ArticleSustainable Growth Playbook
Let’s talk about sustainable growth – and more importantly, what you need to do in order to achieve it in today’s pre-recession environment.
How marketers can drive sustainable, profitable growth in today’s environment where there is more automation, more regulation, lower consumer confidence and increasingly tight fiscal conditions?
This is something I’ve spent an inordinate amount of time thinking about – and here’s where I land: sustainable, healthy growth comes from the relentless optimization of four variables:
- Data Quality
- Traffic Volume
- Conversion Rate
- Net-Present LTV
That’s it. Everything you can think of falls into one of those four buckets for any business. Sustainable growth comes from an ongoing obsession with optimizing each one. Let’s get to it:
Data Quality
The best data always wins – and one of your primary jobs as an advertiser is to ensure your core platform(s)(read: Meta, Google, Amazon) is armed with the best and most relevant optimization data for your business. Fortunately, if you’ve done your homework vis-a-vis simplification + forecasting, this data should be at your fingertips:
The operative phrase here is relevant optimization data (ROD).
ROD: the optimization event with sufficient volume that is closest to people + profit.
Sufficient Volume = At least 100 events per week per campaign
Closest to Customers and/or Contribution Margin = MQLs, SQLs, Contribution Margin, Etc.
Let’s make that actionable:
If you’re running a services business (say plumbing) or B2C business (like a car dealership), you should be focusing on one channel (say, Google Search) until it can consistently + reliably generate at least 100 SQLs per week (and in the latter case, maybe a LOT more).
For a D2C business, the same overall math applies – though the platform (Meta over Google) might change. You should still have sufficient budget to sell 150 units or bundles per week at or above a ROAS of 1/(tCAC as % of Revenue).
In this case, the ROAS target is determined by your target new customer acquisition cost (tnCAC) as a percentage of revenue – so you are selling profitably AND training the platform for what kind of customers you want to attract. The 150 units per week is also a baseline – you may have a campaign that can move 1,500 per week – and if so, great!
The bottom line here: an investment in data is an investment in your business’ most valuable asset. The clearer your picture of your business & your customers, the more confident you can be in making decisions for both.
**A Warning On CAC & ROAS: it is extraordinarily tempting to set sky-high ROAS targets or dirt-cheap tnCAC targets; but the reality is that efficiency comes at the expense of scale, and obsession with hyper-efficient acquisition tends to undermine net-new customer acquisition. Let me give you an example:
Business A: $10 CAC
100 customers
$100 Revenue/Customer
$50 COD/Customer
=$4,000 contribution margin
Business B: $25 CAC
1,000 customers
$100 Revenue/Customer
$50 COD/Customer
=$25,000 contribution margin
Which one would you rather be? Compounding the issue above is that virtually all ad platforms will prioritize “known” customers – especially at lower CAC targets – killing your incrementality. Exclusions will help, but ultimately, they are not perfect. The stricter the acquisition target (tnCAC, tROAS), the more likely platforms will skew delivery toward people who know you (branded search, existing customers) – and the less likely you’ll expand your pool of customers.
In essence, hyper-efficiency is a loan from your future profits. In a pinch – it’s worth taking. But don’t think that it is free.
Traffic Volume
If you want to make more sales, you need more visitors to your storefront – whether that’s a physical or digital location is immaterial. Think of your business as an engine – without a sufficient volume of fuel (that’s traffic), introduced at regular intervals, you’re not going anywhere.
For a larger organization (>$25M in TTM sales), that traffic should be driven by a relatively balanced set of sources: paid traffic, organic traffic, referrals/affiliates/PR + email/SMS.
But for a smaller company (<$10M in TTM sales), achieving + maintaining that balance is rarely economical. Instead, the majority of traffic tends to come from paid traffic, alongside some email/SMS that skews heavily toward existing customers. The mistake these brands make is diversifying too soon + trying to compete with the larger brands before they’re ready to win.
Instead, my advice to <$10M brands is always the same: focus your attention on one of Google Ads, Amazon Ads or Meta Ads. Don’t look anywhere else until you’ve reached the point where you can consistently + reliably spend $50,000/mo (that’s $600k/yr) on your chosen platform.
Why?
Each of those three platforms exhibit significant internal flywheel effects – where results scale with decreasing friction. The more relevant optimization data you can push into the platform, the better your results will be over time.
The inhibitor to that compounding growth is audience size. This is fundamentally a numbers game: you need to reach enough people to drive a sufficient volume of optimization events. That’s what hones the core platform’s algorithms. The bottom line here is simple: until you have one channel operating at a predictable level of efficiency and solid scale, diversification is more likely a net -negative.
