Revamp Your eComm Brand’s Marketing Channels by Using Micro-Influencers

The Profit Forecast: The eComm CEO's Podcast

Episode #2: David Morneau

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Transcript:

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Ben Tregoe: [00:00:00] Cool. Awesome. Good to see you, David. How are you? Good to

David Morneau: see you, Ben. I'm doing well. Thanks. How about yourself? I'm doing

Ben Tregoe: well feeling much better. Thanks.

David Morneau: Yeah, that, that was a crazy week you had, right?

Ben Tregoe: I, I got nap knocked on my ass. That's for sure that, uh so, yeah, but it goes quickly. Um,

David Morneau: yeah, it was better.

David Morneau: No, no side effects now.

Ben Tregoe: Slight cough.

David Morneau: okay. Not too

Ben Tregoe: bad.

Ben Tregoe: No. Hey, um, why don't we start with what we were talking about, you know, I'd love to learn more about what you're doing at Inbeat and how you work with customers. You know, some things that maybe, yeah. Um, companies need to see brands that are new to, to influence or marketing should be thinking about, or maybe those that are, um, currently doing it, but having trouble, you know, new things that they should be thinking about.

Ben Tregoe: And then I'll love to tell you a little bit about Bainbridge after.

David Morneau: Sure let's, let's jump into it. So I'm co-founder and managing partner over at Inbeat. We help direct to consumer brands, leverage micro influencers, um, to create ads on TikTok, Facebook, Instagram, and Snapchat. Um, we do that through vertical video and the edge we have is essentially that we have a network of creators that have a track record for low CPAs or low C across the board.

David Morneau: So we identify those top performing creators. And we just, uh, reuse them across our different clients. So that's kind of what we do. In a nutshell, we do the influencer casting and the ad management, and then we have software around that as well. So that's it in a nutshell,

Ben Tregoe: How does it, how does a creator get good at this?

Ben Tregoe: I mean, how do they, is it just practice and they, how do they know that they're getting low CPAs? For example? I mean, how do they get back? Yeah.

David Morneau: So the way we do it is we'll identify creators that have a high potential. Right. And we have two types of creators creators that will brief and say like, Hey, here's like your hook.

David Morneau: Here's your transition? Like, okay, what's the benefit put that forward. And then what's your call to action. Right? We'll walk them through that kind of script and other creators, just get it right. We're like, Hey, here's the app. Here's the, here's the eCommerce brand. Um, here are the unique selling propositions.

David Morneau: Here's our target market. Go ahead and run with it. And they'll just create an ad that outperforms the other. Really depends. Some creators are good at creating content, but don't understand, um, the ethos of the social media part. But other than that, yeah, we, we see it after that. When we run ads against a, uh, you know, different creators for a different brand.

David Morneau: So if a brand comes to us, we run ads with 10 creators. Some of them are just gonna outshine the others. That's the fact.

Ben Tregoe: And are you guys running the media or do you create just the content and then the brand can decide to run the media? Us.

David Morneau: Yeah, we do both. We do both. So, you know, a lot of teams come to us they're, you know, and they have, uh, they're managing paid media in house and they're looking for, uh, influencer generated content stream.

David Morneau: We'll help. 'em do with that. But we do the media, we have a media buying team as well board. We help our brands, you know, manage well over 500,000 a month in kind of paid media. And that's, that's, that's what we do here. So.

Ben Tregoe: What I was reading something recently, um, about influencer marketing and UGC, you know, and it was sort of the, and I think you see this in every channel.

Ben Tregoe: So I don't think it's unique to influencer, but you know, how do you keep things authentic, right? Yeah. How does you know, cuz presumably the idea of the, in the influencer and the reason it works is people like, like that person trust them to some degree, you know? So how do, how does it stay authentic? .

David Morneau: I mean, you know, this that's like that's when the casting becomes handy, right.

David Morneau: Cuz you know, actors feel authentic when they're playing their role, but they don't have to be, that's kind of our view on it. Some creators just feel authentic. Right. And they can do that for 10 different brands. They can go from one skin care brand to another and you'll feel that they're authentic. So it's really.

David Morneau: And like the person's ability to feel authentic. Obviously there's like real authenticity where we'll, you know, we'll try to build that as much as we can get the product, get the influencers to fall in love with the product, talk to them on a one-on-one call. Like we're doing right now, get them hyped up about the product, you know, kind of get them to buy in, cuz that's gonna make our whole job a lot easier.

David Morneau: But yeah, that's essentially how we, we, we build that

Ben Tregoe: authenticity. Yeah. That's interesting. I think that's, I think that's one of the hardest things about the, all these different channels is that they get worn out over time or not worn out, but they somebody's successful with it. Everybody pile into the channel, the quality maybe starts going down, but there's still a lot of gold to be mined.

Ben Tregoe: And how do you do that effectively? And it sounds like you guys have really built an, an awesome platform to.

David Morneau: And I mean, I mean, to be fair, I think that this thing of, you know, it's just gonna be ad fatigue exposed as well a year from now, we're gonna be like, oh wow, this tactical UGC that was working so well a year ago, doesn't work.

David Morneau: There's gonna be [00:05:00] something new. We're gonna be taking new approaches to this whole thing. It just like, you know, people get better at recognizing ads, whether it's created by other users or whether it's studio produced. So yeah. We'll see how this goes. I'm curious to see, um, yeah, where we're gonna go with this.

Ben Tregoe: Cool. Awesome. Well, thanks. Yeah.

David Morneau: Yeah. Appreciate it. And I'd love, you know, just for you to balance about bay bridge and what you guys do and yeah. Just start there. Yeah.

Ben Tregoe: Well, thanks. We we've built a platform to help D TOC founders optimize their business. So what that means is first understanding what's going on in their business and particularly around monetization and profitability setting the right goals and objectives and plan.

Ben Tregoe: communicating those goals and plans to your team, and then tracking progress against that, um, through a series of scorecards and dashboards that both the founders can use as well as the teams themselves and even individuals. So it's really what we found is that a lot of brands are, um, they're very good at certain things, but they're maybe not as good at figuring out how to do growth or profitability or profitable.

