to facilitate higher average order value from people cross selling. It also enables you to bundle if you have a product where people might want to buy multiple and you can change the colors. I'm very, very pro color variants, as long as it makes sense within the current scale of your business. And you also have the cash available that is going to convert into inventory because you would go into have to hold more inventory as you start to increase your SKU count. And then number nine, which is the final point here, is that seven figure brands are the best brands to work with as you can actually have an impact. And this is not an e -commerce learning. This is an agency learning that I've had over the course of the last three to six months, which is that it is not the most profitable endeavor to work with small businesses. And this is 101. one on one rule one in the playbook of running a service based business, which is that you want to ideally be addressing the biggest business as possible. You can charge the most, you will have the best margin. Going after very small businesses is very hard to do because they will look at every single dollar of spend. Every dollar of spend matters more for them. You are a larger percentage on the P &L for operating expenses. And so you often need to drive more value to a small business than you do to a big. And so with that line of thinking, a lot of agencies start at helping six to seven figure brands and then ideally try to progress as quickly as possible into helping eight and nine figure brands where they can have more leverage and essentially a better business model. To be like quite honest, they can provide more value because there's more leverage in ad spend of that height. And then there's also more leverage in being able to charge more and then more effectively allocate resources internal within the agency. I am against that line of thinking I am against moving BlueSense Digital in that direction. And the reason for that is that working with larger brands gives you a lot less control and a lot less ability to have actual impact on individuals and the business as a whole. I find it a lot more fulfilling to watch a $1 million business turn into a $3 million business over a one year period where we have had 70 % of the impact on that brand's growth. because we managed not only all of the performance marketing, but we consulted across all of the unit economics. We consulted across the website changes. We built in bundles into the brand. looked at their, we helped them track their finances month on month. And then we also consulted across increasing the product portfolio, introduction of new products, how they should be communicating that through email and SMS. And we've been able to hold their hand through this process of driving the business from one to two to three. and then ideally in the future to four to five to six million. It's a really fulfilling process to watch that play out in real time and to be able to actually see the impact of the suggestions and the changes that you're making rather than working with a large brand where you're not working straight with a founder, you're not working with someone that's intimately involved within the operations of the business, and you were just a button pusher on ad accounts. You don't have control over creative, you can't drive the branding, you can't make suggestions over events. and products that should be launched. The amount of control that we have working with the brands of the size that we work with ends up being incredibly fulfilling in our ability to actually drive results and incrementally grow the businesses. We actually have more control and more leverage working with a $2 million brand than we do with a $15 million brand. And so it's for that reason, that's that realization that has been slowly occurring over the course of the last six to 12 months for me. which is why we will continue to stay niched within seven figure and we really won't look to pivot into eight to nine figure, direct to consumer brands, at least within the Australian market. Obviously, as you start to look elsewhere, those numbers start to change in proportion to population. And there are exceptions to the rule as always, but seven figure brands are incredibly, fulfilling to work with because you have so much control over the actual. business, the operations and recommendations get applied. So just to recap, number one, realization was that there are three core levers within all brands, which is cost of delivery, marketing and operations. And anytime we onboard a brand, now we look at those three levers and we see whether they have the structure available that's going to facilitate rapid and fast growth as they're always the common traits that we see. Number two is that omni -channel distribution really does matter. for brands approaching $10 million plus in Australia. Every brand that I've seen with an incredibly strong P &L that's at 10 mil plus has had omni -channel distribution. Those that haven't, I've rarely seen them be that profitable. Number three is that you can fix P &L exports in zero. And I'd highly recommend that everyone does that so that you can actually derive actionable month to month insights out of your P &L. Number four is that Meta provides the best incremental return on ad spend for brands at the moment. product, Google's product is continuing to worsen month on month, and we'll make a dedicated podcast on that. Number five is measuring incremental return on ad spend for small brands is an incredibly difficult exercise. And that's that. Number six is email and SMS should be viewed and conceptualized as a communication channel that facilitates lift in retention and not as an actual lever that impacts returning customer rates. Number seven is color variants actually matter and do drive lift. Number eight is manufacturing revenue spikes for brands is important and arguably a necessity for being able to control efficiency within the ad account. And number nine is seven figure brands are a lot more fulfilling and fun to work with than eight figure brands and beyond because you have a lot more granular control over the business. You can provide actual recommendations that are implemented quickly and rapidly and working with founders is always fun.