Podcast: Mastering the Art of Scaling DTC Ad Spend
Episode Summary
In this episode of The Free to Grow CFO podcast, host Jon Blair, founder of Free to Grow CFO, discusses the intricacies of scaling a Direct-to-Consumer (DTC) brand with a profit-focused mindset alongside guest Bryan Cano, VP of Marketing at Nood. They delve into balancing paid acquisition with maintaining profitability and cash flow. Bryan shares his entrepreneurial journey, the path to joining Nood, and his experiences in driving the brand's growth through focused marketing tactics. He outlines the importance of understanding contribution margin dollars, some challenges with attribution post-iOS 14, and insights on optimizing ad spend, including protecting the conversion signal on Meta and the potential influence of Amazon advertising. This episode is a true masterclass for founders and marketers alike, looking to skillfully navigate the complexities of ad spend as they scale.
Meet Bryan Cano
Bryan Cano, VP of Marketing at Nood, is a seasoned marketing professional with 8+ years of experience. He has led data-driven media strategies for DTC and F500 Retail Brands with a proven track record of generating incremental revenue by finding the right marketing mix to drive brand awareness, qualified traffic, conversions, and customer loyalty. Bryan is a growth advisor and mentors early-stage startups.
Episode Transcipt
00:00 Welcome to the Free to Grow CFO Podcast!
02:26 Introducing Bryan Cano, VP of Marketing, Nood
09:23 Scaling Ad Spend: The Right Way vs The Wrong Way
19:01 The Importance of Margins in Scaling Your Brand
28:12 Cross-Functional Planning: The Key to Successful Scaling
29:05 Demystifying Contribution Margin in Business
31:11 The Practical Nuances of Contribution Margin
32:51 The Impact of Rigorous Measurement on Ad Buying Strategies
39:27 Exploring Omni-Channel Performance Measurement
41:09 The Theory of Conversion Signal and Its Impact on Ad Spend
51:58 Final Thoughts and Future Learning Directions
[00:00:00] Jon Blair: Hey, what's happening everyone. Welcome to the Free to Grow CFO podcast, where we talk about all things scaling a DTC brand with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. And for those of you that don't know, Free to Grow as an outsourced accounting and fractional CFO firm built exclusively for growing profit focused e com brands.
All right, today I'm super stoked to be chatting with my buddy, Bryan Cano, VP of marketing at Nood. He and I have been working together, um, at Nood. for about a year and a half. Had some really interesting experiences together, um, you know, driving forward the growth of that brand. I'm not going to take credit for driving forward the growth because it's not me.
It's Bryan and the other incredible marketing resources at Nood. But we've worked hand in hand. On how we balance the scaling, um, the scaling of the brand from a, you know, paid acquisition standpoint and balancing that against profitability and cashflow. And so I'm super excited to have Bryan. Today's talk is going to be chocked full of tons of nuggets for you DTC brand operators.
So, uh, Bryan, welcome. Appreciate having you on man.
[00:01:15] Bryan Cano: Thanks Jon. I appreciate it. Yeah, excited to finally join. I know we've been talking about this for, for months and it's great to finally make time and chat with you.
[00:01:27] Jon Blair: It's hard to get into your schedule, man. You're, you're a busy dude, rightfully so, doing big things over there at Nood. Um, so look, for the audience, I want you guys to all understand, we're going to continue the conversation that we had on our last episode of this, You know, delicate dance that you have to, um, that you have to manage as you're scaling a DTC brand, where you're balancing, leaning in to paid advertising as you're scaling, having to maintain efficiency and balance that with how it's driving profitability.
And then there's even the cashflow component of all of this. Um, gotten some really interesting, um, discussions talking with Ryan Rouse on our last episode. And I'm really stoked to have Bryan here because he has much more of a focused marketing background that's led up to his time at Nood. And so I think, um, I think that you're all going to find some really, really helpful tips and traps to avoid as you're working on scaling your own D2C brand.
So before we really get into the weeds on this topic, Bryan, I'd love for you to just take the audience through a little bit about your background and your entrepreneurial journey that ultimately, um, you know, ended, journey's not over, but in this chapter, ended with you, you, uh, arriving at Nood
[00:02:46] Bryan Cano: okay, yeah.
Well, uh, you see, when I was three years old, no, I'm just kidding, um, I think it really began for me, In in college out of necessity to, you know, to pay through school, um, had nothing to do with marketing, but I didn't realize at the time that that's what I was doing. And it was in college. I was, uh. Uh, working at an accelerator program, um, where they were doing seed investments, 50 to 100, 000 checks to multiple startups.
Um, I was, I was volunteering, right? It wasn't getting paid, but I was just kind of there and I was around and I was like, oh, this is really interesting. I like, you know, um, I want to be an entrepreneurial entrepreneur. And I want to be around some of these folks that think this way. And one of these guys, um, he was, uh, the CMO, or he was like the VP of digital over at, uh, Cellucor.
It's a nutrients company, but he was, you know, doing this like Amazon arbitrage thing. And he taught me a lot about that private labeling. And I was like, okay, this is awesome. So, uh, really my marketing career kicked off. When I, you know, source some products from from China, this is back in 2014 as well.
And, you know, we needed to sell them. So did kind of like an email sign up very simple website and ran ads. And I was like, awesome. And, you know, I turned this small investment and doubled it. And I just did that. And like, that's pretty much how I went through and pay my way through college. Fast forward, ended up starting my own agency.
Um, and I shuttered the agency because I couldn't scale it in terms of human, like resourcing. I had the clients, but I just couldn't find the right people that were as passionate about this as I was. And so shuttered the agency and ended up working at a different ad tech firm called Stitcher ads. Um, at Stitcher ads, I, Became the senior director of media strategy, creative media strategy.