So what’s the key to traffic? How do you do it?
Traffic volume is ultimately a product of two things: Impression volume * CTR. Don’t overcomplicate it. This applies to any “core” ad platform – Meta, Google & Amazon. The levers to increase traffic are the same:
Impression Volume = Audience + Budget
CTR = Creative + Offer / Angle + Audience
Breaking this down, there are some variables that are self-evident, like budget. The larger your budget, the more people you can reach, all other things being equal – though one of the great things about digital advertising is that it provides brands with smaller budgets the opportunity to compete with and beat-out competitors with significantly larger spending power (mastering the mechanics behind is a topic for another issue).
The rest? Those are levers that you – the media buyer, the business owner, the growth strategist – can pull.
Audience
In most cases, you want to min/max your audience. Minimize Exclusions To Maximize Relevant Audience Size. Here are two examples:
Meta, Local Services Biz: If you’re a local services business serving homeowners in a 20 mi radius around your physical location that is looking to gain new customers, then the bare-minimum qualifications are: physically located in that service area AND homeowner AND not a current customer. For most brands, the only audience exclusions you should have are those three. Layer on top your cost caps (I think these are so critical that I’ll be dedicating an entire issue just to them).
Everyone who meets those criteria is a potential customer; the job of determining which audience members to serve which ad should fall to Meta, based on your data (above) and creative/offer/angle (more on that below).
Keep it simple:
Targeting + cost caps in an ad account today is akin to installing guardrails. Do not try to out-trade a supercomputer. You will lose.
Google, Professional Services: Google is a bit more challenging, because we’re primarily targeting keywords that indicate someone is in-market for your product/service, not the audience itself. Your job on Google is twofold: (1) tell Google what your audience is likely to be searching for and (2) organize those terms into relevant, thematic groups. I’ll be writing plenty more on my approach to Google Media Buying, but from a high-level standpoint, this is what SEM account structure is all about. As with above, layer on a Target CPA (tCPA) or Target ROAS (tROAS) based on your business’ financial realities, and let the machines do the heavy lifting.
Exclusions still apply, but they should be focused around terms that indicate the searcher isn’t relevant. Examples might include: anyone who is searching from outside your service area (location setting); someone searching for a clearly disqualifying phrase (i.e., searching for “Free Tax Filing” clearly isn’t interested in hiring an accountant; likewise, someone searching for “How to grill a steak” likely isn’t looking for a reservation at your steakhouse). Unlike with Meta, exclusions is an ongoing activity for search-based platforms (Google + Amazon) – continual monitoring of the search terms report is essential to avoid wasted spend.
Creative:
Honing in on your audience, given the Mix/Max strategy above, falls primarily on your creative + lander.
Your guiding principles for creative should be selflessness, simplicity and speed.
Selfless: let’s start with a painful truth: the people who will see your ads don’t care about your brand or your shiny product. They aren’t impressed by boasting or bragging – yet that’s what most ads do (and it’s why most ads are absolutely atrocious). Replace that selfishness with true selflessness. Your audience is suffering with a pain point, struggling to attain a result, stressed about a pending challenge. Empathize. Then show them how your thing – your product, your service – is the tool they need to be the hero of their own story.
Benefits, not features. Show, don’t tell. Be Excalibur, not King Arthur.
Keep It Simple: resist the temptation to make every ad polished, fancy & perfect. Instead, focus on creating ads that succinctly communicate and viscerally resonate with your audience. We know the best ads are the ones that are authentic + real, not polished.
The elements you need to nail for a successful ad on Meta are pretty simple:
- Hook – the average user scrolls over 310′ a day on Instagram. That’s a football field. Before anything else, you get them to stop scrolling + listen to your story
- Story – once you have their curiosity, it’s time to earn their attention.
- Solution – how does your product/service uniquely solve the challenge presented in the story?
- Proof – I think we all know not to believe everything we see on the internet, right? That’s where proof points come in – de-risking a next step for your audience.
- Close – You only get by asking. Provide a directive next step + a compelling reason to take it.
If you need inspiration for this, your best source is your existing customers — their reviews, their words, their experiences. Reach out to them (and not in a weird survey from someone). Pay for 10 minutes of their time. Ask them pointed questions, then humbly listen to their feedback. And as important as getting those “good bits” is getting the bad bits. What part(s) of the experience weren’t great? Why? Did we let you down? How? What could we improve or clarify?
Do this 10x. Or 20x. Put the results in a spreadsheet, find the commonalities, and iterate creative off of them. Can’t? Ask people for Looms. Seriously.