Ben Tregoe: maybe they're struggling with capital getting the right debt or equity in place. And, um, you know, that's often where things start breaking down because the low hanging food has been picked. You know, they've kind of figured out how to do what works, but now they're like, how do I get that extra five points of margin, you know, or how do I go from 2 million to 20 million in sales?

Ben Tregoe: And, uh, the answer oftentimes is you do a lot of little things. Well, and yeah. And that, that, you know, given the complexity of D TOC businesses is hard. Right. Because that's interesting, you know, thanks. Yeah. I mean, you think about like a D TOC brand. Um, you've gotta be good at, at supply chain, right?

Ben Tregoe: Obviously we've all learned that you've gotta be good at, at marketing and paid acquisition. You've gotta be good at all these different channels, whether it's influencer or Instagram ads or TikTok and all, all of the. uh, merchandising, uh, fulfillment logistics, uh, finance operations. So what happens is, you know, all that complexity is very difficult to manage and you find your margin in doing little, lots of little things better and better.

Ben Tregoe: And the beautiful thing about margin is that it compounds over time. Right? So. , you know, if your business currently is making $5 for every a hundred dollars in sales, let's say $5, a profit for every a hundred dollars of sales, you know, by compounding your, you know, making these improvements to your margin, let's say you get that to seven or eight or nine or 10, you know?

Ben Tregoe: So that means that over time, every a hundred dollars, you now make seven or eight or nine, you know, that cash adds up quickly, you know, just think about it. Like as if you had invested in a bond or something like that, the more. invest in the faster you can cycle through it. The, the more money you make

David Morneau: and how do you, how do you help kind of, I guess, leadership teams and direct to consumer brands, um, make in derive insights from that data.

David Morneau: I'm, I'm assuming they get that scorecard. And then after that they see like, okay, Uh, here's our operational cost. Here's our fully loaded C here's, you know, our merchandising cost. And then I guess, where does like your tool come in to derive insights from there?

Ben Tregoe: Well, that's a great question. So the first thing we do is we bring all the data together, you know, so if you think about a D TOC business and all that complexity, there's a lot of platforms.

Ben Tregoe: So Shopify, QuickBooks, Facebook, Google influencer, marketing, TikTok, Clavio, you know, data's everywhere. Your three pales, your return systems. so you wanna bring it all together, put it a data warehouse, have that structured correctly so that you can access it and do the right analysis. Once you do that. Um, the insights become a lot easier.

Ben Tregoe: I mean, this is kind of the promise that everybody, you know, if you're. At Wayfair or Amazon, or one of these big brands that they're trying to do internally, right? Build these data, warehouses, hire all data engineers and data scientists and data analytics and FPNA analysts, um, in order to get to those insights.

Ben Tregoe: But first you aggregate the data, put a nice data system together. So we do that for the customer. Next, you build the rightnalyses on top of that, and we've built a nice tool to help people understand LTV. Of audiences or customer segments by various attributes. So for example, a common question people might have is like, which first product purchased is my most profitable on a contribution margin basis.

Ben Tregoe: So that's a pretty simple question, but. You know, it can do months and months of work for individuals to get to that answer. And we have a tool that you simply choose, you know, your audiences and you choose first product purchase. And then, you know, you can see contribution, you can see profitability on a gross profit net, um that's and [00:10:00] then contribution margin basis.

Ben Tregoe: That's interesting. Yeah. And then we build all that into a model. So we have, because the model is connected to the data and now what enable, what you can do is you. Help prioritize projects. Right? So now you've learned a little bit something about your business. So what metrics is it that are you gonna choose to drive your business forward and how impactful are those metrics?

Ben Tregoe: Because, you know, you have limited time and resources and people, so you don't wanna focus them on the, the seventh, most important thing. You wanna focus on the first, most important thing. So by putting the model, you can see the relative impacts of, you know, changing various metrics in your business. on growth and profitability over time.

David Morneau: So to help you, and then how granular does this guest then, like you let's say you're looking at, uh, operations. How, how line item is that like to, to get these people, to make the right decisions and prioritize projects? I'm curious just, well,

Ben Tregoe: you certainly can get, do you know, the model goes, uh, as D to C marketplaces, wholesale retail, so you can break it out by your distribution channel.

Ben Tregoe: um, we have a pretty detailed, uh, chart of accounts for the P and L. Um, so it gets down to a, a fairly fine grained profitability. And then in the analytics, we can understand, you know, on a product level or customer level, or even ad spend channel level, like you know's Facebook more profitable than TikTok, for example.

Ben Tregoe: where, uh, we need you to get to then is like, um, you know, what metrics do you need to drive in order to do that, you know, to, to make these changes. And I'd say, where we, we, we end is like, we're not gonna, you know, you wouldn't use our tool to be like, oh, if I, you know, made the product yellow, not green, does that, you know what happens there?

Ben Tregoe: You know, there's sort of a level of specificity, which you have to decide, you know, through intuition or your own other tools.

David Morneau: that's interesting. And then do you have, like, just to wrap it up, do you have an example on top of mind of a client that used your software to, uh, to make a pivotal decision in their business?

Ben Tregoe: Yeah, we do. We have a one, one customer when we were onboarding them. It was a performance outerwear company, uh, focus really on the winter season. Um, and we noticed when we onboarded them that their fulfillment costs, their, their contribution margins seemed really low. When we benchmarked it against all of our other customers.

Ben Tregoe: So that's another benefit of Banbridge is because we see all this data we can benchmark. So we're like, wow. Their contribution margin is really low compared to other customers and particular, even compared to apparel, you know, what's going on. So then we dug into the fulfillment cost and realize like, man they're per order shipping is like, you know, twice, if not three times what other people are paying.

Ben Tregoe: So what's going on in their fulfillment. and then we were able to keep digging in, you know, by getting access, uh, working with their team to get, uh, the contracts, you know, realize that their fulfillment partner was basically overbilling them

Ben Tregoe: on like crazy, I guess. I crazy.

Ben Tregoe: So three to one. Yeah. So just on that alone, we, we, um, freed up $300,000 of cash in the first year, you know, for that business.

