Podcast: Growth vs. Profit: Can Your DTC Brand Have Both?
Episode Summary
This week on the Free to Grow CFO Podcast, Jon Blair chats with Dylan Byers, to discuss the speed of scale versus profitability for DTC brands. As DTC businesses strive to scale, many founders find themselves caught between driving rapid customer acquisition and keeping their bottom line healthy. Dylan, co-founder of Aplo Group, brings his extensive experience in growth marketing and financial modeling to explain how brands can navigate this complex landscape. He explains how financial modeling, growth marketing, and a deep understanding of margins can make all the difference in staying profitable as you grow. Listen in as Jon and Dylan dive deep into the strategies that help brands grow fast without sacrificing profitability. With clear, actionable advice, this episode offers a roadmap for DTC brands aiming to achieve both aggressive growth and financial health.
Episode Links
Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/
Dylan Byers - https://www.linkedin.com/in/dylan-byers-046010149/
Free to Grow CFO - https://freetogrowcfo.com/
Aplo Group - https://www.aplogroup.com/
Key Takeaways:
Understanding the economics of acquiring new customers versus driving repeat purchase is key to achieving profitability.
Financial modeling and forecasting can help optimize growth marketing strategies.
High operating leverage and gross margin
can enable faster growth and more efficient
cash flow.High velocity of lifetime value and repeat
purchase can subsidize the acquisition of
less profitable new customers.
Meet Dylan Byers
Dylan has worked with dozens of e-commerce brands ranging from 6 to 9 figures in revenue, bringing a strong background in consulting, media buying, and email/SMS strategy. Dylan thrives on the challenge of unlocking growth opportunities for clients.
At Aplo Group, Dylan's main role involves collaborating with the growth team to design and implement scaling strategies based on each client’s unique revenue and profit targets.
Transcript
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00:00 - Introduction and Overview
08:00 - Can a DTC Brand Have Its Cake and Eat It Too?
13:09 - The Importance of Financials and Balance Sheet
18:12 - The Role of Gross Margin and Operating Leverage
24:37 - The Benefits of LTV-Based Businesses
26:27 - Fundamental Laws of CPM Costs and Diminishing Returns
28:21 - Building a Brand and Finding a Competitive Advantage
33:29 - The Limited Impact of Facebook Ads on LTV
40:36 - Simplicity and High-Leverage Tasks in Email and SMS
46:39 - Final Thoughts
Jon Blair (00:02.198)
Hey, hey, hey, what's happening everyone? Welcome back to another episode of the Free to Grow CFO podcast where we dive deep into conversations about scaling a DTC brand, but only with a profit focused mindset, because that's what we care about over here. I'm your host, Jon Blair, founder of Free to Grow CFO. We are the go -to outsource finance and accounting firm for eight and nine figure DTC brands. And today I'm here with my buddy, Dylan Byers, co -founder of Aplo Group a growth marketing agency that we collaborate with. Dylan, what's happening, man?
Dylan Byers (00:35.019)
Not much, happy to be here.
Jon Blair (00:37.42)
Yeah, man. This is actually my second call today with Dylan. We actually have a mutual client and we're on a client call earlier today. So should be able to nail this one because we've we've this is not a dry run. We've already chatted today and we're on and actually we're chatting about some of the exact same things we're going to be chatting about on this episode. So so what are we talking about today and why should you care? Well, what we're talking about today is the speed of scale versus profitability, right? How to strategically balance new customer acquisition with repeat purchase. Because the bottom line is, the way that I like to explain it is, too many brands out there like to have their cake and eat it too. They want to grow super crazy fast, but they also want to be super crazy profitable. And the reality is, when it comes to profitability, there's a lot of drivers of profitability, but when you start talking about profitability in the context of like speed of growth, you really have to, it really in my mind comes down to balancing the economics of acquiring new customers versus driving repeat purchase. So we're gonna get deep into that today, you don't wanna miss it. But before we do, I'd love to learn a little bit more about your background and your journey to co-founding Aplo
Dylan Byers (01:58.22)
Absolutely. So I got my start in eComm on an eCommerce business that I had two other co-founders at Aplo Group, Jacob Paddock and Liam Veregin And Liam and I had a business prior to Aplo Group, you know, didn't end up panning out, but it was a great learning experience. And that was about, I'd say roughly eight, nine years ago now. And in that experience, kind of got an initial taste for all things eComm. It was a great experience. I took that experience, jumped into agency work, worked at a email marketing agency for a little bit. And then eventually along with Liam and Jacob launched Aplo Group and initially started it as an email agency, eventually added paid ads. And now we really focus on growth marketing as a whole. So also do some financial modeling and forecasting work and kind of getting into today's conversation topics are really, really focused about kind of that balance between both growth and profitability.
So day -to -day at Aplo, I oversee our paid ads side of things. I do dabble a little bit in email and SMS still. It's all part of one giant funnel, but functionally, most of my work is in the paid ad space nowadays.
Jon Blair (03:12.686)
Love it, yeah. You know what? We met Liam originally at a conference, I believe in New York, or some event in New York. Okay, yeah, so you met my partner Jeff. And here's the reality. Performance marketing agencies, most of them don't call themselves growth marketing agencies. I actually like the name growth marketing agency better, but performance marketing agencies.
Dylan Byers (03:20.619)
Yeah, yeah. I was there too. I was there too.