And then, uh, uh, basically worked with a series of, of enterprise fortune 500, uh, brands, retailer and non retail brands, um, and oversaw creative and media strategy. We ended up getting acquired and during the acquisition, I ended up becoming the director of efficacy at the car, at the company that we were acquired by, and that's just a long title saying that I was in charge of measurement.
So. I ended up being in charge of measurement and media strategy for the entire organization. Continue to work with the existing brands. And this is kind of where I started to start to look for more. Um, and a mutual friend of, of Sam Garst, who's the founder at Nood, uh, and myself, he introduced, uh, Sam and I.
And we hit it off, had a couple of beers, and I ended up joining Nood as a contractor in October of 2021. Um, so right before holiday. Uh, and that was kind of the start of the journey with, with Sam and I. Um, you know, I stood as a contractor and during that period we were scaling aggressively. Um, and it got to a point where it just made sense for me to join full time.
Um, so. You know, we, we, we was sort of accidental. I wasn't looking, um, but, you know, that, that mutual friend of ours, I think they were like, on a trip to Cancun or something. They were on the beach in Mexico and Sam was just complaining about how he couldn't get past a certain point. The business was having a hard time scaling.
And, um, Peter, uh, shout out Peter, uh, was like, hey, you need to talk to my buddy, Bryan. And so, uh, that's really sort of how the, you know, Sam and I got together and started working on Nood.
[00:06:34] Jon Blair: I love it. Um, just for, uh, for, uh, the audience audiences sake, Sam is going to be on the podcast sometime several weeks from now.
We're still working on, uh, uh, getting him scheduled. He's a super busy guy, CEO at Nood. Um, you'll be able to hear the story from his point of view. Hopefully he says, uh, Talks about it in similar, similar light. Finding Bryan. No, that's a joke. But, um, okay, so there's a couple of things I want to double click into here.
So I started working with Nood as a fractional CFO, believe in July of 2022. So about a year and a half ish ago, getting close to two years. And I remember meeting Sam. And him saying, I go into a team happy hour that he invited me to you were there. That's where I met you. And, um, I remember Sam saying this distinctly to me.
I love Bryan because he's not afraid to spend ad dollars. And now that, that might sound kind of weird to. People listening because I think a lot of DTC brands are really concerned about the Irresponsible spend that oftentimes happens right from ad buyers and both independent You know freelancers in house ad buyers and and also on the agency front But my perspective has really, really changed on scaling having worked with you because I would say before meeting you, I was on that other side of the fence, which a lot of our audience probably is, is that like, Oh, ad buyers just want to spend all my money and, and, um, you know, frivolously because they get, they oftentimes get paid a percentage of, of ad spend or a percentage of revenue.
Right. And so it's just in their best interest, but working with you, I really realized let's be honest with ourselves, unless you have another acquisition engine outside of paid advertising, which there are some brands that do, there are some creator led brands that have really strong organic, um, kind of like top of funnel, right?
But that's not most brands that would, I'd say that's absolutely the exception and not the rule. And what I learned from Bryan is you have to be able, you have to be willing to, to build out a track of, of increasing spend incrementally on a daily basis or a weekly basis or every other day, some schedule, because if you don't scale spend, you won't scale your brand unless you have some non ad driven, um, Acquisition engine and that really changed my whole perspective seeing what what you have done And I you know, I can't name any numbers because it's confidential but just so the so the audience knows Bryan and Sam Scaled and on the back of Bryan's ad spend they they scaled from zero To healthy eight figures in like two years.
It was absolutely incredible and So walk me through a little bit, Bryan, like, obviously we don't have enough time to get into all the nuances. But walk me through how you think about the best practices involved in, in like laying out a schedule or a plan to scale ad spend over time. Because there's a right way to do it and a wrong way to do it.
I think you are, your brain is filled with tons of best practices and lessons learned on the right ways to do that.
[00:09:52] Bryan Cano: Well, and I've seen first hand the wrong way. Um, You know, I'll give a quick anecdote before I think a year and a half, maybe two years before I was working with with Nood, I was working on a different company in Australia, and they brought it brought me on to basically help them with their go to market for the U.
S. And they really wanted to scale. And I like I five X this business in in three months. Um, and against all like red flags, We did, we like scaled, you know, they were hitting record breaking numbers five X in, in just a few months and their business was not prepared to handle it. Um, acquisition row as all of, you know, the Mer all of our, our metrics and KPIs to measure the, the efficiency of our ad spend.
Those were holding things were great. In fact, there was more signal things were even performing slightly better by like five, five to 10%. But everything else that's behind the scenes that I think people often forget about, and it's not as glamorous, it's not the thing that comes to mind, that all unfortunately was overlooked.
And margins were squeezed. I think the gross margins of the business were like 60, 60%, 65%. And after everything, it got squeezed down to like three to five. Um, I'm talking the number of customer service agents that they needed to hire. The logistics and fulfillment. Pick, pick and pack. They had their own warehouse.
Um, they were out of Australia so they could very easily source, pick and pack right there and then ship out. So they needed to hire a lot more people, not just that, but the people that they had, they had to pay overtime to handle the influx of orders. Um, so tons of human capital. Just got sucked up right there, not taking into account things like returns, higher return volume from the previous months, right?
As, as you sort of, you know, you, you, you start to hit those, um, those sort of, uh, stair stepping scales, scale exercises, and, um, just a, a plethora of these hidden expenses started to like surface up, completely ate the margins of the business. And so I think with, you know, seeing that, that. First hand, it's kind of created this, this, um, checks and balances, if you will, sort of a checklist.