Ben Tregoe: Another examples are, um, we've had customers that are out doing fundraisers. and, um, as you know, people know it's, it can be very difficult and, um, time consuming and also fraught with, you know, if you don't get the due diligence rate, uh, deals can go sideways quickly. So we were able to help a customer move through their, their fundraising process, much faster, complete their due diligence and get the deal closed.

Ben Tregoe: You know, it doesn't sound like a huge deal, but in a market like today, you know, that could have been the difference between getting funded or not, you know, by yeah. You know, accelerating the due diligence by a month or, or more is you can make all the difference.

David Morneau: Yeah. That's, uh, that's a huge time save.

David Morneau: Thanks, Ben. Really appreciate you breaking that down. Yeah. Cool.

Ben Tregoe: Yeah. Well, let's talk about what you wanted it, what you were suggesting at the beginning. Why don't we dive? Yeah, I mean, so

David Morneau: I've got a document that I've put together sent you away, got some talking points in there, but you know, um, let's scrap that document for a sec and I'm just curious, you know, I've been seeing red left and right everywhere and, you know, saw Shopify dropping to God by 80%, uh, up to their, from their all time.

David Morneau: Just curious to see everyone is talking about retail going down. I'm just curious. What's your opinion. What are you seeing? I know you tracked the Bainbridge index and, uh, what is, what, what are you seeing right now in, in this market?

Ben Tregoe: Yeah. So BA bridge index is, uh, an index of public D TOC companies that we've put together.

Ben Tregoe: Uh, so it's selected, it's not meant to be exhaustive, you know, people difference of opinions of what should, should, or should not be on there. But, you know, sample companies that are on there are, are companies like Carters, Yeti, [00:15:00] um, any, um, of course then I can't remember. Um,

David Morneau: Crocs Lululemon Crocs.

David Morneau: Got it.

Ben Tregoe: Right. Uh, sort of the big public companies. Oh, solo, et cetera. Um, but what we don't have on there is like, you know, um, designer brands, for example, which would be mostly sold in their own stores or, or, you know, through, you know, wholesale. So that, that's kind of the distinction we make is that, you know, as the majority of their revenue DTC.

Ben Tregoe: Clearly everybody's been getting crushed, but to answer your, your, your broader question, you know, and we have a post coming out actually tomorrow about this, you know, we think that there's a, a confluence of several factors that are influencing the market right now. One is the fact that we're coming out of C you know, as people open up, um, their, obviously their consumption habits are gonna change, right.

Ben Tregoe: less time inside now, everybody, you know, depending on what part of the world you're in is, you know, spending more time outside, getting out more. So obviously dollars are gonna shift back towards, in store, away from purely online. So that, that shift is just a given. The other thing that's happening is that, you know, because people can travel and get out more people are buying experiences.

Ben Tregoe: You know, at the sake of goods. So, you know, Airbnb is gonna do well, travel is picking up, you know? Yeah. Restaurants and entertainment. You know, if you looked at AMC's earnings, for example, like, you know, they're killing it. Right. Cause people are now going back to the movies, so experiences over goods.

Ben Tregoe: Right. So those are gonna impact e-com obviously. and then the, the, the, the really big unknown is that you have this like incredibly high inflation environment, which, you know, most founders have never experienced in their life. Right? Yeah. You have to be 40 something years old to have seen inflation like this.

Ben Tregoe: So, you know, what does that do? And I think the, the, the, what people aren't, um, necessarily totally grappling with yet is the impact of inflation throughout the margin structure of the business. So, You know, the inflation is gonna impact you on cogs. It's gonna impact you on inbound freight. It's gonna impact you on, um, you know, getting from long beach into your three PL because of, you know, fuel surcharges and increased labor costs.

Ben Tregoe: It's going to in impact your pick and pack rates, it's gonna impact your delivery rates. It's gonna impact your return rates. You, you, excuse me, your return cost. So. You have this, like, you know, it's it, you can't just say, oh, inflation's like 8%. And like, that's, you know, the it on the business, it's like it's 8% across your entire margin structure, which really it hurts.

Ben Tregoe: So yeah, you combine that with people's fear of raising prices. So my guess is that there's a lot of people that haven't raised prices enough to accommodate, you know, to protect their margin. so, you know, we're gonna be forced to, you know, to see that like today's report was, inflation's still running at 8.3%, you know, that's,

David Morneau: That's crazy high. Right? Have you seen that?

Ben Tregoe: Yeah, I've, I've, I've never seen this in my life. I think it's, uh, my first time in a downturn issue of, um, an economy or doing business, it's gonna be different for sure. On our side it's uh, yeah. Feels like, uh, there's fear there's uh, yeah, and I, I think you're right. Prices weren.

Ben Tregoe: You know, rised, uh, enough by many brands to account for that 8%, which is probably gonna cost, you know, a lot down the line because that's bottom line, right. That's just a direct impact on the bottom line. So it's gonna hurt

Ben Tregoe: well, and it's also spread on evenly, which is the percent is a, you know, the average of a basket of goods.

Ben Tregoe: Yeah. So, you know, the biggest, one of the biggest drivers of inflation is fuel or energy prices, which is way much. So you think of like the, the reliance of, do you see energy prices? You know, like that energy price is getting baked in over in China, right. As they they've gotta move, rub materials around and then, you know them to factor to the port, you know, it's gotta go across the ocean more fuel, right.

Ben Tregoe: Port to truck, truck on and on so that, you know, these fuels, uh, surcharges are just gonna, are really. It's painful.

Ben Tregoe: So disposable income from, um, things to experiences and we've got the inflationary effect of which is unevenly spread. And transportation is definitely accounting for a big part of that supply chain cost for like last mile deliveries, as well as manufacturing.

Ben Tregoe: Everything is affected by energy prices and everything.

Ben Tregoe: Yeah. So you just can't, you can't just say, oh, you know, raise prices by 8% that you do it. It's. You really have to look at your entire margin structure to figure out what, how much it's changed and how you, how [00:20:00] do you protect

Ben Tregoe: it? So based on your index, right?