Jon Blair (03:38.942)
They are a dime a dozen. There's so many of them, right? And like, there's this, I don't know, I don't believe it's a, there's been this emerging trend, I'm putting this in air quotes for those of you who watching the video of this episode, emerging trend of like talking about profit first, right? The reality is profit first has always been there. Businesses exist to turn a profit or else it's just an expensive hobby. That's the way that I like to explain it, right? But when there's an asset bubble, profitability, profit first.
can be set aside in the middle of asset bubbles. And that's not just in the Ecom asset bubble that we saw like, you know, during and post COVID, but that happens in every asset bubble. I think there's an asset bubble right now, an AI, right? And like, so like whenever venture money comes in and says, we don't care about profitability, we just care about growth. And investor money is basically like, you know, driving an asset bubble. That's when people forget about profitability. But what happens when that bubble bursts? Back to the fundamentals, which is a business exists to be profitable. So I actually think profit first has, that's just business, right? But now that people are talking about it, marketing agencies in the e -comm world are getting forced, their feet are getting held to the fire, right? In ways that it wasn't, you know, a few years ago. And the ones who get it, are excelling and the ones who don't, I believe, are being found out. Little by little, they're being found out, right? That they don't really understand the connection between what they're doing in growth and performance marketing and profitability. And so, what makes you guys different at Aplo from what I would call the average run-of-the-mill dime -a -dozen eCommerce marketing agency?
Dylan Byers (05:27.991)
Yeah, so a little bit over two years now coming up on three actually, we rolled out financial modeling and forecasting as a core kind of competency in most of our growth marketing clients. So for growth marketing to us, what that means is we're basically serving you on both paid acquisition as well as email and SMS. And I think part of the reason why we saw this trend a little bit early on was because we actually came from an email and SMS background first, which is functionally.
retention and trying to improve LTV, improve return on customer rates, so on and so forth. So we really understood that that return customer revenue from a contribution margin standpoint, which to me or to us is essentially profit after variable costs taken into account, not necessarily your fixed costs on a per unit sold basis, return customers often have a lot more contribution there. So when we looked at the ad space and looked at how everyone was setting up, you know, their KPIs and measurements and whatnot, we were like,
Jon Blair (05:57.24)
Mm
Dylan Byers (06:24.93)
this just doesn't make any sense. Like there has to be some relationship between first time and returning customer sales. And we had already had some experience with forecasting return customer revenue because to properly build an email strategy out, you kind of have to be doing that. So that's really how we got started into that. And I think that is functionally one of our primary differentiators. And there's a, I think there's a handful of agencies now that also focus in a similar space. And like my biggest advice is like, if you're going to work with a growth marketing agency, make sure they, you know,
Jon Blair (06:30.295)
Yep. Yep.
Dylan Byers (06:54.082)
have like a deep understanding of your financials and the financial outcomes you're trying to drive. Because if they don't, it's not necessarily that it can't work, but it's a piece of context that in my opinion is very much needed to properly allocate budgets inside of an ad account. So I think that's our biggest differentiator. At the end of the day, we know that brands care about one of two things, top line growth and or bottom line profit. And it's always a relationship between the two.
Jon Blair (07:22.382)
Totally.
Dylan Byers (07:22.419)
and we hold ourselves to the standard of that outcome, not what Facebook says or TikTok says or Klaviyo says or so on and so forth.
Jon Blair (07:29.826)
Yeah, I love it, I love it. That's where we really hit it off with Liam and have been excited to work with you on a mutual client. So here's the million dollar question of the episode. Can a growing D2C brand have its cake and eat it too? I .e. can they scale as fast as they want and also be wildly profitable?
Dylan Byers (07:59.117)
The on a dollar value basis maybe on a percentage basis probably not no Obviously if you take it as I feel like stretch it to an extreme so like I'll give you an example Let's say that you have a business that has a breakeven new customer ROAS of 2x Which is not uncommon ideally most businesses have better margins than that, but let's just say 2x
Jon Blair (08:08.124)
Mmm. I love that.
Yep.
Dylan Byers (08:26.222)
and return customer revenue is currently sitting at 30 or 40 % of the overall revenue pie. If you scale acquisition dramatically and maybe you have a huge total additional market, you have great ad account structure, a great large volume of winning creative, maybe you can keep on scaling it more and more and more. You're more and more new customers right around your break even point. The problem with that is that's adding like immediately basically nothing to your bottom line. So you're doing more in sales, but immediately in that...
period of time, whatever you want to measure it, let's call it a month, there is functionally no additional contribution margin added to your bottom line. Return customer revenue is somewhat fixed. Like you control it somewhat via things like sales, promotions, product launches, affected email and SMS strategy, but you're working in a fixed realm because there's only so many people you've acquired before. And that will not scale linearly most of the time if you're scaling super quickly. So to answer your point there, like, yes, you can have great profits there because you're not necessarily making less money.
but you're not making more money proportionally until that new customer cohort actually compounds over time. And the key thing there is that varies business to business. Like some businesses have terrible LTV, some have great LTV. And it all comes down to understanding your unique situation to set proper acquisition targets, to make sure that you're growing at the rate you want, but also being profitable enough. And then we can double -click further into that in the relationship between like profit and balance sheet and how that relates to growth.
over time and investing into inventory. when it's all said and done, in theory, you can have both, but where it breaks in our experience is that you have not enough profit per unit sold to reinvest into more units to maintain that growth rate if you grow too fast on the top first time customer side. So this is my favorite topic conversation. So happy we're chatting about it, but yeah.
