The Most Important Financial Metrics Every Digital Marketer Needs

Abir Syed: Most of you I'm assuming are creative strategists. Uh, and a lot of your focus has generally been on building creative that does well.

Abir Syed: It is to help the brands that you work with obviously, and the main way that you do this is by focusing on things like ROAS. But is that all that matters? Sneak peek. No.

Abir Syed: So why does it sometimes feel that you and the founders aren't always on the same page? Whether you're a creative strategist working in house or a marketer or if you own an agency, whatever, sometimes you might think things are going well from your perspective, you're like, yeah, the ROAS is good, we're making money, stuff like that. But the founder's not necessarily happy. Ultimately, it's weird because we're trying to achieve the same things. Like everybody's on the same page, we have the same goals, but there is still this disagreement about whether things are good or not. And part of that is a matter of perspective, but part of it is also a little bit of a misunderstanding. Maybe not everybody being on the same page or having the same information. On the one hand, founders don't fully get how much creative matters. Uh, if you have one of those founders, send them my presentation from last year because that's what it's all about, uh, trying to educate founders on why creative is so important. But at the same time, creatives or marketers, they sometimes don't fully get how to truly drive value for a company. Focusing on ROAS and revenue and stuff like that is good, but it's not necessarily what is truly driving value. So sometimes a founder might just want better, they want more results. They're not quite happy with how things are, but a lot of times they're not necessarily savvy enough to be able to kind of break it down and explain exactly what is necessary. That's actually the types of conversations I have with founders quite often to be able to kind of explain to them what do they need to do to hit those goals or or things that they want to achieve.

Abir Syed: So essentially what the point of this presentation is to help you kind of bridge that gap, sort of like I've done with my career to an extent. Uh, if you eventually want to become a CMO, then you need to understand some of these important needle moving concepts as well because you're going to have the same goals as a founder does, but you'll also be in a position to actually influence things. So essentially you'll have to combine or fuse, if you will, the disciplines of finance to know what actually matters to a business and marketing to know how to get it.

Abir Syed: So, what are we going to cover? What actually matters to the company, how ROAS is just a piece of the puzzle. We're going to talk about some core finance concepts that drive value. We're going to talk about the metrics that matter, and then how creative affects a brand's financial performance.

Abir Syed: So, what do founders actually care about? Very generally, they either want a very big exit or they just want to make a lot of money. So cash from their business to fund their lifestyle and their Lambos. Either way, that usually means growth. So how do we get there? The approach a business takes to growth will depend on the strategy. Sometimes it's going to be a little bit more aggressive because, uh, either they raise money from VCs, they want to capitalize on some transient trend. Uh, sometimes they want to starve, you know, or stave off competitors. They want to make sure they build a moat with their brand. Sometimes it's going to be a little bit more patient and this is probably the majority of brands. It's a bit more patient, a bit more focused on profitability. Understanding that strategy determines the approach we take with the growth and which metrics we prioritize. But like I said, founders don't necessarily know how to explain working towards those goals. They might say like, yeah, I want to be able to exit someday and that means I need a lot of growth, but they don't necessarily know to tell you what you need to do. So what world views do we need to dispel to kind of get on the same page?

Abir Syed: Let's begin. ROAS ain't cash flow. For almost any business, its value comes from its ability to generate cash. For the most part, that correlates pretty well with profit. Profit and cash do have some places where they, uh, kind of deviate, but that's a little bit too accounting and finance, so I won't go there. Generally speaking though, the more cash a business can generate as it grows over time, the more valuable it is. And that's why cash flow is so important. ROAS is just a piece of the puzzle. It's not that it's irrelevant. ROAS can be helpful directionally over time, like if your ROAS is improving, that's a good thing. Or if you're able to increase your spend at a stable ROAS, that's also a good thing. Or if you want to compare the performance of one ad to another, one campaign to another, whatever, that's also a good thing. But it's still not the full picture. At the end of the day, cash is what matter. And even if you've raised money, like even if you have a lot of VC cash, you still have to manage how fast you're burning it, when you're what your runway is and what you're spending it on. So the the cash picture can never be taken out of or you can never stop taking that into consideration.

Abir Syed: So just to break it down, how do we go about giving to founders what actually matters to them? Well, the business, they want to in a nutshell, maximize profits by getting as big as possible, which usually means long-term revenue growth while managing cash flow along the way. And the marketer helps this by working within those cash flow constraints to get the best possible return on investment, which usually means the highest amount of incremental revenue for every dollar of ad spend deployed, such that if you move some money from here to there and your revenue goes up, that's probably a little bit more incremental. But while also balancing for the long term too, because incrementality and and growth exists as a short-term concept as well as a long-term concept. And I will get into that because I find it very interesting.

Abir Syed: But before we have too much fun, some finance concepts we should all be on the same page about.