Ben Tregoe: Multiples of, uh, index valuation multiples, which is enterprise value D divided by sales, you're tracking that, and you're dividing, uh, enterprise value divided by EBITDA, right? Which means, you know, what, what is enterprise value again, valuation of the company. Minus or plus cash on, on hand or debt. Right.

Ben Tregoe: That's what it is maybe.

Ben Tregoe: And it's, it's, it's the share price times, um, share price shares. Outstanding. So there's your equity and then it's plus the debt, you know, so yeah, a lot of these companies, don't a lot of debt, but, um, you know, if you got a ton of debt, you'd have that together.

David Morneau: And then from my under, yes.

David Morneau: Sorry, go ahead. Go ahead.

Ben Tregoe: Well then that idea is that, you know, that's what it would cost for you to, you know, somebody would come in with cash. um, buy everything, you know, the entire, you know, take control of everything. Now, obviously you don't need all that cash to do to buy a company, but yeah,

David Morneau: that's the idea.

David Morneau: And then what are you gonna, what are you gonna, what are you seeing? Do you think these multiples are gonna keep crashing? Is there gonna be cheap acquisitions of direct to consumer companies happening? What are we gonna see? Cuz I feel like this multiple is going down and it's, it's been. A trend and it seems like it's gonna be going, it's gonna keep going down right.

David Morneau: With their current, their current landscape. And I think a lot of these brands have a, you know, baked in growth obligation, right. The story is all based on growth. So if that growth stalls then to multiples will crash from more, what do you think is the future there? I know it's a hard question, but I'm just curious on your take, you know?

Ben Tregoe: Yeah. We've, we've focused on all the, the bad things. Right? The good news is that retail is what, uh, like 25% of, of global GDP. Right? So yeah, retail is not going away. The idea of people buying stuff is not going away. And the idea of like e-com being an ever greater share of retail, uh, is not going away.

Ben Tregoe: You know? So a lot of the headlines that you're seeing I think are, are, you know, the growth rate headlines are, are moderating so that people focus on that. But like, you know, you've gotta still remember that. Okay. It wasn't growing at 18% a year. Maybe it's not on a 14% a year. Yeah. But. Re e-com is a share of retail, whether it's the us or Europe or Asia or whatever is still increasing pretty dramatically against a massive market, right.

Ben Tregoe: Quarter of global economy. So I think the other thing that, that also is really interesting about retail, you know, e-com being part of that is that, um, , you know, there's this constant cycle of creative destruction, right. Which is based upon change, really rapid changing consumer tastes. So it's not like enterprise software where, you know, you, you get a customer and 30 years later, you still have that customer, you know, people's change, uh, taste, change rapidly.

Ben Tregoe: And so offerings companies can grow and also contract, you know, based on that, that, that, that change. So, um, that's not going the way either. So I think it's still a really exciting time. I think the biggest challenge for, oh yeah. D TOC brands is like, how do you navigate this? Like capital you, you know, the difficulty in getting capital and, and the answer is you've gotta be much more capital self-reliant, you know, you've gotta get to profitability faster.

Ben Tregoe: Control your destiny. yeah. Not, not be as reliant on outside equity.

David Morneau: Responsible growth is probably the word, right. Is what, you know, you're, we're gonna be seeing a lot more of where, you know, it's, uh, . Yeah, it's interesting. I'm, I'm curious to see how that pans out, cuz I agree with you that, you know, e-commerce is still there for the future.

David Morneau: I think there was a sh a big sugar rush, right? From what I understand. Yeah. There was a lot of, lot of capital in the market and there was a lot of growth around that that was stimulated through, you know, paid media budgets that were out of this world. And. Like, you know, acquisitions at all costs. Like, you know, I don't know, we can start diving into that, but we have some clients I know that they've readjusted their payback periods.

David Morneau: Right. Because they were like, okay, like our, our caps were just monstrous, right? We need to tone down these cats and, and you know, how, how these paid media platform work, right? The, the more you, the more you want to grow the higher your C will be because it's an inventory and people are bidding against one another.

David Morneau: So if you want to get a bigger part of the pie, you'll just need to pay more per eyeballs that see you. But now people are like, Hey, we'd rather see less eyeballs, but actually, um, you know, get them at a reasonable price. What, what let's, I guess, I guess that's a really good segment into like, what's a good payback period.

David Morneau: I mean, you have a lot of data, you work with a lot of, you know, clients that, uh, to which you have access to their backend information from a to Z pretty much what is a good payback period. What's that looking like? How are you thinking about that? Right.

Ben Tregoe: well, that, that question [00:25:00] depends on the business model of the company.

Ben Tregoe: So you, the payback period is first, first, you've gotta, um, understand whether you're truly a first purchase, only business or you do, if you do have a true repeat business. So, you know, an example there would be, um, you know, let's take mattress companies versus, you know, meals in a box, right? So like a mattress company, like, okay, purple or Casper sells a mattress, but like, you know, you not, you don't buy mattresses every year.

Ben Tregoe: You buy them every, I don't know, five years, if you're lucky, you know, other people go longer, um, you know, maybe you buy one for, you bought a new house and you have to, you know, you have four bedrooms, so you're, you're you buy one and then you're testing it out to see if you like it. And then you buy more.

Ben Tregoe: But you know, if I, if you're purple you're, you're pretty first purchase. centric. Right? So your payback period is like, I need to get paid back on the first person. yeah, exactly

David Morneau: Cause you're not gonna, you're not gonna get a, you're not gonna get a second purchase right away.

Ben Tregoe: After that's kind of gravy.

Ben Tregoe: Isn't it awesome if we get it, but um, if we don't get it on the first purchase, you know, we're kind of cooked on the, the meal on the box. On the other hand is like, you know, your, your business model's predicated on repeat purchase. . Yeah. So, um, thi now the question is, okay, well, what's your contribution margin on these repeat purchases.

Ben Tregoe: What's your ability to drive those repeat purchases, and then to answer your question about what's a good payback period, how much capital do I have? Because what you've gotta remember is like, what you should be doing is judging your payback period on a contribution margin basis. So contribution margin, is sales minus cogs, right?

