Podcast: The Secrets to Scaling Ads Profitably:From a Rebel Agency
Episode Summary
In this episode of the Free to Grow CFO podcast, Jon Blair and Chris Pearson discuss the principles of profitable growth marketing for DTC brands. They explore the philosophy of Chris’s company, Three Beacon Marketing, emphasizing the importance of questioning traditional marketing practices and focusing on alignment through the North Star Strategy. The conversation delves into key metrics for growth, the interconnection of acquisition and retention, and the challenges brands face when scaling without repeat purchases. Chris shares insights on common mistakes in paid media strategies and the necessity of continuous testing in marketing efforts, ultimately highlighting the significance of retention marketing best practices.
Key Takeaways
Acquisition and retention must work together for sustainable growth.
A strong testing process should never stop—it’s the key to long-term success.
The difference between growing and scaling? Profitable repeatable systems.
Don’t just listen to what customers say—watch what they actually do.
Episode Links
Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/
Chris Pearson - https://www.linkedin.com/in/pearson-chris/
Free to Grow CFO - https://freetogrowcfo.com/
Three Beacon Marketing - https://threebeaconmarketing.com/
Meet Chris Pearson
Chris Pearson is an email marketing strategist, retention nerd, and co-founder of Three Beacon Marketing.
For years, he watched brands treat email like an awkward first date–too pushy, too desperate, or just completely ghosting their list. The result? Wasted potential, burned-out subscribers, and millions in lost revenue.
Then, he discovered a way to turn email and SMS into a predictable, scalable sales machine–without sounding like a sleazy used-car salesman or blasting discounts until customers develop banner blindness. He calls it the Waypoint Email & SMS Strategy®, a system designed to make email & SMS feel less like spam and more like money in the bank.
Now, Chris helps 8- and 9-figure brands stop treating their email list like an ex they only text when they need something and start turning it into their most valuable asset. His system has generated millions in additional revenue for businesses that finally want email & SMS to pull its weight.
Chris lives in Windsor, CO, with his wife and their dog, Sylvie, who has no idea what email is but still gets more engagement than most brands. When he’s not optimizing retention strategies, he’s probably outside, lifting something heavy, or overanalyzing why people do the things they do.
Want to stop leaving money on the table?
Get the 75-point checklist to make more sales with email & SMS.
Transcript
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00:00 Introduction to Profit-Focused Growth Marketing
02:02 The Rebel Agency Philosophy
05:50 Understanding the North Star Strategy
09:36 Key Metrics for Profitable Scaling
15:10 The Importance of Repeat Purchases
20:29 Building Sustainable Brands and Relationships
24:31 Common Misconceptions in Paid Media
27:07 The Importance of Testing in Scaling
30:40 Understanding Customer Value and Retention
35:20 The Role of Product in Retention Marketing
38:42 Bridging Brand and Data in Retention Marketing
40:22 Final Thoughts
Jon Blair (00:01)
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 with a profit focused mindset. I'm your host, Jon Blair, founder of Free to Grow CFO. We're the go-to outsource finance and accounting firm for eight and nine figure DTC brands. And today I'm here with my friend, Chris Pearson, co-founder of Three Beacon Marketing.
Three Beacon Marketing is a boutique marketing agency in scaling DTC eComm brands, particularly in the health and wellness sector. They offer tailored strategies and paid media, email marketing, SMS marketing, and direct mail. yeah, man, Chris, I'm super pumped to have you on the show. How's everything going today?
Chris Pearson (00:47)
That's going well. I'm excited to be on and share and hopefully get some value.
Jon Blair (00:51)
Yeah, man. So today we're talking about tips for profitable growth marketing from a rebel agency. We'll talk about in a little bit what where the rebel agency comes from. But I met I met Chris, I don't know, maybe a couple months back and was very interested in some of the things we chatted about. I did some more research on his agency and I thought it would be great to have him on the show because as you know, as you know,
If you listen to the show with any sort of frequency, we're here to talk about growth, scaling, but with a profit-focused mindset. Because if you're scaling and you're just spending more money than you're bringing in as you scale, you really are doing yourself a disservice because at the end of the day, a business exists for what? To turn a profit. Because if it doesn't turn a profit, as I like to say, then it's just an expensive hobby.
Chris, before we get into diving into some of the specifics around scaling profitably, I'd love to hear a little bit about your background and your journey to co-founding Three Beacon Marketing.
Chris Pearson (02:02)
Yeah, for sure. So myself and Aaron and our third co-founder who left the business about a year ago to get into mental health and stuff and to help in the health industry there. Aaron and I started the business about four years ago, going on our fifth year now. We're all working in an agency together, a big international agency, nine figures, working with brands that are mom pop down on Main Street and then also brands that are selling products across multiple countries.
So a wide breadth of wisdom and just experience there. And we just got frustrated. We got frustrated with it because it was a churn and burn agency. The typical one founders run into, they say, hey, we need help with marketing. And they end up in a six or a nine or 12 month contract that they want to get out of because nothing's happening. They're spending money on marketing and it's just a black hole. So essentially what we did is a Friday happy hour essentially had a couple of drinks and just said, hey, what if we did this differently? What if we did it better?
Jon Blair (02:49)
Mm.