Abir Syed: So firstly, gross profit and gross margin. What is your gross profit? Well, it is how much profit you're actually generating from the sale of your products. In essence, it is your gross revenue minus discounts, gives you your net revenue. I mean, you can remove refunds and returns and stuff, but your net revenue less your cost of goods sold. So the cost of your product. That's your gross profit. Your gross margin is just your gross profit divided by your net revenue. So essentially your gross profit expressed as a percentage. They're both relevant because your gross margin tells you how profitable you are in in overall terms when you're comparing over time. But the gross profit dollars is what actually pays for things. So a little bit easier as usual with an example. So if we go over here, uh, hopefully you're able to see my mouse. Okay, cool. In month one over here, just in case you can't follow my mouse. Let's say your gross sales are $100,000. You have discounts of 10k, you have net sales of 90k. If your cost, uh, the cost of your product, let's just say is 30% of your gross sales. So a thing costs $100, it costs you $30, uh, per unit. So if your COGS is 30, 90 minus 30 gives you 60,000 of gross profit, and that 60 divided by 90 is 67% of gross margin. Let's say in month two, you decide to scale a little bit and you do that through a bunch of discounting. So you scale up, you're you're getting a little aggressive. So your gross sales go from 100 to 140. That's a 40% increase. You've sold 40% more units. Great. You did a fairly aggressive bit of discounting, but it's only 30k, so not not too crazy. Uh, and your net sale, your net sales still went up from 90 to 100. So that's an 11% increase. Cool. The problem though is that your COGS scales with your units sold. So it also increased by 40%. So despite the fact that your gross sales went up, you have more units sold and your net sales went up, your gross profit actually goes down and your gross margin went from 67% to 58%. So understanding that the how gross margin and gross profit matter because it impacts your profitability. And these sorts of changes or effects are hidden when you're looking at just simple metrics like ROAS, which only focuses on the revenue side. You can increase your revenue for a given amount of spend, which will increase your ROAS. But if you have like aggressively heavy discounting, like during Black Friday, Cyber Monday, that same ROAS will drive less profit. And the same concept applies to if you are, uh, say doing a lot of, uh, you have a lot of different products and you're possibly pushing a lower margin product versus another one. It might show the same ROAS, but it's actually less profitable. On the flip side though, you can strategically tolerate a lower gross margin if your gross profit dollars are going up. And that's why they're both concepts are very important. So let's say for example, in month three, I decide, I don't know, whatever, I just go hard and I'm able to double this strategy. I'm I'm running a bit more promotions, but I'm able to scale up quite hard. So my gross sales double, my discounts double, my net sales double, my COGS double, and my gross profit doubles. My gross margin is still the same. It's 58% versus 58%, but my gross profit went from 58,000 to 116,000. So I'm happier or I'm okay with my gross margin going from 67% to 58% if that means my gross profit dollars actually went up. So there is this relevance of being able to consider both to know whether or not a particular strategy is working in your favor or not. Ultimately, when you go from direct to consumer to wholesale, that's like a very extreme example of it because your gross margin is going to go way down because obviously you're selling at a much lower price, but the volumes more than make up for it. I want to also be able to tie this into how this affects creative because obviously that's what we're talking about. My slide. There we go. I don't know why that hid. So the way this affects your creative too is that it can impact the sorts of offers that you're choosing or what you want to push through your ads to be able to kind of acquire customers. So for example, often times what a brand will do is that they'll start running bundles as the the main offer that they push on Facebook ads for example. Now, the benefit is that it's often times a higher AOV just because you're selling multiple products. It might be a lower gross margin because of the fact that usually as a bundle, you're going to run some discounts, so that's okay. But ultimately, all together, you are driving a higher gross profit. So that can work out assuming of course that that can scale for you, but being able to identify both of those numbers is important.

Abir Syed: Moving on, really quickly, the concept of variable and fixed costs. Again, just an important one to understand. Variable costs are basically those that scale up and down with your revenue. So if you double your revenue, you will typically double your transaction fees. You will double your shipping expense. You will typically double your COGS because you're selling twice as many products. You will sometimes double your ad spend, sometimes more than double your ad spend, but that's the point. They basically they go up and down with the sales changes. Your fixed costs on the other hand are those that are just static. For the most part, long term they might change, but things like rent, payroll, most software, they're not going to change that much month to month. So if your sales double or if your sales half, you're going to have the same fixed expenses, but the variable costs will fluctuate. Understanding the distinction between those two is important because of contribution margin.

Abir Syed: This is one of the most important finance concepts if you will for marketers to understand because it's where they are capable of a having the most influence as well as driving the most value. It's hard for a person in a marketing role to do anything about the fact that the rent is too high. That's a fixed cost. But most of the variable costs move in tandem with sales and that's why they're all kind of linked together. So your contribution margin is the amount leftover from revenue after all your variable expenses are deducted and that amount, that contribution margin is what covers your fixed expenses. It's essentially what's funding the business and it is the profitability of scaling. So to kind of like put this into a simpler example because that makes it easier, let's say we have net sales of 100k, COGS of 30, that gives us a gross profit of 70. If we have various variable expenses like ads, transaction fees and shipping, that gives us a total variable expense of 37. So 70 minus 37 gives a contribution margin of 33, sorry, yeah, 33 and a contribution margin percentage of 33%. Very roughly, the idea is that if you were to double your sales, the percentage would stay relatively consistent and so your contribution margin to go from 33 to 66. In reality, it's a little bit more nuanced, obviously because of ad spend and that not scaling perfectly, but shipping, transaction fees, COGS, those usually do. So that's the general idea of why you need to be able to understand how contribution margin works because it is what money or profit you're actually creating through your scaling activities.

Abir Syed: I like to tell this story sometimes because I feel like it kind of, uh, emphasizes the importance or how that concept works. So, a tale of contribution margin madness. How can misunderstanding finance lead you into a death spiral? So let's start with a baseline scenario. We have a business, they have a target ROAS of 4x. They're spending 250 on ads. They have a revenue of a million. Math. Their COGS is 30% of that, so 300k. 1 million minus 300 gives them a gross profit of 700. Their contribution margin, in this case, we're going to keep it simple. I'm going to exclude shipping, I'm going to exclude transaction fees. We'll just assume ad spend is the only variable expense here. So their gross profit of 700 minus the 250 gives them a contribution margin of 450. They have 300k of fixed costs, which gives them a profit, contribution margin minus the 300 fixed of 150. Now, let's say things don't go well one month. Uh, Zuckerberg's not being very friendly, so your ROAS goes down. If your ROAS goes from a four to a three, that just trickles down here. Your revenue goes down, your COGS goes down, your gross profit goes down, your contribution margin also goes down because you have 525 minus the 250. You're still spending 250 on ads. So your contribution margin goes way down, but now it's less than your fixed costs. So 275 minus 300 gives you a negative 25,000. So you're at a 25k net loss. Most business owners in a scenario like this, their gut reaction is to say, 4x is where I'm profitable. If I'm at a 3x, I need to reduce my spend to get back to a 4x. So what happens? They reduce their spend, they get back to a 4x. However, because they're at that 4x at a much lower amount of spend, again, math, 4 times 150 gives you 600k of revenue. Your gross profit is 420. Your contribution margin is 420 minus 150, so now it's 270. You're actually going deeper into the hole. So you're spending less, your ROAS went up, but you're actually increasing the amount of the loss that you have. Now, if a person understood the contribution margin dynamics, they might make a little bit of a bold move.