And I think that's what we did exceptionally well with you with you is having very candid and transparent conversations about can we afford this? What does it look like? How do our lines of credit if we needed to pull the trigger? On supplementing, um, any op ex, like, do we have, do we have the, the, the credit or the funds to do?
So, um, and there were a lot of terminology ended up learning from you, like, quit working capital. Right? And like, how many, um, what, what is the. The future debt and how does that affect the net quick working capital and all of that? And I thought that's that was absolutely brilliant when we, when we going back to your question of how, um, laid out a plan to scale new, it's actually quite simple, right?
You want to basically lay out, you know, a spreadsheet where 1 column is all of your days or your weeks and you just put it together. Go all the way down for the rest of the year. Um, the next column is your current spend. That'll be your actuals column. And then you'll have two additional columns where it'll be your forecast spend and your, like, you know, your, your, um, your scale plan.
And so your scale plan is really what's driving the scale, right? So, Let's say your scale plan is. We want to scale every other week, and so we want to scale every other week by 20%. And how we do that is by scaling, you know, 10 percent on Mondays, Wednesdays and Fridays, uh, because those are our best days.
And it, you know, we give a little bit of breathing room before. And so you would go into the spreadsheet on Mondays, Wednesday, Fridays, you type in 10%. And you would basically map out your forecasted spend to increase 10 percent on those given days. And then you can check in and see, okay, are we, does this plan allow us to scale every two weeks by our target spend plan?
Um, and you, As you get your actuals in, you punch those in and you course correct the scale plan. So maybe you did 30%. It was a phenomenal week. So 30% is what we did last week. We want to continue our pace of 10% every other week. So now the plan is elevated a little bit more and what the beauty of that it's, it's one, it's so simple.
Two, you're actually seeing where your spend, you know what your spend is. And so. There gets to a point where like that 10% increase is not as simple, right? Going from $500 to $550 is very different from going from, um, you know, a hundred thousand dollars to $110,000. And so I think you definitely want to be, you know, realistic and, and not, um.
And look out for those, those, those periods where the scale plan doesn't work anymore. It just doesn't make sense. And you want to pull back those numbers or keep them flat. The biggest advice I have for people is stair stepping your scale. It should not be linear. It should not just be up into the right.
It should be like going up up a series of stairs. So, cool. You scale and then you hold for a little bit, right? Like give yourself about a week or two to hold to make sure that one things are stable too, that there aren't any of those hidden traps, right? That the business isn't aware of customer service tickets returns, maybe because you rushed.
This batch of inventory, the quality assurance of the factory has come down because they just need to get product out of the door. And so maybe there's defects or maybe there's like lower quality products that are now getting returned. So you want to give yourself about a week, um, and maybe a week isn't long enough.
So really based on your business, but give yourself time to make sure that things are stable and then go back up and scale. And then give yourself time up and scale and give yourself and I think that is, it takes a lot of discipline. You have to be very transparent and honest. And one, are we hitting the pace?
Are we going too aggressive? We need a, we need to stick to the plan. Um, and it sort of requires patience because when you see that things are going well, you're going to want to go, well, let's just flatten that out and get aggressive and go up into the right. Sure. I think we had, this was like a topic of discussion of many times with uh, Send you an eye where You know, there was a lot of eagerness and, you know, we almost wanted to like flatten those stairs out and just say, no, no, no.
Like, let's just go, let's just keep going. It's like, no, we, we, we definitely need to establish that discipline because it's the only way when you give yourself a breathing room and you try to stabilize and you say, okay, what does it look, what does the business look like when we are at this pace for a little bit?
That's when you start to surface all of the issues and you want to surface those early on when your spend is up. Is down here for sure. I'd like 10, 000 a day versus when your spend is like up here at 100, 000 a day, that the magnitude of the problems just becomes so much larger. So it's best to catch them early.
[00:17:08] Jon Blair: So believe it or not, Bryan, that advice right there is next level for probably most of the people listening. To this, uh, podcast and a lot of the brands that we work with. Um, there aren't, there are, there are plenty of really talented ad buyers out there, but there are more that don't know what they're doing than there are ones that are really, really talented.
So unfortunately I think a lot of DTC brands get. They get freaked out and become gun shy because they've had some bad experiences with some poor, um, ad buyers. But what you just laid out there, honestly, I got a masterclass in this, just working with you for the last year and a half and learned a lot more.
I thought I knew about scaling ad spend until I worked with you in Nood and, uh, realize how much I didn't know. There's a couple of things I want to summarize to point out here so that the audience can, uh, Kind of let this sink into their mind. One, the days of the week thing. Super huge, right? You hear how Bryan was being very intentional about what days of the week should he scale spend?
Because he had data on which days performed better than others and he wanted to scale into the days where where new typically has better performance. That's super huge. The other thing is the stair stepping, right? Is that you have some period where when you increase spend you're staying level. And you're, you're, you're watching the data and making sure your performance is holding before you take the next stair step.
And then, um, you know, knowing when to pull back or just hold because your, your, your marketing efficiency ratio, or what we call Murr at Nood. And I, um, a lot of people call it M A M E R because of Bryan and Sam, I call it Murr and I've, and I've been spreading that, um, uh, across our client base, but that's a side note, but yeah, knowing when to pull back.
When your MERS is, is breaking down, knowing when to hold or pull back. Now, I want to dig into something that Bryan talked about, uh, for a second, um, which was margins and how important that is. Gross margin, which at Free to Grow CFO, we call gross margin, the margin that just takes into account landed product costs.
