In this episode, we dive deep... and I mean Marianas Trench deep, into the brilliant brain of Chris Johnson (of Common Thread Collective). A common name, for an uncommon guy, Chris showed a mastery on a multitude of Ecommerce topics and we dig into them in this bonus guest episode with him. We discussed iOS14.5 and how brands may have overreacted to reporting issues, thoughts on inventory management during a supply chain crisis, and the importance of recognizing where specific ad channels are in the buyer journey.
As a reminder, Chris was interviewed in our last Core episode on the Supply Chain crisis, so if you haven't caught that one yet, make sure to give it a listen first.
Want to be a guest on the PPC Ponderings Podcast? Apply here!
Interested in PPC help for your business?
In this episode, we dive deep... and I mean Marianas Trench deep, into the brilliant brain of Chris Johnson (of Common Thread Collective). A common name, for an uncommon guy, Chris showed a mastery on a multitude of Ecommerce topics and we dig into them in this bonus guest episode with him. We discussed iOS14.5 and how brands may have overreacted to reporting issues, thoughts on inventory management during a supply chain crisis, and the importance of recognizing where specific ad channels are in the buyer journey.
As a reminder, Chris was interviewed in our last Core episode on the Supply Chain crisis, so if you haven't caught that one yet, make sure to give it a listen first.
Want to be a guest on the PPC Ponderings Podcast? Apply here!
Interested in PPC help for your business?
Chris Johnson:
If you were following Twitter in the early days, it was just like e-com apocalypse or the best thing ever for e-com. It was not clear in March what was going to happen.
Kirk Williams:
I kind of want to just dump this on people and be like, just listen to this and take notes.
Chris Reeves:
Welcome to the ZATOWorks PPC Ponderings Podcast, where we discuss the philosophy of PPC and ponder everything related to digital marketing. Today's show is a bonus episode of our full interview with the director of strategy at Common Thread Collective, Chris Johnson. In this episode, Chris shares his expansive knowledge on running great tests, iOS 14, and he even has some great thoughts on the supply chain crisis. If you haven't heard Chris on our fourth official PPC Ponderings Podcast episode about the supply chain crisis, go give a listen. Otherwise, please enjoy our behind the scenes conversation with Chris.
Kirk Williams:
Yeah. Can you give us your name, title, and where you work?
Chris Johnson:
Yeah. So my name's Chris Johnson, probably the most common name on the planet, and I'm the director of growth strategy at Common Thread Collective. We're an agency that originally were based in Orange County, now we're all over the nation. We're a fully remote company of about 150 people primarily focused on direct to consumer eCommerce and really focused on the paid media side. So saying how do we continue to push growth through multiple paid media channels. And then we also have an arm around retention and creative as well.
Kirk Williams:
How long have you been with Common Thread?
Chris Johnson:
So I've been there almost five years, which in eCommerce kind of marketing year feels like 50 years. So I kind of self-proclaim I'm the dinosaur of CTC. So I was there pretty early. I think I was the second strategist that they had brought on to build out their team after Andrew. So yeah, I've been there for a pretty long time.
Kirk Williams:
That's really cool. I think I first started... I'm trying to remember if it was from following Aaron Orendorff on Twitter or if I first connected with Taylor, but at some point in the last few years started to see, hey, these Common Thread Collective people, these CTC people, they're everywhere.
Chris Johnson:
Yeah. It is incredible. I kind of look up and it's like... I remember the early days, it was this little tiny office in Orange County, there's 15 of us all huddled around this little table with the worst chairs you could find. They're these stadium seats, because it was all sports themed. And Taylor would just have this whiteboard and just be sketching out the formula. And so it's definitely grown from that day to now we have some incredible people that are all over Twitter obviously, I feel like. If you just look on Twitter on Taylor's following, a lot of those are either PPC alumni who have gone on the start brands or work on brands, work at agencies, or current CTC employees.
Kirk Williams:
Yeah. I'm always very impressed by business trajectories like that, because I've done... I mean, we're pretty small. We have five people. We utilize freelancers, so six of us. And even just that, just the admin side, the things that come into your brain as the founder/management, that sort of thing that you have to think through with just a few more people, I can't even imagine having to navigate all of that change as well, and then over the last couple years. So that's pretty cool. Props to everyone there.
Chris Johnson:
It's a rocket ship. I think eCommerce by itself is so... I mean, it's changing every day, and then you put in COVID, and it jumps forward a decade almost in terms of its development, and then you're in an agency that's doubling every year. So it has been a ride to my life. I don't think it's going to slow down ever, but we have grown. And so a lot of it has been around how do we service growing e-com brands that have started off early and have grown with us, to how do we scale our strategy team from just a few strategists to we're going to be probably around 15 to 16 teams soon. So the question of scale is everywhere for brands, agency side people. So it's a fun place to be.
Kirk Williams:
As we look at e-commerce, especially the last couple years, one of the reasons why I wanted to talk to you representing CTC is just, I know also you all have your own brands as well, kind of have some experience there with both sides, basically at the same company. So in that sense too, as we go through some of these, feel free to speak to, if you'd like, just the team at CTC, or clients or e-com industry that you're seeing in the whole. So let's start with January, February, March, 2020, maybe just talk us through a little bit of what that was like for you all, what was happening in the team, clients, the start of everything? What were some of your emotions?
Chris Johnson:
Yeah. I mean, I think for all of us, no one had planned on a giant global pandemic, and so I was planning to go on vacation actually. I was like, hey, Q4 is always busy, I usually took Q1 to go take some vacation time. And so I had a plan to go on a cruise to China, Korea and Japan. So clearly that did not happen. And so personally I was kind of thrown into, oh, we're not going, and we need to really figure out what this means for our brands. At the same time, we were all in-office. So we had just consolidated all of our offices across SoCal into one main office, put everyone under one roof, which was amazing, it was so fun. We had room to scale out our teams. And so we have this news just starting to awaken around, hey, there's this is thing happening, and we're seeing Apple shut down and Microsoft shut down their offices, whereas the team's saying, what should we do?