Abir Syed: And the brave nerd will say, all right, well, let me actually increase spend. Now, I'm well aware that the math won't always work so perfectly, but this is for illustrative purposes. So let's say they say, okay, fine. I know my target's a four. I'm not happy at a three. So what I'm actually going to do is I'm going to increase my spend to 350 from 250 to 350. If my ROAS only goes down to a 2.65, mathematically, I won't run through these numbers because they're not round, that will bring me to break basically breaking even. Again, I realize that usually if you scale from a 250 to 350, your ROAS might go down to a 1.8, but the point simply is to illustrate that the target ROAS is not enough to tell you whether or not your business is being profitable or how things are going. You need to take into consideration the contribution margin and the entire picture. So there are scenarios where you will want a lower ROAS if that means you can spend more because it'll actually mean you're losing less money. So again, nice round numbers just for the for the illustrative purposes, but I find it gets the point across.

Abir Syed: I'll take a moment to talk about LTV as well. New customer lifetime contribution margin, or I'll just call it lifetime margin, tells you about how much of an ROI you actually can get from the customers that you're acquiring in in a longer time frame. It tells you whether or not you're whether or not you're able to go negative on that first order and still be profitable long term. For most brands, I generally don't recommend this approach. However, if you're in the subscription world or you're in very, if you're in very aggressive industries like supplements or maybe pets, that's kind of the way the game is played. So it's just something to be aware of. One point of caution though, don't make the mistake, especially if you're scaling fairly rapidly, don't make the mistake of using your retention data from say a year or two ago when you were first starting as an indication of what your retention data is going to look like for these new customers that you're acquiring as you scale more aggressively. Especially early on, the customers that you acquire are going to be people who are a little bit more close to you. Maybe they've consumed your organic content, maybe they're just very big fans of the type of thing that you do. Those are typically going to be the more the the stickier customers, they're bigger fans. So if you, especially if you haven't like gone crazy hard on Facebook or something, you might look at your original, like it's basically all the data you have, maybe you're like a two or three year old brand, so you look at your retention data from back in those days when it was mostly organic customers and you're like, oh look, this is great. Uh, every one of the customers I acquire spends an extra 30% of revenue or grows their their contribution margin by 30% within 12 months. Okay, cool. If you use that as your metric to then start going and acquiring on Facebook and you're willing to go negative, that can be a mistake because the Facebook ads customer is by definition susceptible to marketing. They saw your ad, they never heard of you, they decided to buy, and there is a very good chance that they will go and buy from somebody else when they see their ad. So you just have to be aware of the fact that you're not necessarily going to hit those same retention metrics when you are acquiring customers on something like Facebook or through more aggressive marketing strategies. And the same applies to a a more kind of like discount season like Black Friday or Cyber Monday. Those customers are a little bit more spendy, they're probably buying from a lot of brands at the same time. So again, those same retention metrics don't work. So just be cognizant of that if you decide to start playing with the idea of going a little bit negative on your first orders because a lot of those people will not stick and you might just end up losing money even though you think you're you're scaling and growing.

Abir Syed: Cool. Hopefully I'm, oh man, I'm running out of time. Okay, faster. So, we we talked about a lot of metrics. How do we determine, or we talked about a lot of the metrics to understand how things are going and if we're doing well. So how do we tie this back to creative?

Abir Syed: So real quick, what makes a creative a winner? In my opinion, I I like to break it down into kind of just three different concepts. Does it improve AOV? Does it improve your CAC? Or can it spend higher at the same performance? Mind you, just for the sake of simplicity, by AOV, I am taking into consideration your profit and stuff like that. So when I say AOV, I'm not just talking about the revenue side of things. Do take into consideration how profitable the order is, but again, that would just make this chart too complicated. So to run through it, let's say I had a baseline, you have a $90 AOV, you have a 30 CAC, 27 COGS, 675 of other costs, those are your variable expenses. Your contribution per margin, your contribution margin per order will be 26.25. If you spend 300k on ads, you're going to get 10,000 orders, so you're going to get a 262 contribution margin. If my AOV or profit is a 99 instead of a 90, for that same amount of spend, I'm going to make 325k of contribution margin. So I'm making more more margin, that's great. If I have a lower CAC, so same AOV, but my CAC is lower, that'll also give me a 325k contribution margin. Or let's say it's the same AOV, the same CAC, but I'm able to spend more. That'll also give me a 325k contribution margin. Now, understanding this is relevant because it affects the way that you approach the offers you put out and the creative that you do. If you're able to push higher value items, that can improve your contribution margin. If you're able to run ads that have, I don't know, better hook rates or are able to have a better CTA or whatever, then those can reduce your CAC. It's the same product, but it has a lower CAC, so that'll improve your contribution margin. Or if you decide, you know what, I'm going to have the same CAC, the same AOV, but I'm able to spend more, that can also scale your contribution margin. So the point is that ultimately what you need to do is figure out ways to scale your contribution margin and there are many ways to go about it even with the creative that you're running.

Abir Syed: Remember, one of our main goals is to maximize revenue. It's not all about revenue, but one of the ways that we get growth obviously is through maximizing revenue. And making most, our our goal is to make the most incremental revenue for every ad dollar that we deploy. And for that, I would argue that not all ROAS is created equal. A 3x on branded search is not as valuable as a 3x on non-branded search, which is not as valuable as a 3x on Facebook. It might be a 3x on every one of those channels, but I don't consider them as valuable. Why? Consider branded search as an example. I like branded search just because it's the most extreme example of this, so it's it's good for the illustrative purposes. For some brands, for many brands in fact, uh, branded search is basically at the extreme of almost entirely just cannibalizing organic search. You're basically paying the Google tax. A person's searching your brand, they're going to just click on the ad because it's at the top and most regular people are not thoughtful like most of us where we intentionally don't click on ads. They'll just click on the ad. If that ad wasn't there, they were just going to click on the organic result after. Even if a competitor was running an ad, yeah, some 1% of the people might be like, oh, let me buy the competitor instead. But most people don't do that. They're just going to scroll past and click on the organic result. So in general, a lot of branded search is incremental. So even if I'm getting a 3x, I'm like, yes, technically I am getting a 3x in terms of the dollars I put in and the dollars that came out, but is that incremental revenue? Arguably, it's one of the least incremental. But branded search, non-branded search rather, is at least a little bit more incremental. It's a person who's searching for, I don't know, hats. And so you show your hat ad and they're like, oh wow, that's a cool hat and they go and buy from you. That is a person that most likely did not know your brand and most likely would not have become a customer. So you could at the very least say like, okay, yeah, that was incremental. That is a a new little bucket of revenue that I wouldn't have otherwise gotten. So, okay, I'm happy about that. But if non-branded search is so incremental, why would I say then that I would still rather take a 3x on Facebook? Why is Facebook to me super incremental, if you will?