Fun thing if you’ve made it this far: drop me a response with your ad or lander, and I’ll send you a 5-minute loom back with what I think is good, bad and could be better.
Speed: You don’t need a film production crew and 3 weeks of editing to launch a Meta Ad. You need an iPhone, a ring light and Canva. Your goal should be to iterate quickly – once you have a creative concept that works, you can invest in higher quality production. But to start? Prioritize speed.
Until you’ve nailed these fundamentals, I’d resist the urge to reach out to creators or try to recruit influencers — all of that is time that you aren’t able to invest in building your foundation.
Offer & Angle:
There is NOTHING more critical to the success of your business than crafting a compelling offer that resonates with your core audience segments.
If traffic is the fuel for your engine, the offer is the drive train. It’s the thing that converts all of the energy created by the engine into something useful. [not sure about this metaphor]
Your offer is more than a discount. In fact, let’s go one step further: discounting is (almost always) a race to the bottom that is unhealthy to win in the short-run and virtually impossible to sustain in the long-run.
The offer is comprised of two fundamental elements:
- Product – the thing you’re selling
- Value (not just price!) – what it costs vs. what you deliver
If you don’t have a compelling offer, it doesn’t matter if your ad was written by David Ogilvy himself. It will not sell.
The third fundamental component – the positioning – is the angle. That’s simply how you connect the offer to the audience. But again, if the offer is bad, the angle will not save it. If the offer is good, the angle can make it great.
When thinking about your offer, consider:
- Is it better to offer a single, hero product or a bundle?
- What value does the customer expect at our price point?
- Discounting alternatives to increase perceived value?
- Choice architecture – can you influence selection through defaults or decoys?
There’s no single right way to design an offer; but it’s foolish to continue spending on an offer that simply isn’t working. Most brands spend way too much time thinking about their creative, and far too little thinking about their offer. Don’t be like those brands.
Conversion Rate:
Getting more people to your website is a necessary, but not sufficient, condition for sustainable growth. It’s a step in the right direction.
The next step?
Converting those visitors into customers as efficiently as possible. That (almost always) requires dedicated landers. Sending cold traffic from prospecting campaigns directly to your PDPs, service pages or ::shudder:: home page is a recipe for inefficiency.
The best landers are the ones that do five things brilliantly well:
- Seamlessly Integrate with the Ad Experience – Landers should reinforce + support the offer/angle/hook from your ad creative — after all, that’s what got the user to your site in the first place. There’s no faster way to tank your conversion rate than by directing a user who clicked a specific ad for a specific product onto a general page, where they then have to find the thing they already told you they wanted. Seriously. It’s a vibe killer. Don’t do it.
- Highlight your unique value to the audience – remember from the creative piece above – don’t be selfish, be selfless. Remind your audience how you help them overcome their challenge + be the hero of their story. Excalibur, not King Arthur.
- Connect Why & How – help your audience understand – in simple, accessible terms – how your product / service works.
- Reinforce the reasons to move forward – people are naturally skeptical + risk averse; the lander should assuage that inclination through proof points (social proof, reviews, ratings, accolades, etc.), while subtly reminding your audience of the cost of not moving forward (i.e. continued pain)
- Set Expectations: the easiest way to build a house-of-cards business is to create a false expectation in the mind of your audience. Instead, use the lander as an opportunity to set expectations – what will they receive? What’s included in a package? When will something arrive or a next step take place?
#ProTip: want to test your lander? Send 3 members of your core target market a bottle of wine or 6 pack of beer, and ask them to review your lander once they’re good and buzzed. If they can’t (i) understand your product/service, (ii) explain why it’s different/worth buying and (iii) easily take the next step (i.e. buy, request appointment, etc.) the lander isn’t ready for prime time.
Prefer to do this the “dry” way? Ask a few 70+ year old people to review your lander *on their phone*. Same test as above.
Net Present LTV
The final component of this is the most complex —
Let’s start with defining it:
the risk-adjusted, present value of all future net cashflows from a customer to your business
There’s two operative components at work:
- Risk-Adjusted, Present Value
- Net Cashflows
Breaking them down:
Risk-Adjusted, Present Value:
A dollar today is worth more than a dollar tomorrow – not simply due to the time-value of money (the value of currency declines over time), but also due to increasing uncertainty. A repeat purchase one year from now is far, far less certain than a repeat purchase next week, for a multitude of reasons: that customer could find an alternative to your product or service; move away from your service location; go bankrupt; decide they hate your company and everything you stand for; die or become otherwise incapacitated.
