Going From $3,000,000 To $20,000,000 In 12 Months - FDDTC Podcast #15

What's up, guys? Devin Zander here. In 2019, our store did $3 million in sales. And in 2020, our store did $20 million in sales. Today, I will be discussing with you or telling you how we made this happen. Hey, by the way, this is your host, Devin Zander. And this is the From Delivery Driver to CEO podcast. These are tale stories, lessons that I learned going from a Jimmy John's delivery driver and high school dropout to the CEO of an eight figure software and education company. So with all that being said, let's get in today's episode and see how we did the jump from 3 million to $20 million in a single year. All right, so there were two things that happened and we're going to discuss one of them today. The first thing we did, which was we dove a lot deeper into our customer avatar. Okay. We have this whole process. It's called the 5W customer avatar. Who, what, when, why, and where? Not going to get into that today, but if you do want that, let me know and I can make an episode on it. What we are going to talk about is the second thing we did. All right, Are you ready for this? Great. Goodness. Oh, baby. We dove really deep into our CAC to LTV ratio. Fun, right? Yeah. Like Devin saying all these words and if you haven't been in marketing for a long time, you probably have no idea what they mean. But we'll go over that, don't worry. So cac, very simple is customer acquisition cost. So how much you have to spend to get a new customer. CLTV is customer lifetime value. So how much a customer is worth over their entire lifespan. And then when you divide your customer lifetime value by your customer acquisition costs, you get your basically roas. Okay, like long term roas, not your immediate return on ad spend, but your actual long term over the lifetime of that customer return on ad spend. And this is what separates the little boys from the big men or, you know, little women from the big women or, you know, whatever. You are in the big leagues of E commerce, right? Because what most people are doing on their online store is they're only looking at day one. And when I say most people, I mean, I guess beginners or people that are doing under a million dollars a year. Most people are only looking at day one, like, how much money did I spend today on ads and how much money did I make back? And then people will freak the fuck out if that's not positive. And I totally understand that if you're a beginner and you don't have a ton of cash flow that you need to focus on that. Like, I get it, I'm not knocking it. But what I am saying is when you want to get to the big leagues, baby, and start making millions of dollars in profit, this is something you're really going to want to start looking at. You know what I'm saying? So by the way, this is like a huge reason that a lot of stores fail or a lot of stores stall. And we've seen it a lot. We've seen it at SCUP too, where we think something is unprofitable. But then when you look at it over a 90 day span. So to give you an example here at scup, sometimes we'll spend like $1,000 to acquire a customer and then we might only get $500 from that initial, initial purchase and we're like, fuck, you know, it's negative. Turn the ads off. Austin, who buys, runs all of our ads, is sitting right next to me. Come here, handsome. So he, he, he's gone over this exercise with me quite a lot in the mornings and he's like, well, we can't look at it at seven days, we can't look at it 14 days. We have to look at that customer lifespan over 30 days. And if we look at over the 30 days, we see it's highly profitable, even though we lost money here on the front end. And that's why customer lifetime value is so important. Because if you're doing your job right and if you're building a brand that people like, that people align with, you have values, you have a reason for existing other than just for you to make money, which is a whole nother topic which we can get into someday. But if you're producing a quality brand and you're producing products that customers actually like, customer that people actually enjoy, you know, our bread and butter is print on demand. We do jewelry, T shirts, mugs, hats, all these different things. And you know, we're constantly creating products that people like, which is the customer avatar research part that I discussed at the beginning of this call. But when you have the brand and you have products that customers like, well, guess what? This is gonna, this is gonna be crazy. They buy from you more than once. Oh my God. But can you believe that, that someone would actually buy from you more than once? How many fucking iPhones have you bought? Huh? How often do you go shopping at Target? How many shirts do you own from your favorite brand? How many times do you buy Adidas or Nikes or Brooks or whatever you know, shoe, Right. Like, a lot of the times when we find brands that we like, we keep shopping with them over and over and over and over again. And that's your job as a store owner, is to make good products people like and create a brand that people align with so they want to buy from you over and over and over and over again. And once that happens, you can start doing some really tricky, really cool shit that will make you a ton of money. All right? If you ever see income screenshots from people who sell courses and it shows you, like, oh, yeah, they had sales for like, one month and then it crashed. Or they had sales for like, three, four months and then it crashed. And. And then now they're selling a course. This is why. Because they couldn't