Chris Johnson:
And we have clients as well, we're kind of getting a sense for them, like what are they going to do. Because so much of, again, supply chain is dependent on people being in the actual warehouses. And the office we're at shared a wall with another 3PL that we have some ownership stake in, and so we were already seeing how are we going to move product if there's no one there to actually pick and pack and label. And so it was kind of a crazy moment. So our CEO made the call to, like I think many people, let's go work from home, let's see how it goes. I was a huge advocate before for work from home. I was like, "Hey, can we do this?"
Chris Johnson:
And it was kind of like, no, let's really think about the culture, which was important. I totally understand. Our culture was what makes us different. But about three weeks in, our CEO said we're going fully remote, and it was one of the best things for our company, and I think a lot of other brands were doing the same. And so that was a huge shift. And the big question was, how do we service e-com brands when we don't really know what's going on, and we're completely changing our model of how we work, and we're now scaling faster than ever? So we did not slow down as an agency, we doubled head count. And so it was incredible. And so what we learned in that first few weeks is, the best thing we can do is be a partner and be really honest about how we're processing as our own company and with other brands as well.
Chris Johnson:
So saying, hey, here's what we're seeing, this is what we're noticing, and then data became so important, because there's so much conjecture. If you were following Twitter in the early days, it was just like e-com apocalypse or the best thing ever for e-com. It was not clear in March what was going to happen. And clearly if you look back in time and look at Shopify's stock price, it clearly was at the time a incredible rise. I don't know today how Shopify's doing. But that's really the answer, is we were still being honest and open about our own transformation as a company, and also with the brands how we could best service them, and we really focused on how do we collect data and share that with them in a way that they can make better decisions using not just what's happening on social, but really within the broad e-com ecosystem to make those decisions from.
Kirk Williams:
So when everything is starting to hit mid-March, especially here in the US... And doing all the research on that, March 11th was kind of that key date, then most people are kind of like, okay, March 11th, and then you start talking, that's when the Utah Jazz game shut down, all of a sudden the NBA shuts down, all of a sudden the WHO is like, hey, by the way, this is a global pandemic, and then president Trump made that announcement that night. Next day, stock market crashed, single biggest crash since I think '80s. So especially around those two days, like you said, everyone is kind of reeling, a little unsure of what's going to happen. How initially were you seeing a lot of your clients reacting? What sort of communication were you having with them? Talk us through some of that.
Chris Johnson:
Yeah, absolutely. I think a lot of clients... At the time, I was helping a lot on the sales side as well. And so we're talking to clients who, they wanted to slow down, because they weren't sure about how cash was going to look. So the idea is, this is really new, we don't know what's going to happen, we don't know if there's going to be customers buying... And remember, a lot of these brands were at the time trying to do some retail and expand into wholesale. So that's really scary for them, because they have a bunch of inventory sitting that's supposed to go to stores, and none of the stores are open. So they were pulling back initially. They were pulling back on their spends, so not trying to spend as much, and they were really scared initially. And I get it. I think it's easier in retrospect to be like, that was the dumb decision, but in the moment, what other information did you have?
Chris Johnson:
You have no idea how bad this is going to get. We don't even know how far this is going to go. We were thinking it's three weeks or so of a lockdown, not almost two plus years of massive change. So we were also thinking short-term like, oh this is going to be kind of like a blip, how do we take advantage of it, how do we see opportunities, but also get clients to continue to spend, not just so we get paid, but because it was an important moment? Think about the year for e-commerce, Q4 is massive. So everyone's spending... You have that Q1. If you're a healthcare brand, March is a moment that sets up your summer. That is an important time to spend into summer moments to really what we call fill up the sponge, bring in more volume of customers, really think about how do I begin to message and position my brand so that when there's a moment of the sale, it's not the first time they're seeing it.
Chris Johnson:
And so we were really encouraging brands, you need to consider keep spending in these moments, it's better to have some momentum than to go full stop and try to start up again. Some people were convinced, some people were not. I'm going to be honest, some people were like, nope, we're going to pull back completely and see how it goes, but a lot of our best brands were like, let's push into this, and then it became really apparent very quickly in March what kind of products people were looking into, work from home, if you think about some of those components. We have some athletic brands, so think athletic wear. So sweatpants, through the roof. And so we could already see some early signs that there may be some categories that may be insulated from this, let's continue to push into those.
Chris Johnson:
The last one, I'll give a story. This was later in the pandemic, but one of the brands that had a good thread in this is a brand called BornPrimitive. It's one of the brands we love working with. They're in a CrossFit athletic space, really focused on sports bras, but have expanded. They're one of our earliest clients. They did a program called, Back the Gyms, because the gyms closed down. So early on, a lot of CrossFit gyms were not open, and they were really hurting. And so part of this was a question that came up, how do we help our brands beyond just ad spend? How do we think about moments and creating moments? And that was one that came out of it, of having BornPrimitive think about how do we take our sales and the momentum we're seeing in our category that's not really hurting, it's actually going up, and support the industry that we're in that it needs to survive for our brand to be able to thrive?
Chris Johnson:
And so backing the gyms, taking a portion of sales, and then giving them back into the CrossFit ecosystem became a massive moment for them, and it invented almost a new space in what should be a down moment for their brand. It was the kind of fuel that pushed them in 2020. So those are kind of those moments that we were seeing early on. We weren't that forward thinking until about probably a little bit after March, but we were starting to get the sense of this feels like an opportunity, even though it's scary, where can we push in?
Kirk Williams:
Were there any, and if so, what were some inventory challenges during maybe the first six months or so? Because obviously then we'll shift into the bigger conversation of supply chain.
