On this episode, we’ll be talking about performance marketing, particularly as it pertains to M&A exit. It’s a great episode you don’t want to miss.

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On this episode of the 2X eCommerce Podcast, I get to sit down with William Harris, a successful Ohio-based eCommerce performance marketer, and Founder of the eCommerce growth agency, Elumynt. William is someone I’ve known since 2018 and, over the years, I’ve seen him grow and blossom to the point where he is today.

He’s helped thirteen companies get acquired including one that sold to GoDaddy and another that had driven $800 million in exit. His agency, Elumynt, was featured as an INC 5000 winner as well as an INC Best Workplaces winner. William has authored over 200 articles about eCommerce advertising on leadership on Entrepreneur.com, Fast Company, Shopify, TNW, Social Media Today, and many other places.

In this episode, we go deep into William’s childhood which was filled with hard work and challenges, how he got into the world of commerce and digital marketing, and then the juicy commerce growth tactics including geographic hold-ups, brand name search, account simplicity, and Facebook advertising campaigns, mistakes and red flags on badly set up campaigns, bottom of funnel advertising, top of funnel advertising, automation, and M&A.

The most important take you will learn from this conversation however is why ROAS, Return On Advertising Spend, is the wrong metric to focus on. You’ll learn exactly what your North Start metrics and success metrics for paid marketing should be. If you’re prepping for an M&A exit, we have you covered because William also covers how to optimize your ad campaigns and your entire business for acquisitions. Without further ado, let’s get started.

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William, welcome to the 2X eCommerce podcast.

Thanks, Kunle. It’s good to be here.

It’s amazing. It’s been a few months since we last caught up. We caught up back in October or November 2022, I can’t quite remember now. It’s great. We’re in January 2023 and people will be this in February of 2023. There’s a lot that has happened over the years, we’re going to jump into it. I want to know your backstory, William, and who you are. Let’s get into your childhood. Where did you grow up? What kind of childhood did you have and how did that connect to what you do today?

I grew up in Canton, Ohio. When I grew up there, we didn’t pronounce the T as much. I’ve lost a little bit of that now because I’m in Minnesota now so I pronounce my Ts a little differently and my O is a little different. It was a great childhood, there’s a lot that I love about it, I’d say partly that’s because I’m an eternal optimist, as my friends would say, and I always see the positive.

I grew up in a single-family home. I grew up with just my mom there. I have a great relationship with my dad now and loved him very much as a kid but didn’t see him as much as I would’ve liked to back then. There are difficulties that I’d say could come from that and that people would say. It was a poor neighborhood and it was not a wealthy area.

I want to say that our neighbor’s house at the time was $20,000. Maybe even if you still looked, it’s maybe worth that right now. It’s a different area. These are things that I’d say but I don’t think I’ve ever said them on a podcast before, I remember being held at gunpoint before. It wasn’t necessarily an area that you would think, “This is where you need to be to become successful one day,” or something like that.

The thing that I love about my childhood though is that I felt I was protected by God and He guided me through a lot of absolutely crazy things. One of my best friends turned himself in for a drive-by shooting that he was involved in but he spent the night at our house, the night before he did. I could have been wrapped up in some awful things and for some reason, I wasn’t. I’d say that there was this providence and guidance there.

The other thing is I did have a mom that loved me very much and a mom that wanted good for us. She made sure that we worked hard and she taught us how to work hard so we did chores. Every Saturday, we had a chore list and we had to go through that list and we didn’t do a good job. My mom was an Italian mom, you knew that you didn’t do a good job. We had to go through our chore list every Saturday and that’s important, it taught me how to work hard from an early age. I got a paper route then when I turned 11 and I thought it was pretty big stuff because I had a checkbook then when I was 11 years old. You’d collect the money.

Here’s the thing, I don’t know if they do this anymore, you had to go around and collect money from all the people on your paper route back then. You had to go and knock on their door and say, “You owe me money for the papers that I’ve been delivering.” You’d collect that and you’d take that to the paper company, which was The Repository in Canton. You’d have to do that. There was a lot of financial stuff at 11 and I had a lot of help from my mom with that. We did that and then started mowing lawns.

I would say there was entrepreneurship there at an early age that said, “This isn’t just going to get handed to you. You got to figure out how you’re going to earn your food and earn your keep and whatever.” There was a desire in me from an early age to say, “How can I be creative about this? How can I figure out how to get myself into a different situation?”

That’s deep, I can’t deny it. What was the education? Did you go to college eventually? How long were you in Ohio? When did you make them move out?

This is a long story and there are a lot of turns so I’m going to try and figure out how I tell the shorter version. I went to a college called Sandy Valley and my mom was a band director there. We went there up and through eighth grade and then I switched, in freshman year, over to a smaller private school called Heritage Christian. My mom worked hard for that and I had an uncle then who was willing to help out a little bit for us to be in a little bit of a better school. It was still in a rough neighborhood, it wasn’t out in a nice area or anything.

Moving forward from that though, to get into college, I didn’t know what I wanted to do but I wanted to be creative and an inventor of some sort, I wanted to do something exciting. At the time, I had a band that I was in, I played acoustic guitar and lead vocals, and I wanted to go in and be a rockstar, and my mom said, “That’s not a career path so I need you to figure out something else.”

I had looked at electrical engineering and I was like, “I love electronics.” I would take RC cars apart from the day I got them as a kid. I can remember sitting in the back of the bus as a kindergartner and I’d have the motor taken apart and I’m using the motor for different things in the back of the bus. I remember shadowing somebody thinking, “This is boring. I can’t do this for a job.”

I love electrical engineering and electronics but whatever I shadowed wasn’t going to work for me. She said, “You’re compassionate. You care a lot about people,” which is true. She said, “Have you ever thought about nursing? You could work three days a week and then you’d still have four days a week that you could do your band.” I thought, “Okay, that’s an interesting idea. Sure, I’ll do that.”

Wanting to get over it, I joined a small school called Aultman College of Nursing and I did it in two years. It was a quick program. We had 23 credits per semester. I flew through that. I was working while going to school so it was a blur, I don’t remember much of anything there. Although I do remember that’s why I started drinking coffee. I never drank coffee until I started college.