Chris Pearson (03:00)
What if there was a way to make it so that founders could actually scale profitably and marketing was an asset, not an expense? And so we just started asking those questions and that's how we ended up basically taking a leap and starting 3BM.
Jon Blair (03:13)
I love it, I love it. Okay, so you guys call yourself a rebel agency. Run me through that. What does it mean in practice? And I think most importantly, how does it set you guys apart from, you know, one of those dime a dozen, you know,
Chris Pearson (03:29)
Yeah.
Yeah. I think the main thing is we question everything. So it does take a little more time. It does slow things down a little bit at the beginning, at the start, but we question everything. So our primary goal is when we're, when we're helping brands scale or grow, depending on how you want to define those things. cause we do think those two words are different in definition, so we can get into that later. But the way we rebel against how traditional marketing and just marketing in general is typically done is we're not trying to scale at all costs. we're not trying to.
fix the problem with more spend. We're trying to do this efficiently. We're trying to do it profitably. And typically the brands we work with have a mission or a value set or some kind of principles behind them that are driving their energy and action in the market. And we want to amplify that. And if that business can't keep its doors open, gets not profitable, it doesn't exist. So we definitely question everything. We don't just go with the status quo. don't say, hey, we're going to run some static ads. We're to send some design-based emails. We're to do X, Y, and Z. Because that's what everybody else says to do.
Jon Blair (04:09)
Mm-hmm.
Chris Pearson (04:29)
We test as many things as we possibly can to find the profitable path forward for them.
Jon Blair (04:36)
Yeah, so interesting. We can get into talking about the difference between growing and scaling in a second, because I've got some other questions for you about the agency. I think when a great question is, Why scale? Right? I'm talking about like, this is like a philosophical question as a brand. Why scale? Right?
Chris Pearson (04:41)
Yeah.
Jon Blair (04:57)
You should be able to answer that question, I think, on a number of different levels. One of them is kind of a guiding principles level, like that usually has to do with impact, right? Solving true real problems, making a difference in the world. But I would say that when I think about why scale from a business model perspective or a financial model perspective, well, it's like it's because you want to multiply.
Chris Pearson (05:02)
of them.
Mm-hmm.
Jon Blair (05:22)
your profitability, right? Like if you figure out how to be profitable on a unit level, like on a small level, like cool, but why scale it if you can't scale those units of profitability across more units of output? What would be the point? You might as well financially speaking, stay small, right? And so we'll talk some more about the difference between growing and scaling in a second, but your website,
Chris Pearson (05:26)
Okay. Yep.
Exactly.
Jon Blair (05:50)
Mentioned something called a North Star Strategy as like an emphasis or core tenet of the way you guys do things. Walk me through that a little bit. What does that mean?
Chris Pearson (05:54)
Mm-hmm.
Yeah, yeah. So it's for us, it's just a different term for alignment. So something that when we, when we step in and help brands, there's really like three main areas that typically we try to get in alignment before we start actually doing marketing for them. The first one is what is the actual hard number goal? Like what is the goal? Is it 10 million? Is it 15? Is it X percentage of growth month over month? Like what is the actual number? Cause if we don't have that number, then we don't know what we're measuring ourselves against. And, you know, really any, any agency can spend more money to get more customers.
Jon Blair (06:16)
Mm-hmm.
Yeah.
Chris Pearson (06:30)
But when we actually look at the margin, we look at the P&L, when we look at COGS, when we look at all those things, we wanna know what the number is. So we get an alignment there. So that's your hard number. And then your soft goal is more so of like, what's your mission, what's your values, what's your principles? How do you wanna show up in the market? How do we wanna position your products? How do your customers buy in the market? How do they see your brand? So essentially what we're doing is we're just trying to figure out what the alignment and what direction we're heading in and how do we come up next to the brand and help them with the marketing piece.
Jon Blair (06:58)
Yeah. So this is interesting because this concept of alignment is something that I talk about a lot in my content. And there's a couple of different core tenants of, of alignment from my perspective. The first one is there's a lot of terms in e-comm that have more than one definition between depending on who you talk to. Roas, MER, you know, there, there are, there are
more than one definition of those terms, depending on who you're talking about. People will ask me, hey, Jon, what's the right definition, right? Another one is like gross margin. What's included in gross margin? Depends on who you're talking to. I am of the opinion, now at Free to Grow CFO, we have specific definitions for those terms, right? That we educate our clients on. But for your brand, I don't care what...
what your definition is, as long as everyone on your leadership team and everyone in your company and all the resources that you rally around your strategy, that they all have the same definition. That's what's important, right? So like very, very similar to your North Star strategy. The second thing is people ask me a lot of times, like, what is the one metric that I need to rally my company around? It depends. And I actually don't
care which one you choose as long as everybody on your team is aligned. Now, now a CFO, a good CFO can help you think through what is the appropriate metric to measure some desired outcome, right? That you have, it's not uncommon. Founders usually know what they want. They may not know how to define it, but they, they can, they have this vision of what they want. A good CFO or a good agency should help you be able to choose the right metric.
Chris Pearson (08:25)
Yeah.
Jon Blair (08:49)
to measure success or failure of that thing, right? But like, again, it all comes, which one's right? The one that's right is the one that rally that your team can be aligned around. So from your perspective, Chris, and this is like a, this is kind of a, this question can lead us down a number of paths of how, like how far we want to go into this discussion. But from your perspective, you and your co-founder's perspective,
Chris Pearson (09:02)
Exactly.