Chris Johnson:
Yeah. So this is the biggest challenge coming into early 2020, which was we didn't have the supply chain issue yet. It was kind of early, so no one knew that was going to be a big issue. Again, we look back, we're like, clearly that would make sense. If you have everyone stopping and then starting at the same time... It's like traffic in LA. Everyone wants to be on the 405 at the same time, of course it's going to be slow. But in the moment, you don't think about that. So brands pull backed their spend, delayed their buys and started to kind of run thin on some of the inventories, so of course they need to restock. And so there was kind of two issues. Some brands were great. They were like, let's keep pushing into this. We have the efficiencies, and we have the setup within our 3PLs and our manufacturing to afford it, which we can talk about. What are the specific pay windows and that terms we have in terms of how do we have more cash on demand.
Chris Johnson:
So those were different things brands were working with that could order inventory and not be so hurt. The brands that were struggling had kind of overextended themselves. They were running really thin already, and so they needed to make a really critical decision about when to buy inventory, and they maybe pushed it back too late, and so they paid a premium later. So what we found initially, it wasn't that there was any supply chain issues initially, it was later because people delayed that caused a bunch of issues for them. So one of the examples is, we had a brand...
Chris Johnson:
This is more recent we're talking now, where in 2020, they sold through their best seller, a dog product focused in the pet space. And one of their best sellers was, it's a chew toy kind of thing. So they pivoted to another product, and that product sold like hotcakes. It was amazing. Mainly because they didn't have their best seller though. So the question comes, what do we buy next? Is this just because we didn't have our best seller, or is this the product we should continue to focus on? And it's way harder now, because now the cost of a shipping container has gone up by nearly double, triple. You have as well the margin side in terms of the general cost of the actual product being made, the cost of delivery's going up, not down.
Chris Johnson:
So that decision of, do I invest on this category moving forward is a massive decision. Before, it would be like, let's just hedge our bets, let's do both. They don't have that option. They need to choose which one they think they're going to scale. Buy too little, they're going to miss out an opportunity, and there's not enough time to get it back here to sell more. Buy too much, you're sitting with that inventory, and it really constrains the cash flow for all the other things you want to do this year, and so it becomes really, really complicated. And so it forces us as an agency to be very, very clear about forecasting, which is what we spent a lot of time in 2020 doing, because of supply chain issues, saying we need to be very, very clear on what is going to be the forecasting model we're using, be open with that with our clients, communicate how that plays into demand planning, and partner with them in those conversations.
Chris Johnson:
Some brands got ahead of it, and it was amazing for them because they took a risk and it paid off for them. They arbitrage of the cost was lower because they took a risk. Some brands that were doing thin waited, because they were not having as much cash on hand and didn't have the right terms set up, and so then they bought late, and they paid a premium for it, and made it really, really tough for them to scale around Q4 in 2021. We've seen that kind of slow down where people were really, really struggling, especially with iOS changes, which we'll probably talk about.
Kirk Williams:
So did you notice specific consumer purchasing shifts around things like stimulus in that key times? Was that also part of it, or was that not as evident for you?
Chris Johnson:
Absolutely. Absolutely. I think if I could kind of draw a line of our ability to spend and stimulus checks, I feel like they're very correlated. Now, the category has shifted through time. If you look at the timelines, it wasn't the toilet paper. That's not our focus. But mainly think about gym equipment, and gym and sports when the gyms shut down. Big moment early, and continued on, but not as high. It's a high spike, kind of continues on. If you think about supplements and CPG brands that we have, those were kind of bigger as we get a bit later into the year as people would think, maybe I shouldn't have just sat at home and ate all this food, and then have terrible health, and I want to really focus on health. I think in terms of the consumer buying... The same thing happened though in the same moments, it just was amplified.
Chris Johnson:
So if you think in a e-commerce year, Q4 was still Q4. It's still a massive amount of revenue for our clients. It was just amplified in a way that I think honestly we kind of anticipated. One thing that was counter to a lot of people talking about the year was, hey, people are going to buy early because of the supply chain issues. We didn't really see that actually. We didn't really see demand being pulled forward too much on the consumer side. Brands pushed sales earlier, and that maybe helped with some of their existing customers, but the general demand curve was not necessarily much earlier. We saw it still in the same windows of time, because that behavior cycle is still pretty locked in for people. I kind of buy around Black Friday, Cyber Monday, and that's the opportunity I want to buy in.
Chris Johnson:
We'll talk about 2020 versus 2021. 2021, obviously the limitation was you didn't have as many SKUs to pick from, so prices went up. But generally speaking, those moments were still those moments. They weren't like, hey, all the demand went up two weeks, and so Black Friday was smaller. No. People still acted in 2020 and 2021 the same way. We're going to buy on Black Fridays, Cyber Monday, because that's just the cultural rhythm of purchase that we have in eCommerce today. Obviously in the agency side, we experienced brands trying to figure out cost cuttings because of the inventory issues. So some brands were trying to in-house pretty quickly and try to find that talent. So we saw that happen a lot, which we understand. Again, we're in the space of saying, we need to think about what makes sense for your profit and loss statement.
Chris Johnson:
But in terms of some other brands, they realized, in order for us to capitalize, we need to outsource more, we need to bring on more partners. And so we did see heavy demand coming in during... Kind of similar to the stimulus check. Not the same thing. Not B2B. I'm not really saying that the business loans were a big contributor for that. We saw a lot more demand though saying, hey, we want to scale into these moments, we need a partner who understands that right away, and it's going to take us too long to build the capabilities, let's focus on bringing CTC. So that helped us in our growth as well. We saw that correspond to our headcount going up, with also demand for our services go up as well.
Kirk Williams:
Let's switch gears. And at some point, we'll hit the supply chain stuff, but that probably is a big part of the conversation. You brought up iOS 14, which is great. Can we talk a little bit about that? What is iOS 14 thing that you're talking about, and then how did you see that impact brands?
Chris Johnson:
Yeah. I think the mega trend we're seeing in eCommerce and just in general in advertising is the consumer is very savvy and has choices and options. And when it comes to privacy, in terms of privacy, their demand is really they want to have more control over their information and data. We know that. That's been a trend that's clear. I think Apple and iOS 14, what was happening is that, with the release of the new update for iPhones, iOS 14 is the update on the operating system what's going to put in a prompt that would say, would you like these apps to track you these ways? It wasn't saying that they would default not track you, they just asked you would you want them to track or not. At the time, Facebook was projecting... Now, Meta. Forgot the timelines. At the time, they were Facebook. Now, Meta.