Jon Blair (10:14.274)
That's why you're here, So yes, let's dive into this. We're gonna be chatting about this for basically the rest of the episode. So you put it very, very well, and I will honestly say that like.
probably the best and most concise in an understandable way that I've heard a growth marketer speak before on this show, which is why I want to have you come on. One way that I like to explain it to brand founders in kind of like non -finance terms is like, okay, let's think about repeat purchases as a subsidy, right? It's a subsidy of the margin because there's, let's just call it, generally speaking, there's little to no acquisition cost, right? So your contribution margin is really your
contribution margin sans any marketing spend, right? And so that is subsidizing your blended...
contribution margin for the whole business, right? So that subsidizes in many ways, that does subsidize in my opinion, how fast you can scale on acquiring less profitable, maybe even break even, or if you're really aggressive, unprofitable, first time orders, brand new customers, right? And so the speed at which you can have a healthy blended margin that produces profitability at the company level,
depends, the speed at which you can acquire unprofitable or very small profit per order on new customers is dependent on how fast you can push that repeat purchase subsidy back into the coffers, right, to acquire a new customer at a very small to no profit. And so that's why, that's why like a supplements brand that has a subscription where you buy every single month because you're buying a 30 day supply, they can scale a
Jon Blair (12:03.854)
they generally speaking, they can scale crazy fast at a really nice blended margin because that repeat purchase subsidy shows up every 30 days, right? Whereas like I was on the founding team of a econ brand called Guardian Bikes. We had repeat purchase, first order AOV was like about 300 and 12 month LTV was about 400, 24 month LTV was about 500. So there was LTV but
You don't buy a bike every 30 days for your kid, right? They're kids' bikes. You buy a bike and then maybe in another year or two years, you buy a bike, right?
that repeat purchase subsidy is coming in at a very slow rate, right, relative to acquiring new customers. So we actually had to be a lot more profitable on new customer orders in order to blend out to a margin that produced the bottom line that we want. So like, it really does become this balancing act, right? And again, relating back to the balance sheet, which Dylan just mentioned, that like,
How much capital do you have, how much capital cushion do you have to run at a lower profitability for a period of time? How much capital cushion do you have to purchase inventory again to replenish the coffers? You have to also balance P & L with the balance sheet.
Like what are some other things that are I would say like that you see that are common misconceptions about how this kind of like model of growth and profitability that we're talking about Dylan like what are some other common misconceptions that you usually have to like educate brand founders on?
Dylan Byers (13:43.16)
Yeah, I think one of the big things is for people who haven't looked at it like this in the past, oftentimes it's kind of going slowly before going too fast. Maybe there's a lack of confidence. Like you kind of want to wait to see the LTV play out because a lot of people may be even, especially if the balance sheet is healthy, you may be able to scale faster temporarily with less full funnel ROAS we would call it, which would lead to being
more new customer revenue as a percentage of total revenue. And if there's less contribution dollars from first time customer sales and there are return customer sales, naturally you're gonna be making less profit per unit sold on average. that's a kind of a, it can be a scary experience for someone who's historically operated at like a specific target. And I'm not saying throw profitability out of the door. All that matters is profitability.
But you can sometimes get even more profitability if you grow faster, especially if fixed costs are making up a high percentage of overall revenue. So one of the things we'll often kind of chat through is like, like we don't have to go all out right away. Like we can kind of do a month, measure the following month and kind of build a plan that's more manageable. Because especially you brought up like supplement brands or CPG in general, the benefit of that industry is that you often have
phenomenal lifetime value, but you often are also having less margin on first time customer acquisition because it's kind of been competed away faster. So some brands in CPG will acquire at a loss. And if you're doing that, that's even more scary when you're kind of betting on future profits. So it's often an exercise of risk management of like, how much are you willing to eat into contribution slash net margin this month for potential future gains?
Jon Blair (15:14.318)
for sure.
Jon Blair (15:26.488)
totally.
Dylan Byers (15:32.088)
Because again, especially if you're a bigger business, there's a lot of data, you can have more confidence in the historical data to repeat itself. But when you're scaling quickly, maybe going into different markets, this, that, the other thing, there's always a risk management discussion too, when betting on future revenues from return customers. So I'd say the risk management side of things in terms of how much you're willing to eat into now for future benefit is often one of the main conversations that we have. And then also being realistic about
how much you can actually impact lifetime value. So you brought up a super key point. I'm calling it velocity of LTV. So I would rather have, in some cases, 80 % of the max LTV realized in a 12 month basis in three months, even if I sacrifice the rest of the value that could happen between month three ish to month 12 and some hypothetical scenarios because
Jon Blair (16:04.63)
Yeah, yeah, for sure.
Jon Blair (16:24.728)
Sure. Yep.
Dylan Byers (16:27.478)
that has a direct relationship into how fast you can reinvest into scaling. So sometimes there's conversations in certain cases where growth rate matters a lot and we want to try and speed it up is, is there ways to artificially get people to come back faster via certain promotions and or offer structuring to try and speed up the kind of like the return on invested capital, if you will, into acquiring a customer. So that's a conversation we sometimes have.
Jon Blair (16:52.942)
Totally.