Fast forward from there, it’s one of those things that’s like, “Now, how do you go from nursing eventually into advertising for eCommerce?” The short story there is my is from Minnesota and I’m from Ohio and we met in Kentucky on a mission trip. When I’m looking at, “Where do we want to be? Where do we want to go?” We were California bound and we had our first kid and 2008 happens, financial crisis.

I was told that I’d never have to worry about a job as a male nurse, it’s like, “You’ll never have to worry about a job.” I graduated in 2005 and three years later, there was this financial crisis, and I’m sitting there with twenty hours a week worth of work because I was the low man on the totem pole at the hospital there. I’ve got a family now and I got to figure out what I’m going to do here. I decided I’m going to go back to school for marketing.

Why marketing?

Because no matter what I do, I was going to have to market myself. In my mind, I didn’t think that I was going to go into a job in marketing. I didn’t even know what jobs were available in marketing. I just knew that I have to market myself for whatever I’m going to do. To get a new job, I need to learn how to market myself. I wanted to diversify my education and have the backup of something else too versus just going to get maybe my Master’s in nursing. It’s like, “What’s the point of that? I want to get something different.” It was good.

I remember the real transition point where I realized, “I’m maybe gifted at this.” There was a simulation called Capsim and you would compete against a bunch of other colleges. Yale was in this simulation.  You ran a company for eight weeks and each week was a different year of this company’s existence. You ran the finance, the inventory production, and everything. I can remember at the end of this eight-week period, I had put every other business out of business, I bankrupted them all. There were only three businesses left in the competition and I took 81% market share.

I remember the teachers saying, “You’ve got a gift for this, William.” I was like, “Maybe.” I was like, “That’s interesting,” but I didn’t do anything with it yet. We’re looking at where we want to be, we’re California-bound, and my wife’s dad dies of pancreatic cancer, a sudden thing. We’re moving to Minnesota for the time being to help my mother-in-law out and while we were there, I realized this is where we’ll raise a family and it’s a wonderful place to be but in order to get there, the easiest thing was travel nursing, “I’ll do travel nursing.”

What’s interesting about travel nursing is you are capitalizing on the idea that they always have needs in different parts of the hospital and that they can’t staff the way that they would like to staff internally. You’re like a contractor, if you would, for nursing. I come in there and I start off with an open heart and then I get trained in every unit of the hospital because I get bored easily. There’s a need everywhere. Every night, I could call in and find out where they needed me so I was doing very well there.

I decided then, “I’m still trading time for money. What if I develop a system to help them solve their scheduling issues?” I started working on something and I find there’s a program that does a lot of what I want to be done called When I Work. I talked to the owner, Chad Halvorson, they’ve since been acquired now, which is a cool story.

I said, “I want to use your API and I want to build out from that the rest of what I need for the hospital.” He says, “Sounds good.” He calls me up about maybe a week later and says, “We got some VC money and I want you to come run our marketing team.” “Okay, let’s do it.” That’s when I started marketing and it’s like, “I’ve tested this out now in a simulation, let’s see if I’m any good at this in real life.”

In the first seven months, we grow another 270%. I’m not allowed to say what the numbers were but it was good, and we did well. I started writing about what I’m doing on Entrepreneur and Fast Company and then I get picked up by an eCommerce company that says, “We want you to do that for us.” I said, “Okay, great.” They had 3,000 SKUs at the time and I grow them to 70,000 SKUs and we’re dominating the market.

I started writing about this more in these different big publications and people said, “I’ve got a business. Can you help me grow my business?” I was like, “Sure.” Going back to the core of who I was, I like to help people. That’s why I went into nursing, I like helping people. Also, I’ve got a gift to be able to help people and I want to use that gift. I said, “Sure.” I found contractors that I knew were good at doing certain things and it was me and some contractors and we were out there like this rogue team out there crushing stuff for people and it was fun. It transitioned eventually to something that I was like, “Wait a minute, maybe I should take this seriously. This isn’t just like a thing.” That’s maybe another story for another day. Eventually, I take it seriously and grow it into what it is today.

What is it today?

Maybe around 2018, my business mentor at the time was Dave Mortenson. He started the Anytime Fitness franchise. I don’t know if you guys have them out there where you are but they’re the biggest gym franchise in the world. I love solving problems. The other part of me is I memorize the pie out 59 digits on my way to work. I like math, science, and thinking. I want to solve very complex problems.

I remember him saying, “What if this is the problem you’re supposed to solve? Why don’t you solve the problem of this agency?” As he puts it, a lot of people don’t like agencies because agencies don’t do a good job for them. A lot of people who do work at agencies feel like agencies aren’t that fun to work at maybe so he’s like, “Why don’t you solve this problem?” I’m like, “That’s an interesting problem. Sure.” Now, I’m all into this problem and I’m like, “Okay, great.”

I started digging into it and it would’ve been in 2020 that we brought on our first employee, right at the beginning of the pandemic. He came on March 14th or something like that. March 7th was my last haircut. I went two years without a haircut during that for fun as everybody else did. We brought on our first employee then and it was my partner then.

Now, we’re at fifteen employees. Over the course of a little over two years, we’re at fifteen W-2s. We still got a handful of awesome contractors and I would like to make them an employee at some point in time but they like the contract world and that’s fine. They’re still our full-time contractors now almost if you would.

Your agency name is called Elumynt, it’s quite an interesting name, and unusual. How did you come up with it?

I’m an absolute nerd. If you’ve ever seen the Big Bang Theory, on more than one occasion, I’ve been referred to as Sheldon Cooper by independent people who don’t know each other. I absolutely love science. It was meant to be based on the periodic table of elements but when I registered the domain, the trend at the time was to have a misspelling of words. A lot of people don’t know that Google is a misspelling of the number googol.

I wrote an interesting paper on how long will it take Google to live up to its namesake by indexing googol webpages, which is 10 to the 100th power. It was 684 years at the time when I did the math. If you’ve ever followed Numberphile on YouTube, which is a great one, James Grime, one of the guys there, commented on it. He made my day the fact that he read my article about this math article I wrote. It was a misspelling of the word googol and mine was a misspelling of the word element, a six-letter domain, dot-com, hard to come by at the time, and I was like, “This is cool.”