Chris Johnson:
Meta was projecting, hey, we're thinking about probably half of those people will be opting in, 30% to half. It was close to 60 to 70%. It was much higher than their forecasted projection. So what was happening? At the time, everyone would, once it rolled out across iOS devices... It got pushed back a bit, but it rolled out. We were seeing really, really poor return on Instagram, Facebook, all Meta products. We were seeing that. So here was the question that we had to ask as a team, is this that the performance is bad, meaning the actual auctions are more expensive, we're losing those auctions, people are not purchasing on-site, or is that we don't have the data to confirm that? And a lot of people were pulling their spend because they said Facebook is underperforming... That was the narrative. And we need to move our dollars.
Chris Johnson:
So we said, look, let's just look at it first, continue course, and let's see what happens. And what we found is that, when we did the data... We have a tool called Statlas that we use across our clients, we pull in their data and make it anonymous and aggregate the trends. We have a report for every brand on their data versus the trend across our 200+ brands within Statlas. It was not a performance loss, it was a pullback of spend and a loss of data reporting. So iOS 14 goes out and removes the reporting of this conversions, but the consumer behavior was the same. People were still buying on the ads that people were seeing, Meta just couldn't tell you that they were. What happened is, it's kind of like, is it the chicken or the egg? What was the result of this? Performance did go down for brands, but it wasn't because Meta was underperforming, it was because brands pulled back their spend by a significant amount of money, sometimes 30, 40, 50% of their spend they pulled back.
Chris Johnson:
And that was their engine of growth, and so they felt that in October later, they felt that in November where they don't have the audiences that they used to have, and so they have to spend a premium during the highest moment of cost to drive the same growth in volume. That hurt their performance later. As a team, we were trying to be very careful about the assumptions we were making about what's happening, and we were trying to be very slow about actually saying, this is what is happening, until we have the data to back that up. And so the summary from us brands is that Facebook performance wasn't underperforming at the time and just didn't have the data to show you it was performing.
Chris Johnson:
What we used to figure that out... Just to give a kind of sense, was we use a term called MER, or marketing efficiency rating or ratio, depending on who you talk to, and that is taking your total revenue divided by your spend, or if you have the inverse, we call it ACOST or advertising costs of sale, you just do a percentage. So MER is kind of our central source of truth of are we making money on the first purchase, or generally the total revenue of the company. A variation of that we call AMER, acquisition MER. So all of our acquisition efforts, is that profitable. We were trending that line, both MER, total revenue against total spend, as well as acquisition, new customer acquisition, and we saw that performance line stay pretty steady for brands that continued spending.
Chris Johnson:
It got worse for people who pulled back and tried to ramp it back up again. And so our kind of takeaway, the so what for brands is that, when these moments happen, it is usually not changing consumer behavior, which is what you really want to focus on. The reporting is going to change dramatically. We're going to see those changes happen across the board. Google's delayed on their end. They haven't rolled out their changes, but that's going to happen on search. And so that's going to affect the data that we're getting on ROAS on the platform, but it does not change the behavior of the consumer.
Chris Johnson:
And what you really are looking at is the total revenue against your total spend as your governor of are we winning here or not, and then we have some nuances that we talk about about anti-fragile eCommerce and all that to help do that. But iOS 14 was a pivot point for us to be very clear about our role in this industry, that we need to be very clear on communicating what are we seeing across the dataset before we just jump on the bandwagon of, here's what Twitter's saying about it's the end of iOS and Facebook's ability to drive sales. Not yet, just harder to see.
Kirk Williams:
So did you actually see then brands shift spend from Facebook to other channels? If so, where typically were they going with that money?
Chris Johnson:
So a lot of brands got very scared quickly, and of course the trigger response is Facebook's not working for me, I still need to spend, I know I need to grow, I'm going to move the money now. And so a lot of brands, obviously TikTok, Snapchat were two major channels for them. Google was probably the biggest shift for people. So moving more money from Meta products into Google was a big shift for the majority of our clients that they wanted to try and test. We'd already been telling brands to increase their spend on Google anyway, because the product is just significantly better than it was previous years. It's just improved over time. That was more of a increase your spend in general, if you can afford it. We'll help you show you if you can afford this, but don't pull back on Meta just because you're scared. You're wanting to move money to Google because there's opportunity there, as well as on Meta.
Chris Johnson:
So that's a complicated answer for most brands. It's not as clean cut as, yep, everyone does this, but a lot of brands did. Some of it was a mistake. They lost demand. They didn't drive demand. So they looked at the ROAS on platform and associated that for the best opportunity for growth, which was not. It was in a sense robbing the opportunity to grow net new customers. So you saw AMER, that acquisition MER in a sense go down, or the ACOST go up. The amount it took to drive the volume got way out of control. And so they tried to... Because they pulled all of their demand gen out and put it right into the bottom of the funnel. When that's gone, now the same activity isn't working and it's getting really, really expensive.
Chris Johnson:
Brands who work more cautious, saying, hey, let's actually continue with Meta, we understand there's some data loss, what is the average? Meta released information pretty late, but told us it was 30%, so we could apply that metric, 30% on average data loss, and say, okay, well let's apply that to your current ROAS, here's what it really looks like in reality, and let's compare that to MER. And we found that brands were fine. Meta was fine. If you just added that 30% back, you're actually winning. Let's scale more here. So TikTok and Snap, everyone is asking right now in 2022, where do I spend my money? Because it's a different challenge with Meta today around their actual product, which is inventory. So that's a separate thing than 2021, but 2022 is their inventory is less. And so we can see that by daily active users.