Dylan Byers (16:57.089)
Again, even then it can be difficult to speed that up and it kind of only works in certain industries in our experience but ultimately those are kind of the two main things is like a having confidence in the future profitability playing out and then also a conversation of okay like the example you gave where the the The the LTV is very stretched out into over multiple years at the end of the day in that product category is probably not much you can do to actually encourage people to come back faster, but maybe in a
Jon Blair (17:24.376)
for sure.
Dylan Byers (17:25.631)
in a CPG product, maybe it's skincare as an example, maybe there's a specific product that is sold or a bundle that is sold that maybe their acquisition efficiency is little bit slower, sorry, lower, but maybe the velocity of lifetime value is way faster. So hey, let's take a little bit less on the front end and then gain more value quicker to again, speed up this funnel. So there's multiple kind of different approaches, but we really, really have a lot of conversations like, hey, what can we sell sometimes?
Jon Blair (17:41.048)
Totally.
Dylan Byers (17:54.605)
to not only improve our ROAS on the front end, but speed up the velocity of the lifetime value.
Jon Blair (17:59.948)
Yeah, I love it, man. There's another thing that I keep thinking about as you're going through this, which is that when you have a higher velocity of lifetime value of repeat purchases, you...
you have the ability also to, generally speaking, I see on the finance side, like, because you guys have a really awesome, you know, profitability model, right? When you overlay that over the cash flow models that we build as CFOs, one of the major inputs for CPG brands and specifically D2C or ecom heavy CPG brands in their cash flow equation is inventory, right? And like, if you have this high velocity of repeat purchase,
and it ultimately yields and you're able to scale really really fast.
you can actually take a lower margin as a percentage of revenue and keep inventory turns. You can be much more efficient with your cash because you're turning through inventory, right? The faster you're turning through inventory, the more efficient your cash flow is. So there's this huge opportunity, which is one of the reasons why we're so excited to meet you guys. There's this huge opportunity for an agency like you guys to really be looking at the profit equation the way that you do and for us to partner with you
on the cash flow side of the financial projections because they can become a constraint and or an enabler to the other, right? So like for example, there may be a reason why we wanna go more aggressive on dropping the blended margin or as you guys call it, the full funnel ROAS, right? To go much more aggressive on first order acquisition if I've got the cash flow, right? To actually be able to sustain that for a season.
Jon Blair (19:46.42)
knowing that we're placing a bet on the return we're gonna get in terms of like LTV and repeat purchase. And so a lot of times, like one of the challenges that brands have is like when they're just running on really tight cash balances, they get really scared about letting marketing draw.
seemingly draw margins down, right? Because they're like, man, I'm operating on such tight working capital, know, such a tight working capital equation right now. But when a CFO is able to come in and do things like help them manage their inventory more efficiently, maybe bring the right lines of credit into place or help them negotiate terms with their vendors to open up the working capital equation a little bit, you can all of a sudden, that in and of itself being more efficient on working capital can finance.
getting more aggressive on the growth side. I think another thing for us to mention here is fixed costs, right? Like,
and really like what we call in the finance world operating leverage. When you're operating a business with high fixed costs, which generally speaking in the e -comm or the consumer goods world, it's because you're doing your own manufacturing and your own fulfillment. So operations is not outsourced and is not a variable cost, but instead you've made it a fixed cost. When you have high operating leverage, getting to break even means higher, basically contribution margin dollars, right? To get to break even.
But when you pass that break even point, if you have excess capacity, you can start dropping massive amounts of contribution dollars straight to the bottom line, right? But the way that you would scale from a...
Jon Blair (21:31.999)
margin requirement standpoint or profit per order is different if you're, it can be different if you have a high operating leverage versus low operating leverage. Another thing is margins. And this is what I want to talk about gross margin for a few here with you. Because if you've got a product that has,
that you can really turn inventory quickly, and I would even say that has a high velocity of LTV or repeat purchase rate, you can generally afford a lower margin, at the gross margin level, right? But if you've got something that's a one and done purchase, or there's lot of space in between repeat purchases, in my experience as a CFO, it is much easier to do so with a really high gross margin.
to aid growth and why is that? Because you don't have LTV or repeat purchases to subsidize the first order acquisition. So you need to be profitable, as profitable as possible on that first order, which means hopefully you have a higher AOV and a high gross margin to open up CAC so that you can grow and still be profitable. Do you agree with that? Do you have any thoughts around that?
Dylan Byers (22:47.086)
Yeah, 100%. I mean, I think that there are some businesses that oftentimes like, often hire AOV, one and done products, where doesn't, there's not like a natural repeat purchase in place. Maybe the product really has a lifetime warranty because it lasts a long time. For those products, you definitely need to have very high healthy margins because you have to basically realize all of the contribution margin for the most part on order one. So you need a lot of margin left out, left, left over.
the worst thing would be like a one -time purchase product, low AOV, low margins, and it's gonna be hard to work with. One of the other things too that is so underrated about high lifetime value products is also the risk in making your bets on inventory. So obviously you'll have your inventory forecast, but when you have high repeat purchaser rates, even if you miss on a first -time customer forecast, there's way more kind of safety built in.
Jon Blair (23:35.821)
Mm.
Dylan Byers (23:46.008)
to return customers being able to churn through that inventory over time. Because profit and healthy balance sheet are two completely different things. And at the end of the day, you have to make sure both are in a good spot. we've seen at times, we see brands get into unhealthy balance sheet situations where they're overstocked on certain items more frequently when they're not high lifetime value businesses. Because there was a plan in place to maybe execute
Jon Blair (24:07.523)
Mm -hmm.