You guys are quite accomplished. You’re an eCommerce growth agency. Your focus is on growth. You are focused on profit instead of ROAS, we’re going to jump right into it, and you’ve helped thirteen companies get acquired including one that sold to GoDaddy for $800 million, that’s shy of $1 billion. Elumynt was featured as an INC 5,000 winner as well as an INT Best Workplace winner. These are big accolades and these connect to core values.

Before Elumynt or while you started Elumyunt, I remember you were still an author for Entrepreneur.com and Fast Company. You’ve written in Shopify, TNW’s Social Media Today, and many other places. Did you start Elumynt with a focus on eCommerce or did you figure out that eCommerce is where it should be based on the fact that these are experiences with so many industries and we prefer eCommerce? Why commerce?

It wasn’t eCommerce at first but I had an eCommerce background. I had a SaaS background and then an eCommerce background. Naturally, the first couple of clients that I had were SaaS and eCommerce clients. Interestingly enough, the first client was Sellbrite and they were out of Idealab in Pasadena. They’re the ones that sold the GoDaddy. It wasn’t for $800 million. Two different companies, one that sold the GoDaddy, and one that sold for $800 million.

When I brought them on, they were a SaaS company in the eCommerce space. That ignited an appetite for eCommerce as well. Doing that, I started to realize that the way that a lot of people were approaching eCommerce growth was basic and rudimentary. There were a lot of things that they weren’t taking into account that we were doing maybe in SaaS. I saw a few people in eCommerce that were looking at LTV or CAC or things like that at the time.

In fact, at the time that I started getting into it, Shopify didn’t even have a 10×10 booth at IRCE in Chicago, which, at the time, was the place to be. This was still early in eCommerce. I started looking at it and I don’t remember what the percentage was but the percentage that eCommerce made up of total retail sales was 10%.

Even right now, eCommerce only takes up about 15% of total retail sales in the US, it’s small. At the time, looking at this thing, there was a lot of opportunity here. This is a field where I feel like a lot of people aren’t understanding how to grow eCommerce in a more thoughtful way and it’s a field that was ripe for growth naturally. That’s when we started migrating more and more towards that.

Let’s speak to your focus on EBITDA or profit because not many agencies tend to want to speak about finance. Over probably onboarding sessions, there’ll be a brief 30-second conversation on what’s your revenue like and they breeze off from there. Unit economics is important. It seems like you’re driven by the unit economics of the business and then you’re saying, “How can advertising work?” What is the thesis there on a profit-driven approach to performance marketing? What platforms do you focus on? Facebook is the core or the love child there.

What I started realizing was a lot of people would say, “The agency doesn’t understand my business.” What I realized they meant was it’s not necessarily that they don’t understand my niche, they don’t understand business, they don’t understand profit, and they don’t understand what my actual goals are. How many times have you run into maybe an agency that grows their revenue, pats themselves on the back, but then the finance team comes and says, “We were less profitable. This isn’t a good thing because they ran this sale or this discount or whatever this was.” It wasn’t beneficial to the business. Realizing that, the reason why a lot of agencies don’t like doing it is that it’s a lot harder. It takes a lot more work to measure and analyze and understand if what you’re doing is beneficial to the bottom line of a business than it is to the top of the line. I don’t think it’s that they don’t want to, it’s just hard and it scares people away a little bit.

The P&L, the profits and loss statement. With what agencies render, they’re a line item on there, and they’re in the advertising slots on there, do you want to get a full view of their P&L to understand how advertising is affecting or impacting all other lines, particularly the revenue lines?

We do. There are two big primary reasons for this. A big way that we help increase the EBITDA of these companies would be by maximizing ads toward products that are more profitable.When you talk about the unit economics, we can say Product A might have a revenue of $500 but it might only have a profit of $10 or something. That’s a ridiculous number to make sure it’s easy in people’s heads. Whereas maybe Product B has only a revenue of $100 but has a profit of $50.

If you’re just focused on revenue and ROAS, you’re going to sell a lot more, maybe Product A at $500 and it’s going to look better for your return on ad spend. When you get down to the profitability of it, it’s not as good. We make sure, “How do we feed that information of the profit for a product back into Google so that way we can optimize around what is profitable to that business?”

It’s not just us, we’re still working with the algorithm. The algorithms are massively powerful. ChatGPT, if you feed it garbage, it’s going to give you garbage but if you ask good questions and the right questions, you refine it as well. Google’s algorithm and Facebook’s algorithm are powerful if you send them the data that you want, which is more profit. That’s one of the reasons.

The other part of this would be aggregate profit. Without understanding the P&L and how we fit into what we’re doing for this, it’s easy for businesses to get shy about spending more money because they might think that it’s at a higher cost, especially if they’re only understanding ROAS or even MER.An example I gave of this is one of the clients that we brought on, their first month with us, they got a bill. I don’t remember the exact numbers but let’s say, for ease of use, maybe they were used to spending $10,000 with their agency and the agency fee we sent them was maybe $20,000.

They’re like, “That’s a lot more money. This isn’t good.” That’s because this is the marketing team speaking, this is not the finance team of that company. I said, “I understand that but remember we talked about this.” We said, “We were able to spend $200,000 more in advertising and, as a result, you made this much revenue. When we take away your cost of goods sold, your shipping cost, your overhead, the returns cost, the ad spends, and the agency fee, you’re left with $800,000 more profit that month.”

“Month over month, the profit changed to $800,000. Is it okay that we charge $10,000 more to deliver $800,000 more profit?” He said, “Yeah, when you put it that way.” I said, “That’s exactly the way I want to put it because that’s what matters to your business.” Without that knowledge, we can’t do that for businesses. We need to know where those points are in order for us to be most effective at what their real goal is.

Is it an incentive-driven model you run? When there’s a net impact and profit, you get the upside and everybody is happy with the outcome monetarily.

We have played around with that. Ideally, everybody’s happy. The problem with doing it that way is that it makes even invoicing absolutely monstrous because that company might not close its books for another month. We then can maybe go back and see if there’s any change in EBITDA month or month to do that. It’s unnecessarily complex for that.

