Mastering Marketing Spend: A Financial Perspective | Matt Putra

Well hello and welcome to the e -commerce podcast with me, your host, Matt Edmondson. The e -commerce podcast is all about helping you deliver e -commerce. Wow, and to help us do just that, I'm chatting with a very special guest, Matt Petra, from 8X about mastering, marketing spend, a financial perspective. We are going to be talking about ad budgets. Oh yes, which at first glance might not sound interesting, but let's say, let's face it, it is interesting to all of us because we all have got to figure out ad budgets and what the right thing to do there is. I'm actually quite looking forward to this conversation. But before we get into it, let me remind you, dear listen, if you haven't done so already, to sign up to the newsletter, each week we email you the notes and the links they come straight to your inbox and it's a pretty cool email and no drama, no nothing associated with it.

Just go to the website and sign up. It's pretty easy, it's pretty straightforward. And also, why should they check out e -commerce cohorts? You can find it more about them at e -commerce -co -hort .com. They, e -commerce -co -hort is a monthly mastermind group, a membership group that you can be a part of, different levels, different tiers, starts off at $14 .99. So if you're an e -commerce, you definitely want to check it out.

They deliver expert workshops every month, which is great. I'm in there every month. Love it, love it, love it. I do some of the workshops, but all great fun. But in that group, one of the benefits, and if you're regular to the show, you'll know this now, you can actually watch the podcast recordings live. So as I'm sat here recording this episode with Matt coming up, I'm in my studio here in Liverpool. You could be wherever you are in the world watching it live, joining in the conversation, asking questions direct to me and I get to put them in your behalf. So that, I think, probably is reasonably enough to join. So check out more at e -commerce -co -hort .com.

Now let's talk about Matt Pretty with the CFO. Wizard behind scaling e -commerce brands from the UK to Canada and beyond, whether it's boosting cash flow or cutting stress. Here's your go -to guy plus as a savvy e -commerce investor, he has got the Midas Touch to juggle risk. and ramp up growth. That's a big live up to that, Matt.

Welcome to the show, man. How you doing? I'm good. Thank you so much. That was a fantastic intro. I got this some big shoes to fill.

You're me both, but you're me both. It's great to have you on the show, man. Where about, are you in the world? Thank you for Canada. Oh, I'm such a pretty, pretty part of the world, isn't it? Van Peebitch. Oh, I'm just not now.

It's going to be, you know... Grey and rainy for the next four months, but yeah, absolutely. My cousin lives over in Vancouver. She, uh, were near Vancouver. And just the lifestyle and imagery, you just look at that and go, oh, close to the beach, close to the mountains, and the way you go, right? It's, um, a - Where? Did you get up in the mountains of winter?

Absolutely, yeah, I take most Fridays, Friday morning's off and my all the Sunday will go, he'll cut school, we'll go to the mountain. Good morning, I'm back. Oh, cut school and we'll go to the mountainous. What a way to grow up though. What an education that is, right? That's amazing and all those memories you create.

What a privilege that is. Are you a native vancuvian or are you sort of an import for a better expression? No, I'm native, so I was born, I mean, on a set of them, the same 15 square kilometers my entire life, basically. So now I travel a lot, and I gotta see the world, but yeah, I'm born in this little corner over here. Fantastic. Well, the hats off to you, so very MVC.

My last guest, I was recording because obviously I've recorded these episodes as I'm one's convening with the guest and I was recording one An episode earlier with Philburn and he moved to Cornwall in the UK which is just a beautiful part of England near the beach. You know ocean views and all that sort of stuff obviously we've not got the great weather but it's a beautiful part of the world So that's up to everybody living in a beautiful part of the world. I live in a great city I don't know if I'd call it beautiful though Liverpool It's not really known for its coastal views or its mountain regions. I Haven't been but it's on the list. I'm actually heading to London on the in October 14th.

Oh really Okay, yeah, bye. Is that business or pleasure or both? Business with the pleasure is coming before some wife and I are Italy with some friends and then we're gonna I'm gonna head to London for work and then Fantastic. Fantastic. Well, I hope you enjoy London.

London is a great city, but after about two or three days I have to get out. You know, it's a great city for a few days and then I'm just like I'm done, I'm done with London. I don't know why that is, I have some great friends there and it's great whenever I go down and go stay with them and just Just hang out. But yeah, after about two or three days, I just started, I need to get out.