Jon Blair (24:11.203)
Mmm.
Dylan Byers (24:14.582)
on a first time customer basis and maybe it was overly aggressive or maybe it was from like, for whatever reason, if that doesn't go to plan, you have less customers, you have less kind of bets on your side of the table to actually get that demand sold through. So LTV based businesses have a few different benefits. I LTV based businesses are basically just mean businesses with healthy return customer rates where you can kind of think about your risk a little bit differently too.
Jon Blair (24:21.667)
Yeah.
Jon Blair (24:37.538)
Yep.
Dylan Byers (24:41.837)
for how big of a bet you make in the inventory, which also impacts your ability to grow fast.
Jon Blair (24:51.148)
Yeah, that's, man, okay, so when I started out in my career in e -comm, it was at Guardian Bikes. I was on the founding team. It was the two original founders and myself.
And it's a premium kids bike brand sold direct to consumer on Shopify and Amazon seller central for a period, but we ended up pulling off and still to this day just DTC on our Shopify store. They are like $300 to $400 bucks. So high AOV premium product, right? We've created we created raving fans who love the brand and it thinks and there's lots of word of mouth, right? There's definitely
repeat purchase, but it's a lower velocity LTV product, right? And so we had to just really nail the economics on thinking about bill of materials cost, thinking about, you know, shipping outbound shipping optimization, because we needed to open up, we did have an AOV of like three to 350, right? So we had some room when you start talking about like, CAC right? And enough CAC to sustain diminishing returns, because diminishing
returns are gonna happen, right, on Meta and elsewhere. But if you like contrast that with a brand that's a one -time purchase or like low velocity LTB and say their AOV is 75 bucks, right, as opposed to 350, and their contribution margin or their gross margin ratio is like on the lower end.
You just can't grow profitably because there's not enough, there's just not enough room for CAC.
Jon Blair (26:34.206)
at scale, like, you know, scaled up ad spend levels. Like, I think a lot of brands don't realize that, that some of these are just like fundamental laws of like what CPMs cost at sale, at scale, and that the fact that you're going to see like diminishing returns. what advice can you offer if you've got a brand or someone who's thinking about starting a brand or they're thinking about like developing a new product line, what would be your,
like Dylan Byers, this is my all -star list of criteria as I'm designing a product to allow the highest likelihood of being able to provide economics that allow you to scale quickly and profitably.
Dylan Byers (27:22.254)
I think obviously like all general statements through our exceptions and we still see like some brands with unique setups that you may not think would succeed, but they managed to do it. At the bare minimum, I would say after all variable costs, so cost of goods, cost of delivery, payment gateway fees, returns, so on and so forth, having at least 60 % margins left over, but probably even higher than that. It depends on the industry, but like there are some, we see clients that have much higher than that, it is possible.
Jon Blair (27:43.48)
Totally agree.
Dylan Byers (27:51.757)
That's like a core baseline. is just relatively rare that at scale you can achieve much above a 2X new customer ROAS. It still happens and there are brands that can do it, but oftentimes for a lot of industries, 2X is kind of like a common level. And at the end of the day, you have 50 % martins after, you're basically just breaking even. So it can vary, but I'd kind of start there. I'd probably pick a category that has high lifetime value.
Jon Blair (28:02.616)
Totally.
Dylan Byers (28:21.056)
Again, just so stability in the business, being able to be more profitable, there's benefits on the inventory planning side as well. I think that that is also a core thing. So focusing on at least that margin and having high lifetime value. also do think though that like, it is harder than it was five years ago to just come up with a half decent product and spin up Facebook ads. Like there is way more competition now and having some unique
Jon Blair (28:45.048)
for sure.
Dylan Byers (28:50.573)
edge is normally recommended to excel. And when I say unique edge, doesn't have to be any special, but you probably have to have like an actually unique product. Like being like the 100,000th skin cream company with no special unique concoction or maybe it's a brand partnership or maybe you have like, I know, the best margins ever because you happen to own a manufacturing facility. I don't know. There are these edge cases where you're like,
Jon Blair (29:00.344)
Totally.
Jon Blair (29:17.368)
Totally.
Dylan Byers (29:20.296)
you know, you have like, you have a competitive advantage. But the competitive advantage of being like really, really, really good at Facebook ads, there is still value there, but the arbitrage isn't as high as it was, say, five years ago. So you need to have, you need to have more. So I would only start if I have high margins, high probability of being a high LTV product, because you don't really know until you launch, but obviously like something consumable or replenishable. And then why
Jon Blair (29:31.938)
Totally. I totally agree.
Dylan Byers (29:49.375)
the starting line, like what is the actual competitive advantage I have. Yeah, that's my go -to.
Jon Blair (29:53.656)
totally. No, that's a great list. So when I started Free to Grow CFO
Not quite three years ago. only Ecom brand I worked with and for was Guardian Bikes, right? And so we're kind of like, and we started back in 2016. So I feel like, I mean, like we were had a Magento site and like Shopify had just like started coming out and we moved to Shopify reluctantly. Like, is this going to be like legit or not? Right? And so, so much different world back then in Ecom, there was a lot of, I would say DTC darlings who got founded around that time
Dylan Byers (30:15.767)
Nice.
