Bid Caps and Target ROAS: Supply Chain Workshop Deep Dive

Welcome everyone. For those who don't know me yet, I'm Lara Guevara. I've spent 17 years in supply chain from enterprise manufacturing all the way to this cool space, DTC Brands. And today I get to do my favorite thing, to show you founders, supply chain experts. I believe we have operators here. What's actually happening inside their numbers? And I brought someone with me today who I have a lot of respect for. Andrew Faris, thank you. Andrew has spent years on the growth side. He understands media buying, creative strategy, retention at the level that most people in this based on what I love about doing workshop with Andrew. I think this is the second time, um, at the same conclusion is most brands are optimizing the wrong thing. So he's going to take everything I show you in part 1 and show you exactly how to act on it from a growth perspective in part 2. Now before we get into anything, I want you to hold this question the entire workshop. What if the product you're most proud of is actually the one that's quietly killing your margins? So to guide you, I'll send it in the chat box to keep you reminded of this question. Okay, and not because you made bad decisions, not because you don't know what you're doing, but because nobody ever showed you how to look it right, the right way. So that's what we are here today. We'll fix it and let's start. Hi, Andrew.

Hello, Lara, and hello everybody. Great to see you. Great to be here with everybody. I know I'll be looking at the chat along the way for any Q&A. Lara, I think there's Q&A at the end too, right?

Yes, yes, you can ask questions and also at the end of this session there's a Q&A portion.

So, okay, awesome.

Thank you, Andrew. So look at this slide, um, revenue. Of course we love this number, we celebrate it, we Slack it to the team, we screenshot, we post it, we tweet it. But revenue is the number that lies the most. It's a vanity metric. And when you've never calculated contribution margin by SKU, and when you've been optimizing for ROAS without knowing your true profit, you might be paying to grow a loss. Your profitable ad could be paying to lose money faster. That little trophy in this presentation at the bottom, it's equal to zero, and that's what your best seller might actually be worth after all the costs we're able to uncover. So quick trivia before we go any further. I want to see how tuned in this room is. Based on what you know right now, what do you think are the top 3 costs that founders most commonly leave out when they calculate the profit? So drop your guess in the chat, no wrong answers. It can be based on your experience in the past that you've forgotten to add this cost, or it's based on any experience that you have. So just write that in the chat box. Okay, so I'll be sharing if there are some answers later on. So here's what the data actually shows, and I see the pattern over and over across every brand we work with in Move Supply Chain. Number 1 is inbound freight and landed cost. Everyone knows their factory price, that's the unit cost. Almost nobody has properly allocated the cost of actually getting that profit to their warehouse. So you already know duties, taxes, the container, but sometimes you miss the dry age, the broker fees, other fees at port. There's so many fees at port for brands sourcing from overseas. This alone can add 15 to 25% on top of your COGS, and it almost never shows up in the margin calculation. Number 2 most left behind is returns processing. So not just refund, the handling cost, the inspection, the restock or disposal, the customer service ticket that came with it. For beauty and supplements, the return rate might be low, but for apparel or electronics, it can be 20, 30, or even 40% of units. Multiply that by your per unit handling cost, and you've got a number that will genuinely surprise you. Yes, Lorena shared cost of customer acquisition. That's my number 3, allocated ad spend per unit. This is the, this is one of the most uncomfortable. Your CAC, your customer acquisition cost, needs to be divided down to the level unit of each SKU. So this is It's uncomfortable because it requires work. Most brands look at blended ROAS across the account and call it a day. But if your ad spend is going disproportionately to a low margin product, you are literally paying, um, to lose money faster, and the blended number is hiding it from you. So those 3 alone, the top 3, can take the product that looks like 50% margin winner and turn it into something like barely breaking even. Or worse? That's exactly what we're going to fix. And before we dive in, drop a number in the chat. What percentage of your revenue do you think is actually profit? Just got it. No, no math yet. What you know right now, what you know today. So I'll check that chat box again later. This primes our conversation today. Okay, so here's exactly what we're gonna do today, and I want to set this up properly because the two parts of this workshop only work if you understand how they connect. So part 1 is margin teardown. That's me, Lara Guevara. For 30 minutes, we're going line by line through everything that's eating in your margin, and I mean everything, not just COGS, not just shipping, every single variable cost that touches a unit on its way to your customer's door. I'll give you the real contribution margin definition, not the textbook version, the one that actually reflects what you keep. I'll walk you through the unit economics teardown methodology so you can run this on your own catalog after today, right after this workshop. And I'll introduce the kill, fix, and scale framework so you know exactly what to do with each product once you have the real number. So here's a quick example of why this matters. Imagine you have a $40 supplement. Your COGS is $8. You think you're at 80% margin, but by the time you add landed cost, fulfillment, returns, customer service load, and the ad spend it took to sell the unit, your actual contribution margin might be $6, and that's 15%, not 80%. And if your next order is already in transit, you need to know what number, uh, what that number is today, not next quarter. So I highly suggest and encourage you to do that exercise right after this workshop or tomorrow for those who are in EST and PST right now. Part 2 is the growth strategy reset, and that's where our special guest Andrew Faris comes in. Andrew has built and scaled growth operations for some of the most recognized DTC brands out there. He thinks about media buying, creative strategy, and retention. At a depth that most agency owners never reach. And what he's going to do in his 30 minutes is take everything we uncover in part 1 and show you how to rebuild your entire growth engine around it. Which products deserve more ad spend, how to brief your creative team by margin tier, how to segment your retention strategies so you're doubling down on the customers who are actually profitable, not just the ones who bought the most. And because here's the thing, Knowing your margin is only half the battle, so that's my end. The other half is knowing what to do with that information inside your growth stack. That's the combination we're giving you