Jon Blair (09:18)
When you guys are looking at a brand and you are looking to help them scale profitably, what are the first things that come to mind as the core tenants of areas that you guys need to help brands navigate and be focused on to scale but do so profitably?
Chris Pearson (09:36)
Yeah, yeah, that's a good question. So there's different layers to it, at least two layers to it. The first one, we're looking at CAC, AOV and LTV. So customer acquisition costs, average order value, lifetime value. Those are like the three core that we look at from an acquisition and retention standpoint. And that's before we look at the rest of the P&L, like the COGs and everything. We look at those and see what kind of range they're in. We kind of see what's based on our experience and what we've been through of if the AOV is high enough, is your CAC low enough? Like, what does that look like now?
What have we been able to get other brands to in a similar space? And we kind of look at that. The second layer is we, if the brand is willing at the start when we're doing like discovery calls and things like that, what is their overall ROI? Like what is their overall return and margin when it comes to the P&L and just the whole sheet? Because if they'll give us those numbers, then we can essentially bolt on our marketing and say, for marketing, same point, ROAS is this, this is what our returns are gonna look like, roughly speaking.
take everything else in and the rest of P&L, here's the ROI overall. And so then the conversation becomes, what does it take to acquire a customer? What does it take to keep one? And what's the value of each of those pieces? And that's one of the things too, that we typically don't see a whole lot is we see a lot of acquisition agencies and a lot of retention agencies, but we don't see them together. There are some, but that's why we did both is because yeah, you can get a cut. If you get a customer break even, but your retention system's not great, you're not making money. So you're front and back and matter.
Jon Blair (10:54)
Mm-hmm.
Yeah.
Chris Pearson (11:05)
how they retain and keep customers and what cost you acquire them at. We look at those numbers and try to determine from just a spreadsheet standpoint, does it make sense for us to help and can we actually help?
Jon Blair (11:17)
Yeah, the more e-comm brands that Free To Grow helps scale, the more that I look at personally, because I run all of our sales and I do all of our free CFO audits. So I mean, I'm personally analyzing financial statements and LTV to CAC and even AOV data for dozens and dozens of brands every single year. The more that I do that, the more that I'm realizing
That it like, you just cannot separate acquisition and retention. they're a part of an entire like closed loop system. And if you want to use kind of like a, a leaky bucket analogy, it's actually not any different than actually thinking about like your funnel, right? Like when you're talking about the acquisition funnel, you can drop a bunch of traffic into the top of the funnel. But if your funnel has a leak, like a leaky bucket, right.
There are people who are going to leak out before they make it to the bottom and can convert. You can look at your customer base the same way that you look at like an acquisition funnel in my opinion, which is like you acquire someone, right? But then there's the funnel of like retaining them effectively. And if you have leaks in that, you can spend all this money acquiring customers. And then that customer just leaks right out of the system. And what are you stuck with? You're stuck with having to pay to acquire another one.
And what, what we're, think this is a, so here's, here's the thing about e-comm. The beautiful thing is, is low barrier to entry, right? Like meaning you see a problem in the marketplace that you as a founder or a passion about solving and you find a product that can solve it. You can, you can go get that product made pretty easily and you can start a Shopify store and you can get that thing to market. That's the good news. The bad news, it's that easy. So, so can everybody else, right?
And, and meaning that as you're starting to scale in the, like a Shopify store using Meta as your primary, like, you know, top of funnel ad driver, so can all of these other people in the same product category. Right. And so what's scary is I see, I see this so much. And by the way, like I have empathy for this. Cause when I was on the founding team of Guardian bikes, like 10 years ago, I didn't know anything about e-comm.
And I thought Ecom, I mistakenly thought DTC was this channel where like, if you just find the perfect product, the perfect time, you can have a nine figure brand and you can just crush it, right? Here's the reality of what it turns out. DTC has started to mature. It's here to stay. It's not going away and it's still growing, but there's a lot of competition. So how do you withstand the test of time? Grow big, but stay profitable. You've got to be able to re-
not just acquire customers in a cost effective manner. You have to be able to keep them because the brands that I see in audit, they'll get to 10, 20 million. They have no repeat purchase. They're profitable, profitable, profitable, profitable. And then one day the acquisition cost just goes through the roof and they can't turn a profit anymore. And they've got nobody coming back. The product category depends on the product category, but I see this happen between roughly 10 and 30 million.
Again and again and again. And so what's the point I'm making? Acquisition and retention are all part of a single system that have to be firing on all cylinders, like you said, front end, back end, right? And if you want to scale to tens of millions of dollars in revenue and stay profitable, you have to have both of them working. So here's my question to you, Chris. I'm curious. Do you see examples of brands with no repeat purchase?
continue to scale profitably? I do I have a do I have some sort of a bias in or like, do you see what are what are some examples of you seeing a brand get to a point they have no retention and things just start falling apart?
Chris Pearson (15:25)
Yeah, it's roughly the same range that you mentioned, the 10 to 30. We come across brands in like the 12 to 25 range is what we typically see. And they hit a plateau. And no matter how much they try to spend, they just can't get that profit to stay as they try to get more customers. And it's almost like they've hit a sub niche of like the total addressable market and they just can't break out of it. And so there's this momentum from like roughly 15 mil to 50. There's that gap there.