And then after that we back out, um, uh, shipping and fulfillment and credit card fees. And we call that contribution margin before marketing. You know, again, we can't name specific numbers, but Nood has healthy contribution margin before marketing. There's a lot of room. I would say there's above average room to spend, um, to spend on advertising relative to the average DTC brand.
Um, walk through, I just love to hear a little bit from you when you've got healthy margins to work with, right? How does, how does that change the calculus? Calculus. of your planning and what you feel that you're able to do in terms of scaling ad spend and kind of compare like, hey, I've got two scenarios.
I've either got a brand with like really healthy contribution margin versus before marketing or another one that's quite a bit slimmer. How does that change what you think is possible and how you set forward, set forth a, um, a scaling plan from the ad buying perspective?
[00:20:24] Bryan Cano: Yeah. Um, you know, when you have healthy contribution margins just before marketing, it allows you to afford a higher customer acquisition cost.
In short, you can be way more aggressive. Now, you want to find this balance between efficiency. And I was actually talking to a, um, a buddy, uh, Cody Plofker over at Jones Road Beauty. He's a CMO at, uh, uh, with them. And he recently switched from looking at contribution margin ratio or the percent. Uh, and started looking at contribution margin dollars.
He wants volume of dollars. And he's like, you know what, if my margin goes from 10 percent or 15 or theirs is probably higher. My margin goes from 30 percent and it squeezes all the way down to 15 or 10. that's okay because I'm yielding more volume. And so I think this is where you need to have a very honest conversation and really establish the KPI.
That you're after and look like we want we want our cake and we want to eat it too in terms of well We want volume we want efficiency Let's have both but you you have to prioritize one or there has to be agreement on prioritizing one or else you're just gonna You're gonna try to solve for them both and you're gonna be you're gonna get stuck You're not gonna be able to scale this way if you want to solve for both just don't spend scale show that But I think I think the biggest, you know, when it comes to how do you think about it between a high margin?
You Contribution margin brand before marketing versus low, you need to really plot out and exercise. And I think working with a CFO team, like, like Jon, where you can look at both scenarios and you can like scale them out and you say, okay, at 5, 000 daily spend at this row ass, it's basically a matrix, right?
Spend on one column row as on the other going from zero spend to say 50, 000 daily spend and then going from like a 1. 5 row as, um, below your break, even all the way up to, you know, well above your break, even you want to see, like, what is the, what is the ratio contribution margin ratio is a 10 percent over here.
Is it 50 percent over here? What about down here? How's how's that compare? And you want to basically look at, look at that table and say, okay, where, where are we happy? Okay. We're happy at spending a hundred thousand dollars a day and spend, and maybe we're happy doing that at a 2. 5x ROAS. Or you know what?
Maybe that Is equivalent to spending 25, 000 a day of spend at a three XRO ads. And so you really need to have that conversation and what is best for your business, right? Are you going for market share? Are you going for profitability and sort of steady profit or growth? Because you're you in the next two, three years, you need to show year over year growth.
So you want to keep things slow and stable. Um, and I think that's where you need to really understand the vision of your Of your business. Um, you need to, you know, kind of get a sense of what is the most important thing. If you're in a hyper competitive space, maybe you need to be more aggressive than you normally would, because you need to be the number 1 in the space, or if you are in a less saturated space, and you're kind of creating the category a little bit, you can go a little bit slow and steady, because.
There's a lot more white space. You don't have a ton of competitors, but I, I think that's the biggest, um, the, the, the most important exercises is laying that out and sort of comparing the 2 and if you have high contribution margins, then I'll say you can probably afford a lower, uh, Sorry, higher CAC a lower row as if you have squeezed in margins, you're definitely going to need to find what is that balance because your margins are already tight.
And I think this this then opens up the conversation of do we have any lifetime value? Um, I worked with brands before where, like, their row as goal. Was a 0. 7. They were like, Bryan, anything above a 0. 7, we're, we're ecstatic. We're happy. And, you know, and at first glance, you're like, well, wait a second, this business wants to lose money, but they had such an incredible product that just drove an insane amount of repeat that a 0.
7 allowed them to be hyper aggressive. Their margins were already squeezed. They didn't have a ton of contribution margin to begin with. So 0. 7 was like, this is what works for us. And they were really banking on a two. to one CAC ratio, LTV to CAC ratio. So they were looking to get paid back within two months.
And it worked for them, right? It takes a little bit more sophistication and money out, money out, money in, um, because they're, they're really like, at first they were leaning on tons of lines of credit and debt, but now they've got this such strong customer base that all of this, the recurrent revenue is what's driving future revenue.
And so, we're They have to think about it a little bit more, more, um, a little bit more laid out of like, okay, what is the current cashflow of our existing and how many new customers can that afford to get us? And then next month, now that we have acquired those, those customers, we know someone we're going to come back and how does that help us with future acquisitions?
So they really think about it in cohort cycles. Um, but you know, a lot of this is going to be dependent on your brand, but there's definitely some options there, right? You can go super aggressive, low, Row as high CAC, or you can go more methodical, and then if your margins are squeezed, you need, you need a, some sort of LTV or repeat, uh, in order to be able to scale.
If not, I would solve for that first before scaling.
[00:25:57] Jon Blair: Totally, totally. No, I, that's such great advice. And I want to call something out here that like, uh, I want to bring awareness to some, something. That, um, that I'm noticing in what Bryan is walking, um, you guys through in this episode. Bryan is VP of Marketing.
But he's sitting here talking about awareness of cash flow. And awareness of operational, operations ability to keep up with scaling ad spend. He's talking about contribution margin dollars. These are all non marketing. Aspects of a DTC brand. And the point I want to make for everyone is that whoever's driving the marketing strategy in your business and definitely whoever's driving the ad spend strategy, they can't do it in a vacuum, right?