Jon Blair (30:29.342)
couple years before who reached nine figures in revenue like spending on Google like bottom of funnel PPC right which that debt just doesn't exist anymore or like just crushing SEO and no one else in your product category is doing that right and you get to a hundred million in revenue that doesn't exist anymore I mean maybe there's a couple like very like like narrow niches where that that opportunity is available but not really and so
You need to, I mean, have to, you gotta start a, you have to create a brand, right? And like, and I always say DTC as a channel should provide some sort of an edge. There should be a reason why you're trying to scale DTC. For Guardian Bikes, we actually tried to scale brick and mortar before DTC. And what we found out is we made the safest kids' bikes direct to your door. That's where we ended, right? But we started brick and mortar, because that's where most bikes are sold. We had a patent on
on a brake that prevents you from flipping over the handlebars. SureStop brakes. We couldn't tell that story.
of what SureStop brakes were in a Walmart bike aisle or a Target bike aisle or an independent bike shop. We tried, it didn't work, and we realized the only way to tell that story, direct to consumer, right? All the creative, our website content, know, email was a big piece and the content that was in our email. And so D2C gave us an edge. And Guardian Bikes will be, I'm sure will be a nine figure brand before people know it at some
point in the future and it but D2C as a channel gave us an edge right and so like I always say in addition to the product edge or them or maybe the branding edge that you're talking about why D2C like is it is is there something unique that you can do in the D2C channel that other other people can't do right because CPG another great channels physical retail right but it's a different game
Jon Blair (32:33.536)
and finding an edge in physical retail is not the same strategy as finding an edge on D2C. It's also not the same as finding an edge on Amazon, right? And so, like, find an edge in the channel, right, that makes sense strategically for some reason. And then the other thing is, I see a lot of brands make mistakes on telling their ad agency, fix my LTV.
Increase repeat purchase rate. I have come to form the conclusion that that's not possible. I mean, I think there are are tactics which I'll ask you about in a second that can enhance, right, repeat purchase velocity. But I've come to form a very hard and fast opinion that LTV is designed into the product during product development. Do you agree and what are your thoughts on that?
Dylan Byers (33:29.496)
think that statement is mostly true, that it is kind of just a fundamental makeup of what you sell. think email and SMS can have impact on it, albeit maybe less than people think. So email and SMS as a channel is where you go to try and increase your lifetime value. Paid ads, the secret of, let's say you're trying to increase LTV with Facebook.
Jon Blair (33:42.775)
Mm
Dylan Byers (33:56.703)
You have to think about those conversions that take place in Facebook as a completely, you have to measure it completely differently. And the reason why is because there is way more touch points involved with getting someone to cross the finish line and purchase again than just saying, Hey, this is top of funnel reaching that new people and convert. There's way more touch points involved. saying it's all because of the ads is very hard to do. So in our experience, when running retention campaigns, if you just look at what's reported in an ads manager.
Jon Blair (34:04.024)
for sure.
Dylan Byers (34:25.326)
and you're specifically only trying to target people who have bought from you before, the incremental value of those conversions are normally going to be, in reality, much less than what Facebook is telling you. And that's why you probably don't want to use 7 -day click or 7 -day click one day view there. You want to use one -day click attribution to try and get closer to that. But even then, oftentimes there's going to be overlap some amount with a Klaviyo or a Sendlay or an Attentive or a Postscript or whatever you're using. So...
Jon Blair (34:42.806)
Mm. Yeah.
Dylan Byers (34:52.503)
There's pros and cons, the third party tracking, no tracking solution is perfect, but we are a fan of in those situations looking at that to actually get an idea of what ROI is. Or at the very least trying to exclude engaged subscribers from some of the email platforms in general for most brands, especially eight figure brands trying to scale to nine or seven figure brands trying to scale to eight. In our opinion, ads are predominantly just a new customer acquisition focus and
Facebook is not perfect if you run exclusions, your ads still serve to return customers and you can see it in the data that there are return customer sales that happen just as a byproduct of top of funnel. I'm a fan of looking at the new customer outcome from ads and then just knowing that there's some side benefit to return customer sales as a byproduct of running ads. We basically very rarely, very, very, very rarely will run dedicated remark reading or retention campaigns.
Jon Blair (35:38.595)
Mm
Jon Blair (35:41.944)
Totally. Totally.
Dylan Byers (35:51.095)
The way Facebook works nowadays is you have a core campaign that is set up to try and scale new customer acquisition. That's the goal for most brands with the setups that get ran nowadays. And a byproduct of it is return customer sales happen. Maybe a little bit different in different channels, but for most D2C brands, Facebook is still the predominant spender. So just kind of focusing on that one. But that's kind of my two cents there. I don't think ads meaningfully impact LTV at all.
Jon Blair (36:18.008)
For sure, for sure. In our financial models, we have a simplified version of what you guys do on your revenue builds, and we attribute all ad spend to first time, or like first time customer revenue. And it's not perfect, but it's close enough, right? I mean, it is in all, for all intents and purposes, gonna be close enough.
Dylan Byers (36:31.989)
as well.