today. Real math, real decisions. Okay, let's go. This is my half, and I want to make a promise to you right now. In the next 30 minutes, you're going to see your business differently than you did when you logged on today. Not because I'm going to teach you something wildly complicated, actually the opposite. That's what I'm about to show you is almost embarrassingly simple. The math is 4th grade. The problem is that nobody ever told you to do it. So I think about supply chain the way a doctor thinks about symptoms. Your revenue number, your ROAS, your conversion rate, those are the symptoms. They tell you something is happening, but they don't tell you why. The margin teardown is the diagnostic. It's the part where we stop treating symptoms and actually looking at what's going on underneath. And I'll be honest with you, this part of the work is my favorite, not because I love spreadsheets, although I do have a thing for a well-built spreadsheet, but because of what happens to founders when they see the real numbers for the first time. Something shifts, the fog lifts, and instead of feeling like a business is unpredictable, things that sometimes makes money and sometimes doesn't it starts to make sense. It becomes something you can actually steer. That's what the next 30 minutes is for. We're going line by line, we're going to find what's hiding, and by the time Andrew takes over, we're going to have a framework that you can run on every SKU in your catalog tonight if you want to. So let's start tearing it down. All right, so look at the slide, two columns. The left, uh, the left side is what most brands calculate: revenue minus COGS, and that's it. Clean, simple, but completely wrong. And that's the number that makes you feel like you're winning. That's a number that gets screenshotted. That's the number that the agency celebrates in the Monday recap email: 60% margin and we're crushing it. And, and of course, some brands add other expenses or other costs, but not everything. Now look at the right side. Same product, same price, same customer, but now we're counting everything that actually touched that unit on its way out the door. Landed cost, freight allocation, pick, pack, ship, return processing, customer service load, ad spend for every unit, every single variable cost that exists because the product exists. 60% becomes 12. And that's not a rounding error, that's not an accounting technicality, that's the gap between what you think you're keeping and what you're actually keeping. And most of the brands, that gap is where the confusion lives. That's why the cash feels tight even when revenue is up. That's why Q4 looked amazing on the dashboard and then January felt like a hangover. The money was never really there. It was promised to cost you weren't counting yet. Now here's how I want you to look at it. COGS tells you what it costs to make the product. Contribution margin tells you what it costs to sell, to ship it, to handle it, to acquire customer who bought it. Those are two different numbers, and you cannot run a profitable business by optimizing for one and ignoring the other. I've sat across from founders doing $2 million, $5 million, $15 million in revenue, and the most common thing I see they know their COGS cold. They can tell their manufacturer price per unit down to the cent, but ask them their landed cost per unit, then they go quiet. Ask them their allocated ad spend per SKU, and they say, well, our blended ROAS is 3.8. So that's the, that's the answer we usually get. That's the left column pretending to be the right column. The right column is what we're building today. I want to do a quick gut check. Think about your top-selling SKU right now. You probably know your COGS. Now, do you know your landed cost per unit? Do you know your fulfillment cost per unit? Do you know how much ad spend it took to sell one unit of that product, that specific product, last month? Drop a Y in chat if you know all three. Drop an N if you're missing at least one. So that's not a failure, of course, that's why we're here. That's just where we are today, and by the end of this teardown, you'll have a methodology to get every single one of those numbers and a framework to know what to do once you have them. So this slide is the whole game, and don't worry, we'll be sending you a copy of this slide after this workshop. Everything we talk about today, the framework, the decisions, the strategy reset Andrew's going to walk you through, it all comes back to this. So I want to slow down here and actually walk through every single box because each one of these has a story and some of them are going to hit differently depending on where your business is right now. Think of this as a waterfall. Every cost flows down from the moment your product is manufactured to the moment it lands in your customer's hands, and every drop in that waterfall is you leaving money— is money leaving in your margin. And most brands only see the first drop. We're going to look at all of them. So first is the COGS, your raw materials and manufacturing. This is the one everybody knows. It's the starting point, the factory price, the bill of materials, the cost to make the thing exist. And here's the thing about COGS, It's actually the cost you have the most control over long-term through negotiation, volume commitments, and supplier relationships. But it's also the one that fools you the most because it feels like the whole cost. It's not, it's just the beginning, the first. Then landed cost comes the duties, taxes, inbound freight. This is the first place most brands leave money on the table. Or more accurately, leave money unaccounted for. Every product that crosses a border has a cost to get there. The ocean freight, the port fees— there are probably like 5 port fees. And if you're sourcing from China or Southeast Asia right now, you know those numbers have not been friendly lately because of the tariff. And I've seen brands whose landed cost adds 18 to 22 cents on top of every dollar of COGS. They had no idea. They were calculating margin off factory price and wondering why the P&L never matched the vibe. Next is freight allocation per unit shipping cost share. This one trips people up because it feels like a fixed cost. You pay for the container, you pay for the truck, and it's done. But it's not fixed at the unit level. Okay, if you are— if your container is half empty because you over-ordered the SKU and under-ordered another, your freight cost per unit just went up. If you're doing multiple small replenishment shipments instead of one efficient bulk run, maybe because of your cash flow or other business decision, your freight cost per unit is also higher. This is the number you need to calculate per SKU. Per shipment, not just as a blended average, and the difference matters. Next is pick and pack fulfillment center fees. So if you can bring out your latest invoice from your 3PL, that will be very helpful in today's session. Every time your 3PL touches a unit, they charge you pick fee, pack fee, special handling if the product has fragile components, or specific requirements, damage, poly bags, custom inserts. Uh, what else? If you have complex products, multiple components, a