"Why Are My Margins Shrinking as Ad Spend Grows?" — Transcript

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1. 0:00I sell I have about 30 consumer brands.
2. 0:03We are doing over 5 million per year
3. 0:07right now.
4. 0:08I would like to be in 10 million per
5. 0:10month.
6. 0:10>> What's profit? Jesus. Okay, what's
7. 0:12profit?
8. 0:13>> Over 70%
9. 0:16sometimes.
10. 0:19Yeah, so like I think the product is
11. 0:21going to be mom power because it's just
12. 0:23me and my assistant at the moment. We
13. 0:25have contractors for like email
14. 0:26marketing.
15. 0:28I run my ads.
16. 0:29I don't want to delegate this part
17. 0:31because I kind of feel like
18. 0:33>> profile on Instagram or something like
19. 0:34that. Like a following?
20. 0:36>> Yes.
21. 0:36>> Okay, got it. And what is
22. 0:38>> Like me. Yeah, we do have a brand
23. 0:40profile as well.
24. 0:42>> Do you have Do you have a big following?
25. 0:44>> In the brand, yes. Me, too. But like
26. 0:46I don't know the brand. The brand is the
27. 0:48brand.
28. 0:48>> Okay.
29. 0:50Okay.
30. 0:52Okay, so you're doing 5 million. And
31. 0:53again, sorry to stop you. What was the
32. 0:55thing you're selling?
33. 0:56>> Travel
34. 0:58gear.
35. 0:58>> Travel gear?
36. 0:59>> Yes.
37. 1:00>> Cool. Okay.
38. 1:02And
39. 1:03are you carrying that yourself? Did you
40. 1:05design it? Are you just kind of
41. 1:06affiliating it and selling other
42. 1:07people's stuff taking this
43. 1:08>> No, so we started just with one design
44. 1:10and after that I just I started just um
45. 1:14kind of doing research to improve the
46. 1:16designs because we saw what the market
47. 1:18wanted. And yeah, so we started
48. 1:20improving one design but then we
49. 1:22developed another two new SKUs that I
50. 1:25think completely just really liked in
51. 1:27the market. People started liking it a
52. 1:28lot. So right now I'm like kind of like
53. 1:30actually I just increased I want to
54. 1:32increase the SKU because that actually
55. 1:35increased my my my orders number and the
56. 1:38LTV as well. Like
57. 1:40all the stuff that I'm selling. Yeah.
58. 1:42Yeah.
59. 1:43>> Okay, so the decision that you're trying
60. 1:45to make is should I
61. 1:47>> Should I just like we are growing. So
62. 1:49like I feel like a decision like I know
63. 1:51that you do more but like what? More
64. 1:54payouts? More what?
65. 1:57>> So
66. 2:00>> did you start with the following You
67. 2:01started with the following first, right?
68. 2:03>> No.
69. 2:04>> You started with paid ads and then
70. 2:05>> Yeah, all the time for us. Nothing
71. 2:07organic.
72. 2:09We started just growing. People like to
73. 2:10see I don't know. We just From one day
74. 2:12we just grew we we were in 10 10k. Now
75. 2:15we are like 100k followers.
76. 2:17>> Yeah, when were you like,
77. 2:19"I'm going to make a new travel gear
78. 2:22and then run ads to sell it."
79. 2:24>> No, I was in business school, so like uh
80. 2:26I went to school in China. So, in China
81. 2:29I started just getting really suppliers
82. 2:31and I like their backpacks in that
83. 2:32factory. So, I decided to that they are
84. 2:35going to be my manufacturers, right?
85. 2:37>> Okay.
86. 2:37>> And then I just started with that.
87. 2:39>> Okay. So, you
88. 2:41And then you just thought Okay, so you
89. 2:42found a backpack you liked cuz you were
90. 2:44in China going to school.
91. 2:45>> And because I was a traveler as well.
92. 2:47>> Okay. So, you were
93. 2:48you were the avatar of traveling.
94. 2:51>> No anymore because you need to focus.
95. 2:53Like I don't think I I cannot be
96. 2:54traveling and like
97. 2:56building a brand.
98. 2:57>> Okay.
99. 2:58Um
100. 2:59all right. So,
101. 3:01there's obviously a lot of steps from 5
102. 3:03million to 120 million, you know,
103. 3:06annually.
104. 3:07Um
105. 3:13The advice to double the business is
106. 3:16different than the advice to to 20x it.
107. 3:19Just to be clear.
108. 3:21So, which one would you rather me
109. 3:22answer?
110. 3:26>> Double.
111. 3:27>> Okay, we'll double it. That's the more I
112. 3:28mean, spend more paid ads.
113. 3:29>> case, let's go to the other one.
114. 3:33>> All right, that's what it is.
115. 3:34Spend more paid ads, make more make more
116. 3:36content, right? Um
117. 3:38if you want to really get the brand
118. 3:41where it wants to be, I would you'll
119. 3:42probably get in the neighborhood of
120. 3:44somewhere of like
121. 3:46this is me just like shooting from the
122. 3:47hip here.