There are two main factors, if we say, “We’ve got this MER that we’re going to target. At this ad spend, assuming that none of your other things are going to change significantly, your COGS as a percentage, we can calculate what those should be at all of those different levels. Assuming that all of that is where it needs to be, this is what your EBITDA should look like.” There’s agreement upon that. Their team, the finance team or marketing team says, “This looks good. We have the inventory to support that growth. We have those numbers that line up with what we’re anticipating and expecting if we were to spend that much.”

We can at least align and say, “Here’s what that EBITDA should be.”Now we can still operate an invoice around ad spend, which is an absolute fact. It keeps as an immediate fact that is much more trackable. It should result in that. There’s no reason why it wouldn’t result to that unless they, for some reason, hired ten more people that month.

It makes a lot of sense. It’s focused on MER. There are some readers of this podcast that are not so technical. We should start out with some definitions. Could you define ROAS, MER, EBITDA, and maybe LTV so that we’re clear on what we’re about to talk about? We’re about to get a bit more technical moving forward. Let’s start out with ROAS.

ROAS, Return On Ad Spend, the way that it’s calculated for most people is in platform, the amount of revenue that the platform takes credit for divided by the ad spend. If you’re looking at Facebook, if Facebook says, “You brought in $100,000. You spent $10,000. You have a ROAS of 10X.” I like to differentiate that. I don’t like calling it ROAS because it’s not the return on ad spend. I call it the Reported Return On Ad Spend. It’s what Facebook will take credit for, the Reported Return On Ad Spend.

It’s because they overlap with ROAS. Google might say it’s a 10 ROAS. When you start to add the numbers, you’re like, “I didn’t make this much revenue.”

It’s in both ways. Maybe Facebook takes too much credit or it takes too little credit but either but it’s not the actual return that ad spend drove. It is the return that ad spend is taking credit for within that platform. It’s not your Return On Ad Spend. MER is Media Efficiency Rate, which is the same equation except that it’s your total revenue, what you see in Shopify, divided by your total ad spend across all channels. I like to keep it that simple. Some people like to put a bunch of other stuff in it. We have other metrics for what those other things are. When you include the agency, we call that the AMER. I like to keep it as the most simple revenue divided by ad spend.

From your perspective, let’s say you are focusing exclusively on Facebook advertising for a client and they have an AdWords agency and some other agency for another platform, maybe TikTok. Would you still calculate the MER in that instance or do you tend to work with multiple platforms?

We prefer to work with multiple platforms. Most of our clients, 80% or 90% of them, we’re on both sides of that equation for that reason. If you’re running Facebook and somebody else is running Google Ads, what if they decide to shut off the non-brand search because it has a 1X ROAS? All of a sudden, what was working well on Facebook because you were retargeting those people isn’t there anymore because they shut up a whole bunch of qualified traffic. Having both sides of that coin makes a lot of sense.

There are a number of clients and we only work on one side. For them, it’s still important to calculate the MER for a couple of reasons. One is it’s still the most baseline way of understanding if the net aggregate of everything that they’re doing is resulting in more revenue. If we scale up Facebook and the MER goes down significantly, we still can look at that and say, “Whatever we did, it didn’t drive what we hoped it would drive even if Facebook took more credit for something.” It’s still an important metric to track even if we’re only one-sided.

What we found is it requires better communication between those teams. When we are disparate teams and we’re working with another team that’s running their Google or vice versa, we have to align and say, “We plan on running this test. We’re going to scale over the next couple of weeks. We need you to hold steady so we can see if what we’re doing is incrementally approving things before you do that.”

Not too many variables or too many cooks in the kitchen. EBITDA.

This is your earnings before interest tax deductions in the amortization. It’s a finance term but what this means is your bottom line, your profit. When you take your revenue and you subtract your cost of gets sold, subtract your shipping, subtract your agency fee, your ad spend, subtract your overhead, and subject everything else, what are you left with? Your profit, that’s what we’re talking about here before you start getting into all the rest of the tax and calculations and everything else.

On your reporting, you have the EBITDA whenever it’s available and then you plug it into the MER and you start to see the dynamics and that relationship.

One example of this would be let’s say that your company is at 8X return on ad spend or MER and you tell the agency, “What we need to be at is 10X.” They might pull back on ad spend in order to get to that 10X and they might do fine and they get to a 10X. The problem is they pulled back maybe so much in ad spend that your overall profit is lower. You’re more profitable per sale but your overall profit is not where you need to be because you still have overhead that’s not accounted for and things like that. You’re not just looking for the highest MER possible, you’re looking for the right mix of that MER aligned with the right mix of ad spend, and that should give you the EBITDA that you’re going after.

That makes a lot of sense. With the EBITDA, when you’re working with companies looking to be acquired, that is a North Star metric.

It is. This is essentially the metric that they’re looking for. Most acquisitions are going to be a factor of a multiple of whatever that EBITDA is. There are a lot of things that can influence what that multiple is but it’s almost always going to come down to a multiple of EBITDA.

Finally, LTV, lifetime value. How does it play in with your reporting? What tools do you use to get the best LTV? Shopify, by default, is not great at it. If you use email platforms such as Klaviyo or any ESP, they give you a more skewed perspective. How do you factor in LTV and how do you calculate LTV for the sake of measuring performance?

We use Power BI. We import all of that data ourselves and we run our own calculations, we found that that’s the way that we can be the most thoughtful about how those are being calculated. When we talk about LTV, lifetime value, we’re talking about aggregated lifetime value. I know some people will call it a CLV, customer lifetime value, or something like that but we’re talking about that aggregated amount there.

How this plays in would be, in good markets, I would say this is not as good of a strategy during a bear market but during bull markets, you can be a little bit more aggressive about your acquisition. If you know that, on average, your 90-day LTV, the amount of money you’re going to get from a customer on average in 90 days, is $200. Let’s say that the profit on that is $100. You might be willing to spend $100 to acquire that customer because you know that after 90 days, you’ve broken even and everything from there on out is going to be straight profit from that customer.

Whereas maybe before, if you were trying to break even on purchase one, you were trying to acquire a customer for $25. Now, if you and I are going up against each other in the ads world and I’m willing to spend $100 to acquire that customer and you’re only willing to pay $25 for that customer, who’s going to win more of those ad auctions? It’s going to be me. It’s important to understand that it’s you’re competing with people who are willing to be aggressive. They are not necessarily saying they need to be profitable on that first purchase. That can give you a little bit of an edge towards saying you still need to be efficient with what your ad spend is but you can be more aggressive not to if necessary.