I don't know what it is, strange, but true. It's probably a sword. All down to me. Maybe I don't know. I don't know. So 8x, what does 8x do? And what keeps you busy in Canada when you're not on the mountains?

Yeah, so 8x is a fractional CFO firm, so we do bookkeeping and CFO services. So basically we can take over someone's finance deck for their company. We do this for mostly e -commerce companies, 25 clients around the world, and ranging in size from 2 million revenue a year to 80 million, 85 million. 100 million actually I guess. And our job is to help you get to where you're going with more cash and less stress. So that takes the form of You know, managing marketing spend, helping you figure out margins, scenario analysis, you know, even down to contract review and negotiations of interest, we can help with all of it. Oh, well. So like I've done a few finance department, which is great. So just to be clear, if you don't know, ladies and gentlemen, CFO stands for... Chief Financial Officer. Yeah. Which is different to this.

I almost when I was reading your bio, I almost said CEO, because that's what everybody calls themselves when they come on the show. You're right, that makes sense. Yeah, yeah, I'm CFR. CFR, one further down the alphabet. But perhaps one would hug you one of the most important roles in any organization that the chap looks after the money and make sure that the boat still still still flighting right? I'm not thinking. Yeah and I would say that if you if you get someone that's business -minded it's even better because I mean you can have a CFO that's an accountant. And so they're risk averse and try and manage everything and that's needed. But if you can do have someone that can business partner and do the accountant thing.

to double whammy because you're going to get someone that can understand where to take risk, where to help you take risk, and then also control it. That's super important. I love that. You've just reminded me of a story from years ago. I was asked by the UK government to mentor and coach businesses from a digital.

viewpoint right and there was a season whereby they would in effect pay your consulting fee so it didn't cost a living for the firm to get I think I think they may have had to put a little bit of money just because they realized, you know, as long as there's a little bit of skin in the game, they're more likely to respect it. And so... I said, sure, this sounds great. You know, the governments pay my fee. I get to help small businesses who ordinarily wouldn't be able to afford the big crazy fees that we would charge. And so it was a great thing to do and I thought I'm loving this and I had to go do like a half a day's training seminar thing with the government as a result. And they laid it on and in this room was like 20, 30 other people, all like me, all rare in to go to help the small business, you know, get established. and stuff. And most, I went around the room and I said, can I ask you a question, what do you do? And all of them were either ex -accountant or ex -bankers looking to get into. Really? Yeah. They were looking to get into management consulting. And business consulting and this was one of those ways and they somehow got onto this scheme. And I just sat there slightly flabbergasted in the room, I'm not going to lie Matt and I said excuse me, where at the start of the meet and I kind of hijacked it slightly, I said you know so I'm very sorry but can I just ask one question? Can you please raise your hand if anybody in this room has actually run their own small business before?

I'm just sorry it was fascinating and I was like we're supposed to be helping small businesses. And I struggled to understand how we could do that if we've not been in the trenches ourselves, right? And so do you know how many of them put their hand up? Oh, nine of ten is my guess. No, no, no, I mean one of ten.

Yeah, no, actually not a single person in there would run their own small business with the exception of me. No, I'm not trying to say that I'm better than them at all. I'm just highlighting a point that Accountants and bankers and people that do the management consulting. Sometimes, haven't lived what it is they're trying to help you with what they're preaching. I've come across this in e -commerce circles. A lot of people come to me and say, well, why would I want an e -commerce coach? And I'm like, well, who do you talk to when things aren't going well? And they'll go, well, I talk to my web design company. And I'm like, have they ever run an e -commerce business?

You know, it's my first question that, and the answer is no. Now they've helped people set up e -commerce businesses on the website, but that's it, you know. It's a bit like going to a midwife and asking them for parenting advice. It doesn't always make sense. You know, a midwife's greatest living babies. This one a little bit over here. It doesn't mean they can help you when your kids are 14 and you know, causing you to tell you're a hero. And so I'm a big fan of this, sorry Matt, this is a very long -winded way.