Abir Syed: Well, it's because of the halo effect. I like to I like to explain this using an example of Amazon specifically just because I think it's it's easier to conceptualize. Let's say on one extreme, we have a user who goes to Amazon. They search again, something like non-descript like water bottle. They go there, they're going to do one of three things. They're either going to buy your product if they see your ad, they're going to buy a competitor, or they're going to buy nothing. The person who buys nothing, are they then going to go to your website and buy later? Most likely not. Are they going to go into a store and see your product and be like, oh, I saw this on Amazon, let me go buy it? Yeah, in theory it's possible, but generally no. Amazon people go there to transact. It's one of the most convenient places to transact. So if they went there and I'm sure Amazon's conversion rate isn't 100%, but I'm sure it's pretty damn high. So if people go there, they're probably transacting. If they don't transact with you, they're transacting with someone else. You made an impression, but it wasn't good enough. That customer is probably gone. But on Facebook, you're bringing attention to your brand from tons of people who aren't buying. Maybe some of them will buy now. They'll see your ad, click on it and make a purchase. Maybe they'll see it, become aware of your brand and they'll buy somewhere else later, in store or on Amazon. If you've, if you're a brand that's ever run Facebook ads at the same time as running on Amazon, you've undoubtedly seen that effect that when you crank your ad spend on Facebook, your ad sales go up on on Amazon as well. Or just total sales on Amazon goes up. So the value that you get from Facebook is much greater than what you're just measuring through your ROAS. If you can get a 3x on Facebook and you're getting a 3x on non-branded search, good, the the 3x on Facebook is awesome. That's the people who actually converted. All that extra halo effect or all that extra brand value that you're building, that's all just gravy. In most cases, the Facebook ROAS is going to be higher than whatever it indicates. And of course, again, there's a little bit of nuance to this because of attribution and how you're actually running your campaigns. But it does have generally have a much more impactful, uh, impact given the fact that it's able to to touch a lot of people and make a lot of impressions. This also is something that you should be thinking about when you're thinking about it from the perspective of creative because you can look at things as bottom of funnel creative and top of funnel creative. So the same concept applies. If you're running a lot of testimonial ads, that might be great from the perspective that, oh, you're just pushing a lot of social proof onto a person who's like, I don't know, uh, solution aware, they're lower in the funnel, they're about to convert and you just hit them with the social proof and they're like, okay, fine, I'll buy. That ad might have a great ROAS, but the problem is that doesn't necessarily mean that that ad is capable of bringing more people into the top of the funnel. So the ad that might be more capable of doing that might have a lower ROAS, but being able to understand what's the value of each ad is similar to understanding the value of each channel.

Abir Syed: So, does that mean you should spend it all on Facebook? Now, I'm not saying you should do this, but I am going to say it just to illustrate a point. There is an argument that Facebook is the most capable channel for reaching consumers that are the most interested in your product. And I say Facebook, but obviously I mean like anything really social media. So Facebook, Instagram, TikTok, YouTube, whatever. But Facebook and Instagram, they typically tend to be the best. So assuming we believe that, then it is generally going to be one of the best ways for most brands to grow. Such that even if the ROAS is lower than Google, it might still be more worth it to put your spend there. Because you need to be able to balance between your highest confidence ROAS and your highest actual ROAS. So what do I mean by that? Let's say we're running non-branded search on Google. You're selling, I don't know, speakers. So you're running ads on people who are searching for the keyword speakers. Google's going to show you a 3x and generally speaking, we'd be pretty confident in that. Their tracking technology is pretty good. It's also fairly straightforward. A person clicks, they go, they buy. Okay, reasonably, uh, reasonably easy to believe that that's actually what happened. That if it said it was a 3x, it's actually a 3x. So cool. I can believe that. That is a somewhat high confidence ROAS. Now, Facebook might show me a 2x. It might be relatively high confident that about 2x of the people converted within the seven-day click, possibly one-day view window. But I know that the true value of it is actually much higher than that. So I might not be able to measure what that true value is. I might not be able to be confident in that, but that's fine because there is this sort of line where I'm willing to sacrifice the confidence in the number for the fact that I believe it has a much higher impact. And again, because these are kind of wishy-washy things, it's conceptually I think valuable but hard to execute with in in practice because it does require quite a bit of knowledge, experience, and judgment. So to get a little bit more realistic, we can't just close our eyes, hope for the best and just like let Zuckerberg party with all of our money. So what do we actually do? What are the metrics we should be paying attention to?

Abir Syed: So, you start off with the usual suspects. You have one day view. I don't want to spend too much time on attribution and media buying because again, that's probably not why they asked me to come here. But I will touch upon it really quickly. One day view can have some amount of value. There is something to be said about the fact that if a person sees an ad and then they convert later on, then maybe the ad did something. The problem is that there it's way too easy to cheat with that. For example, there's a brand that I worked with and they asked me to look at their account. Uh, and they had this one campaign that was running, they spent a lot on it. It was for one of their main products and they had a $12 CPA. Amazing. Doing really well. That that works well for their their economics. A $12 CPA, except they had an $11 CPC. So either they had an 90% conversion rate or realistically, a shit ton of that was coming through view through and when you actually kind of look at the attribution windows, yeah, 95% of the revenue was coming from view through. Now, is it possible that those view through, those view through conversions were actually incremental, there was actually driving value? Maybe, except I know that that person or that brand does a lot of organic work. They do a lot of things on other channels. So it's very easy for Facebook to cheat and be able to just kind of scoop up all that revenue and say, yeah, that was me. In reality, a lot of times it's not the case. So some brands it makes sense to have view through, a lot of times it doesn't. But again, that's something to be cognizant of when evaluating the impact of of or when evaluating the metrics that you're looking at. This is also I think relevant from a creative perspective because there is that aspect of when you're comparing a creative like, especially if you do run view through conversions, something like statics versus videos. Statics have more placements in general that are available to them. They are also more easy to just kind of like show up on the side or somewhere over there. Just they can show up in more places and therefore take credit for things more easily. So a lot of times it's not uncommon for you to see that in your ad account, a static image, if you have view through enabled, is going to get a lot of credit despite having a very high CPC. So that's where that judgment can still come into play. Like, is it really driving value or is it just kind of taking credit? However, there are even better metrics than in platform ROAS.