They need to be aware of your operations functions ability. To keep up, they need to understand how what they're doing is impacting cashflow. They need to understand how what they're doing is impacting profitability and hopefully with a lens on contribution margin dollars and how they're driving contribution margin dollars.
Um, when I first started working with Bryan at Nood, I distinctly remember many different conversations of like, Hey, I think I can scale ad spend. And But am I going to sell through all of our inventory? Um, and like, are you sure we're not going to run out of inventory, Jon? Cause I can scale this ad spend, but if I run, if we run out of inventory, it's going to screw up my conversion signal.
I'm going to have to cut spend and I'm going to have to start at a new floor. And so that whole stair step that we're, that we've been talking about for the last little bit here. He has to start at the bottom of that staircase again because we ran out of inventory and he's got to do it all over again.
There's no magic, like just coming straight back up to the floor that the spend floor that you were at before you ran out of inventory. And so, um, the awareness of. Whoever's driving marketing has to have keen awareness and connecting points, connecting communication and reporting points to your operations team and your finance team.
One thing that, that we started doing at Nood like a year and a half ago was something, um, That I put in place at Guardian bikes and kind of brought that to Nood when I started working with them as a fractional CFO, which is what we call our cross functional planning meeting. It's a 30 minute touch base once a week.
We now do it once every other week, but like some regular touch base where you have whoever owns inventory planning. Whoever owns ad spend and then whoever owns cash planning and basically like your projections and forecasting from a financial standpoint. And it's a simple meeting to make sure everyone's on the same page.
Cause it takes, it's a three legged stool is the way that I like to think about it. If you take one of those legs off the stool falls over. Right. Um, and so. Super, super important that your marketing spend is done, is planned out and executed in a cross functional context. And then, so there's one other thing I want to dive into a little bit deeper.
I talk about this a lot on LinkedIn, and it's a hot topic out in the marketplace, contribution margin. But dollars versus what's called the contribution margin ratio, which is the percentage of revenue. It's important to know the percentage of revenue. But what I always like to say is percentages of revenue don't pay bills, dollars pay bills, right?
So it depends, it matters how many dollars you're generating. And for those of you who don't know, contribution margin, dollars, the definition is, is net revenue minus all variable costs. So variable costs meaning landed product costs, shipping and fulfillment, credit card fees and advertising spend. So what, what is contribution margin dollars represent?
Here's what it represents. The number of dollars left over after a customer is acquired and an order is fulfilled. It's the dollars that stay in your bank account that are available to contribute to or cover your fixed overhead. Right? And if you generate more contribution margin dollars than your fixed overhead, those contribution margin dollars then contribute to or increase bottom line profitability.
And so what Bryan was talking about earlier was, hey, the percentage, you should know it. It should be one of your KPIs. But what really matters is how many dollars of contribution margin you're generating after your ad spend, because that's what covers your overhead. And then hopefully, covers your overhead and drops to your bottom line profitability.
And there are times in which this isn't always the case. We tested this a lot at Nood. There were times when we tried to scale spend and our contribution margin ratio or percentage of revenue went so low that we actually generated less dollars, right? But there is this counter counterintuitive situation where you actually can spend more.
And your, your ROAS or your MER comes down, but you actually can generate more contribution margin dollars. And that's, that's what generally speaking, if you're trying to maximize profitability or increased profitability, it's the margin dollars that matter. Now. Now, here's the nuance in practice, and I'd love to talk about this a little bit, because honestly, I honed this skill, no joke, in large part, working with Bryan.
And, like, let's not, let's be fair to Sam. Sam gets a lot of credit for this, too, and I know you'll agree, Bryan, like, Sam has been, um, very, Um, rigorous about making us focus on daily contribution margin dollars with rightfully so. Like I have a lot of respect for Sam forcing us to really focus on that and forcing us to figure out how to measure that as accurately as possible.
Like, um, and, and I don't wanna go on a tangent, but there's just so much that we have developed organically in terms of a process of how finance and marketing should work together. Specifically at Nood. Like, like Bryan. Is tracking contribution margin dollars generated on a daily basis. And at the end of the month, we're almost dead on with our actuals when the financials get closed.
Right. And, um, it, it, it's a, it's a partnership like finance. I'm always letting Bryan know, Hey, our margins have changed a little bit. You need to change your formula and here's why they've changed. Oh, we've changed price points. If we change price points, our contribution margin for each order is going to be this.
In on Amazon and this on direct. So it's definitely a partnership, but I, I just want everyone to understand, like we are measuring contribution margin dollars on a daily basis and our estimate almost perfectly ladders up to the financials at the end of every month, a lot of rigor, but not rocket science, totally doable, right?
It's totally, totally doable. How has that changed your perspective on ad buying? On a day in and day out like us getting so rigorous about we We can forecast on a daily basis contribution margin dollars that we think we've generated and it's so accurate.
[00:33:10] Bryan Cano: I, I think it's, well, before I dive into the question, I've, I've, man, it's, it's an ever changing, it's an ever growing continual progression and, and just improvement, I guess, of this.
It's been improvement for, Well over a year now and I don't know if you saw the latest so every morning at six in the morning is it 6 58 a. m We get a slack notification. That's automatic and it's basically the previous day's report and it's got contribution dollar margin It's got contribution dollars.
It's got it by channel amazon versus Versus shopify and then the latest edition in this Um, exercise towards progress and improvement. The latest edition is I've added rolling 7 day for 8 to 14 day, 15 to 21 day and 22 to 28 days. So, basically, I have, like, week 1, week 2, week 3, week 4 to see the progression.