I'm a really big fan of this idea that your financial advisor, your, you know, the CFO person has got to understand what it is to actually run a business and be involved in business. And so, so important. So, Well done for mentoring that mentioning that I thought that was correct. So speaking of being a CFO I'm just noticing the artwork on the walls behind you. That's right. That's the four kids right there. Yeah, yeah. This class artwork in your boardroom.

invested heavily in that I can see. So let's get into this marketing spent. So obviously you've worked with companies to know about smaller companies to know about a couple million. To large companies turn in over 100 million. We've all got the same issues, marketing, spend and mastering marketing spend.

Let's jump into that. Let me ask you, what's the most common mistake you see people making here? Two things being clear about what's important.

at what level the business someone's at. So a small business CEO is going to be working as a marketing director. as a creative director and then they're going to go to CEO and CFO and control it so that they need to know what they need to look at each level. Yep. And then the other thing is just clear guidelines that are good is the other one.

You know, you can have clear guidelines that are not good and I've walked into that before. But clear guidelines are good and we'll get to what good means, but I would say those two things are the most common mistakes. So what do you mean? As soon as you say being clear, I'm instantly smiling because marketers are never clear about anything when it comes to marketing or they really I think to a lot of business owners it feels like a bit of a black hole. And we try and just divide it to ourselves a little bit, but being clear. So I suppose in one sense there's a limit potentially on being clear but you talk about being clear about what's important at each level. What do you mean by that? So let's work through this. So let's start from the top down.

The only thing a CEO and CFO cares about is blended ROS or The alternative MER, so Mark, he's been divided by revenue. Why? I get a lot of pushback on that, but it's true. As a CEO, CFO, you don't care about anything else, besides that number. The reason why is because it ties directly to your bottom line. Revenue, adspan, bottom line. If you can manage the ratio, you can manage your bottom line. So from that perspective, blended ROS or MER, that's the one.

As you get further down from there, marketing directors, I mean, I'm not a marketing director, but you're going to look at a lot of things. CTRC, VR, on platform, attributed ROS, channel ROS. You're going to look at all that stuff, but the CEO doesn't need to know. Unless something's broken, they need to help you. They don't need to know. So I would say that the first thing they get clear about is what is your target blend in the OS?

Now the way that you figure that out is assume revenue is $100. Your cost gets sold just hopefully somewhere between Maybe 20 and $40 or 20 and 40 pounds of a hundred pounds right? Yeah. And then you were shipping and payment processing and so on and so forth is going to be around. another 15 pounds let's say okay so that leaves you with let's just say your cost goes to 30 Shipping pure prost again, what not? It's 15, so you have 45 pounds of variable costs.

Set against 100 pounds. Revenants, that means you have 55 pounds. after paying those necessary things. Now you need to make some money and you need to spend some money to get that sale. So what are you going to do? Well I would suggest that you're The lower end of what's called the contribution margin is 20 pounds.

That means you have 35 pounds left to spend on marketing. That's a row as of three, maybe three in a bit. I can't do the math right now, or 35 % MER. That's your target. Now, you could try to be a bit more profitable and set it to 25 pound contribution margin than you have 30 pounds on the spent on marketing. So that's really the one of the first exercises that I do with anybody that I join is What does that sort of stack look like? What do we need to target?

Now, like I said, the low end is 20 pounds on 120 percent contribution margin. Now, let me just be very clear what I mean by contribution margin. A contribution margin is how many pence are left over from one pound of revenue after you move all the variable costs. Okay, so remove COGS shipping adds, influences or commissions, affiliate commissions, all anything variable, remove all that. 2020 percent, 20 cents or 20 cents is the target is the bottom typically free in cars business.

You can go up to 30, but once you get beyond 30 or higher than 30, you're leaving unacquired customers on the table for your competitors. That would otherwise give you more margin. So if you get to 40, you're not spending enough money on ads. Yeah. Follow along the way that we have. So again, that's the first thing you need to get clear about is what's that target.

Now you flex that target based on the business needs at a point in time. I joined the business last September. They lost 700 grand in each of the prior two years. So for them, they were not able to have a contribution margin of 20%. They needed more like 30%.

to 40 to get back on their feet. So for the time that I joined them, we had to set the row as it around between a 4 and a 6. Right, now that's not the typical, something that's skillful as honestly, but we had to operate that way for this time frame to get out of the hole. Now that we're out of the hole, we're resetting the row at number. So actually right now, two probably three, four, five in there. Because now they've paid off some debts and they're kind of back on their feet now you can go back to scaling. So that's the very first thing that you're going to want to know is what's your target blended ROS.