Jon Blair (15:33)
Yeah.
Totally. For sure.
Yep.
Chris Pearson (15:54)
The repeat purchase is what pushes you into 50. And then the 50 to 100 is a whole different set of problems and a whole different set of things to address, right? You have to go to a bigger market, a bigger addressable market, you have to push out more. But yeah, it's that 12 to 24 range. And it's surprising because founders, and I definitely empathize with this too, because they're trying to grow something and they're trying to achieve a mission and live and build this business with values and principles, but they hit this plateau. And the issue is typically between the first and second or first and third purchase.
Jon Blair (15:57)
100%.
Chris Pearson (16:24)
And it's not about getting more new customers. It's about solving the one to two to three purchases in roughly a three to six month period. If you can figure out that problem, we see this pattern too, Aaron and I do is once they get to the third or fourth purchase, the customer does the retention of that customer goes up. So it's like, it's like first purchase. Yeah, they're bought in. Yep. Yeah, they're bought in. like that second to third purchase is like, that's where the problem is. And they're looking over here, trying to like, they're looking at, can we spend more? Do we need a different market?
Jon Blair (16:24)
Mm.
For sure.
Makes sense. They're bought in. bought in. they're, they are, you've got them. They're a loyalist, right?
Chris Pearson (16:53)
Do I need to launch a new product? Do I need a new category? Like, do we need to rebrand the website? It's like, no, that's not the foot, like, here's the problem. It's the second to third purchase usually. And if you solve that, that's the next level.
Jon Blair (17:01)
Interesting.
That makes a lot of sense. I haven't seen that same data point myself, conceptually, that makes a lot of sense. What's interesting is that there may be times when you need to launch new products or maybe expand into a new ad channel, but you should be asking how that's going to impact acquisition and retention.
Chris Pearson (17:09)
Mm-hmm.
Jon Blair (17:30)
You shouldn't just be doing you should go like, I'm gonna push I'm gonna launch this product because there's something you've learned about. You're something you've learned about your customer base that's going to drive retention and you're going to launch that product because it's going to help you get to that third or fourth purchase like you're talking about, right? So the point I want to make to everyone is like, it's not that like long moving into new channels or launching new products that that should go out the window. That's not what we're saying. What we're saying is you should be asking
How does this serve my acquisition and retention economics? I want to make a move in product or channel selection because I believe that it's going to impact acquisition and or retention in this way. Now I'm starting to become, I hate saying this because there was actually a brand I was doing an audit for maybe six months ago. They had gotten to about 15 million in revenue and they were quite profitable.
punching through eight figures. like getting through 10 and then that 10 to 15 started to get really challenging. They sold a durable consumer electronics good that no one repeat purchase. There was no need to repeat purchase. And I was doing the audit with the founder and I was reviewing on a call his findings and he goes, or my findings. And he's like, Hey man, I think I'm reading between the lines here. Are you saying we're just screwed? And like, and I felt bad because in some ways
I didn't want him, like I don't, I didn't want this audit to like, you know, like remove all hope from that. Cause, cause I have seen, I have seen like some crazy anomalies. Like I've seen a durable electronics good, like it was high AOV. It was in an, hindsight, it was in a nascent market, right? Like this market was not, they were one of the first movers online, but they got to almost 50 million before there, and they had no repeat purchase.
Chris Pearson (19:02)
discouraging or something.
Jon Blair (19:27)
But they got to almost 50 million before their acquisition costs really went through the roof and their profitability just started getting decimated. But that's not the rule. That's the exception. They got lucky that they were, they were the first to market online in a nascent product category, right? But eventually everyone saw their success and a bunch of Chinese knockoffs and all this competition started diving in, spending money on Meta.
Chris Pearson (19:52)
this one.
Jon Blair (19:55)
And eventually things just died. And so the point that I want to make here is I'm not saying it's impossible to grow a brand with no repeat purchase. I'm just saying that it's a risky game. At some point. You will reach like the ceiling and the law of diminishing returns on incremental ad spend will come and bite you in the butt and your profitability will get destroyed.
And I think that's just the law of scaling. I'm realizing I've seen enough brands that it's just it's a law of scaling, right? Do you agree? And do you have any any like other thoughts on that?
Chris Pearson (20:29)
Yeah.
Yeah,
I think it is too. And there's, haven't come across like a formula or some way to like tell where that ceiling is. It seems like it's whatever the market will tolerate with that one product and that, you pushing into the market and being able to go from the market you're in to a broader market, to a broader market and those different levels, that's going to determine roughly speaking, how far you can go with that one product. And also too, if you take brands like AG1 or what's that other women's supplement brand that's blowing up right now.
I can't remember the name, but they're essentially taking one product on the front end and just running it as much as they can, but they have the plan in the back end to have the multiple products. I don't know if you have or anybody else that's listening has bought an AG1 product, but they have a dozen products in the back end that they're selling for repeat. it's like, there's really no formula to know where that ceiling's gonna be, but at some point you're going to hit it. And it just depends on where the market's at and how you're pushing the product into the market.