That metric is important to understand how far you’ll go with the competition. That makes a lot of sense. We’re in 2023, it looks like we’re in a recession or about to get into a recession. The consumer demand is not the same as it was at the start of 2022. How are you making adjustments or how are clients adjusting to this change in consumer behavior? What is the opportunity in all that is happening?

The biggest part is nimbleness and being flexible. Hopefully, a lot of people have learned that over the last couple of years because we’ve had some of the most interesting couple of years here in general, massive changes in the space. We like using Google Trends a lot and looking at macro trends from their overall categories. If they’re selling coffee, what is the trend of people searching for coffee in general and the seasonality or whatever that might be?

Let’s say that if the trend for people that are looking for what you sell at a macro level is down 40% year over year, you’re not likely to double your revenue this year without also having to incur a penalty of a higher customer acquisition cost. You’re going up against a smaller market demand right now. You could still do it but it’s going to cost you a little bit. A lot of this comes down to working with clients to understand those trends and making sure that they don’t over-order inventory and looking at, “How can we test into these things?”

Let’s say that we see that it’s down 40% year over year but you’re up 5%, 10%, or 20% year over year. Let’s say you’re up 20% but it’s only costing you 5% more year over year to do that 20% growth, that’s a worthwhile thing, let’s continue to go towards that, and let’s aim for 20% growth year over year or something like that. It comes down to a lot more thoughtful understanding. If we see that this is taking off, let’s go ahead and start being more incremental towards adding more there. If we see that things are not hitting where it needs to be, let’s go back to the drawing board and figure out what we need to do to improve efficiency. Let’s be aware of what is an appropriate growth goal for 2023.

It circles back to your focus on EBITDA because a business with negative EBITDA will not survive. Panning and ensuring and looking at your EBITDA over this period is ever so critical so you know where to cut. Rather than an opinion, what is the data coming to you saying from a perspective of advertising spend?

It’s January 2023 and January is when advertisers tend to spend less unless it’s a seasonal January item like health and fitness. From Q4 in 2022, your cohorts of clients and other accounts you have access to, did they spend less and get more? What was the general MER return and what was the appetite for digital advertising last Q4? What do you think Q1 and Q2 will bring this 2023?

Overall, Live Friday, Cyber Monday, and the holidays turned out better than what people were anticipating going into 2022 because Q3 beat some people up pretty good a little bit. In Q4, it was like, “This could be dangerous territory.” Buyers were excited to buy for Christmas time and it helps them feel good too, there’s a feel-good element.

A lot of people ended up doing a lot better during that period of time than they had planned, hoped, or thought. It’s worse than what they would’ve planned when they made the plans maybe in 2021 but better than what they were seeing going into Q4. In 2023, I’m going to say that there’s a good email that I like to get called Before the Opening Bell by Phil Rosen with Business Insider. It’s every morning and it’s macroeconomic stuff. What’s going on with the stock market as a whole with fire sentiment, the housing market, etc?

I read this every morning and I would say, the general sentiment, if I was going to sum it up, we’re likely going to go into more of a recession this 2023. The inflation hasn’t cooled off the way that we would like it. The Fed is going to continue to tighten a little bit more. This is not financial advice, I’m not a CPA. Be prepared for 2023 to likely be potentially rough. We’re seeing more layoffs. Google laid a bunch of people off and that’s all over the news. It’s a big deal. Adeek laid people off. Everybody in the space has laid people off.

Spotify and Netflix, apart from Apple thus far.

One of the things you have to remember is that those people maybe can sometimes be going off of severances. There’s a point where consumer spending may start to be a little bit more impact than what we’ve seen so far. If we get into 2023 and people maybe don’t have the income they thought, they maybe max out, they spent the severance, and their credit cards are run up a little bit, there’s a good chance that some of that will go down but not everybody. We have some customers right now that are up very well year over year and we have some that are not up right now. You have to look at your broad economy and what’s happening there.

One example is a customer and I don’t want to use their category to say it but when we look at their category on Google Trends, their category is down 55% year over year. For people looking to get into their space, it’s not there. They’re likely going to need to say, “If you get any growth, you’re outpacing that 50% drop.” That’s a good thing if that makes sense for them to not outpace that drop.

How do you think advertisers that are facing headwinds from a macro trend perspective can still utilize customer data? Is there a customer data harvest opportunity here where you fine-tune a lot of your performance ads? Thinking, “18 months down the line, let me try and acquire as many emails and as many mobile cell phone numbers as possible.” Create relationships and do a bit of content marketing to build these relationships. When the economy changes tide, they’re there. Is that happening? Is that even a thing? Do you look at your daily battles and firefight?

I love that you brought up the relationship because I like to think about it that way. Relationships with humans are how we more intuitively understand things. Let’s say capturing the email address or the phone number is a lot like capturing a phone number of a girl at a bar or something. It doesn’t necessarily mean that there’s significant intent or anything like that. You’ve captured a way to get in touch with this person but you haven’t captured their heart necessarily.

I like to take this a little bit maybe beyond and I’d say, “How do you capture your customer’s heart?” You don’t have to do that by necessarily capturing their email address or whatever. You have to capture that with some content that reaches into what they are and what they’re thinking about more so than product-focused ads.

If you think about most brands, and I’m sure that you see this in a lot of the audits that you do as well, the first ad that somebody runs, every DCC runs after you make a purchase is another ad to buy something else. There’s no relationship-building there. For the majority of people, you’re going to get another ad to buy again to increase the LTV and whatever. There’s a lack of investing in the human that was on the other side of that transaction. What are they connecting with and why, where, and how?

For lack of a better idea, we were talking earlier today about Liquid Death. You had the cans and everything you showed me here too. They’re one of the brands that I appreciate because it’s essentially just canned water. There’s not anything significantly different but they’ve done a great job. Customers love their brand because they’ve differentiated and they’ve reached them on a more emotional level. In a lot of ways, if I was a brand that was struggling and want to reach people, focus on that relationship. How can you get those people to say, “I love this brand. Even if things are a little tight, I want to support this brand.”