gift box, a card insert, your pick and pack cost can be $2, $3, or $4 per unit. I worked with brands that had a very beautiful unboxing experience— custom tissue paper, brand ribbon, a handwritten style card customers love it, if contribution margin hated it, we had to have a real conversation about what that experience was actually worth per unit sold. Then next is returns processing, returns rate times handling cost. Here's the one nobody wants to talk about, and maybe they're not computing any of this at all because returns feel like an edge case. They're not. Depending on your category, your return could be, uh, your return rate could be anywhere from 3% to 40%. And it's not just refund, it's the cost to receive the return, inspecting it, restocking or disposing it, and handling it over to customer service interaction that came with it. So for one brand I worked with in apparel, returns processing was adding $4.70 per unit sold when you average it across the catalog. $4.70 on a product with $12 contribution margin before returns. That's almost 40% of their margin gone just from handling the units that came back. At the end of— after knowing that number, they decided not to get the products back. Cheaper than getting it back. So disposed, they will refund, they will give another product, but the company or the client, the customer will not return the products back because it ends up being more expensive than just throwing it away. Next is CS load, customer service. I think this is for me one of the most under calculated. I don't— I didn't see anyone computing your CS load. Tickets per SKU times cost per ticket. This one is almost invisible until you look for it. Some products just generate more questions, more complaints, more 'where's my order' emails, more 'this didn't work for me' tickets. Every one of those tickets cost money, your CS team's time. Your help desk software, your resolution cost, and it's not evenly distributed across the catalog. Usually there's one or two SKUs that's generating a wildly disproportionate number of tickets. I call those products high maintenance. They have had bad unit economics and they're exhausting your teams. Those are often the clearest kill candidates. Next is the payment processing fee, the invisible tax on every transaction. Nobody puts this one in their margin calculation, or I've seen very rare, I've seen this very rare, but it's there on every single order. Stripe, Shopify Payments, PayPal, Afterpay, Klarna, they all take a cut, typically 2.5% to 3.5% of the transaction value, sometimes more if you're offering buy now pay later options, right? And here's what makes this sneaky: the fee scales with your revenue. So the more you sell, the more you pay, but because it comes out automatically, it never feels like a cost. On a $60 product, you might be paying 1.8% to 2.1% just to collect the money across thousands of orders a month. That's real margin, and I've seen brands running 8% through contribution margin who had never once included payment processing in their unit economics. It was just a line item they scrolled past on Shopify dashboard. Next is packaging and compliance cost, the cost of looking good and staying legal. This one shows up in two ways, and most brands only think one of them. The first is obvious: your box, your bag, your bottle, your label. Physical packaging has a unit cost, and it fluctuates with material prices and minimum order quantities. But the second one is less obvious: compliance. Depending on your category in the markets you sell into, you may have labeling requirements, regulatory certifications, testing costs, or specific or state-specific compliance fees. California Prop 65, FDA labeling rules for supplements, CPSC requirements for children's products— these costs are real, they recur, it's not one time, and they are almost never allocated at the SKU level. I I worked with a supplement brand that was spending $14K a year on third-party testing and compliance documentation for a single product line. When we divided that by units sold, it added $0.9 per unit to their true cost. Not huge, but on a product already running these margins, it was a difference between fix and kill. So inventory carrying cost, the cost of money sitting on your shelf. This is the one that surprises people the most because it feels theoretical, but it's absolutely real. Every unit sitting on your warehouse represents capital that you spent and haven't recovered yet. That capital has a cost, either the interest you're paying on the credit line you used to buy it, or the opportunity cost of what you could have done with that cash instead. A standard way to calculate this is to take your cost of capital, let's say 20% annually, which is conservative for most DTC brands using credit, and apply it to the average inventory value of each SKU over the year. For a product that sits for 90 days before selling, you're carrying it for a quarter of a year. That's 5% of its landed cost just in holding, and add warehouse storage fees, On top and slow-moving SKUs, this number can quietly turn a marginally profitable brand or product into a losing one. And enterprise companies have been calculating this for decades, in my experience, but DTC brands almost never do. And it's exactly the kind of cost that makes your accountant say margin looks fine while your bank account tells a different story. Next is the ad spend per unit, the CAC allocated per SKU. And then this one, the one your agency really doesn't provide, your customer acquisition cost divided down to the unit level per SKU, not blended across account, per product, because your ad spend is not going equally to every product in your catalog, and neither is the revenue it generates. When you allocate ad spend at the SKU level, sometimes you find a product that looks profitable until you realize you spend $22 in ads to sell a unit with a $19 contribution margin. So you just add $3 to move inventory. That's a very slow, very expensive way to lose money. And when you subtract every single one of those costs, all of this in, in, in the slide, from your revenue, not just COGS, not just shipping, all of it, what you have left is your true contribution margin. That's the real number and what your business actually earned from selling that product to that customer on that day. Some of you are going to run this math after today and feel relieved. Your numbers are going to look better than you feared, and some of you are going to run it and feel a little sick. And if you, I want you to know that this is the best possible thing that could happen to you right now because you cannot fix what you cannot see. And now you're going to be able to see everything. Out of everything we just walked through, and I threw 11 cost categories, not just 8, which one is the biggest blind spot in your business right now? If you can share that in our chat box, I'm opening it again. There you go. Okay, so look at that. If we have answers, I'll be also sharing to the other participants. So let's proceed to the next, the framework Kill, Fix, or Skill. You've been hearing me say it earlier, if we can kill, can fix, or skill. So it's very easy to follow. These 3 buckets has a guidance here. Kill if