Chris Johnson:
So they report on this in their earnings call, and you can see their stock price did not like that, and so what does that mean? Our founder, Taylor, has a great threat about this, but basically it means the way this works is, if I have less inventory there, it's going to get more expensive for me to do anything there. It's not just competition, it's saying for every single person I need to reach, there's less of them, that means it's more expensive to scale. And so we are seeing brands trying to move into other more social visual platforms like TikTok and Instagram to drive demand gen. Remember, a lot of times Google's kind of demand capture still. Now, they don't like when I say that, because it is more than demand capture. I do know that. But for many of our brands, their ability to leverage all of the products isn't quite up to speed yet, so we want to say, how do we best take advantage of this moment and develop a plan against Google to do some more demand generation on some of their other products that we can talk about?
Chris Johnson:
And so we're testing there aggressively, but it's hit or miss with any new platform. Just think early days of Instagram, or think about Instagram stories, I remember when I was starting to lead strategy with some of my teams, Instagram stories was what Facebook was pushing, and it was great, it was super low cost. I remember it was a third of the cost for traffic, but the conversion rate was terrible at the time. It was just new people. The people who were using that product were more about the social than about the shopping, and so it just wasn't that great.
Chris Johnson:
And we're seeing some of that on some of these other platforms. It's hit or miss. Some brands are killing it. Social shopping kind of format brands, cosmetics, awesome. Sometimes though, some other brands that are more hard goods maybe struggle here, higher AOV products maybe struggle here on those channels. So we say, let's look at the landscape, we can try it, but let's not just rip out the engine to try and pursue... That's really risky. Let's think about running this on a platform we know has great supply right now. It is declining, but it's not dead. And let's start trying on these other channels, but there is a precursor, which is can you afford to on all the other components of your business, is your cost of delivery, your actual cost of goods being maintained, or is it going up? We're looking at things like in terms of your OPEX...
Chris Johnson:
And this is how deep we get. Are you just adding a bunch of head count and causing way more weight to the business in a moment where all your supply is getting more expensive? All that squeezes margin and squeezes ability to spend, and opportunity. So we ask these questions first, before we even talk about channels. Can your business sustain a loss on that channel completely? If we don't make a single dime on that channel, can you still sustain that? If not, it's not the time. We got to focus on the rest of the business before you can even afford to test there. If every dollar matters so dramatically, it's not fair to your team to be like, get me great return while also testing and guarantee a return on this new channel that's not proven. And so we tell brands, let's be very clear about the priority.
Chris Johnson:
Right now for many brands, it's not the time. They need to really tighten up on some of the business operation side, really think about creating the right kind of content base to support those channels, and then slowly test to the place where they can tolerate losing that amount of money on Snapchat and TikTok, and then when they win, it's icing on the cake. It's amazing growth for them, and it's diversifying their account. We love that, but not at the deficit of profitability that will kill them if they overspend, because they're just scared that Facebook today is slightly down, but is not completely gone.
Kirk Williams:
That's fantastic. You you alluded to this. So we just do PPC, just Google Ads, Microsoft, that sort of thing, but obviously we'll work with either in-house teams or other agencies on the social side. It is funny how for the brands who had the issues and struggles and concerns, as you brought up, with Facebook tanking, to then shift it, if they didn't fully understand exactly what you had noted, which is you're moving from primarily a demand gen platform... So especially if they were... Let's just say they were taking that and like, well, let's pump more into Google shopping. Google shopping is by its very nature for the most part... Now, admittedly, they're starting to play more in YouTube and display in that too. So you are starting to actually get some element of that.
Kirk Williams:
But for the most part, especially when it's search-based, it's kind of simple in how it works into being demand capture, and that's basically you need someone to think of their need for something, and therefore search for it. That's what search is. It is just extremely different philosophically from Facebook, from social media, and that's exactly what you noted. And we've seen that as well, is it wasn't just enough to say, hey, we want to shift dollars to see where we can get our ROAS? If they were shifting their funding from primarily that demand gen to demand capture, they really were going to get into trouble at some point.
Chris Johnson:
Yeah, it's not immediate. That's the thing. It's kind of like a drug. It's, oh my... If you're a marketing manager today working on an e-com brand, and your boss is like, my ROAS is down, give me better ROAS, I'm reporting to the board next week, we can push the volume up on that shopping campaign through the roof. We could do that on the branded side. We can push more volume through for Google at the expense of pulling spend from the place you're generating all that demand. Especially if you're leading a category, and inventing the demand for the category on Facebook, you don't see that tomorrow, you just see better return. As an agency, we think in one year horizons, we don't think in one month. We forecast an entire year together, because we hope that you stick with us.
Chris Johnson:
And so for us though, it's like, that's not going to help me get to new customers, because you have a boss like me who's looking at net new customer growth saying, great, your return is fantastic, but your number of new customers is down by 30%, you will die if you continue this process. And that's a challenge for brands, because it is so easy, it's a drug to focus on a singular metric, a singular number to drive their business, which it doesn't exist. There is not a single number to drive your business with. It's a combination. It is a consolation of numbers you have to keep an eye on that makes health.
Chris Johnson:
It's like a person. Health is a series of components that lead into that ultimate result. And so a lot of times I am sitting on calls with a head of growth, or a VP of marketing, or you name the person, trying to remind them that the goal is growth, the goal is not immediate return all the time, that they hire us generally speaking to scale their growth, and there are times where that is a painful investment that pays off, and we're partnered with them in that we're compensated in that way. And so it's hard.
Chris Johnson:
It's really hard though if you're really under pressure and you're under tight situations for some agency to tell you, yeah, no, invest on something that is declining in terms of users, but is the best bet for you right now, because it feels like the boat is leaving and I'm not getting on it, because everyone's on that boat, when really it's just a lot of people on Twitter saying, this is really cool and it drives engagement, but it's not actually driving the business growth for the majority of the brands we work with, and we will get there, just not probably today. And a lot of times too it's the sexy thing to do, because the other stuff is not very sexy. Driving organic growth through SEO is not very sexy. Content development that really focuses on solving problems, pulling from your customer service reps what they're asking and developing content, not sexy at all. No one's going to be like, let's retweet that, let's make a thread about that on Twitter. That's not happening, but it's essential.