You also spoke about the proliferation of UGC and how every UGC seems to look alike. Do you think now is the time for brand owners and operators to step back and devise a brand strategy that is empathetic to all that is going on both at a macroeconomic level and from a competitive level, differentiating themselves? If you think that is a way, how would that play out in performance? How would that translate in execution from a performance standpoint?

For instance, Liquid Death if you go with them for a moment. Because they’ve done a great job of hitting the emotional side of their customers, you could put a 10-year-old on that ad account and it’s going to do fantastic. It doesn’t matter what agency you use for them, they’re going to do well. On the flip side, if you’re an account or an eCommerce store that hasn’t done any UGC, start doing UGC at least a little bit. Even though it all looks the same, you’re likely going to see an improvement in performance for your brand because that is still the best practice for what it is and likely better than what you’re doing today.

If you want to stand out and you need to stand out and that is a critical thing for what’s going on right now when you’re looking at the overall amount of buying potential has dropped so you need to cut through that noise, the way that you’re going to do that is through what you’re saying and how you’re saying it. It is not necessarily because you’re doing UGC or not doing UGC. Are you saying something significantly different?

There are a lot of water companies out there. The canned water though with Liquid Death is significantly different and is reaching people on a different emotional level and that is what most companies are missing. For the last few years, it was easy to grow and build and sell products online and it’s not anymore, it’s different. You have to differentiate yourself and that’s not going to happen by throwing out a hundred different creatives that all sound about the same. This comes from intentional and thoughtful brand positioning.

This reminds me of TV advertising again. It’s the emotive stuff that cuts through the noise. Interesting stuff. In accounts, what do you think is the split now between the actual media buying, the programmatic bit of it, or the setup of the account, and creatives? A lot of creatives are the holy grail of performance marketing today, do you agree?

This is where I would say no but I want to differentiate that and say the sheer number of creatives and things like that that you see and the majority of people pumping out there is no. None of it ends up performing any better. It’ll perform a little bit better for a day, an hour, a minute, or whatever. You don’t even know if that was coincidental so it’s up and down. The net growth from it is that none of it mattered.

I wrote a good article about this too where I talk about Bayes’ Theorem, which is a great statistics principle about how the majority of the ads that you think are performing aren’t even statistically performing. If people want to read it, it’s interesting. A highly differentiated creative, yes, absolutely. Going with Liquid Death whereas something is significantly different than what else is being set out there in the market for your particular product makes a massive difference.

We had a client and I don’t remember the exact numbers but it was something where the cost for them to acquire a purchase was about $12. I fought with them forever because they had strict brand guidelines to finally say, “Can we please make a new ad for you that we think is going to meet best practices in a massively different way?” I got the approval, same campaign, same ad set, same everything, just a different ad within all of that, and the cost required customer on that ad was $1.43 overnight, a massive difference. The right creative can make a massive difference.

Do I think that’s what’s plaguing the majority of ad accounts today? No. I say this because probably 90% of the accounts that we bring on, we might not launch a single new creative when we initially take over and that’s on purpose. It’s to show the difference between setting the accounts up correctly from a mathematical and scientific understanding of how algorithms in science and math work. We see double the performance immediately from that alone. The majority of people can see immediate performance improvements by setting things up correctly. That said, every brand can likely benefit significantly from a brand position improvement and not necessarily more creative if that makes sense.

It makes a lot of sense. You need to put your house in order. The designer furniture is the designer of furniture in that metaphor. I didn’t explain it well in that metaphor but you get my point. What are the mistakes or the top issues your team finds when they take up or inherit an account? What are the top silly issues that cause performance issues particularly in Facebook, in Meta accounts? Maybe we’ll talk about Google a bit later but in Meta advertising accounts. What do people do terribly?

I want to be careful to say that while I believe that these are the absolute correct ways to do it, that doesn’t mean that you can’t find good success doing it completely differently. Part of that is because as soon as we do something, that opens up the opportunity for something else to be effective if that makes sense. Now you have two different people approaching it from two different ways. If we all do it the exact same way, if we all do it the way that I suggest, it won’t be effective anymore either.

From an algorithmic understanding, one of the things that I see that is a big issue is there’s still a big lack of excluding existing customers from what people would call prospecting campaigns. You’ll see people maybe excluding based on pixel purchases or something like that. I’m amazed at the number of people that aren’t excluding email addresses or they do but they haven’t updated the email address list in five months or something.

This is one of the most important things that you can do if you’re trying to go after net new people, make sure that what you’re saying and what you think you’re doing is doing it. Klaviyo is the easiest one to automatically exclude those because the email address is refreshed continually. Now you’re going to get the rate of those email addresses. We also like taking this further and we like to exclude people that have interacted with your page and engage with your Instagrams accounts.

We’re saying, “I want net new people completely new to the brand. Let’s go up to those people.”  That allows a significantly greater reach in what we’re trying to do towards net new people instead of continuing to show it to the same people that algorithmically seem like they should be the right ones but they’re not doing what you expect them to do. We’re telling Facebook, “Go after somebody new. I’m done with that. Keep moving on to find who’s ready to purchase.” That’s one of the biggest ones.

Those exclusions are important, top of funnel.

Big time. Also, proper exclusions on the bottom and middle of the funnel as well. One of the other big ones that I would see then is, and this is going to go into Google though if that’s okay, a lot of people that are focused so much on the immediate return on ad spend on something that might be incremental like non-brand search or even in PMax. They fail to understand how that is contributing toward a lot of other things.

You’re driving qualified traffic that then you’re retargeting now on Facebook or something like that. Making sure that you understand that even if that non-brand search is at a 1X return on ad spend in the platform, is it incremental? One of the best ways to tell is to run a geographic holdout study and find out if it’s generating that. Usually, you’ll find that it is generating a lot more return than what it’s being credited for because it is higher up the funnel than what a lot of other stuff within Google would be.

What’s a geographic holdup?

There’s a good article that we have on our blog about this too, which is called the ROAS Death Spiral. If you were going to say run an ad and let’s say the non-brand search, run that in five states and don’t run it in the other 45 states or something. You still have to pick the right states but let’s make it simple for now.