it's negative or near zero CM, right? So high return rates, heavy CS burden, or an unsalvageable unit economics, no strategic value. Sand down within 90 days. In enterprise, we call it very obviously depletion plan. We we, uh, um, make sure that within 90 days they're out. No more. First is, of course, we will not order them anymore. That's the first step. And then next is creating marketing strategies, bundling, selling it the most creative way possible that you can do. Meet your marketing team and make sure that they understand that we need to move these products and empty them out. Because they're bleeding us money. If that is communicated properly to your marketing, then they will definitely help you move those out or deplete the products. So next is fix positive CM but underperforming. So in, in my recommendation, I'm giving 60 to 90 days plan to increase the CM. So renegotiate COGS, that's your first step. Next is optimize packaging. Every single savings project should be done right away within 60 to 90 days. Reduce return rate and then adjust pricing strategy. If you could increase your price, then that's one easy step, but I know a lot of you are not very comfortable doing that. Next is Scale, strong CM plus growth potential. Now prioritize ad spend here, build bundles around it, expand variants. Maybe the kill products be partnered or be bundled with the scale products. Expand variants, colors, designs, double down on inventory. These are the products that cannot be out of stock, right? It moves fast. Aggressive investment roadmap. Okay, so this is the case study, and I want to tell you this story properly because the numbers on this slide are real, and the journey to get there was not a straight line. This is a $2 million DTC brand supplements. After we run the complete margin teardown, we discovered that 40% of her SKUs had negative or near zero contribution margin. So 40%, she looked at me and said, 'What do we do?' And of course, not the brand owner, I said, 'We cut them.' She did not say yes, of course. She pushed back hard. She said, 'But those are our best sellers by revenue. Our customers love them. Some of them are their first few products when they started.' So there's an emotional— there's an attachment there. They've built campaigns around them. So if we cut them right away, what will it tell their audience or their customers. So I understood, I've seen it. When you've poured your identity into a product, cutting it feels like admitting you were wrong. It feels like a failure. So we didn't cut them right away. Instead, we made a deal. We'd run one more quarter, same budget, same support, but this time we will track every dollar in and every dollar out per SKU the right way. And she agreed. 90 days later, we sat down again. The numbers were worse, not because anything changed, but because now she could see it clearly. She looked at the spreadsheet and she agreed to kill some of them. But how do we do this without blowing up the business? That's the right question. And that's why this is where the depletion plan comes in. The depletion plan is exactly what it sounds like. You don't flip a switch, you drain the inventory down in a controlled, intentional way so you're not leaving money on the table. And not making a dramatic announcement to your customers. I learned this working in enterprise, and it's one of those things that big companies do quietly all the time, but DTC brands miss. So just a quick story, I was at a large consumer goods company, we're talking a household name, hundreds of SKUs across multiple retail channels. Every year, the supply chain team and the commercial team would sit down and do what they called a performance review. Portfolio rationalization review. Basically, which SKUs are earning their slot on the shelf and which ones aren't. It sounds brutal, it kind of is. One year we had a product-specific flavor variant that had been in the lineup for almost 6 years. It had a loyal base, it had brand equity, it had its own little fan corner on social media. It also had a contribution margin of just over 2%. On a product that cost us real money to manufacture, package, and ship to retailers, the math was simple, the politics were not. So what we didn't do was to pull it from the shelves overnight. Of course, we cannot, we didn't do that. That would have created chargebacks from retailers, confused loyal customers, and tanked the perception of the broader product line. Instead, we built a 6-month depletion plan We stopped all new production runs immediately. That was step 1. The bleeding stops now. It should stop right away. We sold through existing inventory at current price, no discounting, because discounting a negative margin product just accelerates a loss. We quietly remove it from any marketing materials and new campaign budgets. We let the retail velocity naturally flow, and then the last units clear the warehouse, it was just gone. No announcement, customers who love it moved to adjacent products, the team barely noticed, the margin impacts showed up in the next quarter's number, and everyone wondered why things look so much better. So that was what we built for this founder. Her depletion plan had 4 parts. First, stop pre-ordering. The moment we agreed to cut, we froze any open POs on those SKUs. No new inventory coming in. Second, sell through without discounting. We move existing stock through her email list and through bundles with her tier 1 hero products. Bundling was the smart move because it let her clear inventory while also introducing customers to the products that actually wanted to scale. Third is remove the paid media immediately. No more ad spend going to fund a loss cold turkey. Fourth, sunset the listing quietly once inventory hits zero. No big announcement or farewell, no clearance sale. It took about 4 months to fully wind down. Revenue dipped slightly in month 2, which we expected, she expected, and had planned for, and then it came back, and the cash that used to disappear every month, it stayed. Net margin tripled over the following 2 quarters. The SKUs she loved the most were the ones killing her, killing her brand. What she needed to see that herself, and she needed a plan for that, that depletion plan made the exit feel safe, not scary. So that's a real story. It's never as clean as cut and win, but when you have the right numbers and a clear depletion roadmap, the decision eventually makes itself. So let's lock in what just happened. Contribution margin is not revenue minus COGS, it's revenue minus all variable costs, every single thing that touches that unit on its way to the customer. You now have a methodology to tear down unit economics for every SKU in your catalog. And then kill, fix, or scale. Remember the 3 buckets. It gives you a decision framework that removes emotion from the equation. You don't have to love your products, to death anymore. You can love and hold them accountable. Now, that's the diagnostic, my 30 minutes, that's the truth about where you are. But the question is now, what do you actually do with the truth? How do you restructure your growth engine around real margin data? And that's exactly what my partner Andrew is about to answer. Andrew, take it away.