Abir Syed: So one of the common ones is going to be your MER or blended ROAS. A lot of brands will just pick an MER target and kind of go from there. Now, what's nice about MER is that it doesn't suffer from the attribution issues like the previous ones. The problem though is that despite the name, media efficiency ratio, doesn't actually tell you about efficiency. What it really tells you is how much can you afford to spend. So mathematically, if you can spend 20% of your revenue on ads and still hit your profitability targets, it'll tell you whether you're spending up to or around that 20%, but it doesn't actually tell you if anything's working. So as an example, let's say we have this brand, uh, again, I'm oversimplifying because it's easier for illustration. They have a baseline revenue of 100k just because of their organic efforts. Every month it's 100k revenue, they're not spending anything on ads. Then they decide to scale up some ads. They spend $10,000 and the revenue goes up to 5k. Now, in this extremely neat, unrealistic scenario, we can say that, hey, they got $5,000 of incremental revenue for that $10,000 of spend. So is the spend really effective? Barely, I guess. It's a 0.5 incremental ROAS if you will. But their blended ROAS looks great. 10.50 is fantastic. So it doesn't tell you if it's being efficient, but it can just kind of contextualize things from an affordability perspective. If you believe this sort of philosophy, there's an argument that, let's say you can afford to spend 30% of your revenue on ads and still hit your profitability targets. Once you've spent all of the money that you can on the channels that give you the high confidence and profitable ROAS, so let's say that's a three on non-branded search on Google, you've spent that, now you're kind of maxed out on search volume. You could arguably just take all the rest of your ad budget and chuck it on Facebook and be a lot more forgiving with the ROAS that you're getting. Obviously, you should still try to get a good ROAS and you should be doing everything you can to improve that ROAS over time. However, generally, there is an argument to be made that a lot of that spend will still drive more value there, especially if you're putting in the effort and improving it over time, than just sitting on the cash. But, like I said, that is a very extreme view. It's not even necessarily one that I advocate, but I think it's helpful to be able to contextualize how the various channels affect one another and how we should feel about numbers like ROAS and the things that actually matter to a business long term. So to get a little bit more realistic, we can't just close our eyes, hope for the best and just like let Zuckerberg party with all of our money. So what do we actually do? What are the metrics we should be paying attention to?

Abir Syed: For example, new customer ROAS. Now, new customer ROAS has the same problem in that it doesn't tell you anything about efficiency. Like same issue as I described before, you can just deploy ad spend and get new customers, so you don't know if it's working. But at the very least, it compensates for things like returning customer revenue. It it it focuses on what actually matters, where most ad spend is supposed to drive acquisition. So what I mean by that is, I guess I'll just explain with the chart. If you have a scenario where for example, every month you are accumulating customers and some percentage of them are retaining, your returning customer revenue will hopefully grow over time. You can though have an NC ROAS or new customer ROAS that is declining over time. So you're actually getting worse at acquisition, but your MER is going to hide that. It's going to stay the same because it's being subsidized by the returning customers who don't require any ad spend to exist or to transact, hopefully. So NC ROAS is good, it's better, it's a very useful metric. I like to look at, but it doesn't still tell you much about efficiency.

Abir Syed: An even better metric arguably is new customer contribution margin. Now, this tells you about the profitability of the customers that you're bringing in. It tells you whether or not your acquisition efforts, because we're still focusing on new customer, are actually bringing in people that are going to make you money. So if we look at the the way to calculate it, again, very simple. If we take all of our variable expenses as a percentage of our total revenue, so 30% is COGS, shipping is five, transaction fees is two, our total variable expenses will be 37%. So now how do I calculate my new customer contribution margin? It is hopefully a not too confusing mathematical formula. It's mostly straightforward. New customer revenue times one minus your variable expenses minus your ad spend. That'll tell you how much contribution margin you generated from your acquisition efforts. And if you're good at algebra, you can also use the same thing basically to determine your break even new customer ROAS, which is just one divided by one minus variable expenses. Now, what should you be targeting here? It really does depend on your scaling strategy. Some brands with VC money might go a little aggressive. They might go negative on their new customer contribution margin. Most brands I'd say should aim to be profitable on the first order. It's a lot healthier a way to scale. It's a lot less risky. Uh, and most brands don't have VC money. So I think it's a little bit of a better way. But you could arguably start to get a bit more aggressive. You could start being new customer break even if you want. However, that's assuming you get enough contribution margin from your returning customer revenue to cover your fixed costs.

Abir Syed: I'll take a moment to talk about LTV as well. New customer lifetime contribution margin, or I'll just call it lifetime margin, tells you about how much of an ROI you actually can get from the customers that you're acquiring in in a longer time frame. It tells you whether or not you're whether or not you're able to go negative on that first order and still be profitable long term. For most brands, I generally don't recommend this approach. However, if you're in the subscription world or you're in very, if you're in very aggressive industries like supplements or maybe pets, that's kind of the way the game is played. So it's just something to be aware of. One point of caution though, don't make the mistake, especially if you're scaling fairly rapidly, don't make the mistake of using your retention data from say a year or two ago when you were first starting as an indication of what your retention data is going to look like for these new customers that you're acquiring as you scale more aggressively. Especially early on, the customers that you acquire are going to be people who are a little bit more close to you. Maybe they've consumed your organic content, maybe they're just very big fans of the type of thing that you do. Those are typically going to be the more the the stickier customers, they're bigger fans. So if you, especially if you haven't like gone crazy hard on Facebook or something, you might look at your original, like it's basically all the data you have, maybe you're like a two or three year old brand, so you look at your retention data from back in those days when it was mostly organic customers and you're like, oh look, this is great. Uh, every one of the customers I acquire spends an extra 30% of revenue or grows their their contribution margin by 30% within 12 months. Okay, cool. If you use that as your metric to then start going and acquiring on Facebook and you're willing to go negative, that can be a mistake because the Facebook ads customer is by definition susceptible to marketing. They saw your ad, they never heard of you, they decided to buy, and there is a very good chance that they will go and buy from somebody else when they see their ad. So you just have to be aware of the fact that you're not necessarily going to hit those same retention metrics when you are acquiring customers on something like Facebook or through more aggressive marketing strategies. And the same applies to a a more like discount season like Black Friday or Cyber Monday. Those customers are a little bit more spendy, they're probably buying from a lot of brands at the same time. So again, those same retention metrics don't work. So just be cognizant of that if you decide to start playing with the idea of going a little bit negative on your first orders because a lot of those people will not stick and you might just end up losing money even though you think you're you're scaling and growing.