Um, that's the latest edition over the weekend. Um. So yeah, so we're, we're measuring this thing and we all check
[00:34:11] Jon Blair: it every day. I still, I work with several other brands and I still check it every single day, seven days a week, just because I want it.
[00:34:18] Bryan Cano: Yeah. I wake up. It's the first thing I look at in the morning.
Um, but how has this affected my, you know, my ability to media buy and just execute marketing in general? Oh my gosh. It is. You know, measurement and attribution is something that's so difficult and the platforms, yes, they try. And, you know, you, you try to make, make the, uh, you know, find the right tools. And there are certainly tools that help.
But if you are like, look, we were, we're, you know, we're, we don't have the funds to invest on a 5, 000 attribution platform. We're a measurement partner. This will allow you to measure very simply put because When you activate these funds You will see the impact in your contribution margin dollars. And when you are doing this on a daily basis, you can definitely see Um that impact right whether there is an impact or not.
I'll give you a plethora of examples one Um, one day I was just like, you know what, let's cut Amazon spend. Just cut it entirely. I don't believe Amazon I've yet to be given proof and evidence and reason to believe that Amazon is incremented to the business. We were spending about a hundred thousand dollars on Amazon ads.
Cut it. Next day, contribution margin dollars hold contribution margins. Well, when you look at them side by side, they, that holds in fact, not, sorry, not, not, it didn't hold. It got better. Yeah, it got
[00:35:44] Jon Blair: way better. It got way better.
[00:35:46] Bryan Cano: Money. And we were. That money that we just cut, the expense, was added directly into our contribution to our margin.
And that stuck. I was like, hold that for about 2 3 weeks. It stayed the same. To this day, we cut this back in November. Risky move, doing this before holiday. We cut it in November. Still the same margin. Great validation. We don't need Amazon ads that didn't take a rocket science measurement tool or match market Geotesting with holdouts and all this stuff.
You can definitely do that and I would have a much more accurate view but This this just measuring on a daily basis just allows you to get more accurate right now I'm gonna be doing some stuff with TV and snapchat and tick tocking of scaling tick tock ads And these are, these are platforms that are very view through heavy, they're very difficult to measure.
There's not a ton of click involved, but the beauty of measuring contribution dollars on a daily basis is that when I deploy this capital, I will see the impact right away. Now, maybe I won't see the impact on day one or day two, but I'll definitely see the impact by week two or week three. And I can make a very quick decision and say, okay.
I spent 10, 000 dollars and now I'm my, my daily contribution margin is, uh, or dollar ratio is 10, 10, 000 dollars less than the average. And it's continued to be 10, 000 dollars less. It's probably not an incremental expense, you know, so
[00:37:14] Jon Blair: I love that. I love that
[00:37:15] Bryan Cano: super methodical and very, um, intentional with your media buys versus kind of putting it out into the air and relying on some sort of attribution tool to tell you what's happening.
You actually.
[00:37:28] Jon Blair: Yeah, man, we're going to have to talk another time because, um, we're not going to get to everything that I've learned on, on the scaling ad spend front today. But let's just, let's just keep riffing on, on what we can hear. There's like three different things I want to dive into on what you just said.
I'm going to have to choose one. Um, okay. First off, it is in the world of attribution being just super challenging, right? And other issues like Shopify. I mean, sorry, TripleWhale has ad spend in their ROAS calculation. You have to manually know how to take that out. There's like so many issues with attribution platform tools.
Not that they're useless, but that, you know, fair warning. Know how to use them. Know what's actually behind the data, right? But given that that's the world we're in, post iOS 14, like, for Nood to be able to make it, it, incremental ad spend change, whether it's in a different, a new channel or within existing channels and come back and look at the daily impact to contribution margin dollars.
That is huge in terms of assessing, because at the end of the day, isn't that what matters, right? What matters is that the changes you make on the ad spend front, they either positively impact bottom line, which the best way to measure it is contribution margin dollars. Or they negatively impact it. So now you have to be methodical.
We can't make a bunch of different changes all in the same day and then assume that one of those is what's impacting contribution margin dollars, right? So you've got to be methodical about it. No different than doing a A B test that you run with some A B testing app, right? Um, but if you see contribution margin dollars heading in the right direction, heading up as you're making these changes and it's doing so.
in a positive correlation with these ad spend changes that you're making, then you can likely assume that that move is incremental to your bottom line. That's what Bryan is saying. Um, okay. So I want to talk about, I want to double click into the omni channel performance measurement. So that Nood we've, we've got Amazon and Shopify as, or we'll call it Amazon and meta, right.
As like the primary, um, Kind of like the primary drivers. Yes, Google. Google's a part of it all, right? Like you can't disconnect Google from Meta, but let's just say like we think about the businesses Direct being Shopify and Amazon and There's been a lot of messing around with ad spend allocations on the Amazon side of things, right?
And like, there's no doubt, no doubt, that like, Amazon, that meta is driving, that top of funnel spend is definitely driving demand on Amazon. And there's always been this question mark around like, okay, the PPC advertising on Amazon. Is it actually doing anything? Right? Or is it just all coming from meta and are we just basically like cannibalizing our margin by double spending by spending on the PPC side of things on the Amazon platform.
Bryan and Sam have done a lot of very interesting tests. But I want to talk specifically because this is something I would have never thought of. Um, you brought it up to me many times and I would say that we've had at least a few instances where it appears that this kind of theory you had is true. Um, Is validated.
Talk about the conversion signal. This theory you have about the conversion signal on Meta and how what you do on Amazon from an advertising ad spend standpoint might be messing with that conversion signal.