Chris Johnson:
I talked to a brand yesterday, she was really, really passionate to get on our growth team levels, our platinum product, it's our top level strategist and all those components, and she wants to start, and I said, "Look, I understand, and I would love to take your money, but this is my responsibility as kind of a fiduciary of e-commerce, your e-com health is not here yet. We will crush you just by the weight of our cost if you don't get these other things up. We will start, we will hit everything we're trying to do, and your engine will stall. You don't have enough organic. You're overly capitalized within ad spend. You don't have organic social driving this. There's nothing here to support the weight that I'm asking you to increase on."
Chris Johnson:
And it's a hard conversation for brands, but it is the right conversation. You want to be ready for growth. You can't just do it because you want to. You have to be at the place where you can supply it, and that is not sexy at all.
Kirk Williams:
And what we've seen is, one of the places that they'll turn... You noted it's like a drug, and it really is, is kind of that demand capture type side. And the problem is, the more you focus and pour into it... It's a limited resources type of a situation. Unless you're building demand and literally creating searches, there's a cap to the number of people who are even let's say searching for this. It starts to become inefficient the more you invest and invest, at least that we've found. And so totally agree, if you're not also focused on building that demand, then the more you focus on more of those mid, bottom funnel searches, it's getting more expensive, it's getting more inefficient, you're starting to struggle, there kind of as that point, and all of a sudden they're looking around saying, hey, this must be someone's fault, agency just can't bring us the results like they used to be able to. It's like, well no, that's because you're trying to dip too heavily into this pool. So anyways-
Chris Johnson:
Yeah. One thing I'll just add is, obviously the testing side's still important, it's just coming in with an intentionality around how you're testing. What I find, if people are honest, is they're coupling, I have to get performance from this test, which is not a test. That's not a fair test. You're saying to this opportunity, this is not about me winning on this one opportunity, it's for me to learn if this is going to work. Now, I don't believe that you should have your entire spend be testing. That's bad. Meta doesn't agree with that, Google doesn't love that either, but you should have a set side of it. The idea is, where are we aligning our intention with this? And it's not fair to change your mind. It's like, well, I'm going to punish the marketer. I'm going to punish the performance growth marketer in-house in the agency, because that test didn't yield us 6X results from our current base of spend.
Chris Johnson:
You should actually plan for it not to. In most cases, the average, the bell curve is what the majority are doing, and that's working. It's a bell curve for a reason. Most people are spending that way because it's generating results. When you're testing, you're pushing out to the edges of that, and that's okay, that's good. One of the things I love with search I tell brands is, it's a treasure trove of intelligence for you. If you do PPC, if you're doing paid Google ads, you're getting way more intelligence than from search console. Search console is going to give you some senses of, hey, here's what the search from organic generated for you, but you don't get what exactly they looked for, which I love.
Chris Johnson:
When a brand comes in and I want to know about their customers, I'm looking at their search term report within their searches to see what are they looking for. And so many times the category that they're searching the most for is not the main objective that they set their account for. And it's an opportunity right there. Now, that's why I have a love/hate with smart shopping. I love the engine it creates, I just don't like that I don't get to see that intelligence. And that's just because I'm a strategist. My job is to provide intelligence to brands on what they should do. So it's a double edged sword. This is going to get you results, you're going to lose out on some of that information. But the testing to get intelligence is worth it. You can totally set up separate campaigns just to understand what is people's intention here, what are they looking for, what long-term opportunities could we maximize in a more competitive search space?
Chris Johnson:
Because what's going to happen is, search is going to get way more competitive now. As people move all their money there, what's going to happen to all those auctions? So much more expensive. And so I tell brands, let's get out of that expensive red ocean into something blue, which is more focused on more long-tail, thinking more about use case comparison. Those are really good opportunities for YouTube ads. There's so much you can do there, you have to just give it space though to mature and become an opportunity for you. If you treat it as if it needs to be the lifeline for your business, you're never going to give it the chance to really succeed.
Kirk Williams:
Love it. Okay. So I don't want to take up too much more of your time. A few minutes left. Let's talk maybe some supply chain stuff. So I really like that we got some great iOS 14 stuff, but maybe talk us through in terms of client-based stuff. What maybe were specific ways you saw you had supply chain challenges? Kind of take it where you want. If you want to talk through a little bit of story of things that you saw, or maybe specific challenges, specific little insights, stories about this, that or the other, container prices, whatever it might be.
Chris Johnson:
So my favorite thing was brands saying, hey, we're out of our best seller, but we want you to perform at the same rate as you did before. And so that makes it hard as a partner to be like, well, look, we both know that both these things are related. It's not... Again, I always bring it back to consumer psychology, their behavior. If they like the black legging, and that's your best seller, and it's gone, you're trying to convince them to change their mind on, you don't really want black, you want pink, or you want navy. And so that's going to take more energy and more cost and more testing, and it's just going to get more expensive. And so that's one thing for us on our end where we're driving the volume. If you remember, in our placement, we're kind of at the front end. We're trying to drive in new customers.
Chris Johnson:
We do have the retention side, which has been huge for us, and that's counteracted some of the cost side, which we can talk about, but specifically what I've noticed with brands is, one, just the material costs has gone up, so that affects everything down the road. So if your cost to make the product, just the material's gone up, let alone the shipping and the timelines for that shipping, what it's doing is, it's crunching those cash flow windows, those cash payback windows. And so if you don't have the right setup where now you're saying, okay, we're going to make this giant PO, and I have X dollars in the bank, and as a strategist, something pops up. It's amazing we're seeing sales. I want double the spend. They can't. They cannot. And so what are some specific examples?