Jon Blair (21:30)
Totally. I would say too, like there's just market forces that you can't control that can jump out and bite you when you weren't expecting it. Like that one brand that I was referring to, there was no competition, no competition, no competition, no competition, and then a flood of competition. Had that competition been slower to get to market, they maybe could have scaled beyond 50 million and continued to see really strong profitability, right?
Chris Pearson (21:50)
Yep.
Jon Blair (21:59)
but eventually, so what, this really is about is like, are you building a long-term sustainable business here? Right. And I would go even further to say, like, there's a reason why all of us in the space, you know, your agency, other agencies, Free to Grow CFO, we don't say we work with DTC companies. We say we work with DTC brands. The word brand means something, right?
Chris Pearson (22:22)
Mm-hmm.
Jon Blair (22:26)
in some ways, like a synonym to brand is like, is like loyalty, right? Like a brand exists to hopefully drive loyalty in a customer base. Another way to say loyalty is what? Repeat purchase. So like, I've actually said this a few times in my LinkedIn content and like got a bunch of people upset about it, but I'm like, if your brand, if your brand doesn't have anyone repeat purchase.
Is it even a brand? It's like if a tree falls in the forest and no one hears it, did it even happen? If no one buys again from your brand, I actually don't know if it's a brand. And I know that sounds, I'm not trying to be harsh. I'm just saying that like part of going to market DTC, creating a brand is it's something that people will come back and buy more stuff from you again and again, right? So, go ahead.
Chris Pearson (23:15)
Right? Yeah, that's
something too that like to us brand is relationship. So if it's a one time, maybe a second time purchase, that's a transaction. When it gets to three, four, five and more, that's a relationship. And so like when we think of on our side, at least when we think of it, we're like, we're trying to build a relationship with the customer. And ultimately we're trying to build a hundred year brand with you. And that relationship is going to last over lifetime. Like that's what we're aiming at. And as those market forces come in and out,
Jon Blair (23:22)
100%.
I love that.
Chris Pearson (23:45)
if you don't have a catalog of products or you don't have your business set up in such a way that can tolerate or withstand those things, that's where the issues start happening. Because if one product or maybe you're going to a market that's too niche or you don't have a set of catalog in the backend that you can shift to if something happens or payment processes or whatever the problem may be, you're always looking at what's the 100 year plan and what's the relationship we're creating.
Jon Blair (24:10)
love that, I love that. That is a very, I think that's a great way to think about it, that someone buying once or twice from you is a transaction. Someone coming back and buying three, four plus times, that's a relationship and that's what defines a brand. I really love that. Let's chat really quick about common mistakes.
Chris Pearson (24:23)
Mm-hmm.
Jon Blair (24:31)
that you see when you have new brands coming to you, what are some of the most common misconceptions or mistakes that you see again and again that brands are making on the paid media side of things?
Chris Pearson (24:33)
Hmm.
Yeah, I think you'll appreciate this one. But there's been maybe two or three brands over last four years of the dozens that we've audited and the handful that we've worked with, they're tracking. So when it comes to where are they tracking their data and how they're tracking it is 97% of the time it's messed up in some way, shape, or form. And essentially what that means is the brand is essentially making decisions off faulty numbers or data that's not actually accurate.
Jon Blair (25:04)
Mm-hmm.
Chris Pearson (25:11)
And so that's something Aaron, he's on the acquisition side of things. That's the first thing we do once we get in there and say, Hey, we're going to essentially look at how you're tracking things. We're going to rebuild and do server side tracking. We're going do all these things that make sure that at the end of the day, we can trust the numbers that are coming out of the machine. Like we can, we can bet our money on this data that it's actually accurate. So that's the first mistake is they just don't either don't understand or aren't aware, or the agencies are working with, haven't gone that deep yet with the tracking piece. They just use Facebook or Meta.
Jon Blair (25:39)
Mm-hmm.
Chris Pearson (25:40)
or whatever platform they're advertising on, we go a step further and fix that mistake because that data is super important. The difference between a profitable ad and a non-profitable ad could be that tracking. We've actually fixed tracking before with some brands and found out that some of the ads they were running prior that were not profitable were actually profitable because tracking was messed up. And so we were able to help them scale that ad, obviously test and put some new ones in the system, but tracking is probably like the biggest one that we start with.
The second thing is typically a system for testing. So something that we've come across over the last couple of years is the testing methodology for paid ads is typically not there. They usually do like campaign sets or just like they kind of message, creative and audience into one ad set and then say, cool, this one worked, but they can't tell you why. So that's one of the other mistakes with ads that we remedy or we put in place is we test message, creative and audience in separate ways so that we know
Jon Blair (26:21)
Mm-hmm.
Chris Pearson (26:39)
with high confidence that when something's profitable, we know why. We know the message, the audience, and the creative. We know what that combo is, and we can scale it and iterate on it and keep making profitable ads. So that's something that we come across quite often is they're just essentially, they'll make 25 pieces of creative, throw it into an ad set, let it run, these three win, the rest don't. Let's just make more of those. And they can't really tell you, they can't say why they won or why they lost.
Jon Blair (26:49)
Interesting
Interesting.
Chris Pearson (27:08)
Yeah, so.