figure this out, okay? And then their stores failed, and then they're like, oh, I'm going to go sell a course. Meanwhile, if you look at our stores results, guess what? Revenue goes up year, year, year every single year. All right, so the fact that we've been doing this for 10 years now, so 3 million to 20 million. Let's take a little bit of the look behind the math and how we accomplish that. So with our store, we are spending. This is at the $3 million mark, okay? We're spending $20 to acquire a customer, and then that same day, we're making $50 back. Okay? So we spend 20. We make 50 after cost of goods, which are about 10 bucks for us. We're left with $20 profit. Boom. Pretty good. You know, initial first sale. Yay. Making some good old money. That's awesome. Right? But we were looking at something, okay. Started analyzing the data, and we saw that on average, when someone buys from us, they're not just buying that initial product. In fact, over the first year, they're buying 2.5 products from us. And you might be saying, well, how can they buy half a product from you? It's because it's an average from everybody. And then fractions get involved, you know? So on average, customers are buying 2.5 products from us within their first year as a customer. Okay? And then we take our average order value, which is $50, right? And then we times that by 2.5. All of a sudden, now we have a customer lifetime value of $125. So that means when someone buys from us, sure, we make $20 profit on that first sale. Right. But over the year, we essentially make an extra, like, okay, I should have done the math beforehand. Like, $70 profit over the rest of the year, which is great because we don't have to spend any money on ads to acquire those new customers. It's typically coming from email or sms. Sometimes it's retargeting ads, but it's mostly email or sms, right? And we get, so we get really good margins on it. And then we started thinking, well, we haven't really been scaling our ads a whole lot because once we start scaling, our cost per purchase is going up. It's not staying in that $20 range. And we didn't want to hurt our profitability on the front end. But once we realized, like, oh wait, people are buying from us a lot more than just this first time, in fact, they're buying two and a half more times, there's a lot of room to scale this. And here's a warning. Once you start scaling your ads, your cost per acquisition is going to go up there. There is zero way to fight that, really. And it's because when you have a small audience, right, and you're targeting that people, it's just showing your ads to the most hyper targeted people, the people that are most likely to buy. And then as you scale your spend up and up and up and up, it slowly starts branching out to people who are a little less likely to buy and then it branches out some more to people who are a little less likely than the person before that and then a little more to the next person who's a little less likely to buy. Right? So as you scale ads, your cost per acquisition will go up and with that, margins are going to go down slightly. Right? And this is why it's so important to really understand your customer lifetime value. And by the way, this isn't built into Shopify for some reason, which is like crazy to me. I don't understand why they wouldn't have that built in. But there are cool apps that can do it. You can just search. I think that the one we use is like polar metrics or something. Alternatively, you could just take the number of or your gross revenue and then divide it by the amount of customers you have and then you have your customer lifetime value, right? So boom, there you go. So anyways, what was I saying? We essentially we're looking at it, okay, so 20 bucks, we get $50 back, same day, it's about $20 profit. We weren't scaling because we didn't want to hurt our cost per acquisition. And then we realized once we looked at the data that well, hey, we're not just making like $20 on every sale. We're actually making a profit of like 70, 80 on every sale. So there's a lot of room to start scaling up. Now, keep in mind, this is in 2020, when we started doing this. So a lot of people, they're starting to, like, pull back in their business. They're starting to, like, getting a little scared. Oh, I don't know. The world is collapsing. People are. We're like, dude, you know what? This is our chance. Whenever something like that happens, that's your chance. That is your chance to double down. I learned that from Grant cardone in the 10x book, basically said, and he was talking about the 2008, 2009 crisis. And basically, you know, when people get scared, that's when you go all fucking in, right? And I think Warren Buffett has the same kind of rule about investing is when people are greedy, that's when you get out. When people are scared, that's when you get in, right? So boom, you know, goes across all industries. Anyways, so we start scaling up our ad spend, and now we're spending about half a million dollars a month on ads on this store, and we're getting back about $1.5 million. Now, keep in mind that that wasn't all directly from ad spend because we are sending emails and we are texting our customers too, which is huge. And that's how you increase that customer lifetime value. But let's get to the ads part. So our cost to acquire a customer, it went up significantly. In fact, it doubled. Now we're spending $40 to acquire a customer. And remember, our cost of goods sold is about 10 bucks and our AOV is 50, which means we're just about at break even. Okay? Maybe a little bit in the negative. Like a