Chris Johnson:
Okay. So we work with a large cooler company, and for them what we've noticed is specifically this same issue, whether it be supply constraints around some of their best products. So it means we have to get really, really creative on surfacing other kind of products. That puts more constraint on us as an agency to create new advertising and creatives and ads around not best sellers, which means it's pushing into testing, and it pushes into poor performance sometimes. That's really tough where it's like, hey, this is the thing they want, you don't have it, we got to navigate that. And so that's tough. I think in terms of like other brands, what we have seen is then a lot of competitors show up too in terms of the same space.
Chris Johnson:
I used to work with two of the largest percussion therapy device products. So you can probably Google them, and you'll find them. And for them, a lot of their supply chain was way more complicated. At the time, they had moved on, but I can see in the wake of those products way more competitors showing up at our door who don't have the same level of efficiency in terms of scale, they don't have the same level of really dropping the cost of the units because they've bought a million plus units, and so they're asking us to do the impossible, which is [inaudible 00:43:49] the main 300 pound gorilla in the category, do it at a higher return, while also not having the ability to even navigate because their costs are so high. And so that's something I'm seeing. It's squashing competition too, where we're seeing brands that typically would have more competition scale, can't.
Chris Johnson:
It's removing those brands that don't have the value prop. I think the other side too is, sometimes the supply chain gets a little inflated in terms of what's happening, but what I've noticed more that's been interesting is wholesale booming back to life and pulling D2C inventory. So one of the brands we worked with is in the food space, in more of the keto protein space, and they had allocation set aside for direct to consumer good to go. What they found is that, because health as an industry, the healthcare space has gone up, their Whole Foods orders, their store orders went through the roof. And so they had all these POs now that they were oversold. They anticipated not having to fulfill all of those, because most of the time the stores cancel.
Chris Johnson:
And again, I'm not the wholesale guy, so if I'm messing up the language, sorry. I'm on the D2C side. But anyway, the way they explained it to me is, we now need to liquidate all of our D2C inventory into wholesale to fulfill the commitment we already made. That's hard, because I'm like, I have a contract with you, you need to stick around and work with us on this. But that was the thing that was happening too, is we're seeing wholesale... That's a lot of money. If you're a CFO, and you're like guaranteed sales versus spending money for maybe having a sale, where are you going to put all your inventory? Put it all on wholesale. And it's shortsighted, because you don't own the customer data, you're trusting the store that they're going to keep doing that. So I don't agree with that move.
Chris Johnson:
It's a sense that, yeah, I understand why, but you want to own your customer. You really do in the future. That's where we're moving to. But we see wholesale roaring back to life in a way that most brands didn't forecast, and they had already put those orders in and they're thinking, they're going to cancel. Well, they didn't, and now where is that inventory coming from? And they can't get more here. They cannot get it in a boat to here in time. And so they have to make a difficult decision, in a sense mess up the wholesale opportunity, or in this case, which is easier, pull back in D2C and hope that they can do it later.
Kirk Williams:
Yeah, I like that. I think that's the first I've really come across that even temptation in thinking through that for some to liquidate their D2C inventory into wholesale. That's really interesting.
Chris Johnson:
It's interesting, and it's not surprising if you think about it. If you're cash constrained... This is why I always bring it back to the economics of the business, is that most of these decisions are tied to the mechanics of the business operation. It's really not even about... As much as I would love it to be a problem on the marketing side, it's they're making decisions about their cash flow, and that is what we have pivoted all of our strategists to think in that same language. All of our teams now that we train, the first conversation we have is, here's what a healthy e-com business from a cash perspective looks like. Our best strategists will take a profit and loss statement, break it into four quarters, four pieces to isolate your CAC, cost of delivery, OPEX and your profit.
Chris Johnson:
Because what we're talking about is trying to convince brands to think about profit and long-term growth over short-term, really shortsighted short cash movements, and we're advising our brands, our best ones, not to make that quick jump, because it looks nice now. That drug looks so nice for me just to get that wholesale order, and that's cash today. That Google spend, shifting 80% of my budget there looks really nice today, but when it comes to the long-term, what I think we're going to see is probably a lot of brands who are going to be in a really tight position later in Q4, because they didn't set themselves up for success in this channel. And the winds have changed, and the trendline and the arc of business is moving towards e-com being the dominant player. It's not today. We've moved forward really rapidly over the last four or five years. But think about how small it is compared to the global GDP, and how much it's growing.
Chris Johnson:
It will become the dominant channel. And so you not investing in the future is like you not buying in Apple back in March of 2020 when it was at a discount. It's you not investing in the ability for you to be positioned well in this channel when... Remember back in wholesale, those are going to get constrained as well. Real estate will get more expensive over time. Those will be issues. You're competing for shelf space. Remember where D2C came from, this idea of efficiencies in me being able to go directly to my consumer and be able to pivot fast enough to respond to them, instead of trusting the store's intention with my brand. And so that's what we're pleading with brands today, is saying, I understand the diversification story, that's fine, but not at the deficit of the main way you talk to customers, consumers today.
Chris Johnson:
You really need to own that channel and be able to scale that. If not, it's going to be really hard to compete with Nike. It's going to be really hard to compete with all these other brands who have way better supply chain than you, and can demand way better conditions than you could ever demand, because they have $1 billion, and you don't. So it's much better to try to do it on this small pool than try to win globally in this space, unless you're really set up to be successful. And maybe you have some venture capital I don't know about that's incredible, but I don't know.
Kirk Williams:
Yep. I think it's hitting a lot of those brands now.
Chris Johnson:
Yeah. Look, if the consumer is shifting towards a e-com first, I get to make it the way I want customization, none of those things lend themselves to wholesale. I get it. I really do. And I think it's a great marketing channel. If I was going to say demand gen. Yeah, for sure. Think of it just like if I was doing TikTok. I'm going to use this to drive in general demand for my category. But I'm pretty bullish on D2C continuing to be a long-term payoff for people. Now, I'm focused on growth. I'm in advertising, but I'm focused on growth, and it doesn't always mean ramming ad spend to the moon. It's about a balance, right? It's about a balance, and I want to see 50/50 split of organic... This last metaphor I'll give you is, we have something called a layer cake where we think about ad spend and marketing stack.