Jon Blair (27:09)
The wheels are turning in my head. That makes a lot of sense. Let's talk about testing a little bit because I have seen, in my opinion, you know, like, to summarize one of the truths, I believe, of scaling profitably that we've been discussing thus far is you've got to get retention figured out and that is...
that runs in alignment with building a brand, which is a relationship, which means people come back and buy multiple times, right? The second truth is that the brands that I see scale and withstand the test of time of scaling profitably, they have a well-defined.
and never ending testing process. Never ending. Like when people ask me like, often do, or like how long do I have to test for? I'm like, for the rest of your existence, you'll never be able to stop. You'll never be able to stop. And cause the second you stop, we made this mistake at Guardian. We would do like starts and stops. This is the early days and we're trying to figure out eComm You start, you think you figure something out, you scale it. By the time that stops working,
Chris Pearson (28:00)
Yep.
in perpetuity.
Jon Blair (28:22)
You better have like several other tests you've completed that are pushing out the next set of things that are going live. And so you, it's, actually, it's like a funnel. just like a sales funnel. If you stop prospecting at some point, there'll be no one to convert. Right. So you can't turn it on and off. It's always got to be on, besides the segmentation of testing, creative audience and messaging, what are some of the other best practices or, or like advice that you have for people listening about like.
Chris Pearson (28:23)
Yep. Yep.
Jon Blair (28:52)
how to test well.
Chris Pearson (28:54)
Yeah, I think a way to humanize the testing process is that what we're testing for is a connection with a customer. So when we put something out in the market, it's like asking for somebody's hand to say, follow me, right? So that's essentially what we're testing for is that's why you have to always be iterating is because every time you put your hand out and say, hey, follow me, I have something that you might like, somebody's gonna grab your hand for a different reason, or there's gonna be something in the news or there's gonna be something happening in the world. It's gonna shift how they see your ads. So...
Jon Blair (29:05)
Mm-hmm.
Chris Pearson (29:23)
To answer your question, different ways to test things is one, the testing methodology we use is four phases, message, audience, creative. And once we find a profitable combo, we'll scale it. that's step four. Inside of that, what we're actually doing is we'll rotate products, we'll rotate creative, we'll rotate all those things and find what customer is actually buying. Another thing we do on the retention side, mostly on the retention, but we also push it into acquisition is what we call our star customer. So it's somebody who we typically start out with an AOV of like 3X, what the average AOV is.
And that group of customers, we basically optimize marketing for those people because they have high LTV, they're spending more and they're buying more often. So we test different ways to figure out who those customers are. So we'll look at past customer data and say, okay, who's AOV of 3X or more, take that data set and say, cool, who are these people? And then we say, cool, can we acquire more of them? Can we retain more of them? What's their buying path? What's their buying sequence of products? And we just, test through all of those things from
Jon Blair (30:17)
Mm-hmm.
Chris Pearson (30:21)
first contact on paid ad to sixth, seventh, eighth purchase of a product, kind like a horizontal funnel, and just that process, journey, and we just test those different places. It could be ads, it could be landing pages, it can be emails, flows, mean, anything in between those things, that's what we're testing to figure out what's gonna optimize for that highest value customer.
Jon Blair (30:31)
Interesting.
So is that 3x? Is that 3x like the average AOV?
Chris Pearson (30:44)
Yeah, so if
AOV is 50, typically we look at 150 and above. it's just, it's a starting point, because some brands it might be two, it might be seven, it just really depends how the brand is and how many customers they have in that group. And that's another red flag too, is if you put in 3X AOV and you have 100,000 customers and you only have 100 people that are 3X AOV, there's a big repeat purchase problem. There's a group.
Jon Blair (30:49)
Got it.
Yep.
Hmm, I see what you're saying.
So you're like, you're like, like, how big is that subset of customers, right?
Chris Pearson (31:12)
Yes. Yeah. So we're aiming
roughly between like 3 to 10% is where we want that group to land of your total customer. And if it's more than 10%, then you have higher value customers increase at AOV to get that 3 to 10 % range. Because ideally it's the 90/10, 80/20 rule, right? It's kind of the leverage point. And so just depending on what those numbers are, we're going to test your system to see where we can get those 3 to 10 % of your total customers, more of them. Ultimately,
Jon Blair (31:29)
Yeah.
Chris Pearson (31:42)
Fewer customers at a higher value means you can spend less to get to your same revenue goals. So that's the other thing too is, you're spending, spending, spending, but if we get one better customer than 10, you're spending less and they're spending more for you. So it's an efficiency thing on our end.
Jon Blair (31:46)
Yeah.
Well, and I would even say furthermore, like if you think about scaling over time, what's one thing that we all know as you continue to incrementally add more ad spend, it's that you're gonna see a law of diminishing returns, CAC is gonna go up, right? And so we on the CFO side oftentimes like to think about, we'll convert AOV to...
Chris Pearson (32:12)
Mm-hmm.
Jon Blair (32:24)
uh, margin dollars, right? So what is the margin dollars per order before ad spend that's available? So for example, I was looking at an audit the other day and this brand had scaled from like $1 to $10 million in about 12 months. Um, like in terms of run rate, very impressive, but their CAC tripled as you would expect, but it started at nine and it ended at that 12 month period at 27. Totally not.
Chris Pearson (32:25)
Yeah.