At the end of a test period, you should be able to see that there’s a difference in the amount of actual revenue in Shopify from those five states. If everything else stayed the same, how much is that difference? If that difference is significant enough, you might have a 5X MER return but maybe the platform is only taking 1X credit. Now you can at least understand that it’s driving a lot more real tangible value than what it’s being credited for.

It makes a lot of sense. Speaking to Google AdWords, what’s your take on brand name search? Should brands chase brand name search? Is there an advantage to brand name search, particularly if you are in a space where your competitors are not essentially feeding off the back or cannibalizing your brand name search?

You need to do some element of it. This is where it’s a nuanced discovery to find out, how much should you, as a particular brand, do this? Here are a few ways to look at it. You mentioned whether or not your competitors are going after your keyword terms and the important thing is to know that they are whether they know it or not.

They might not intentionally be doing it anymore but that is a part of how Google works because it’s not the exact match anymore for anything. If Google still thinks that this is related, if they’re running a PMax campaign and a lot of other things that your competitor is doing, Google still might say, “This is close enough. They might be looking for this too.” There’s an element of that, they are going after your brand terms whether they mean to or not.

Beyond that, impression share is a good thing to look at. If you’ve got a 99% impression share on $1,000 a month and spend on brand search, is it incremental for you to go after that extra 1%? You likely are going to have to spend $10,000 instead of $1,000 to get that extra 1% of impression share. It might not be worth it. That’s one way to look at it.

Another way is to make sure you bring a Google search console, you can connect to it, to find out how much you are already capturing from an organic perspective. What is the overall overlap that you’re getting there or are you cannibalizing your own? You will, a little bit. The goal is to see if the net increase is worth it.

Let’s say that you’re going to get 100 conversions organic and let’s say that you add on some ad spend for the brand and let’s say that you capture 50 of those through the brand-paid search and 75 not organic, let’s say you cannibalize 25, it’s still a net increase of 25 though. You’re still getting 25 more purchases than you were because you’re at 125, 50, or 75 versus 100. Yes, you cannibalize some but you’ve still got a net increase.

The other thing that’s beneficial here is you can do things that you can’t do organically for your brand. There are different site links and things like that that you can use. You can test out different offers and different ideas. There’s more that you can do on the brand side to still test and see if you can incrementally increase what would normally happen organically.

Good point. Going back to Meta, to the Facebook advertising platform, there’s been a lot of talk on account simplicity both from Facebook account managers and the general performance marketing community. What’s your take on account simplicity? If you are all for account simplicity, what’s a good account structure from your point of view?

I’m all for account simplicity but I would say that we’re maybe on the middle road of it’s not all one campaign. There are some people that take that too far and then you’re missing out on being able to use what you do have available for how to influence it. One example of this would be let’s say that I know that there’s this particular demographic for our company that does better. Let’s say 20-year-olds maybe don’t buy as high on their first purchase but their 90-day LTV is five times higher than a 60-year-old.

Facebook might say, “I’m going to go after this 60-year-old because maybe they’re buying easier or whatever. They’re buying more on that first purchase and the return on that has been higher.” I’m saying, “I understand what’s more beneficial to the long-term success of this company so I’m going to try to go after this.” There are reasons why you want to still use what’s in your control to understand what Facebook doesn’t know and what the algorithm doesn’t have access to. Although they should have access to it and they will before long, more and more.

The overall account structure that we’re looking at is prospecting for net new customers, retargeting for net new customers, and prospecting if you would for returning customers and retargeting for returning customers. If you’re going to go to the most dialed-back symbol, there’s a lot more that we do for bigger brands than if you’re just going simple.

The reason why I like those four is I want one campaign that’s intentionally going after net new people and when they come back to the website, I want to retarget them differently. This is where those exclusions are important even on the retargeting side because I’m willing to pay more for that net new customer. I want them to be our customers because I know that if I can get them in here, it’s worth it to me.

Versus retargeting existing customers, they’ve already purchased maybe once, twice, or three times. If I continue to repay them at that same rate every single time they come back by lumping them in retargeting with everybody else, I’m likely not making a profit off of any one of those customers over a long period of time.

Also, having a prospecting for existing customers. Call it prospecting if you would but intentionally going after people who are existing customers who maybe haven’t purchased in the last month, two months, three months, or whatever that number is saying, “I want to get them back to the site.” Email open rates are 35% and maybe if you’re doing a great job. it’s 50% and you’re crushing it. There are still a lot of people that you’re not reaching but you can reach them through other campaigns and other means to make sure that they’re at least remembering your brand, “That’s right. I want to come back and get that again.”

What does the bottom of the funnel look like? Do you advocate for dynamic product ads? What’s also your take on automation like CBO, which is the campaign budget optimization?  What do you think about dynamic ads? Do you trust the algorithm? Is it still manual from your perspective? Do you trust the algorithm to figure out and test?

There’s a lot that we do keep as CBO. I love CBO for the most part. Within there, we’re usually looking at three main audiences, interest base, lookalike base, and broad audience base. Within those, it’s making sure it has the opportunity to test within whatever one happens to be hitting well. You’ll see things on Twitter where people are saying, “This 10% Double Stack McDonalds lookalike whatever thing is working hot right now.”

The reality is it can go back and forth with these different fluctuations between interest working or lookalike working or broad working. If you have all three of those within there and you’re excluding them in the right ways to make sure that you’re not as overlapped as you’d want to be, it’s going to do a great job of determining that. That being said, we don’t take it at face value. A lot of what we’re looking at though still is understanding if what it’s doing is supposed to be doing it the way that it needs to be doing it.

By looking at Google Analytics, looking at the paths report within Google Analytics to find out, “Are there significant discrepancies? If so, let’s make sure that we’re testing that separately.” We also run testing campaigns separately in smaller amounts to see, “What can we gain from this and what can we learn from this without having to ruin what’s already performing very well?” You can think about that as having a big optimized machine and you throw something new at it. It’s not the ideal situation versus having something that’s working well.