Ben Tregoe: Minus the cost to fulfill the order to the customer. It's it's really the money that's left over after you've shipped out and the customer has received. Your your product.

David Morneau: So that's your contribution basis?

Ben Tregoe: That's your contribution margin or profit margin. Yeah. Right. Yeah. And so the way to think about that is that the, that contribution profit is the money that you now have to cover your overhead at your marketing and your overhead.

Ben Tregoe: Yeah. So, um, it. So you can imagine that, like let's to use a very basic example, let's say that you're, you know, after your first for each purchase, you generate, um, $10 of contribution margin, right? And let's say your C is a hundred bucks to keep the math simple. Well, you're gonna need 10 transactions, right?

Ben Tregoe: To just get back to break. Even you, you still haven't made a. Right. You now are, you're now at, at a zero on a contribution margin, and then you're gonna need additional transactions on top of that to actually get profitable, right? To cover your marketing and your cover your well you've covered your marketing with a hundred bucks, but now to cover your Outbacks.

Ben Tregoe: So then the question is as a business, like, well, how likely am I to get those 10 extra transactions or two or one or 300 wherever their business model is? And, um, how much cash do I have? Wait it out, you know, while I get through those transactions. Cause if the longer you have to wait, you, you sort of create this J curve.

Ben Tregoe: So to speak where you, you are funding, lots of ad spend and customer acquisition. And you're waiting for those customers to, to make enough purchases to get back above zero. Right. And then actually profitable. So all that waiting time, if it's one customer doesn't seem like a big deal, but if it's a thousand or 10,000 or a hundred thousand customers, you know, add yeah.

Ben Tregoe: It adds up yeah. Net, you know, trough that you now have to be able to fund somehow, you know, with

Ben Tregoe: cash. And there's tons of risk baked into there if you're longer payback period, because you can have cohort risks, right. You test a new channel works really well, and you, uh, you extrapolate your payback period of your other channels to it.

Ben Tregoe: And that's right. Might be very different. That's right. Very, very different.

Ben Tregoe: You know what we, so, you know, a big problem that, that people, uh, that, you know, because it's just math, you know, what people will sometimes do because it's easy to do is like, well, you know, my cats. 80 bucks. I can't make 'em any cheaper, you know, so the way for me to figure this math out is to like extend my payback period or increase my lifetime value or whatever they want to call it.

Ben Tregoe: Um, which then, you know, says, oh, VO law, I can afford to, you know, pay $80. I, in fact, I can now pay a hundred dollars, you know? But you, you have to remember like, okay, you, you have to get to go out and get those people. You gotta keep getting 'em to purchase for an even longer amount of [00:30:00] time, you know, which has inherently has risk.

Ben Tregoe: Right? As you said, like, you know, as your payback period goes from one month to 24 months, let's say like, you know, maybe they change their email address. Maybe they're no longer interested in what you do. Maybe they die. Maybe they, you know, move on to another brand. You know, God knows what, you know, maybe you guys don't have the same.

Ben Tregoe: Endless. Right. So you're, you don't actually achieve that payback period. And then, um, there's the J curve, right? Of, of funding all that, um, growth without getting the payback from it.

David Morneau: What's the win, like what's the winner. So I was, I, I, for, I was looking at your Banbridge index, right? I know's like holy cow CROX is a, you know, DTC brand.

David Morneau: They're absolutely crushing it. Right. And. They're very interesting brand, lots of what lots of brand equity means that, you know, they don't need to invest as much in pay media, their social phenomenon. They've got a very good viral flywheel built into their product. They've extended, you know, with like, I don't know if you've given a bit in CROs, but they have like what they call JTS these little CRO charms and.

David Morneau: There. I think that that thing is representing 160 million a year. Yeah. In sales, which is absolutely nuts. Right. When you think of the margins on that. So to my sense, CROX is an amazing direct to consumer brand. Right. But it, it's not a direct to consumer brand. It's, it's a retail brand that became direct to consumer.

David Morneau: Yeah. So. I guess, you know, I had that question in the document from what I, when I was looking at your index, but I have the feeling that brands that were retail that are going to direct to consumer are outperforming brands that went direct to consumer, to retail. Cuz we're seeing these effect and go, and then you're you, you I'd love to clarify that cuz maybe I'm off the mark, but it feels that way.

David Morneau: I feel like, you know yeah. Lulu lemon now is a, a is absolutely crushing it in terms of DTC. They're definitely a retail first brand and now they're probably a direct to consumer brand. If you look at it.

Ben Tregoe: Yeah. Well, I, I don't, I certainly don't. Um, I don't know that the, uh, I don't have data. We've never run the analysis to say like do Dey first.

Ben Tregoe: Yeah. That would be do better. Or retail does better, you know, going the other way. I think that's a really interesting analysis, but I, I, you know, it's a little bit of a, um, Uh, people use the word brand, right? Like we're using the word brand and you know, what, what does that really mean? And I think what the brand, you know, what we would argue is that the brand is really the ability to monetize above utility value.

Ben Tregoe: Right. So what is, what's interesting about brands is that, um, because you build in this, this, um, loyalty base or, um, Affinity. Right. Which CROs, as you were describing, certainly has done an incredible job of, and Lulu Lamon has done an incredible job of. You, you, you, they can monetize that customer base, um, at, at higher price points and more frequently than, you know, the simple kind of utility value of, of leggings or, you know, shoes or yeah.

Ben Tregoe: Sandals. Right. And if you take it to the extreme, like a, um, luxury brand, you know, what, if you're buying a Birken bag, right. You're buying. A few hundred dollars of materials, plus like a few hundred dollars of, of, of, uh, you know, craftsmanship and, and pulling it together. And, and then you're buying tens of thousands of dollars of brand.

Ben Tregoe: Which

David Morneau: is crazy. Yeah, exactly. That's that's

Ben Tregoe: powerful. Well, right. The utility value of a Birken bag is like pretty damn low. It's like, uh, 20 bucks, whatever. Right? Yeah. Um, but the, but the brand value means everything and I'm not arguing that a Birken bag isn't worth it. It, it very well could be. I mean, we all have our things that we like, whether they're cars or houses or vacations or whatever, we all pay more than the utility value, you know, for, for certain brand experiences.

