The Critical Shift in Perspective that All Brands Need to Win
Having spent upwards of $190K/day on paid traffic for a single client on a single platform (Meta), having generated over $1.5 billion in revenue for brands across industries while maintaining or improving profitability, and having spent nearly 8 years consulting and running traffic for eCommerce companies– from early stage bootstrappers to enterprise-level, household brands you know and love and everyone in between – I can confidently say I've seen quite a bit.
And what I've found is there's something unsettling that nearly all early stage brands, particularly those that look like us, have in common. It's that they haven't mastered the ability to connect the dots quickly enough in eCommerce. Even those doing $25 to $35 million that think they know, aren't operating under a framework that makes any of this easy for them or their teams to connect, draw from, or iterate to scale.
The undercurrent is really about process and thinking like a savvy founder. My early days on Wall Street as an investment banker that started off in corporate strategy really helped give me the sight to spot patterns and process and build formulas to move faster towards successful outcomes. And what I've come to find over time is that the eCom game (like most business, really) is actually extremely process-driven, almost formulaic in nature. As eCom in particular is a cashflow-centric model, it HAS to be. And it's easy for anyone to miss the patterns, process, and formula as a founder when you're focused on the passion you have for the product and don't have nine figures in ads data from which to analyze and draw connections.
As just ONE example: On the early stage side of the industry (and by that I mean brands doing less than about $15 - $20 million in annual revenue), it's all too easy– with everything a founder's got going on– to get tunnel vision and obsess over ROAS as though it's the only KPI that matters. But ROAS is merely a fourth or fifth-tier indicator. It is not a primary driver, and certainly not THE driver, of a healthy, scalable brand.
How do I know? Brands are still scaling at 1.3x, 1.5x, 2x ROAS on the front-end and growing by double and triple digit numbers in the process–WHILE maintaining or even improving profitability. These are the same brands hitting the Inc 500 List and transforming into behemoths.
It's not to say ROAS doesn't matter; it absolutely does. But it's a tiny piece of the pie. The rest of the pie is sitting on the kitchen windowsill getting cold and stale while people across the industry are searching for solutions but keep missing the door to the kitchen.
ROAS becomes less of a quarterback or landmine in your business when the other drivers are properly aligned and humming. When these are, you're not forced to HAVE to worry about ROAS as much and you can make moves when others can't (and blow them out of the water even in conditions where they can).
So what are those drivers? If I attempted to run through them all here, I'd be here for days and this would start looking a lot more like a novel, but I will lay just a few things to consider out of the 126 I've identified and documented in my time:
- If your COGS isn't set at a level to create an environment for front-end profitability, how exactly did you expect to become profitable on the front end?
- If your 60-day LTV is 40% of your average first-order value and your 12-month LTV is over 110% of your average first-order value...can you still scale acquisition on a 1.5x ROAS?
- Do you even need front-end profitability if your repurchase is through the roof and your time-bound LTV is up by another 35% each quarter?
- How much time goes by in the time it takes to take invested cash, convert it to product, and then convert it back to cash, as cash on hand? The shorter your cash conversion cycle, the easier it gets to scale.
- What does it matter if you have a 6x ROAS at TOF if your repurchase rates are way below benchmark? How soon after a volatile channel event (like iOS14) do you think your back-end opportunities will run dry, too?
- Does your revenue curve along the year look like a nauseating rollercoaster or do you have stability and predictability baked in via your marketing and advertising plans?
- How able is your business to withstand channel and platform volatility and keep spending on advertising when your competitors feel they cannot and are pulling back on traffic?
This is the real game. Not merely ROAS. Not merely AOV or CVR. Not merely revenue. It's about understanding the real levers impacting success in your business, knowing what dots connect with which, where, and how, having a growth formula and checking in with it regularly, and building an intentional process around growth and scaling – profitably. These are the conversations I have with venture capital and private equity alike, and as it turns out, many of these levers I look at and encourage brands to optimize roll up into the EXACT same levers they're looking at, as well.
To tie this in a bow, here are just a few actionables to get you on your way.
- Sync with your accountant and find a way to shrink your OPEX by just 3% every month to move closer to peak operational efficiency.
- Consider mechanisms to improve your cashflow (like the Parker card or others - do your due diligence and research to find the right solution for you) so that you can elongate the time you have to pay suppliers and vendors.
- Dig deep into your creative process, the way your teams leverage data from each other, and the infrastructure of your marketing system to increase your MER and shorten the time it takes to convert product and materials purchased back into cash.
- Be clearer about delineating all the points of profitability in your business. What does your first-order profitability look like? Given your new customer acquisition costs, at what point, for each cohort, are you profitable - 1 month? 3 months? Same day? By the numbers, how long can the business afford to wait to realize said profitability?
- Start being more intentional about HOW you're thinking about the landscape of your business, its various optimization points, and the process and data you draw from in assessing and identifying its biggest opportunities.
This is just the tip of the iceberg in terms of coming to a more complete understanding of how scaling and growth really works. Once you do, much of the work becomes simply plug, optimize, and play. Consider expanding more into process and learning to connect the dots.
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The Critical Shift in Perspective that All Brands Need to Win
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