Jon Blair (36:41.134)
So there's a couple other things that I was thinking about as you were talking. One, I just wanted to echo. I think we have maybe a similar number of clients to you guys at any point in time. We have like 25, maybe approaching 30 or so. So we see a decent little, you know,
sliver of data in econ brands and like we've you know, there's one brand in particular that when I started with them, they're doing 1 .8 million in revenue and today in two years later, they're gonna do 50 million but the year I started with them, we went from 1 .8 to 35, which is like insane, right? And I'd learned a lot about diminishing returns and where things kind of settle in at scale from a full funnel ROAS or MER standpoint and I just wanted
to echo that 2 .0 new customer ROAS, I've seen the exact same thing in brand scaling. Again, scaling from two million a year in revenue to 35, which is a big jump. there is, what I've found is that brands who can grow that fast and do it profitably, one, they keep their fixed costs very under control, right? And they scale massively. Yeah, no, I mean like,
Dylan Byers (37:57.645)
That's super key and super underrated. You don't need a huge team in eComm
Jon Blair (38:02.286)
No, and at scale, this brand had like 4% to 5% of their revenue was fixed costs, right? And I think as they're even trying to grow and expand into retail, they're getting up to like 10, 11%, which still is fairly low when you look at that across other like verticals, right? But they keep their fixed overhead low and they scale massively on that fixed overhead.
Dylan Byers (38:14.753)
Yeah.
Jon Blair (38:25.902)
but their gross margins, like going back to what you're saying, your fully burdened gross margin, which has all variable costs before marketing spend, is like 70, 75%. And so at a two MER, right, they still have, we'll call it a 20 to 25 % contribution margin. And then you back out 5 % of sales, maybe 10 % of sales for fixed overhead, and bam, you've got yourself a nice little EBITDA, right, or bottom line. And...
That's the way that it's done. Now, are there outliers? Of course there's outliers. I don't want anyone to think that like there's not outliers, but I very clearly see the brands that can go, that can do something that go from one to 50 million in just one and a half to two years and produce 15 to 20 % EBITDA margins. That's how they're doing it. Their gross margin is 75 % and then their marketing spend is about 50 and their fixed overhead is 5 to 10.
and they have themselves a nice little EBITDA margin. And so you have to think about that on the front end when you're designing products, can I have a like can this product actually support a 50, sorry, 75 % fully burdened gross margin, right? Can I turn a profit at the company level at a 2.0?
ROAS like, like if you can pull those things off, there's nothing is guaranteed, but that that's the makeup that makes it a lot easier to have your cake and eat it to go really fast on customer acquisition and turn a nice profit. There's two other things I wanted to ask you about. One is like sort of like this, I would call it like this mythical, is this true or is this not true? And I'd love to just get your take on it. And it's that like, I've heard
I don't think people talk about it as much anymore. I do still hear some people talk about this, but using Facebook to build the conversion, you're trying to optimize for is converting email signups, right? And then trying to convert people specifically through email flows or campaigns.
Jon Blair (40:36.246)
What are your thoughts, like again, I call this myth because I've heard people talk about it and in theory it sounds like a great idea, but I've seen brands try it and fail miserably. Like, have you seen it work to just focus on using Facebook to drive email signups specifically and then use email to convert them profitably?
Dylan Byers (40:56.654)
Almost never works. I've seen it work like a sort of like two or three times. I say sort of because arguably was it was probably equal to or worse than baseline conversion optimized campaigns and not at the same scale. So were you to scale it? That's debatable because you compare one initiative or one campaign at 20k a day or one campaign at 500 bucks a day. You can't compare those two things, right? They're a little bit different.
Jon Blair (41:23.587)
Yeah.
Dylan Byers (41:25.901)
The main reason is that you're not optimizing for quality. And then as a byproduct of that, just because you're getting a certain cost per lead, it doesn't always equate to the same eventual outcome. In our experience, one client we worked with comes to mind and they were selling products that kind of ranged from 500 bucks to thousands of dollars. And in that specific scenario, the consideration period was very
Jon Blair (41:30.019)
Mm.
Dylan Byers (41:54.789)
So the way in which we measured performance was we understood that outside of specific kind of sale periods, the ROAS was borderline unviable. The contribution margin was very low. However, kind of quarterly -ish, there would be a promotion and there would be a huge spike in contribution margin and sales. And the reason why was because what we were basically doing was there was a large percentage of the customer base who were cost -conscious.
Jon Blair (41:55.342)
for sure.
Dylan Byers (42:22.358)
and we would use email and SMS as a function of converting that customer base. And what we were looking at was the cost per email sign up on the pop -up. And that's a metric we frequently measure and look at for a lot of clients. And essentially what that is, is it's saying, hey, I know that I'm running these conversion campaigns. This is my cost per purchase like this week or this month. But I also know that on average, X percent of the emails I get
Jon Blair (42:34.253)
Yeah.
Dylan Byers (42:50.221)
between now and that next promo are gonna convert. And I know that on average they're gonna be worth this much to me. So I can also kind of think to myself, I have extra expected value in the future as a byproduct of the spend I'm spending today. And again, there's more risk in that. The math is not always the same every time you run these sales. So I always tell people that because it's like, you wanna make sure you're also not like dipping into negative contribution margin necessarily sometimes in the lead up.
Jon Blair (43:03.074)
Yep.
Dylan Byers (43:15.521)
But that is how I would think about it. Not so much lead gen on Facebook. Lead gen is when you're actually saying, on Facebook or on Instagram, give me an email. But on a website traffic basis where you're still optimizing for conversions and you're using your pop -up, there is scenarios where it's not like the only thing you're betting on, but it's a side metric that eventually may have some payoff in the future.
Jon Blair (43:23.468)
Yeah.