Yep.
Jon Blair (32:49)
I first off still I was like at the spend levels. I was like, man, 27 CAC. That is fantastic. I don't, I don't see that a lot, right? Like I'm like, please. Yeah. Like let's, but, but if I looked at margin dollars, right. At a $27K if I looked at contribution margin per order after subtracting 27 in, in, uh, in CAC, there was only 25 bucks left over. So what do I see as a CFO?
Chris Pearson (32:56)
Yeah, can I get that please?
Jon Blair (33:19)
You only have 25 bucks left to absorb the next round of CAC increase because over a 12 month period, your CAC just went from nine to 27. If it goes from 27 to 50, we're close to turning $0 in profit, right? On every single order. How long, this was an inevitable next question that I, well, how long is it going to take to get to 50? I don't know how long it's going to take, but I can tell you,
If you keep spending, you'll get to 50 eventually, especially when I look at the range of CAC that I see with all the other brands that we work with. Like 50 is still, and again, I know this depends on a lot of different factors. I'm not trying to overgeneralize here, but a $50 CAC at scale is pretty damn good. We have a lot of brands who deal with a $90 CAC or a hundred or $120 CAC and survive off that. the point I'm making for this particular brand is like,
Chris Pearson (33:51)
Yeah.
Mm-hmm.
Jon Blair (34:18)
There's a lot of risk. Now keep in mind, they don't have much repeat purchase. And so the question then becomes, how can we drive repeat purchase? Maybe we have some retention marketing issues that we need to get shored up. There's always, I like to say generally, retention or repeat purchase is more of a product problem than anything. Now you need to have sound retention fundamentals.
even if you have a product that lends itself to repeat purchase, if your retention marketing sucks, then there's low hanging fruit there, right? But if your product does not lend itself to be repeat purchased, you can do all the retention marketing you want and you will not get someone to buy something again, right? So I'm curious, do you agree that retention is more a product problem than a email and SMS problem or
I believe they're both important, but what is your thought on like the importance between those two things?
Chris Pearson (35:20)
Yeah.
Yeah, that's probably the second or third tough conversation we have with brands when we start working with them is yes, it could be a product problem. And, and I get it too, like that, that's kind of a hard thing to take because the products, your baby is the thing you're building your business off the back of. It's a connection with the customer, right? But the product can be the problem. So there's three things when it comes to just in general marketing that we look at when we're trying retention, especially, but it's the three things we look at to see what we can adjust and maneuver and what levers to pull.
and it's offer, audience, and message. So very, very similar to how we test on the front end with acquisition. But with the offer, we're essentially looking at what's the product, what are we offering? Is it a bundle? Is it a loyal program? Is it a subscription? Like, what are we doing there? Do the customers repeat purchase if they do? Why? If not, why not? And so we just dig into the product and say, you know, is the product a repeat purchase product? If not, what do we got to do to make something that is or find some way to do a different market? Like, where do we put this thing to get more purchases?
Jon Blair (35:54)
Mm-hmm.
Chris Pearson (36:16)
With the audience, that's that question too, is like, it wholesale? Is it affiliate? Is it direct consumer? Like, what are different ways to address that? And then message is essentially positioning. Like, how do we push this into the market? How we position it? What makes it different? How does it make it beneficial to the person who's looking at it, whether it's across those different audiences? And so, yeah, I would agree that typically the product is where you want to start and then connecting that to the customer is the next step. If you can figure that out, whether it's a repeat purchase or not, you can typically find a path forward.
It might not be the most comfortable one if you don't have a repeat purchase product, but it's going to help keep your business and your doors open.
Jon Blair (36:51)
Totally. And I want everyone to hear this clearly. If you don't have repeat purchase, the game isn't over. If anything, use this conversation as a catalyst to go like, okay, how do I get there? Like really the game is only over if you've already reached the point of diminishing returns to the point that you're losing money left and right and you just have limited cash on hand.
That's the point where it's over. But there's a lot of runway between where a lot of brands are today. And when they hit that ceiling, we've been talking about where like the lack of repeat purchase, and really rising acquisition costs start, like decimating your margin and ultimately your bottom line profitability. like the call to action is like, start now start now with like figuring out and strategizing dive into your data.
Chris Pearson (37:33)
Bye.
Jon Blair (37:47)
figure out, do you have a product problem with repeat purchase or do you have a retention marketing problem? Chances are it's a mix of both of them, right? But start working on them now so that you can get out ahead of the demise of scaling a brand that has no repeat purchase. hope is not all lost unless you're at that point where you're just bleeding cash.
and you don't have enough cash to keep things afloat long enough to launch new products or a fixed retention marketing. Chris, the last thing that I want to ask you about is about retention marketing. What is your approach to best practices as it relates to email and SMS marketing? Or even you can approach it from the opposite perspective, which is like, are the
Chris Pearson (38:20)
Mm-hmm.
Jon Blair (38:42)
What are the things that you're usually seeing brands screw up on retention marketing that you guys are coming in and advising on like improving?
Chris Pearson (38:51)
Yeah, I think there's a gap between brand and data that we typically fill. So something we come across is either a brand will be really heavily in the brand and their design and their layouts are just gorgeous. They're beautiful designs and email SMS is everything's scheduled appropriately and it's all organized really well and it has a very nice brand to it. The other side is they're really, really data heavy and they're like the only way we're going to send an email is if it hits this data point and they're very strict on that. We try to blend those.