Further, every dollar spent is a zero-sum proposition: that dollar can’t be used for anything else. A dollar invested in marketing is a dollar that can’t be used to buy inventory or pay salaries or invest in R&D.
Typically, a discount rate is used to account for this uncertainty + value deterioration over time. This adjusts the value of future net cashflows back to the present – enabling you (the marketer, the business owner) to make more informed decisions today.
How in the world do you figure out your discount rate?
At larger companies ($100M+ in revenue), the discount rate is typically calculated + maintained by the finance team. For smaller companies (<$25M in revenue), the easiest path to determining a discount rate is the Capital Asset Pricing Model:
Ke = R(f) +[ Beta * (R(m) – R(f))].
Where:
R(f) = the risk-free rate of return. I tend to use an average of the 1-year, 2-year and 5-year US Treasury. Today, that’s (~4.8% + ~4.5% + 3.8%)/3, or ~4.36%
Beta = the sensitivity of the stock return to the broader market return. The easiest way to find this is to pull the beta numbers from existing public companies. For a quick, industry-specific breakdown of betas, check out this page from NYU Stern. For the sake of a simple analysis, I’ve selected “Retailers | Online” – with a beta of 1.49.
R(m) = the market rate of return expected by a reasonable, informed investor. For a small company, that’s likely to be anywhere from a 2x to a 10x the public market rate of return (8.91% over the last 20 years). For the sake of an easy analysis, I’ve selected a 5x of the public markets in the below example.
Put it all together:
Ke = 4.36% + (1.49*(44.5%-4.36%))= 64.36%
As your company grows, that discount rate will decline — primarily due to the fact that investors will expect a lower return, as they’ll have less uncertainty about your operations + more confidence in your ability to drive predictable + profitable growth over time.
One of the reasons I love this analysis is because it works for every business in every industry AND it forces you to get into the mindset that (i) future revenue is wildly uncertain for smaller companies and (ii) that every dollar earned and spent matters.
Net Cashflows:
If you want to grow revenue, you can spend more; if you want to grow contribution margin, you must build a better business. One of the most frequent mistakes I see from marketers + business owners alike is conflating revenue with contribution margin with profit.
Included in every sale – whether B2B, B2C, D2C, whatever – are costs associated with that sale. Those can be variable (like COGS, Shipping, Processing Fees, CACs, etc.) or fixed (like salaries or equipment leases). You must account for those costs if you’re going to build a durable, sustainable business.
So, what are the levers we have to adjust NPLTV?
- Upsells/Cross-Sells – the more you can sell to a user up-front, the higher your NPLTV. Why? Both incremental CAC + value deterioration (discount rate above) are zero. Successful upsells + cross-sells (either in-cart on post-purchase) have the result of dropping additional contribution margin straight into your business.
- COD Optimization – contribution margin doesn’t care if you charge $1 more for your product OR if you reduce your costs associated with that sale by $1 — the end result is the same. This can – and will (spoiler alert) – be an entire issue.
- Churn Reduction – keeping customers is good. Yes, the impact is muted slightly by the fact that this is preserving future cashflows, but (positive) the cost of doing so tends to be minuscule relative to the cost of replacing those customers.
- Nurture – for most websites, between 2% and 5% of visitors convert at any given time. The remaining 95% – 98% do not. How effectively a business can (i) capture contact information from those visitors and (ii) leverage that into future sales is an oft-overlooked, two-for-one win: (i) it raises the floor of your overall business – instead of 95% to 98% of your traffic resulting in $0, that’s reduced to 90%. Sounds small. But in reality? It can be millions in contribution margin each year, and many multiples of that on your total enterprise value. (ii) it reduces your future CAC, as sending an email or SMS is ~1/1000th the CPM as serving that user another paid ad.
- Revenue Acceleration – the unspoken reality is that people who love your product will likely buy it again – but people are busy, fickle & distracted. That’s where lifecycle marketing (my nicer word for retention marketing) comes in — regular communication builds durable relationships with customers + allows brands to accelerate revenue on their terms. Just remember: the same offer that worked from an acquisition standpoint might now (and probably will not) work from a retention standpoint.
- Referrals + Reviews – there’s a reason why referrals tend to convert into customers at a substantially higher rate than normal paid traffic: your audience is vouching for you to people with whom they have an existing relationship.
At the end of the day, optimizing your NPLTV is all about building durable customer relationships and optimizing your business’ cost structures. The brands that succeed during the storm ahead will be the ones that follow the advice here.
This was a long one – but one that (I hope) adds some value to your life, gets you thinking or provides you with some inspiration for how you can make your business just a bit better.