Ben Tregoe: I think that, that what you know is lost in some of this around D TOC and da, da, da, da, is like, you know, ultimately your goal is to build brands that can monetize at, at a above utility or above average value. And if you can do that, then you can build in profitability and you can build in durable profitability, and then you've built something really valuable, which you can then monetize.

Ben Tregoe: And there's a lot of people who wanna buy that, cuz it's. . Yeah. And that's interesting because I, between that and being an Amazon seller, which is like, you know, I saw this, you know, phone case cover, which frankly you could go buy from, you know, 9,000 other people. Um, so, you know, I'm just focused on price and, you know, kind of eing out one, one little bit of profit at a time, but I'm, I'm not expecting to ever come back.

David Morneau: No. Exactly. And you're looking at CAC as a very, you know, quantitative thing, whereas, you [00:35:00] know, the, the, the brand behind CROX right. If you look at the CROs brand or the Lulu lemon brand, like on a quantitative basis, their brand lowers their CAC significantly, right? Yeah. From like a pure quantitative perspective, that brand is, is allows you to acquire customers on the cheap compared to, you know, the Amazon brand who has to bid every time.

David Morneau: To sell its spare of leggings for utility value, plus X, Y, Z, depending on the reviews. Right. And even that is utilitary value. Um, and I mean, so, but, but you're looking at it from a ver yeah, I think, I think, yeah, the brand affinity side is probably what makes these brands that are winning, um, all that good.

Ben Tregoe: Oh yeah. I mean that's and I think that's what. You know why starting a D C brand brand is, is really interesting and compelling because like, you don't have to become, you know, air MAs sized or Lulu lemon size in order to build a really nice business, you know, to, or to put it another way. Like, let you know you, if you had a 20% EBITDA margin, which would.

Ben Tregoe: Very good, but not unheard of. And there's brands in the BA bridge index, which are much higher even. Yeah. We had a 20% EBITDA margin and you wanted to make a million dollars a year as the owner of a business. You know, you're, you're describing a $5 million a year business, you know.

David Morneau: Which is, which is, which is very, which is very low compared to, you know, a brand would have a 5%, it'd be a margin.

David Morneau: You're like, Hey, you need four times that you need a 20 million business and it's. I feel that in, in those like $5 million year EBITDA, uh, uh, in $1 million a year, like 20% EBITDA brands, you're gonna have a lot of brands that appeal to a very specific set of highly engaged individual.

David Morneau: Yeah. If I was to go at build a brand like that, I would probably build onto a trend, like build for life. Right. And build laptop bags around that. I would go for a trend of people that are highly engaged. Look on sub Redd. How are people being engaged to products? What are they deeply caring about? You know, like gardening is probably one where you can just build a cult following around your brand by being a micro brand and you don't need to be mainstream and you can have very high margins because people will just buy into the movement more they will, than they will into the utility value.

David Morneau: Well, that's right. That's probably how I'd go. That's

David Morneau: right. I, I think that's because you know, you, um, you, you need a certain group, a tribe. Um, I've heard one. Yeah, describe it, right. That, that, that is really excited about what you're doing. And, and I think that's, what's beautiful about a lot of these DTC founders is that they've figured that out, right.

David Morneau: Innately either they represent the tribe or they understand that tribe very deeply and they, and so they can build really strong affinities and groups of customer bases, which, um, they don't need to scale to massive levels. In order, uh, to become really profitable and build a nice, a nice business. And, and, you know, by the way to give you, you know, you asked a question earlier about like exits, you know, well selling a million dollar EBITDA business is there's certainly gonna be buyers.

David Morneau: Um, but if you had a $5 million a year EBITDA business, you know, so now we're describing a company that's doing, you know, those same margin structure doing 25 million a year in sale. And it's 5 million in EBIT. you know, and let's say it's growing reasonably like 20% a year or something like that. You you've opened up an enormous buyership for that business.

David Morneau: I mean, private equity, you have, you have a lot of people that are interested in your business. So, you know, can you go from, can you get to a 5 million a year business kicking off a million to 25 kicking off 5 million. I think you can, I think you'd be surprised at how many companies are doing things like that or, or at least getting the top line and then they need help getting the, the, the margin structure, right.

David Morneau: To get the EBITDA. Right.

David Morneau: And that EBITDA is definitely where it's at. Right. It's uh, I mean, cuz everything you you're gonna optimize for is directly impacted on the. You feel it on the bottom line, essentially every time you'll, you'll fix something. Like if you fix your cost structure by 3%, that's a plus 3% on your, on your bottom line.

Ben Tregoe: That's right.

David Morneau: It's it's directly.

Ben Tregoe: Well, and also it's like, you know, at a very, um, you know, base level, right? Like it it's, there's no trick to taking a dollar and selling it for 80. Right. No, no, don't all do that. Yeah. So if you, if you consistently are losing money, like you you've proven nothing, right? Um, not to say that losing money is bad.

Ben Tregoe: I mean, it happens, you know, and especially as you get to to these things, but it's the, the proof is in the pudding, right? Like you have this positive EITA that also is growing over time. Like you've now proven. Uh, I mean, for, [00:40:00] for the vast majority of, of companies, I mean, there's the kind of Jeff Bezos, Amazon, you know, strategy of like your margin is my opportunity, which, you know, can work for Amazon

Ben Tregoe: for a couple players.

Ben Tregoe: Nobody else, right. yeah, exactly, exactly. It works for one or two players that are, you know, playing a 25 year window that have access to, you know, on mini capital. . Yeah, exactly. So it, it works, it works in that sense, but yeah, for most of us, it's not the way we're building businesses. Right. It's like, you know where else you're gonna be miserable.

Ben Tregoe: Yeah. And

Ben Tregoe: so I think that, you know, to, to sort of go back to what you were talking about, uh, before, like part of the problem, you know, this is like we, we went from this world of like, everybody was expecting to, you know, hammer away a top line growth and lot, lots of ad dollars. Um, and got, I think a little away from like, well, what.