Abir Syed: Cool. Hopefully I'm, oh man, I'm running out of time. Okay, faster. So, we we talked about a lot of metrics. How do we determine, or we talked about a lot of the metrics to understand how things are going and if we're doing well. So how do we tie this back to creative?

Abir Syed: So real quick, what makes a creative a winner? In my opinion, I I like to break it down into kind of just three different concepts. Does it improve AOV? Does it improve your CAC? Or can it spend higher at the same performance? Mind you, just for the sake of simplicity, by AOV, I am taking into consideration your profit and stuff like that. So when I say AOV, I'm not just talking about the revenue side of things. Do take into consideration how profitable the order is, but again, that would just make this chart too complicated. So to run through it, let's say I had a baseline, you have a $90 AOV, you have a 30 CAC, 27 COGS, 675 of other costs, those are your variable expenses. Your contribution per margin, your contribution margin per order will be 26.25. If you spend 300k on ads, you're going to get 10,000 orders, so you're going to get a 262 contribution margin. If my AOV or profit is a 99 instead of a 90, for that same amount of spend, I'm going to make 325k of contribution margin. So I'm making more more margin, that's great. If I have a lower CAC, so same AOV, but my CAC is lower, that'll also give me a 325k contribution margin. Or let's say it's the same AOV, the same CAC, but I'm able to spend more. That'll also give me a 325k contribution margin. Now, understanding this is relevant because it affects the way that you approach the offers you put out and the creative that you do. If you're able to push higher value items, that can improve your contribution margin. If you're able to run ads that have, I don't know, better hook rates or are able to have a better CTA or whatever, then those can reduce your CAC. It's the same product, but it has a lower CAC, so that'll improve your contribution margin. Or if you decide, you know what, I'm going to have the same CAC, the same AOV, but I'm able to scale further, spend more, and still maintain those profitable metrics, that can also scale your contribution margin. So the point is that ultimately what you need to do is figure out ways to scale your contribution margin and there are many ways to go about it even with the creative that you're running.

Abir Syed: All of that though needs to be to live in the context of creative investment. So what you're putting into it. You need to make sure that the improvements that you're achieving in new customer contribution margin cover the investments that you're making in that creative. Now, Taylor, uh, who's a very well-known ecom guy, uh, running a fantastic agency, he put this in a tweet in his classic controversy inducing approach. So he says, the value of your ad is relative to its cost of production. Sensible enough. If an ad costs $1,000 to make, the hurdle rate for ROI is way higher than if the ad costs $10. So another way of putting it, if you have two ads that spend the same amount, both spend 10k, both of them get you a 5x ROAS, but one ad costs you $20,000 to make and the other one costs you $20, that $20 ad is more worth it because you're able to drive the same amount of value for less of an investment. This last part, many of you might disagree with. Because ad performance has no relationship to cost of production, then the only reasonable conclusion is to drive your cost per ad down as low as possible. I won't get into that because that's maybe a little bit controversial in some ways, but the more important concept is that it's true that you have to be very conscientious of how much you're investing in your creative production process, even though creative is driving value. So you need to be able to consider what does it take to increase your ROAS or your new customer contribution margin in the short term and in the long term, and what is the cost to acquire those benefits? How much do you have to spend?

Abir Syed: So that's why I like to talk about the concept of the creative contribution margin. We take the concept of contribution margin which we already talked about and we add in two things. What are the additional costs associated with being able to improve creative and what value does this additional cost unlock? When I talk about those additional costs, that's things like your creative strategist, things like your graphic designers and video editors, your script writers, your content creators, whether you're working with like a professional UGC person or working with like some super expensive influencer, and even the software that you're using along the way. So all of those additional costs, they are generally intended to drive value through better creative, but they need to do enough heavy lifting to make all that investment worth it.

Abir Syed: Tying it all together. So just to summarize, founders want long-term growth that's profitable and fits their cash situation. There are many metrics that you can look at to determine how effective these various growth strategies are. Use them all. When I look at them, I don't look at just NC ROAS or just NC CM. All of the metrics tell a piece of the the the story, so use all of them. Ultimately, you want to balance what's sustainable in the short term because you need to consider profitability and your cash flow right now, but but we're we're focused for the long term. What the founders want is that that long-term growth, that long-term exit. So you have to be able to balance between the two. Not only investing in the long term, not only the short term. This applies to your investment and performance evaluations in various channels. So determining how each channel is contributing to the short term versus the long-term goal, as well as how each piece of creative is is contributing to the short term and the long-term goals.

Abir Syed: Cool. So, I'm on the internet, so you can find me there. Uh, we do accounting and CFO stuff and I also technically do marketing. So if you ever want to talk to me, please feel free to reach out on the various internets. Uh, if you want to help me out, figure out, let me know how I can do more of these presentation things. I I enjoy doing them even though I'm like really sweaty right now. So, that's that. Evan, come on and give me a break so I can take a sip of this.

Evan Lee: A beer. Crushed it, my man. That was incredible, incredible. The chat was so much fun too as you're going through. Um, everybody in the chat, you got to throw, we got to show some love after that one. Um, I will say, I will say you've laid the foundation here for everything that matters. Like everyone just got a masterclass that they have to go watch back and say like, okay, like how do we start breaking down and really understanding this?

Evan Lee: One thing that I I want to talk through and let me know if this makes sense, but just trying to compartmentalize for the different audience members we have. Often how I think about like organizational structures, DC or not, is at three layers. We think of it at the org level, so like C suite, management, that kind of stuff. We think about it at the team level, and then we think about it at the IC level. Now, for this example's sake, maybe we we fold in management and IC. But I'm I'm curious, like with the metrics that you had shown today, like are there more, are there some of them that are more important at the org level that then filter down to the IC? And I'm wondering if there's some bucketing we can give for people to basically walk away with like, well, I'm a creative strategist, which one should I care about most essentially? Does that make sense? Sorry, a little bit long-winded.