[00:41:09] Bryan Cano: Oh, yeah. So,
[00:41:11] Jon Blair: by the way, I'm gonna cut you off. This was next level to me. I think this is going to be next level to a lot of people.
And again, it's still a theory. We don't have necessarily empirical evidence, but we have data that shows a, a, a direct correlation. And so I believe it to be true.
[00:41:29] Bryan Cano: So I think we need to start with like the. You know, the, um, things we, we absolutely know there is a market of people that will only buy on Amazon, right?
They are just, they, they just prefer it. They pay for prime. They want to get the most out of prime. They, they like the faster shipping or the, uh, the customer guarantees and protection. And so that group of customers will always be there. And then you have this sort of tranche of customers that exist, and they're kind of like.
Don't buy on Amazon. It's more of a convenience thing, right? But don't also buy from your site. And if you know, it's really wherever the best deal is. And then you have the tranche of customers that are like, eh, I don't really prefer Amazon. I'd rather just buy from the site. I'm comfortable buying from the site.
So those three tranches of customers. So these two on the extreme, the tranche that only buys on Amazon and the tranche that's going to buy on Shopify, they. They're there, they're going to exist. It's the middle crowd that worries me. And what we discovered is that when we play around, and this is almost, I don't even know if this was intentional.
I think it was accidental. We had to do this because of retail partnerships where we had a price match with our retailers. Um, so we're, we're in Best Buy and Target. And they were like, Hey, Your price on Amazon is a lot lower than our price on our website. What's the deal? So we're like, oops, sorry. So we raised the price on Amazon and, uh, that created a price variance.
So we used to have this price match right between Amazon and Shopify. And Amazon was about 30%, 30 to 35 percent of Shopify. Meaning that Amazon as a, and by this time we had already cut our ads on Amazon. So just buying proxy of Halo. Effect from our meta ads and all the awareness. The brand's been driving.
Um, 35 percent of sales would move over into Amazon when we increase the price. That number dropped down from 35 30 to 35 all the way down to like 12 to 15. So it nearly cut in half and the sort of a. A 30 price change will cause that. So then this raises questions like, okay, wait a second. What, what is this relationship between price disparity between the two channels and the percent of sales?
And we started to play around and test it. And this is when I started to sort of. Realize that, uh, whenever we drive more sales volume back into Shopify, you are protecting the conversion signal of your ad auctions and
[00:44:05] Jon Blair: on meta, your meta ad option. Yes, specifically
[00:44:07] Bryan Cano: on meta. And I think that's the most important, right?
So you have a business that we know is driving a halo effect from, you know, from meta ads to Amazon. We know that a percentage of those conversions that meta is driving are. Not being given back to the platform. Um, you know, as as conversion signal and I'll, I'll, I'll tap into that in a second. And we know that meta is your, is your primary sales engine.
So we kind of, I kind of came to with this philosophy of we have to protect ourselves engine. We need meta to to realize that the ads that it's serving to all of these people. That they are actual buyers so that it can get better at finding next tranche of buyers. And my concern was, um, because then we, we started to play around with price and they're like, wait, but there's more margin on Amazon or there's less margin on Amazon.
And my concern was that all like this tranche of people that should be buying on Shopify are now buying on Amazon. There's a few concerns there. One, the obvious one is I don't own those customers. Amazon does. Those are Amazon's customers. They keep the. Personal identifiable information, I don't, um, so any email addresses, if I want to do remarketing or anything like that lookalikes, that's all gone.
But more importantly, um, the conversion signal on meta. I have this theory that basically. If meta is serving the ad to the right customer and then that right customer is not buying right in meta's eyes It's because you're buying on amazon not in there because they're buying on amazon It's gonna think that this is not the right customer needs to go and experiment and try to find other pockets of customers instead Again meta operates on an o cpm auction.
It's an optimized cpm auction meaning The price is dynamic. It, each user is a different value based on the propensity of that user, the confidence of that user to actually convert for your, for your site. And so, um, the closest I got to actually measuring this was we basically dropped the price back down to price matching.
This was around December and January, and then we like raised the price back up. And I did see an immediate boost to conversion to Metas conversion rate and Metas ROAS. I think we were, you know. I can't give numbers, but it was like about a 15 to 20 percent improvement in row as week over week from whenever the price was the same and those people were buying on Amazon to when we increased the price, obviously that's because those people are buying.
And so the, the platform believes it's a higher row as, but if you've got different bidding strategies or you're trying to optimize for return on Aspen on metas, Uh, auction having that signal is going to be crucial to to effectively media buy, especially if you have media buyers that aren't close to the business to the financials, right?
Like I had the luxury to look at the business and say, Oh, yeah, this is the impact. But if you've got agencies or you've got people that are a bit more separated from the finance, they're going to legitimately think that the row is that they're seeing is bad. And they're going to make bad decisions, wrong decisions.
I should, I should say on which ads to pause or scale because the signal isn't being fed back into the, uh, into the ad auction,
[00:47:27] Jon Blair: man, next level advice for the people listening right now. Now, again, this is a theory. Don't, um, spend all of your dollars on feeding the meta beast and then come back and send Bryan really angry emails that, that he was wrong.
But I, I think it's important to share this learning. This might be happening to you if you have both a Shopify and Amazon store. So definitely something to think about. Definitely something to think about. Not all sales are equal and understanding how the, the meta algorithm works is super, super important.
That's one place where Bryan knows a lot.
[00:48:01] Bryan Cano: I think. Well, you just said there's probably the most important. I think this is that in that next level of progression, right? And continuing to get better, not every cell is equal. That is that's important across all channels of your business. So Amazon versus Shopify, do you have a lower or higher return rate between one or the other?