We go into this a little bit more in that article there, it’s not Bayes’ Theorem this time but it’s Simpson’s Paradox, on the website, which is a good one. It helps to understand that what you think might be performing well in the platform when you look at Google Analytics might be the complete opposite. What you have to understand about Simpson’s Paradox is, without going too deep into it, roughly half of the ads that you’re running, even that Facebook is identified as performant, it’s likely are not performant.

This is where the paradox comes in. If you look at Google Analytics and you see that there’s a significant discrepancy, run it as a test to see, “Can I validate this discrepancy?” If you do validate the discrepancy, it takes manual control. We believe that there’s a blend of letting the algorithm do what it’s supposed to do. Don’t get in the way of the algorithm, it’s massively smart and complex but it’s not perfect. The reason we know it’s not perfect is we’ve all had those moments where your product gets flagged for adult content and it’s a children’s teddy bear and you’re like, “Obviously the algorithm is not completely supernaturally intelligent yet.”

It makes sense. I want to be respectful of your time. Finally, to wrap up, because we love M&A in this show, would you mind running us through an M&A case study in which a client comes to you and says, “Can Elumynt help us with optimizing our EBITDA or our net profit because If this balloons, we have a better multiple to exit and this is our plan? We give you X amount of months and go to the races.”

It’s interesting to say that people don’t usually come to us saying, “We want you to help us optimize for acquisition.” That’s something that we oftentimes end up bringing up with them. They’ll come to us and we are trying to pull out, “What is your goal here? What do you want to do?” Through that, they’re like, “Ultimately we’re trying to get acquired.” A lot of times, the marketing team doesn’t know that. It’s getting the right people on the call and saying, “What is your ultimate goal for this business?” We then can say, “Here’s how we can approach growth. We can look at it this way or we can look at it this.”

From a case study, I don’t think any of them are officially publicly mentioned from acquisitions so I have to be careful about talking about numbers. There’s one in particular that was acquired, they have a massive YouTube channel. One of the ways that we helped them increase the multiple that they were able to get on that EBITDA was helping to put, “What is the value of this YouTube channel?”

Don’t quote me on the exact numbers because this was a couple of years ago, let’s say 2 million subscribers and they’re getting significant amounts of organic views. There’s the EBITDA but then what is the value of building up a YouTube channel to that in and of itself? There are many other ways that can be capitalized and many other things you could do. Let’s say you just build up a YouTube channel and you didn’t have an eCommerce store to go along with it, there’s value in and of itself of those eyeballs, etc.

How do we make sure that we understand that? By understanding what that was and starting to assign numbers and values and how we can appropriately quantify how valuable that is in and of itself, that company was able to reach a better overall purchase price because they were able to increase the multiple. Let’s say the multiple was going to be $6 million, they were maybe able to get acquired for a $6.5 million or whatever that number was on that EBITDA simply because we helped them to understand the value of some of the other things they were doing.

It was a real asset audit and then you extracted the value off the back of the assets they had. Before I let you go, William, we always end with a lightning round. I’d ask you 6 to 7 questions and if you could use a single sentence to answer each of them, it will be okay.

I’ll do my best. Those who know me know that pleonasm is my friend. I am not good at being succinct but I’ll give it my best shot.

That’s good. Let’s try it. Are you a morning person?

I am. I love mornings. I try to wake up, get my workout and do my devotions.

You beat me to it, I was going to ask about your daily morning routine.

Monday, Wednesday, and Friday are when I work out. Monday, Wednesday, and Friday, I wake up and workout but I like to do my devotions. The rest of my morning tends to be getting my girls ready for school, making breakfast, getting them ready, watching them off to the bus, and then logging in. We use Asana for everything internally but I still have the paperback that I write. One of the most important things that I need to focus on and get done today, I write that down here in a paper journal.

Journaling is always important. Are you into sports whether as a spectator or whether you’re active in sports?

I love playing sports. I’m not as big of a spectator partly because I don’t have time anymore to watch that as much as I used to. Basketball was my main sport. I did basketball, baseball, and taekwondo. I loved playing just about every sport possible. I loved playing rec league and things like that. I played in high school. I did a 360 dunk in a game in my senior year, that’s probably the highlight of my career.

How tall are you?

I’m Probably 5’11”.

You did a 360, kudos to you. We should do a one-on-one whenever we see. What two things can’t you live without?

One thing for sure is my phone. I’m terribly ADHD. I can remember the first time I got a Blackberry 8870 and I finally was able to start showing up to appointments all time when I was 20 years old or something. Without having that on my calendar right there, I would be lost. The other thing I can’t live without is, there are a lot of things that I appreciate and enjoy doing, the stove because we cook a lot. I like to cook gourmet food and have fun with that.

That’s a good pastime. What book are you currently reading or listening to?

The book that I started reading is called A Swim in a Pond in the Rain and it’s an interesting book from a Syracuse professor on the dissection of four different Russian literature, short stories, and different ways that he’s approaching the short story. A friend of mine, a contractor, Zach Stafford, on our team, sent it to me. I had never even thought about reading it and I’ve enjoyed it because when you think about breaking down short stories and the different elements that drive that story along is practical even from an advertising perspective too.

I’ll check it out, for sure. Finally, what’s been your best mistake to date? By that, I mean a setback that’s given you the biggest feedback.

I make lots of mistakes, I got to figure out which one is the best one. The thing that I did early on in starting Elumynt that I’ve learned a lot from, going back to the basketball metaphor, I would sometimes bang my head against the wall frustrated that maybe sometimes some people on my team who are wildly good at the analytical side of advertising couldn’t be creative enough for whatever I needed for that client. Other ones were incredibly creative and couldn’t be analytical enough for what I was looking for.

I started to realize that I’m trying to maybe put my 5’0” guard as the post player in basketball and asking them to get the rebound and that’s a bad coaching movement. I’d say the biggest mistake I made was putting sometimes the wrong people in the wrong positions and realizing, “I need to step back, see the court, and I will do a much better job of putting people in the right spots.” They will feel more empowered and better about what they’re doing and they’ll be more effective in it.

That’s a deep insight, William. That is a wrap. William Harris, thank you for coming on the 2X eCommerce Podcast. It’s been an absolute pleasure learning about Elumynt. Something about your journey and your backstory touched me.

Thanks, Kunle. It’s been great to be here with you.

Cheers.

See ya.