Abir Syed: Yes. I I would say that it it's an interesting question. In theory, we should, if you're if you're designing good management plans, good KPIs and you have good like, I don't know, compensation incentives and stuff like that, in theory, all of that should be designed such that everybody's goals are aligned. So the only time where I would say that the goals, the the metrics that people should focus on would not be the same is where people should be focused on the metrics that they can influence. So I would not ask my creative strategist to be penalized because rent shot up and profit went down. That's not within their their sphere of influence. So each person is given the metrics that they can control because that drives them to drive a lot more value for what they focus, but that whole design of who should focus on what, technically we should all have the same overarching goal, which is that of the founders, the investors, whatever, long-term growth and profitability, generally.

Evan Lee: Amazing, amazing. I guess like one of the questions that I'm I'm I'm backing into here and this is where it gets interesting. So Jeff had asked the question, like what's the main metrics that you're really looking for growth? And I think like the way that I interpreted this one is just depending on where Jeff sits in the org, like within your your circle of influence, it's like is that individual media buyer focused like CPA specific and that's really what they're shooting for because they contribute to the overall MER goal and the overall growth there. So it's like in the in the sphere of some of the metrics you had talked about, like that creative strategy formula, should creative strategists care more about that in their day-to-days? I guess is the question.

Abir Syed: They should be aware of it in so far as the fact that a lot of founders aren't necessarily aware of it. So yes, if you have a founder who's very savvy and who can be able to kind of take each piece of it, slice it up accurately, give everybody the right targets, then that person, that that can work. The problem is what would happen and this I think happens to agencies a lot as well. They'll come to a brand like, what's your target ROAS? And the founder's like, ah, I don't know, like a five. And like and then they just kind of run with that and and I've had these conversations with a lot of agencies too and it it creates a lot of friction. They can be given a piece of the puzzle assuming assuming that like the person who's giving it out or cutting up the pie knows what they're doing. Uh, but being able to kind of understand the other side of it is important because if you see a number that doesn't make sense, it's relevant. But yeah, sure, if the person knows the profitability, they know their contribution margin, they know all that stuff and they just tell you just focus on a 5x ROAS. Okay, cool. Do your job.

Evan Lee: I guess another way we can reword it is like that individual contributor, like now that you have the vocabulary to know which metrics you're impacting, you can ask smart questions. It's just like, what should I care about? I know I need to care about this leadership. Like what is that number? And then it forces them to almost like come up and regurgitate like what that might be. Is that another way to put it potentially?

Abir Syed: Yeah, absolutely.

Evan Lee: Okay. Fantastic. Fantastic. This people in the chat are literally like legitimately considering hiring you. So check out the docs tab so you can connect with a beer. And we're going to send out the recording. You got to buy some more lights for my wall, so I could use the money. Amazing. I guess like one of the questions that I'm I'm backing into here and this is where it gets interesting. So Jeff had asked the question, like what's the main metrics that you're really looking for growth? And I think like the way that I interpreted this one is just depending on where Jeff sits in the org, like within your your circle of influence, it's like is that individual media buyer focused like CPA specific and that's really what they're shooting for because they contribute to the overall MER goal and the overall growth there. So it's like in the in the sphere of some of the metrics you had talked about, like that creative strategy formula, should creative strategists care more about that in their day-to-days? I guess is the question.

Abir Syed: They should be aware of it in so far as the fact that a lot of founders aren't necessarily aware of it. So yes, if you have a founder who's very savvy and who can be able to kind of take each piece of it, slice it up accurately, give everybody the right targets, then that person, that that can work. The problem is what would happen and this I think happens to agencies a lot as well. They'll come to a brand like, what's your target ROAS? And the founder's like, ah, I don't know, like a five. And like and then they just kind of run with that and and I've had these conversations with a lot of agencies too and it it creates a lot of friction. They can be given a piece of the puzzle assuming assuming that like the person who's giving it out or cutting up the pie knows what they're doing. Uh, but being able to kind of understand the other side of it is important because if you see a number that doesn't make sense, it's relevant. But yeah, sure, if the person knows the profitability, they know their contribution margin, they know all that stuff and they just tell you just focus on a 5x ROAS. Okay, cool. Do your job.

Evan Lee: I guess another way we can reword it is like that individual contributor, like now that you have the vocabulary to know which metrics you're impacting, you can ask smart questions. It's just like, what should I care about? I know I need to care about this leadership. Like what is that number? And then it forces them to almost like come up and regurgitate like what that might be. Is that another way to put it potentially?

Abir Syed: Yeah, absolutely.

Evan Lee: Okay. Fantastic. Fantastic. This people in the chat are literally like legitimately considering hiring you. So check out the docs tab so you can connect with a beer. And we're going to send out the recording.

Abir Syed: You got to buy some more lights for my wall, so I could use the money.

Evan Lee: Um, I do want to ask one question from the chat here just to get quite tactical with it and then I think from there we'll we'll we'll pause and call it a day. So Ren has a question. How would you adjust ROAS goals across low incremental channels against Meta?

Abir Syed: That's a great question. This is one of those things where I said like it's very difficult to know because a lot of it comes down to judgment and experience and it varies from brand to brand, right? Like I said, there are some brands where for example, my, when I'm talking to them, I'll set a target ROAS for branded search for example, much higher than for another brand where I believe it's actually, like I said, it is still picking up actual incremental revenue. So I'm not fully cannibalizing organic. It's not brand building, but I also got to consider my MER implications or my MER implications. So there's a lot of judgment that goes into it. I would say a lot of it comes down to, really simplifying two things. Look at all the data that you have, look at how each one of those different numbers affect one another. For example, if your NC ROAS is going down, is your MER going up or down? Is your revenue trending up or down? See how all of these things interplay. It's part of the reason I found this presentation very difficult to do because it's not sequential. It's not one number then the next and the next. It's a web. Everything affects one another. So this thing moves like all those web threads or whatever move as well. So it's really a lot of different numbers you have to look at. But the second way to look at it is just from a long-term perspective, how profitable am I? Just make sure that you're at least profitable so you have a little bit of breathing room to play and then see, am I improving my revenue over time? And if you're improving your revenue over time and you're remaining profitable, then you're on the right track and then it's just a question of looking relatively at a channel. So now if I go in this channel, if I crank up my ROAS a little bit more, does that affect my revenue, my profitability? How about that channel? What happens if I if I pull back my target ROAS on Google or whatever? So it's all about kind of playing between those, but like I said, it's not a science. I can't even say 100% that the the decisions I make or the the advice I give is perfect.