Ben Tregoe: What are we really trying to do here? And we're trying to build brands that are profitable, um, you know, and build profitable growth, you know, so ad spend is, is just a shortcut to, to that brand equity essentially. Yeah. You know, so, um, you know, did the pendulum swing too far on that? Like probably, you know, and, you know, will there be an opportunity for that in future?

Ben Tregoe: Like, absolutely. But for the meantime, Yeah, the game's not over. It just means like, go back to what is really important, which is building brand and profitable growth.

David Morneau: Yeah. Profitable growth is, is the key is the key. What are you, what are you seeing right now? Like in terms of your customers, that the brands you're following, like who, who, who has an advantage and why at this, in this given state?

Ben Tregoe: Well, I mean, you know, certainly, um, You know, outside of the, the brands that, that just sort of got the trend. Right. You know, like, uh, you know, I'm the brand that's really good for trips now or something. I don't know, you know, I'm making up. I don't know. But I think that always like an enduring advantage is, um, consumables.

Ben Tregoe: You know, those are that, that have built in repeat purchases, um, that you can quickly build. affinity and, um, you know, that habit among the customers. So, you know, investors, buyers love consumables, you know, so an example of cons, when I say consumable, it's, it's not just food and beverage, but it's, you know, beauty brands that you use and you use up and then you have to repurchase, right?

Ben Tregoe: As opposed to hard goods like clothing or things like that, where you're repurchasing on a much, uh, slower timeframe. So consumables are great. Um, and then, you know, the other kind of niche to that is like consumables with, um, very manageable, uh, fulfillment costs. I I think are particularly good. Right. So an example, like, you know, that's one of the reasons everybody loves supplements and vitamins and things like that.

Ben Tregoe: Yeah, exactly. That's, that's incredible. Yeah, you could, you could store, you know, I could store a mass, you know, in my office I could store, you know, Six months of supply, whatever for a small brand. Right. Whereas like if I'm selling trampolines, you know, I've got a 50,000 square foot warehouse, right. So I think that's, that's the, a big part of the, um, mix is, is the fulfillment cost on the consumer, a fulfillment cost and a consumable.

David Morneau: Good example is athletic greens. I feel like, you know, very powerful brand. They're like, you know, I think their, their retainer is like at $80 a month or something like that. So, you know, targeting high performance, uh, you know, individuals that have an for performance and they're just getting probably like, you know, a thousand dollars LTV based on these clients.

David Morneau: It's absolutely crazy. So, yeah. Yeah.

Ben Tregoe: Well, I think that that's an interesting, you know, the other thing that that to think about is, is, um, the, in the us, at least the, you know, income distribution is really uneven, right? Mm-hmm so if you work at the data, you know, from the, um, the government data and household income, you know, and I'm gonna butcher this, that, but there's, there's, there's, you know, a few million households with, with above like a hundred thousand of.

Ben Tregoe: You know, it's not. Um, and then if you start going up into the 200 or, you know, higher range, you're, you're into low millions very quickly. Right. So, um, that's another thing that I think is like, you know, that you're just, you're talking about like, um, you know, that the brand athletic greens, you know, that has like a thousand dollars a year, um, revenue stream per customer, like, well, they're describing a very small port part of the, the population now, now, obviously [00:45:00] there's people that are like, you know, I don't make that much money, but I, I super prioritize that in my life.

Ben Tregoe: So you can pull those people up with you, but

David Morneau: yeah. But 1000 customer is paying you a thousand a year, you know, is a million dollars in revenue. Yep. When you look at it, it's crazy. Right? You don't need that many to attend. They're running at a. I think they're running at a hundred million in revenue. If I recall, I don't wanna put you their numbers, but you extrapolate that.

David Morneau: And you're like, oh, they don't have that many customers. Probably. Yeah. They probably have like a hundred thousand customers paying that thing. And there you go, that your

Ben Tregoe: right. But, but you know, if they were to, if what, um, I'm, I'm not super familiar with this company, so I'm gonna at the risk of like getting it completely wrong, but like, you know, a mistake that, that.

Ben Tregoe: I would think they could make is saying, oh, we should try to expand our tribe or our affinity group, you know, to 200 million Americans. Well, hang on a second. Like you , you know, you could spend all the money you want, but there's only so many Americans that can actually afford this.

David Morneau: Right. Dan, you might eliminate your, your other tribe.

David Morneau: Right. You know, that's right. Because

Ben Tregoe: yeah, that's right. So like, I, I, I think that's the, the, you know, the. , you know, I have this theory that, or it's probably more of a hypothesis, but like that, you know, a lot of brands are, they're kind of limited, you know, they, they have a mm-hmm, a Tam that's, that's kind of prescri prescribed for them based on their affinity.

Ben Tregoe: And it's, it's when they try to escape that Tam, that they get themselves in trouble and the, and the ways that they try to escape that Tam are often by spending more money on ads. . Yeah. So to, or to think about it another way, like, you know, you're, you convert your, you know, you convert the lowest hanging fruit first.

Ben Tregoe: So as you run ads at audiences, it's the people that are most interested in yeah.

David Morneau: The ones that are buying, like pulling out the credit card, you know, and just buying, right? Yeah. You

Ben Tregoe: convert those right off the bat. And then, but people are like, oh, that was. let me go. You know, if I just spent more, if I go out to these other audiences and the problem is, well, then you convert the low hanging of those audiences, but then as you try to convert somebody who's like less interested in the product or the offering or less able to pay for it, you have to be spending more and more to effectively reach higher up into the tree and it, and that's why your tax start getting, you know, so much hard, harder is because you're, you're trying to throw money.

Ben Tregoe: at converting people who just aren't as interested as converting as the other people that you already converted, you know? You're yeah. That's, that's

David Morneau: right. That's very true.

Ben Tregoe: And, and that's, I think, um, you know, and then that goes back to like, well, the brand, right? Like why was it that those people converted so effectively that the beginning and, and it's harder as you.

Ben Tregoe: You know, you try to reach more people and it's, you know, some of it's in we're we're,

David Morneau: we're all about growth, right? Ben, that's what, that's what the, you know, that's what the issue is, isn't it it's like, okay, you reached that market. You're like, what's next? Well, there's obviously, you know, you're making a 10 million, there's a hundred million, you're making a hundred million.