All right. Some of those stories are both horrifying and awesome, Lara, because there's clearly some, some, some stuff to be done there for a lot of brands. And I've seen lots of things like that before. So yeah, it's like you're— when you hear these stories of brands that are like spending all this money on products they love, products they feel great about, all these things, they— and then it turns out to be just like actually a money loser. It is, it is awful. So, okay, what I want to do is, is tell you about how I think about building, and I really focus on meta ads. I think that's where kind of a lot of people are in terms of thinking about profitability and, and, and driving profit through. So I want to talk about how to connect this to your ad account directly and really how we at AGF Growth and how I for a long time have been trying to take the kinds of insights that Lara has and put them into an ad account that in a way that makes sense and is really driven by financials today, not, not, not but a couple hours ago, I tweeted this. I'm now the most convinced I've ever been that media buying isn't that important. Take is extremely, extremely wrong. There's this take that floats around on the internet sometimes, which is that sort of media buying is not really the thing that matters that much because your product is what matters. Your TAM is what matters. Your brand is what matters and all this. And I think to take, to sort of take the straw, the steel man version of what people are normally saying when they say this sort of thing, it's, it's that, and it's all true that with a really bad product and with a really bad, you know, brand and all those kinds of things and with bad margins, you are starting behind the eight ball. And so it's true, like care a lot about your products, you can get really far with under-optimized media buying, etc. But what I have also come to believe is that doubting the importance of really good quality media buying is actually a really huge problem. Like I, and the reason I think that is because I just see accounts all the time. Often there's, there's selection bias here because it's accounts that end up on my desk, which means they're probably unhappy with their past agency or whatever. But that's also the kind of person who at the same time, the reason they're, the reason that they're, the reason that they're unhappy is because their media buying is bad. They actually already have the good product, the good brand and all those things. And something is going wrong at the media buying level. And I'm watching with brands right now, literally today, I had a brand whose spend just started to go incredibly well, positively. It was a mix of some new ads and a sale moment that they launched. And the new ads are definitely making a really big impact. The sale moment is making a big, big impact. Both of them are mattering and there's evidence that they're actually both having a really big impact. But the setup in the ad account is allowing them to maximize the moment at, with, with very little risk to their marginal efficiency, to their contribution margin., in a way that is just like showing a giant revenue spike because they've sort of got everything right by setting up their media buying the right way. And so they're creating a bunch of value. On the other hand, I've looked at other brands recently, other accounts I've gotten access to that have sort of moved away from what I think are our best practices. And I've seen them, really, really harm their profitability on a lot of different levels. Some of this is at the unit economic level with wrong considerations for the things that Lara was just talking about. I had one client who, or not, not client, excuse me, one brand who I was talking to who, who had spent multiple millions of dollars on, um, on international ads, uh, at one point because the international ROAS looked awesome. But what they had done is they'd failed to make their margin consideration look right on, on international freight. They had like, they had adjusted their international freight costs incorrectly. And so they'd spent millions of dollars and thankfully for them, they ended up probably fairly close to break even. It didn't kill them or anything like that, but it could have been a way worse mistake if it weren't for some other attributes of the business that, that, went really, really well. And it's because they made a margin mistake and that margin mistake didn't make it into their media buying. And then when you add that to bad media buying, that, you know, there's just like huge, huge amounts of cost. So I really believe this is very important, both in terms of saving on costs and driving revenue. I think they're both a really, really big deal. Okay, so let's get into this. I'm gonna do this in 4 stages. I'm gonna call it media buying built for profit. When your media buying isn't built on the foundation of clear financial targets, you're funding negative returns. It's very similar to what Lara just laid out. And I think the ideal version of this and truly great D2C operations, what they do, what great operators do is they get clarity to all of the things that Lara's talking about. And I have a theory I've said for a while that supply chain is the most under-optimized part of e-commerce businesses. I think like Lara has told me that she gets on supply chain intake calls sometimes and she starts like kind of giggling to herself and having to hide it because it's because the supply chain is such a mess when it gets to her desk. And so I do believe that's true. So like there's this work to be done there, but then from there you have to take that work and put it into the ad account. And so that's what I mean by saying it's media buying built for profit and built on financial foundations. And so I want to go through that in 4 steps by thinking about sort of a handoff from what Lara just said, which is start with clear unit economics, exactly the stuff that Lara just walked through with all the details, especially that one slide with those 8 icons on it., and then understand your, your LTV and your DPM, which I'll explain in a minute. From there, organize your campaigns on financial foundations and your ad sets. Um, leverage manual bids, kill your creative testing campaigns, scale your winning products, suppress your losing ones. Okay, so we'll do it in 4 steps. Okay. Um, start with clear unit economics. I cannot tell you how many times I have had the conversation with people that starts off with them circling around this question, or people who come to me and work and they have some ROAS target in their ad account and they are, they are asking themselves the question at some point they've asked themselves the question, what ROAS do I want on my ads? They may actually have never asked that in explicit terms. They'll usually, an agency person will tell them, okay, what's your ROAS target? The agency will go to them. I've seen this conversation a lot of times. In fact, I used to have it with people and say like, okay, well, what's your target? Right. And there