123. 3:48Five to seven cornerstone
124. 3:51SKUs that are really kind of like your
125. 3:52big pillars that that that like if we're
126. 3:55zooming to the future, right? That's the
127. 3:57product lineup. You're going to have
128. 3:59your accessories, things like that that
129. 4:00are profit maximized, but you're going
130. 4:01to have your your handful of core things
131. 4:03that every traveler needs.
132. 4:05The thing that you're going to have to
133. 4:06build because if you really have run
134. 4:08this off paid ads not on organic,
135. 4:10digging your word of mouth. If that's if
136. 4:12that's how you've grown this, then your
137. 4:14ROAS, this is what's going to happen.
138. 4:23Is that
139. 4:25your
140. 4:29your margin, so it's like let's say it's
141. 4:31like your margin is going to I'm really
142. 4:33drawing this poorly, sorry. But
143. 4:34basically your margin is going to start
144. 4:36compressing
145. 4:37as you spend more and more dollars in
146. 4:40advertising until eventually the point
147. 4:42where you're spending tons of money and
148. 4:43making very little here.
149. 4:45And so the only way that you have to
150. 4:46only way you can counteract that
151. 4:49is two things. One is product driven,
152. 4:50which I think is one of the things
153. 4:51that's been helping you probably more
154. 4:53than you know, is that the product it
155. 4:55seems like is pretty good cuz the people
156. 4:56really love it. You know there's
157. 4:57reachers, blah blah blah, and you were
158. 4:59the user, which I think are all the
159. 5:00things that are required to make a
160. 5:01really good product. Um you're getting
161. 5:04some level of word of mouth that for
162. 5:05every one person who buys the bag, they
163. 5:07send you another 0.2 people who send the
164. 5:09bag. So that offsets CAC at scale, which
165. 5:11is word of mouth.
166. 5:12The second thing that offsets CAC at
167. 5:14scale is going to be brand reputation.
168. 5:17Now product is the end of that brand
169. 5:19reputation loop cuz you can say whatever
170. 5:21you want about yourself if the product
171. 5:22sucks, that won't happen, right? But the
172. 5:25other way of building the brand is how
173. 5:26many other people like you
174. 5:28can you bring into the brand who are
175. 5:31cornerstone associations that
176. 5:34that elevate everything.
177. 5:36And that then opens up the market
178. 5:39overall, and that's where you'll
179. 5:40basically you you have to build brand
180. 5:42and distribution when you're in a
181. 5:44physical products business.
182. 5:45>> Affiliate like an affiliate army and
183. 5:47also the affiliates, the big affiliates
184. 5:49that have like a good reputation.
185. 5:51>> I would I would start with the handful
186. 5:53of
187. 5:54big big guys.
188. 5:56Um you can do both. I already want to
189. 5:58say that. I like I've done I've built
190. 5:59businesses both ways.
191. 6:01Um there's advantages and disadvantages
192. 6:02to both. Um
193. 6:05long term you'll probably end up doing
194. 6:07both.
195. 6:08So you'll have your all your your nanos
196. 6:09and your micros and you're going to try
197. 6:10to activate those people to, you know,
198. 6:12post about it and and and send their
199. 6:14friends and maybe get this from 1.2
200. 6:16uh referrals per person to 1.6 or
201. 6:18whatever on the affiliate side. But the
202. 6:21brand lift that you're going to get,
203. 6:22especially cuz you're running paid as
204. 6:23your primary, that you're going to get
205. 6:25from you when you whitelist and have
206. 6:26different avatars that already have
207. 6:27brand recognition and reputation wearing
208. 6:29your stuff is going to be more difficult
209. 6:32to calculate, but I can tell you when
210. 6:33it's not there. Is that you won't be
211. 6:35able to scale.
212. 6:36So that's what you have to build
213. 6:38towards.
214. 6:40Is that you need especially as Facebook
215. 6:42has
216. 6:43probably know the Andromeda updates and
217. 6:44we have one of the others that came out.
218. 6:46Right? And so you need to have more and
219. 6:48different types of creatives that are
220. 6:49truly net new. And that's where building
221. 6:51those affiliate bases are super
222. 6:53important.
223. 6:54>> Okay. Thank you.
224. 6:55>> If you're not getting as many leads as
225. 6:56you want and your business is demand
226. 6:58constrained, meaning [music] you could
227. 6:59service more customers than you
228. 7:01currently have, then this is for you. So
229. 7:03marketing is changing and I think
230. 7:05[music] ACQ tends to be on the bleeding
231. 7:06edge of this stuff. We certainly spend
232. 7:07the money
233. 7:08to do it, but we also build custom
234. 7:10software and we pay amazing vendors and
235. 7:12very expensive people to figure out the
236. 7:13system that we have right now and I want
237. 7:15to share it with you kind of open kimono
238. 7:16style. If you're not getting as many
239. 7:17leads as you want,
240. 7:18boy do I have the thing for you. Click
241. 7:20below, book call, and
242. 7:22hopefully I'll see you in Vegas.