David Morneau: There's gonna be a billion dollars, right? Yeah. That's how all these brands operate. That's how they, yeah. And there's a limit. There's a cap. I agree with you. And then extending it to other product lines. You run the risk of diluting your current customer base. Yeah. If you're trying to go down market or up market, or it's very dangerous to go, like, you know, to target other personas yeah.

David Morneau: While preserving your original market.

Ben Tregoe: Yeah. I mean, I it's, you just, you, you made me think of an interesting point, which is like, let's say that you were, you know, you were a 10 million in sales and you had a 10% EBITDA margins. You were making a million dollars. right. And you're like, I wanna do it. It might be harder for you to go from 10 million to 20 million in order to make 2 million right.

Ben Tregoe: Of EBI. Yeah. Than to go from 10 million to 11 million, but increase your EBITDA margin to 20%, you know? Yeah. It might be easier to do that, you know? So you'd be like, okay, now I'm making 11 million. top line and, and, um, you know,

David Morneau: wherever that's like the, the uncool way, right? That's the uncool way, the unlined way, you know, of doing that, isn't it, you know, it's like, uh, Hey, you know, we're gonna grow by 1 million and double R E BDO.

David Morneau: Right. But that's the way it should be. Uh, but it it's like, you know, it's top line is what people are chasing, you know? , you know? Yeah. We've been guilty of that on our side too, you know, like, you know, Hey, you know, revenue, revenue, revenue, and you're like, you look at account profitability and you're like, okay, wait a second.

David Morneau: Like, we've got segments that are, you know, carrying over a lot of the cost for other segment. And it's like, okay, well, let's get rid of the clients that are not with the fit with us. And let's like, redo that and you increase the EBITDA like crazy [00:50:00] because you do that exercise. And it's like, we get carried away, just, you know, It's great.

David Morneau: You get, you sign the contract. It, you know, it ends up being on, on it's on a it's on the P and L we, we get a bump in revenue. It's fun, but we all do that. I mean, and it's like an exercise that I have an advisor who walks me through that all the time. Like, okay, let's look at account profitability. Yeah.

David Morneau: Just like, okay. Who's your best customer, like B, C, D who's paying you well, and then, you know, you can do that for e-commerce brands as well. You can see like, who are your best customers, not complaining. Rebuying like, if, especially if you're consumable, who are your worst customers, right, right. And then what do you do to get more of those best customers?

David Morneau: And then the K of your best customers is not the same as the K of your, you know, detour customer. Right. That's another, that's another hard thing to see in a Facebook ads manager in a Google analytics, right. It's very quantitative and very little. Qualitative into it.

Ben Tregoe: That's a great insight. I, I think that's absolutely true you that, that you tend to chase what you can measure and where the, the stats are and paid acquisition is amazing at generating stats and dashboards and things to chase.

Ben Tregoe: Yeah. And then the, the, the other kind of fallacy that, that exists in there is that people are working off of average. . So what I mean by that is like, you know, oh, well, if I add, you know, an extra customer, that means the contribution, you know, this amount of here's what the C for it, this amount of gross profit, this amount of contribution profit, but the truth is, is like you might be acquiring pretty shitty customers, you know, from a, a, a really big, you know, big brand for D toe, you know, 300 million brand.

Ben Tregoe: The CEO was like, you know, it took us years to figure this out. That. Um, but we were, uh, backpacks were just completely unprofitable for us. We put all the purpose over years on backpacks because they sold really well and they had pretty high price points. So they were busy chase, you know, adding backpacks.

Ben Tregoe: And, and he is like, when we did the math, when we finally looked at all the stats, we're like, backpack buyers never come back. they're they're they're, you know, all this, like one hit revenue. There wasn't turning in that brand value and repeat. Yeah.

David Morneau: That's just how people are reporting. Right. Backpacks end up adding on top line because a backpack is what, a hundred dollars.

David Morneau: So it's like, you know, more than that probably, you know, and it's like, just adds really well and, but yeah, very low. Very, very low. Yeah. That's a funny insight. Yeah. That's exa. It's why you need to use common sense. A lot of the time you get these insights by just going into it and, you know, mindlessly chopping things up and, you know, following your, your hunch and then stumbling a like, is there a way to like detect those insights, you know?

Ben Tregoe: Well, sure. Through Bainbridge

David Morneau: yeah, exactly. There you go. There

Ben Tregoe: you go. You got, you gotta ask the right questions. I mean, people know the que for the most part, I think people know the questions it's getting to the answers. That's really hard. Right. So, you know, a lot of people. I don't think it would be an insight, you know, uh, you know, revelation for someone, people like, geez, what are the, what products that people first, no first purchase products are the most profitable that lead to the most repeat purchases and highest contribution margin.

Ben Tregoe: And which is the worst. And what, what, you know, does Facebook operate better customers from Facebook do better than customers from TikTok or Snapchat? Yeah. You know, I think people know the things, but it's really difficult to get to those answers. And that's why. people that look for metrics and averages, cuz you can't just stop your business.

Ben Tregoe: You be like, oh yeah, let's figure that out. We'll spend six months and I won't make a decision.

David Morneau: Yeah. That back the school is coming. You need to get those backpack ads, you know? Its like, yeah it's you

Ben Tregoe: back ads manager. And then they're like hammering away. You know what they're familiar with

David Morneau: and yeah. Yeah.

David Morneau: And there's someone in the organization that's incentivized. To how many backpacks are sold. So, you know, they're not gonna they're not gonna go so mean you set the

Ben Tregoe: wrong goal, right? Oh, our goal just grow revenue. And then someone's like, well, I know how to do that. I've sold a ton of. Thanks. yeah, that

David Morneau: didn't work.

David Morneau: I guess we can end it here. It was a good conversation. I really enjoyed it. Went really, really fast. Really insightful to speak with you, Ben. Yeah, I

Ben Tregoe: really enjoyed it as well, David and, um, I look forward to chatting. Thanks.

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