are occasionally operators who have a very clear sense of the unit economics and they know this is the target that I want. Okay, but actually what we tend to do a lot of times in the first intake step at AJF Growth is we tell them what their— that we think their ROAS target should be. And we do that based off of their margin information, which almost always could use a lot more tightening from Lara and her team. And I regularly recommend that they go do that. Um, and then, uh, and, and so, but what they're— what— but otherwise, without us doing that, they're asking the question, what's a good ROAS? And they're asking, what ROAS do I want based on that? Like, like, what's a good ROAS? Like, they'll say like, well, I don't know what's good. What's, what's good for a brand to have at the ROAS level? Like, as if there's some ROAS number floating out there in the ether that's good, that's good for your brand. Let me just tell you right now, the ROAS number that's good for your brand is based on your unit economics and your customers. It's really, really different for my supplement brands that have monster LTV versus brands who have customers who basically only ever buy once from them. You know, they're approaching the question of ROAS extremely different. So like, what's a good ROAS is a useless question because, because of that, it should be based on your own unit economics and your financial metrics. They'll do it based on view attribution in an ad account. This is like a sneaky thing where view attribution for your conversions ends up making your performance look a lot better than you think. It's also a lack of understanding of new versus existing customer targeting that sneaks into a lot of ad accounts. We see that a lot. And then frankly, people are asking, making this decision based on vibes a lot of times. I don't know, 2 to 1 sounds nice, nice round number. Etc. But it's actually a critical question because as Lara was just getting at, there are all of these particular costs in your particular business that really matter. So we want to instead move to a financially driven approach, which is contribution margin weighted ROAS targets. Okay, so essentially ROAS targets that are, that are accounting for your contribution margin. And if you want to get really fancy, you could actually do it as a return on invested capital. Both those get you to the same kind of space. You're thinking about incremental revenue creation. So where you're at, where is your ROAS actually legitimately incremental. This gets big, becomes a big question with like branded search in your Google Ads versus your, you know, versus existing customer targeting in your Meta Ads versus new customer targeting, et cetera. Consideration of LTV, consideration of your DPM. That's a, that's an acronym you've probably never heard before. It means delayed purchase multiplier. And don't worry, I will tell you about it in a second. And then eventually get to a point where every ad dollar drives actual profit. Okay. So let's do step 1.. And I want to start with this, the unit economics calculator as an approach to this, to this question. This is, this is a simple Google Sheet. I have been using some version of this sheet for probably 10 years in, in, in D2C at this point. And it is, it is so simple in so many ways. And it is free on my website. You go to IGFgrowth.com, you sign up for my email list. It'll, it'll on the, on the popup or on the footer and it'll kick it to you. So just go do that. And what you see here very, very clearly is that this sheet spits out a few things. So, so it starts with your average order value. Okay. So in this case, $66. Cost of goods is right here. Now, now let's be really clear. People are wrong about this all the time. And this is where like the better you can answer that very first row 5, this question right, right here, the more that you work with somebody like Lara to get real clarity to that, the better. And secondly, a thing you can do with this sheet is you can actually break that out as much as you want, because all this is doing is then taking those other things, merchant fees, which Lara mentioned, right? Whether that's your regular credit card provider, Shopify processing, or BNPL, you know, Klarna or whatever, shipping costs, like that's freight to the customer, customer returns. There's a consideration for that. I actually don't think I have like returns processing in here. And, and Lara, I'm feeling rightly chided by your comment about that, that I've underconsidered that and I need to add it. I was thinking about that as you were saying. I was like, you're totally right. I— it's not my unit economic calculator. Fulfillment costs per unit, etc. Some of these you can adjust with percentages, with raw numbers. You could really do it either way. But ultimately, if you were to add up this whole column, they'd create $23.40 total cost of product to fulfill, percentage cost right there, 35%. And then that kicks into some ROAS targets. Now, these ROAS targets are not telling you what you should do. They're just giving you different scenarios. Okay, so breakeven, 20% below, 20% above.. And you can see column I right here, first purchase contribution margin based off of the numbers here with the CAC targets and the ROAS targets you've got, you know, expressed either as a ROAS or a CAC here. And then you've got contribution margin here. Now this brand has 100% LTV, which means the value of a customer is doubling in a year. If they spent $66 in the first order, they spent another $66 throughout the year. That's what that 100% means there. And so they have good contribution margin through the year because they have really, really strong LTV in this case. By the way, this is not a real brand. These are just dummy numbers in this case. But, but, but there you go. And then you've got a $0.28 click and then you've got some ROAS targets and CPA targets from there. Now, as I was saying, if I was actually building this for a particular brand and I had somebody as good as Lara on my team or like working with the team, what I would actually probably do is, is break out this $13.86 into its component parts and discover things. And it would probably be wrong if I did that, right? I would actually say like, okay, I didn't consider, you know, tariffs correctly or something like that. And like, so I'd add a line for that. And you can really make this your own when you, when I, if you go sign up and grab this from my website, you duplicate it, create your own version, and then go nuts. As long as you end up with the true costs all here in this, in this cell, you're in good shape. Okay. So start with your unit economics. That's really key. Build this into a number that you can actually see. And now you have the beginnings of what different ROASs or different CACs in your Meta ads account actually deliver to you in terms of CM. So now columns I and column J, whether on first purchase or over the course of one year. And of course, again, you could consider this on any timeline you wanted. You'd have to do a little bit of adjusting, but