Chris Johnson:
The bottoms are existing customers' LTV. It's the last piece [inaudible 00:50:22]. It's those existing customer cohorts we talk about tons where we base our forecast on. Those existing customers are the most predictable, they're the cheapest to maintain, and it's logic, if you have a customer today, it's a lot cheaper to keep them than to find a new one, and they are insulated from increased cost of the platforms. Above that is organic, right? It's the general mixed of earned media, so PR, think about some of the affiliate components, but also it's organic search, which is an incredible space. That is not slowing down. With AI today and what Google's investing, search is not going away, and people are using it more than ever. And so organic is a great category to start investing in. The last piece is that paid media at the top of that cake. If you think about kind of a pyramid, the base needs to be big to stabilize the top, but most brands are upside down.
Chris Johnson:
The top is on the bottom. Paid media is the biggest component of their spend, but it's the most unstable. And so you see brands that are shifting wildly, because none of the base is stabilizing them. What we encourage them is saying, we will own and really work on paid, we really want that, but the ability and the speed of which we can scale is directly determined on those bottom two pieces, your existing customer cohort and your organic or earned media that's driving in that volume for much cheaper spend than any paid media is ever going to be. The best brands across the board in the shoe category that are incredible... I can't say which one, but a really incredible brand that is worn by a bunch of people, to then in terms of I think about our lifestyle fitness brands, all these brands that have been the most efficient scalers have had high MERS.
Chris Johnson:
And where does that MER come from, that total efficiency come from? Incredible retention of their customers. 60 day window time, making 30% on that, increases, 30% of their revenue on that base of existing customers, and really strong organic. So it's actually not that they're the biggest spenders in scale. In comparison to the other channels, it's actually small. They may be spending $1 million a month in a Proctor & Gamble CPG kind of brand, but in terms of specifically the setup, it's really that base of existing customers, organic, and then paid being the smallest piece. And that's the future. That is where brands are going to thrive, and that's where they're going to double their spend every year, is because they've grown the base to support it. The last note on LTV, just a note on it, it's really hot right now.
Chris Johnson:
It's like LTV to CAC, you need that. We have some definitions that I think are helpful for people. Number one, we don't think about that lifetime, we think about one year LTV, how much does my percentage go up in one year, and I think in 60 days. So our team digs into 60 day LTV. How much does the value go up from that initial purchase, and then within 60 days, how much is the value there. That's usually the window of time, 60 to 90 days is that cash payback window for most brands. So it doesn't help you to think, 10 years, LTV is X. Some platforms will just fit that number out for you. It's not very helpful. You're not going to survive 10 years if they don't buy again in 10 years.
Chris Johnson:
You need 60 day windows as a healthy window, which means that you can't just do everything on a monthly basis. You got to think quarterly. What am I doing quarterly to drive up my LTV there? Email retention, SMS, great, but you got to think about how does that work with the rest of my system. I can't just layer on SMS and hope that just drives my LTV up. You got to think about what is the natural cadence of purchasing these products, and what is that window of time for my finances that I can support. And that blend, that's the magic of having a great base of retention, is it's enough time for me to make my money back so I can increase my spend, as well it's a cadences that's predictable. So I can forecast in advance to insulate from supply chain. If I know I have this many customers that are coming back, I already know how much money at minimum I'm going to get.
Chris Johnson:
So even if paid doesn't work or is in the red, I know generally where I'm starting with. And so if I'm thinking about that PO, I can think about that main forecast of my existing customers, because it's not going to go up 30% with CPMs, it's going to stay pretty steady. That's super helpful for brands. That's the intelligence people really want today, and I think I recommend it. And honestly, what I spend most of my time on is doing that forecast. Let's just do the forecast together, look at your LTV and your existing customers and that cohort, and let's then forecast demand off of this cohort. Not based on how much I could scale spend yet. Do that later. Start off with existing customers, and then organic's next up. If you can do that with seasonality, those two are really solid, you really have a sense of how much you can spend and how much you need to buy.
Kirk Williams:
Cool. I'm glad you hopped in there, because that was excellent. You're giving us a masterclass on e-commerce as well, so I kind of want to just dump this on people and be like, just listen to this and take notes.
Chris Johnson:
I hope it's helpful, but this has been my conversation the last six months honestly with our teams, is really these components that I've gone through, so hopefully it's helpful.
Kirk Williams:
If people want to hear more from you, or do you have a place that you're writing right now, or speaking or social media, where can people find you?
Chris Johnson:
Twitter, Chris_Commerce. Very simple. So you can find me there. And then obviously Common Thread Collective. So commonthreadco.com is where, most of our intelligence is there. I think if anyone wants access to some of the data that we have, I'm happy to give out some [inaudible 00:55:57] as well. So if you need that, I can give you. We have a monthly data report we pump out from Statlas that gives some insights into those trends, so people can make decisions from their own sense of their business versus what we're seeing across those same trends. Our strategies should use that same data set. So it's like, okay, for you, for us, same data. And our hope is that we just... If I could say what would make me sleep well at night is people not making decisions because they read something on Twitter [inaudible 00:56:25], but they thought about it against a dataset, and then they made a confident decision.
Chris Johnson:
So if that is what they do, fabulous. But yeah, commonthreadco, I'm on LinkedIn, Twitter, Chris_Commerce, and then my email is chris.commonthreadco.com. I love to respond to people who have questions and connect. And then last thing I'll give is, we have a group called Admission. Admission is our community. So if you're not quite at the hypergrowth stage of a company, you want to get started, all of this is in our Admission. So youradmission.co is another space that, I put content there, we have a group on circle that kind of helps people navigate, and they get access to our strategists. So we jump in there and answer questions all the time.
Chris Reeves:
This has been a bonus episode of the PPC Ponderings Podcast. Keep checking back for more interviews in our next full episode. If you like what you hear, please consider sharing this with your network, leaving us a review on Apple Podcasts. Until next time, may the auctions be ever in your favor.