couple dollars in the negative on each customer. Okay? And this is when most people will throw in the towel, right? They'll be like, that's not working. This product's a dud. I quit. I'm giving up. And it's like, there's two things that someone does in this scenario. The first thing is they scale back their ad spend. They're like, okay, it's not working. I need to stop spending money on ads right now. I need to get back to profitability. I need to get back to profitability, which is like just that instant response. And Austin yells at me for this all the time, actually just going back to that. And then the second thing they do, which is even worse, is like, okay, this is just isn't working. I'm just gonna kill the ad. And then there's no money to be made, which is idiotic. But those are usually the two routes people go. And that's what holds most people back. That's why they can't get the big numbers. That's why they can't make millions of dollars month over month. But guess what? Ads were not profitable on the front end for us. But what did we do? We kept spending because we understood that hey, although the customers have only spent $50 with us so far, and although we're maybe a little bit negative right here, over the next few months they're going to spend another $75 and most of it is going to be profit. It's going to be about 55, $65 profit on each customer. So. So we're not losing money. We're actually getting 2x ROAS. It's about like 2.5 ish ROAS on these customers. We're actually making a fucking butt ton of money. And because our scale is so high, because we're spending so much money, that means these ads that look like they're failing are actually making us $500,000 in profit per month, which is absolutely insane. And it's all about that long term thinking. It's all about understanding the data and not making decisions based on what you see right there in front of you. Data is your best friend. I often say, maybe not on this podcast, but I say it to other people. I swear that business is just math. And once you understand the math, you can remove all the emotion and actually make logic based decisions that will make you a lot of money. And I know that this podcast is a lot of, uh, more diff. It's a lot different from the type of podcast we usually do. This one's a lot more businessy math. Econ. Woo. Fun, right? So I hope you guys are enjoying. Make sure you let me know in the comments if you're watching on YouTube. But I mean this is really what can take it to the next level. And we went on that year to make millions of dollars in profit. It was absolutely amazing. It was life changing because when you go from 300,000 or $3 million in a year and making under $1 million in profit, which is still pretty good, but making under $1 million in profit to making multiple millions in profit, it's absolutely life changing. And then after that, at the end of the year we actually sold that brand for a multi seven figure exit to capitalize on the insane growth and just tie a nice little bow on the end of the year. So it Worked out really well for us. And you know, big brands or private equity companies, any of these companies that are acquiring e commerce businesses, they understand this. They understand the aspect of customer lifetime value and they understand what is known as scaling in the negative. And they're okay with it because this allows you to beat out the competition, allows you to dominate your niche, and it allows you to be that real player. And it also makes it harder. It kind of builds a moat around the niche. But because when other competitors come in, they're not going to want to lose money on ads. They're going to want to be profitable day one. And like I said, there's nothing wrong with that. You can do it. We did it for a while, but then when we decided, hey, you know, a million, and keep in mind, we made almost a million dollars in profit being profitable on the front end. And at scup, our e commerce company, we're also profitable on the front end most of the time. So I'm all for it. Okay, go for it, right? Million dollars ain't bad. Okay? But we decided, hey, we want to do multiple millions of profit per year. We see an opportunity, we looked into the data, we acted on it, and these are the results that we had. So, hey, if you enjoyed this podcast, make sure that you, like, comment, leave a five star review and, you know, that's it. I'll see you on the next episode. Don't forget, we are posting every Wednesday morning. We're posting every Saturday morning. So make sure you're subscribed so you get updates. And if you know anybody who would benefit from this, share it with them. I'll send you a signed photograph of the cutest Boston terrier on the planet. His name's Brutus. He's such an angel. He's so cute. I pet him every morning and night and I tuck him in. It's actually crazy. I tuck him into bed. It's so weird. And he, he actually likes it. He likes being tucked in and he'll wait at the. My door, my bedroom door for me and he'll just like, whine until I get up to tuck him in. I get up and he, he like walks over to his bed, which is the couch in the living room. He walks over to it, like, just happy. He jumps up there and then he just sits there. He's just waiting. He's just waiting. And I start petting him and I tuck him in and his body just collapses. It's like, dude, what's wrong with you? How do you know about this? Like, what's going on here anyways? So, like, comment? Subscribe. I'll see you on the next episode this upcoming Saturday. This is Devin Zander. This is the From Delivery Driver to CEO podcast. And I'll catch you later.