Evan Lee: You're giving people the baseline though where they need to start. A beer, this is incredible. Any final words for the audience?

Abir Syed: Uh, shit, I didn't prepare any. Thank you very much for coming out, I guess. Uh, look, I I I would just say that basically the more that you understand the fundamentals of what matters to a business, I think it just puts you in a position to be able to make much better decisions and I think that's sometimes even though your main focus might be like, how do I just do my job and like do a good job here? I think that for you to be able to kind of level up over time, be able to drive more value for the organization and and have your career kind of move in the direction that you want, you need to understand what matters to the organization as a whole and a lot of that is really just going to come down to those principles that I talked about. So education's a good thing. I guess.

Evan Lee: 100%. Okay, you're getting people filling out your form already. A beer, you're the man. Thank you so much, man, for coming through. I really, really appreciate it. And then in the chat, show him love one more time. Please, please, please. Thank you, thank you, thank you.

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Evan Lee: Amazing, amazing. I guess like one of the questions that I'm I'm backing into here and this is where it gets interesting. So Jeff had asked the question, like what's the main metrics that you're really looking for growth? And I think like the way that I interpreted this one is just depending on where Jeff sits in the org, like within your your circle of influence, it's like is that individual media buyer focused like CPA specific and that's really what they're shooting for because they contribute to the overall MER goal and the overall growth there. So it's like in the in the sphere of some of the metrics you had talked about, like that creative strategy formula, should creative strategists care more about that in their day-to-days? I guess is the question.

Abir Syed: They should be aware of it in so far as the fact that a lot of founders aren't necessarily aware of it. So yes, if you have a founder who's very savvy and who can be able to kind of take each piece of it, slice it up accurately, give everybody the right targets, then that person, that that can work. The problem is what would happen and this I think happens to agencies a lot as well. They'll come to a brand like, what's your target ROAS? And the founder's like, ah, I don't know, like a five. And like and then they just kind of run with that and and I've had these conversations with a lot of agencies too and it it creates a lot of friction. They can be given a piece of the puzzle assuming assuming that like the person who's giving it out or cutting up the pie knows what they're doing. Uh, but being able to kind of understand the other side of it is important because if you see a number that doesn't make sense, it's relevant. But yeah, sure, if the person knows the profitability, they know their contribution margin, they know all that stuff and they just tell you just focus on a 5x ROAS. Okay, cool. Do your job.

Evan Lee: I guess another way we can reword it is like that individual contributor, like now that you have the vocabulary to know which metrics you're impacting, you can ask smart questions. It's just like, what should I care about? I know I need to care about this leadership. Like what is that number? And then it forces them to almost like come up and regurgitate like what that might be. Is that another way to put it potentially?

Abir Syed: Yeah, absolutely.

Evan Lee: Okay. Fantastic. Fantastic. This people in the chat are literally like legitimately considering hiring you. So check out the docs tab so you can connect with a beer. And we're going to send out the recording.

Abir Syed: You got to buy some more lights for my wall, so I could use the money.

Evan Lee: Um, I do want to ask one question from the chat here just to get quite tactical with it and then I think from there we'll we'll we'll pause and call it a day.

Evan Lee: So Ren has a question. How would you adjust ROAS goals across low incremental channels against Meta?

Abir Syed: That's a great question. This is one of those things where I said like it's very difficult to know because a lot of it comes down to judgment and experience and it varies from brand to brand, right? Like I said, there are some brands where for example, my, when I'm talking to them, I'll set a target ROAS for branded search for example, much higher than for another brand where I believe it's actually, like I said, it is still picking up actual incremental revenue. So I'm not fully cannibalizing organic. It's not brand building, but I also got to consider my MER implications or my MER implications. So there's a lot of judgment that goes into it. I would say a lot of it comes down to, really simplifying two things. Look at all the data that you have, look at how each one of those different numbers affect one another. For example, if your NC ROAS is going down, is your MER going up or down? Is your revenue trending up or down? See how all of these things interplay. It's part of the reason I found this presentation very difficult to do because it's not sequential. It's not one number then the next and the next. It's a web. Everything affects one another. So this thing moves like all those web threads or whatever move as well. So it's really a lot of different numbers you have to look at. But the second way to look at it is just from a long-term perspective, how profitable am I? Just make sure that you're at least profitable so you have a little bit of breathing room to play and then see, am I improving my revenue over time? And if you're improving your revenue over time and you're remaining profitable, then you're on the right track and then it's just a question of looking relatively at a channel. So now if I go in this channel, if I crank up my ROAS a little bit more, does that affect my revenue, my profitability? How about that channel? What happens if I if I pull back my target ROAS on Google or whatever? So it's all about kind of playing between those, but like I said, it's not a science. I can't even say 100% that the the decisions I make or the the advice I give is perfect.

Evan Lee: You're giving people the baseline though where they need to start. A beer, this is incredible. Any final words for the audience?

Abir Syed: Uh, shit, I didn't prepare any. Thank you very much for coming out, I guess. Uh, look, I I I would just say that basically the more that you understand the fundamentals of what matters to a business, I think it just puts you in a position to be able to make much better decisions and I think that's sometimes even though your main focus might be like, how do I just do my job and like do a good job here? I think that for you to be able to kind of level up over time, be able to drive more value for the organization and and have your career kind of move in the direction that you want, you need to understand what matters to the organization as a whole and a lot of that is really just going to come down to those principles that I talked about. So education's a good thing. I guess.

Evan Lee: 100%. Okay, you're getting people filling out your form already. A beer, you're the man. Thank you so much, man, for coming through. I really, really appreciate it. And then in the chat, show him love one more time. Please, please, please. Thank you, thank you, thank you.

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