Jon Blair (43:39.022)
That makes sense, that makes sense. think that's really, really great advice. So, last thing I want to ask before we land the plane here is...
What are some of the core dos and don'ts for email and SMS given that that's like kind of, you know, that's where you guys started and you guys are, I'd imagine, really good at that. Like when you get a new brand and starts working with you guys over at Aplo Group, what is the checklist that you're going down of dos and don'ts that you commonly have to address to optimize repeat purchase and retention?
once you guys take over that side of the marketing mix.
Dylan Byers (44:21.325)
Yeah, for sure. I'll do my best to answer this one. I would say that some of most common things we kind of see for more advanced businesses is like incredible intricacies in their automations to a point where like if you just made like people will chase trying to improve a very specific flow for a tiny subset of customers. Like maybe you identify that 1 % of your customer base buys this category and you want to build out a specific flow for that specific thing that ends up yielding a tiny amount. That's a lot of work. You're adding a lot of net new emails to the entire construction of the email accounts. And alternatively, you may be able to create just as much value by split testing a subject line in your second, third or fourth Welcome Series email. So oftentimes we see like kind of like very complicated accounts for the sake of complexity.
Jon Blair (44:54.006)
Mm -hmm. Yeah.
Jon Blair (45:12.206)
for sure.
Dylan Byers (45:18.85)
when there's simplicity actually could serve a superior outcome. I think that's like item number one. And then like I said, the other thing is especially brands that are often going from seven to eight figures and maybe even low eight figures to higher is naturally brands will frequently expand product lines and or even serve different types of customers. Like I'll use clothing and apparel as an example. Maybe you start off selling.
Jon Blair (45:19.224)
Yeah.
Dylan Byers (45:46.697)
women's clothing and then maybe you're transitioning to also selling menswear. You at some point have to think about, you have to treat these as almost two separate business units and build out a more customized experience for those types of people. And again, that's kind of counter to my previous point, but in this point, you're going after an entire new category, an entire new part of your business that you're gonna invest ad dollars into versus some small little, I don't know, maybe it's like women's socks that are red.
Jon Blair (46:05.144)
Sure.
Dylan Byers (46:12.929)
Like how many people buy those versus how many people like focus on the big things. Cause if you can make even a small improvement there, that may be a lot more in terms of actual dollar values generated than a large improvement to a super small subset of customers. So that's probably the biggest thing. Obviously like list health and engagement and making sure you're managing your list health is often overlooked. But in terms of like actionable kind of like funnel strategies, I would just always focus on like
Jon Blair (46:13.518)
for sure.
Dylan Byers (46:41.463)
When you're going through the list of things that can be worked on, like if this goes my way, what is the highest leverage thing I can spend time working on instead of trying to make something more complicated that doesn't have to be.
Jon Blair (46:52.738)
I think the leverage kind of filter is something that brands mess up a lot in just marketing in general, is getting really hung up on trying to take action in a spot that just likely doesn't have a lot of leverage when there's so much low hanging fruit, right? And I think that's true not just for retention, I mean, even for paid media and creative, mean like there's just, I just see a lot of, I think that's probably the hardest thing for brands is like there's so many things they could do. How do they determine what really has the highest leverage or potential leverage and what doesn't? And at the end of the day, that strategy in general, you can apply to all functions in your business is like we're always trying to tackle the next task or initiative or project that potentially has the highest leverage to get us closest to our goals. So I think that's like super super awesome advice Well, look, unfortunately for all the listeners where we've got to land the plane on this subject But before we go, I always like to end with a personal question So what's a little known fact that about Dylan Byers that people might find shocking or surprising?
Dylan Byers (48:15.63)
I'll answer a little bit differently. I'll circle it back to Aplo Group as a whole. So, Liam, Jacob, and I are actually all childhood best friends and we grew up swimming competitively together. So, used to, from when were little kids, show up at the pool like five in the morning and then swim a bunch of laps. So, we were all swimmers growing up. So, we've known each other for a very long time and it's really fun being able to work with your best friends every single day. So, that's one cool little fact that not a lot of people know about Aplo.
Jon Blair (48:26.06)
I love that.
Jon Blair (48:42.786)
Dude, I freaking love that. That is so awesome, man. That is so awesome. Well, listen, listen everyone. What we talked about here, unfortunately, is a view of marketing and growth and profitability that I truly believe is not being proliferated enough out in the marketplace. That's why I had Dylan here today. So Dylan, I really couldn't thank you enough for sitting down with me, chatting through this nerdy stuff, and dropping some knowledge for our audience, know, Free to Grow
Dylan Byers (48:46.775)
It is awesome. Yeah.
Jon Blair (49:12.96)
looks forward to working on more mutual clients with you guys now and into the near future. And before we shut it down here, where can people find more information on you and Aplo Group?
Dylan Byers (49:17.783)
Likewise.
Dylan Byers (49:26.743)
Best place is just to go to our website. So Aplogroup.com, that's where we have the most content and we'll generally have the most up -to -date information.
Jon Blair (49:35.756)
Love it, love it. Well, thanks everyone for joining today. Don't forget, if you want more helpful tips on scaling a profit -focused D2C brand, consider following me, Jon Blair, on LinkedIn. And if you're interested in learning more about how Free to Grow's D2C accountants and fractional CFOs can help your brand increase profit and cash flow as you scale, check us out at FreeToGrowCFO.com. And until next time, scale on.