Right. Keep in mind how that contribution margin formula is calculated. Returns go into that. So if your return rate is higher, On one channel, and it's significantly lower on the other channel, the contribution margin ratio between those two channels is going to be different. One of those channels may just inherently be more profitable to acquire on than the other.
Maybe shipping, if you're in like beverage, shipping on Shopify is going to be, is going to kill your margins versus shipping on Amazon. There is no, you know, it's FBA. So think about those. And then not just that, but Um, also like meta ads versus Google versus TikTok, um, or even email and SMS, right? Like, do you have to send out three emails that have little images that eat into your margin for, uh, or, sorry, uh, text messages that eat into your margin to acquire a customer?
Or can you send a plain text email to acquire that same customer that's gonna have a difference in your margin? And you're in your, uh, your contribution margin ratio. Same with meta ads for TikTok ads, especially if like we have to offer 20 percent off on meta ads, but on TikTok, we can do it through shops and TikTok is subsidizing the discount for us.
So we have a higher margin there. So I think like we've done an exceptional job at looking at a channel holistically and even at channel level between Amazon and Shopify. Um, I am now getting curious and going down to like the chat, my acquisition channels and saying like, okay, meta versus tick tock.
Where can I like squeeze more profitability out of this and how like, How to not get misguided by a higher ROAS number because the ROAS number may be higher over here But the margin may actually be lower versus this one. The ROAS is lower, but the margin is higher So thinking about it that way I think is uh, is is key as well.
[00:50:09] Jon Blair: All right, everyone This was a master class in scaling ad spend again without mentioning specific numbers Bryan over his career, uh, he's managed millions of dollars of ad spend a month himself. Right. Um, not a lot of people can say that. And so these learnings are coming from someone who's been in the trenches.
Mind you not, not all easy. I've had plenty of Bryan has had plenty of sleepless nights and I mean, it takes dedication and you have to roll with the ups and the winds as much as you have to roll with the downs and the valleys and like Um, again, it's not all up into the right, it's stairstep. And I would even say it's probably a little bit more like the stock market.
You got to retreat sometimes and then stairstep back up and then retreat, but you're always retreating hopefully to a new floor that's higher than your previous floor. Right? And so the scaling of ad spend is a journey. If you want to be holding it within the profitability constraints that you have as a business, keep in mind.
Nood is completely bootstrapped. Like they, they, there's a small amount of capital that the founder, Sam started this business with. And other than that, just lines of credit that I've helped the business get, um, that they've scaled to very healthy eight figures. So, um, if you're, if you want to, if the lessons you're learning here are from, you know, Bryan, you're very humble, so it's okay if you don't agree with this, Bryan is a ad spend scaling guru.
Managed millions of dollars of ad spend a month for many years and has helped scale a bootstrap brand to that point. So super, super, Um, again, just like a PhD masterclass here on like some of the do's and don'ts, um, of scaling your ad spend. Before we end, I'd love to just have you share with the audience because I know you personally that you're like a lifelong learner.
What's something you're reading or listening to or learning right now that has just like really really been impactful for you recently?
[00:52:14] Bryan Cano: Wow, um Hmm,
I think right now the where I'm most interested is in Um, obviously as, as everyone is, but I think really more in terms of how do I productize some of my learnings and ideas and not productize it to sell it, but productize it in a way to like, help me. So I've been playing around with a lot of the, uh, GPTs and watching a lot of YouTube videos and.
I'm putting that to the exercise, so I have all my training manuals from when I was a manager of media buyers and all of these, like, data samples and I'm feeding the GPT and I'm basically looking to train it to, in a way, try to it. Clone my brain, if you will. That's so cool to the point. I've got it to the point now where you can export your data and you can upload it into the GPT and it'll tell you.
Here's what I'm seeing. Here's the optimizations you should make. Um, and basically, it lays out a test and learn for you with, like, next steps based on the data. So you give it, like, creative level data or ad set level data, and it's. It does this. It's not always a hundred percent. I'm still tweaking it, but, uh, that's been kind of this like little hobby or it's becoming a hobby is how do I, uh, train an AI to think like me as a, as a, uh, marketer and media buyer.
[00:53:36] Jon Blair: Dang, I'm going to have to get into that. I'm going to be picking your brain on that outside of this. Um, so lastly, where can people find more info on what you guys are doing over at Nood?
[00:53:47] Bryan Cano: Yeah, uh, LinkedIn's always the best, uh, it's just my name, Bryan Cano, C A N O, um, is my, is my LinkedIn. I'm also active, pretty active on Twitter, uh, or I should say X now, so that one just, um, it's got my middle initial, my first name, middle initial, E.
And then last name C. A. N. L. So you can find me on Twitter. Um, and Twitter. I don't really talk about Nood specifically. There will be some anecdotes here and there, but it's mostly just like, here's like what I'm seeing some trends. Um, and then, you know, I'll be at the Whaley's in April. I'll be actually be, uh, speaking with.
Uh, Nick and Moyes, um, on the limited supply podcast, so you know, you can, you can catch me there, but, uh, yeah, I'm pretty accessible online. And if there's any questions or, uh, you know, just have 1 perspective on something, I'm always available to help out on over DMS.
[00:54:43] Jon Blair: Awesome. Well, I know that everyone got a lot about out of today's episode.
I appreciate you joining Bryan and, um, until next time, everyone keep scaling on. It's a journey. There's ups, there's downs. Um, but hopefully this podcast helps you, um, be able to endure through some of the challenges of scaling your ad spend that much better than you're able to do before you listen. So until next time scale on and chat with you guys soon.