just ask Claude how to do it if you can't figure it out and you can do it and you can get some different adjustments for the time period that you want. And so, yeah, there's not enough time in this to talk through that with a lot of detail, but, but there you go. If you want to understand your LTV and where to put this, Let me give you a couple of places to go look for this. One of them is this is Shopify's customer cohort analysis report. That's literally a free tool in your Shopify reports dashboard. This is my favorite way of organizing this, which is actually the key part. Have this show first order toggle clicked on that you can see right here. Go, go to amount spent per customer. There's a few metrics here. There's retention rate, there's amount spent per customer, there's some others, and then go to whatever timeline you want. This is starting in 2024, so you can see a longer timeline.. And what you see for this brand is that on average, over the course of 2024, their first cust— their first orders from their customers were about $66, something like that. That's a, it's not, it's a non-weighted average. It's just an average across everything. And within 12 months, they've got $102 per customer. Okay. So some quick math here, please hold. 102 over 66.7 or 101.9. Let's just get it exactly right. Over 66.7. Is a 52.7%, 52.8% LTV. So it's— so that's, uh, which is to say this month 12 number up top here is, uh, is 153% of this first order number. And so if you were to come back to my unit economics calculator here, in this LTV column, you would put 53% because that would be the one-year LTV increase, right? It already— that my formulas subtract the first order from it. So that would be the increase. So you put 53% in there., ask a question there if you're not clear about what I just said, but, uh, that's, that's the basic idea. So yeah, uh, but, but that's the idea. You'll calculate this information there. And of course you can see different times of year. There's different considerations. LTV is tricky. There's a lot of considerations with LTV. There's seasonality considerations, product purchase considerations, retention efforts considerations, subscriber versus not considerations. There's all kinds of messiness can get you into trouble if you do it wrong, but you can at least have some basic sense of kind of what the LTV. Of that is. And by the way, you can do cohort definitions by product here. Okay. So you can go check that and say, hey, I want to look at one particular product and go make that for like product A. And that way you are saying, oh, look, this product over here. In fact, I just did this for a brand that discovered one product had like 35% better LTV than another product. And I had no idea, like there was no reason to think that upfront. Then you kind of tell yourself a story about why it happened, but it made us change our, our ROAS targets because it was like, wait a minute. This product has much, much better margin than you think. By the way, back here, there's other costs that Lara hadn't even gotten to yet that could also be considered. For example, givebacks, donations built into certain products. That's something that people miss a lot. I've seen that where like if you're doing a giveback on a product, a particular product that can be in there, or licensing fees is another one that Lara didn't mention that, you know, again, she's not going to be surprised by any of those. But like that I've seen happen for brands or even licensing fees with a giveback. And so suddenly you're, you're, you're You know, listen, God bless the people who are giving the givebacks because they're normally for good reasons, but, uh, but you just got to be aware of what you're doing there. So, so there's that. Um, you, the Shopify one is a good place to start. They can also be a little clunky and tricky to work with in some ways. Um, check out Clio. Clio's $29 a month and it is like a full detailed dashboard tool. It's really cool. Um, it's really, really cool. My friend Matthias Schroeder built Clio. It's meant to be the Judge.me of like analytics tools, which is like to say good and cheap at the same time. So go check it out. Lifetime is much more expensive, pretty robust. It's a few hundred bucks a month. And then I'm sure you could build some custom AI thing yourself, just vibe code your way into it or spend the $29 a month for Clio and vibe code something else. All right. DPM is another thing that I think like very few people are getting to, which is this question of like when you say your ROAS, what do you actually mean? And, and so it depends if you are in meta ads and you set the baseline default meta consideration, what it's going to do is opt you into attribution on 7-day click, which means somebody clicks and buys within 7 days of them clicking, 1-day view attribution, and 1-day engaged view attribution. It's going to have all those defaulted on, which means a view attribution is somebody who sees your ad but does and buys. They see your ad and they buy, but they don't click and they buy within 1 day. Now the thing is, if you send an email and you are advertising to like The point is that's really messy. One day view attribution. There's probably some truth to that, but there's no indication that that's actually really consistently incremental to your ad spend, whereas 7-day click ad spend tends to be much more incremental. And so, so the way that I have approached what attribution, like what ROAS number I'm actually optimizing for, for a very long time is by looking at Meta's 28-day click revenue number. And there's a lot of details here that I simply don't have time to get into all of., but it can begin to help you see this. And so if you see here, you go to Meta Ads dashboards, compare attribution windows in your column setup. You can see what I've got in here, which is 1-day click, 7-day click, and 28-day click. You can see that by the raw purchases number. You can see it by ROAS. You can see it by revenue. You can see it by CAC. You can see it, you know, all the same ways you normally would have something broken out. And go look right now, a bunch of you in your ads account, I guarantee you, You have view attribution clicked on. And when you go do this, you'll see 28-day click ROAS is lower than your sort of default, like this column here, if you can see my mouse, than your default number there. But the thing is, 28-day click revenue is probably in most cases about right. It's roughly the true incremental contribution of Meta. People are very worried about Meta sort of self-grading their homework and Meta sort of lying to you about things. Now, There's a bunch of exceptions to this, including certain brands with certain considerations. There's also considerations here for if your pixel's installed correctly and all kinds of problems there. So you got to make sure that you've got good data integrity. But assuming all that is the case, 28-day click ROAS on Meta is roughly for most brands. I want you to hear what I'm saying there. Roughly for most brands, an accurate depiction of the actual