Jon Blair (38:55)
Mm.
Chris Pearson (39:20)
So something that we've come across with at least the last couple of brands in the market we're in now, at the time of the recording, is the market shifting based on politics, based on the news, based on something happening overseas, whatever it may be. The market shifts and we want the customers to tell us what they want. And we also want to deliver that to them. So a principle we typically follow is don't listen to what they say, look at what they do. Because the customer will say, I don't want any more emails. Yet they open the next dozen emails and they buy something. And so it's like,
Jon Blair (39:48)
Yeah.
Chris Pearson (39:50)
Okay, you told me don't want any more, but you're opening and engaging in buying, so it's like, don't listen to what they say, watch what they do. And that's where we take the data piece and we say, cool, this product for a second, third, or maybe fourth purchase, the repeat purchase ranges between 40 and 50 days. Cool, we're gonna drop a flow email saying, hey, you should restock five days before that range, the middle of that range, and after that range, so you can get a repeat purchase. So we're taking that data and we're combining it with the relationship on the brand side.
And I don't think brands are connecting those two things either lean heavily into brand or heavily in the data. And when you mix those things, you have a relationship. The relationship gets stronger because you're listening and watching what the customer's doing and you're actually delivering on what they actually want. So we fill that gap in our attention. The customer journey is relatively the same in D2CE Ecom. If you have a repeat purchase product, it's a 20 to roughly 60 day repeat purchase. If you have something that's longer, maybe if you have something shorter, okay, great.
but there's a cycle, there's a life cycle if you will, that's kind of a common term, retention is life cycle marketing. But that's the gap we typically fill is we take that relationship, we tie it to data and we give the customer a unique experience.
Jon Blair (40:57)
I love that. love that. Well, unfortunately, we're going to have to land the plane here. Although this was a fantastic conversation. Before we do land the plane, I just want to kind of draw out a summary for everyone. So look, what we talked about a lot here today is that acquisition and retention are the front end and back end of a very important profitable scaling system, right? You have too much of one and not enough of the other.
Chris Pearson (41:03)
Yeah.
Jon Blair (41:25)
you will run into issues at some point. Exactly what issues, I can't say at what size, I can't say, but it will happen. Having healthy acquisition economics and repeat purchase and retention economics together, those are the one, punch of profitable scaling. so just make sure that you are, when you're thinking about what channels you're in, when you're thinking about what...
products to release when you're thinking about where to spend the next dollar in advertising or what agency to bring on. You should be asking yourselves, how is this going to enhance and improve my acquisition strategy and economics and my retention strategy and economics? have to have, you have to have a strong system in both of those areas. so before we end here, Chris, I always like to end with a, I always like to ask a personal question. So what's a fun or little known fact about
that people might find shocking or surprising.
Chris Pearson (42:24)
shocking or surprising. A buddy and a buddy and I are currently working to qualify for men's to sand volleyball for the professional toolkit. Yeah. So I was an athlete in the past life. He and I are working towards that this summer to try and qualify for a tournament. And that's essentially pro volleyball on sand. So that's something that we're working toward. I don't know if we'll make it, but we'll find out.
Jon Blair (42:33)
nice.
Heck yeah.
That's awesome,
man. I always love the reason I asked this question is because I always love hearing about like personal endeavors. Um, at the end of the day, you know, we're not, you know, I'm not the founder of a, of a fractional CFO firm. I'm former heavy metal musician, a husband, a dad, you know, all those things. We're all people, right? So it's always fun to hear about.
Chris Pearson (43:09)
Yep.
Jon Blair (43:13)
what people are working on outside of work, because work is just a part of our life, it's not our whole life. So where can people find more information about you and Three Beacon Marketing?
Chris Pearson (43:18)
Yep, agreed.
Yeah, if they want to check us threebeaconmarketing.com, just go there. And then pretty much anywhere on the site, if you guys want to book a call, you can find that link there and just click a button to book a call. If you do, you'll be speaking with me directly. I'm the founder led sales team. So it's myself, Aaron. Yep. Yep. Aaron's on the fulfillment side. He's the organized one. He loves spreadsheets and he puts everything in order. So I create relationships like an acre of people.
Jon Blair (43:41)
Same, that's me, man. That's founder of Led Sales team right here.
Perfect. That's my co-founder, Jeff. Like, gotta have the yin and yang. If I was running all of our service delivery, you don't want that. I'm the relationship guy. Although Jeff is fantastic at that as well, but he is the organized one out of the two of us. So I love that man. Well, look, this was a fantastic conversation. If anything that Chris said, you found interesting, I highly recommend reaching out to him.
Yep. Yep.
probably a BMS, a BMS.
Yep.
Jon Blair (44:17)
Don't forget that if you want more helpful tips on scaling your profit-focused DTC brand, consider giving me, Jon Blair, a follow on LinkedIn. And if you're interested in learning more about how Free to Grow's DTC accountants and fractional CFOs can help your brand increase profit and cash flows you scale, check us out at FreetoGrowCFO.com. And until next time, scale on. Thanks for joining, Chris.
Chris Pearson (44:42)
Thanks.