incremental revenue. If you are optimizing for 7-day click. Or even probably one-day click optimization in your conversion bidding. The reason that's so important is that we are trying to get down to the actual unit economic consideration of where your ad dollars are creating value versus not. Where are they just cutting into your cost versus not? So if Meta is telling you that you have a return of 3 to 1, but it's actually 2 to 1, that's a really, really— or 2.5 to 1, or even if Meta's telling you it's a 2 to 1, it's actually 1.5 to 1. That's actually a huge difference in the performance of your ads that you need to know about. And attribution is like, again, there's just way too many things to get into over time here. But, but yeah, it's, it's, it's really a serious consideration or it's really important to have some baseline sense of what's going on here. There's one big challenge with this. I'm going to try and tell you it right now and then I'm going to have to keep moving for the sake of time. But it's this: Meta reports the purchase reports the purchase on the day of the purchase, not the day of the click. So somebody clicked 6 days ago and they bought today. Meta will report that purchase today. It will not assign, it will not assign that purchase to 6 days ago, which means that all the time, if you're, if I'm spending today, but the, but some of the value I'm driving today is not actually going to accrue until 6 days later, then my spend is always going to look its worst today to some degree. Right? Because there's a bunch of value that's going to be in front of me. This is really obvious that this creates value over time. Not everybody, not everybody clicks and buys right away, right? But, but that happens and it makes it really hard to look at this historically. So one simple way to get at this number is to go look in your Meta account at some campaign that's been turned off for at least 28 days. Okay? Go look at that. If that campaign's been turned off for at least 28 days, then you have the full attribution window across the full timeline of the campaign and you can compare these numbers we do it using this little equation that I have here. Your delayed purchase multiplier, DPM, okay, delayed purchase multiplier. I don't even know if I actually spelled that word out. Delayed purchase multiplier. What we're talking about is when people delay their purchase from 1 day. So the delayed purchase multiplier is your 28 DC purchases or ROAS or revenue or whatever divided by your 1 DC or your 7 DC. You can really do it either way, minus 1. So the idea is to do that. If you go back to my unit economic calculator, it's this number right here. So the point is, if you have a 1-to-1, on 7-day click and you have a 1.2 on 28-day click, then this is a 20% increase in the value of that customer. You can also set it from, from 1-day click to 28-day click, from 1 to 7, 7 to 28, whatever. You can set it wherever you want to. But the point is, do that little division and, and, and that's the way you can get there. Actually, even simpler than all that, if you just want a heuristic to work with in your business, is that two different meta-analyses conducted by Common Thread Collective and by House, the best incremental or the most robust incremental firm in DTC— I don't know if they're the best, but They've got the most data of anybody. Okay. Look, which is to say, looking at hundreds of Meta ads incrementality tests separately said that when, when advertisers optimize for 7-day click, which I recommend you do, okay, that the incremental value of those Meta ads optimized for 7-day click, uh, is about 115% to 120% of their 7DC number. So if you're getting a 1-to-1 on 7DC, uh, the average incremental return across hundreds of these. And again, these are two separate independent meta-analyses of a whole bunch of individual incrementality tests. Okay. The, they both, they say that on average you're getting 115 to 120% return. So you could reasonably assume that, that for most brands that your true return on your ad spend is about 115% of your 7DC number. Okay. All right. I'm going to keep moving. I know there'll probably be questions about that, but I'm going to keep moving. Understanding this. And getting clear to what I just said is important for your business, though. It is important for your business. It is a way that you will not get taken for a ride by an agency pumping up big numbers for you. It's a way that you will understand your spend. So if you are unclear about what I'm saying, I want to challenge you right now. It's very likely that, that Lara and I are covering in this webinar the two largest costs in your business, your ad spend, probably your Meta spend specifically, and your COGS. Okay.. And so it is incumbent on you as an operator, if you are going to be good at this, to understand those things deeply and clearly. You don't have to ever understand every part of your business super deeply and clearly, especially as it grows. You really don't. There's a lot, there's things that you can pass off to, to get people, but when it's the largest line items in your P&L, you need to understand them and you need to understand the details of them. And, um, and so, so, uh, I tried to be as clear as possible. There's only so much time, but I want you to, to, to hold yourself accountable to that as you do this. Understand what I'm talking about. It's a little tricky, but you can get there. You can do it. Okay. So there's that delayed purchase multiplier. By the way, this unit economics calculator has this built into it, right? So for example, if you wanted to break even in this case, a 1.55, okay, let's, let's say you wanted to do that and your delayed purchase multiplier is 20% like we just discovered. What this will spit out for you is what the ROAS target you would need would be for whatever, 1DC or 7DC, multiplied up to the 20% DC number. So you need to target a $1.29 or a $51 CPA. Okay. So it's just kind of, it tells you what number to optimize for because you can't optimize for 28-day click in meta. So, so you can sort of see what the number is. All right. Number 2, that was only number 1. We're going to move faster than the other ones. Number 1, number 2, organize campaigns financially. This is a very clear one, but it's something I see done poorly all the time. I'm going to show you a campaign setup. This is actually an actual client of ours. They've got two different things here. What I want you to see first is that the campaigns are set up by product groupings. This is sort of a financially organized campaign structure. There's custom, there's a custom product for this brand, and there's product two for this brand. I couldn't give away what the brand is, but there's two different products. And what I want you to see, part of the reason to organize these campaigns by financially, what I mean is organize campaigns by economic unit, is that there's a couple advantages here. One of them is if they run out of product two, if they have an inventory issue, I can just turn off the campaign. It makes it really, really easy.