That's the general process. And I have some calculators that I can give you to send to your your memberships. That's helpful. You're members of me if that's helpful. Yeah absolutely. Absolutely. Do do some notes. So let me see if I've understood this right, Matt.

Let me summarize it so far. So what we're doing is... We're understanding, I'm going to work it back slightly differently. So we need to understand what you call the contribution revenue. Right? So the money that we need to make to pay the fixed cost of running the business and have a little bit of profit left over. So you rent and all that sort of stuff. So then we've got a contribution revenue between 20 and 30 % which sounds about feels about right to me you know you're gonna probably if you're a good business you're probably making a 10 % profit margin so if you're going for a 10 % 20 % contribution revenue then It's a bit tight but okay, you know, it makes a lot of sense.

Obviously you're going to take off the costs of good sold and shipping. That's going to give you this sort of in between bit of money which you can then put to marketing which is around 35 % based on the figures that you ran through so 30 to 40 % is somewhere what we're looking at with that type of product, that type of arena. And if where I like what you said, if your contribution revenue is too big, your marketing spend then is too small, which means you're actually going to waste you in the short run feel like you're making more profit, you're not investing that profit into the business. So go and get more customers to scale quicker, right? That'd be great. Okay, so you've used this term, blended Rauas. or the term, MER.

Just explaining again, maybe a little bit more slowly for me. What MER is. And what you mean by blended row as got it. So I'll start with blended row as when I look at a blended row as I am looking at an income statement and I'm looking at So net, net revenue, not gross revenue. And then I'm dividing that by total adsbend.

Now, if you're a bigger company, you can remove top of funnel if you account for it separately, but let's not get too far into that right now. So you're just dividing net revenue divided by total variable at spend. That will give you a ratio and typically, you know, 3 to 1, 3 .34 is a good scale number. I have a client running at 7 right now which is awesome but that's not common. MER, marketing efficiency ratio is just really the inverse. So then you take your Total add spend you define it by your net revenue again so that number should be you know anywhere from 25 I've seated up to 40 25 % percent. And knowing what it has to be for you is the key to managing your agency, it's the key to access all the relationships with Agency, key to being profitable all.

Yeah, all of it. So, so I'm just making lots of notes here. So my blended rowas is my net revenue divided by my total ad spend. So Without getting too pedantic, Matt, just for the clarity of terms, net revenue is the total amount of goods sold minus taxes. I assume like in England you would pay VAT, Twitter and sales tax. So if I had sold some ink for 100 pounds, plus that would be 120 quits, so my net revenue would be 100 pounds not the 120, right?

Yeah, and then also factoring your discounting and refunds and like returns. So, So like of that hundred pounds on average mean that if there was one order for a hundred pounds It's one thing, but on if you look at your year So you do a million pounds where there's going to be probably an average of 10 % discount, which is probably going to be an average of 2 to 5 % returns. So factor that in as well. So actually it's cash in the bank isn't it? It's coming to you.

It's money that you've been paid. that you've not had to pay back either through taxes or refunds. That takes into account the discount. So it's case, money that's actually been paid into my bank account. So this is again without being too bad antique. This is post credit card company charges you know payment process in charges. No, no. The credit card just we do account for that in this contribution margin. Right. But I would say no, it's really just the keep it simple. Yeah, like revenue, right? Like revenue that you get to keep, right?

There's a way that you put it. Yeah, yeah. Okay. You then take that and divide that by the amount you've spent on your ads across all channels. Just your total channels. So that should be what it row as. So why would you have the CEO? Because you said at the start the CEO just needs to know what blended the blended row -wise numbers it number is. And I get the MER, the marketing efficiency ratio.

I'm learning lots of dang, man. is the exact reverse of this, right? It just is just wandivated by that number. Why do you say that's the only number the CEO needs to know? Right, so at the level that the SEO is going to be at, he's she they.

That's they have too much to do to dig into all the details. Now again, the CEO in the small company will wear a lot of hats. CEO and a big company doesn't. So I have the CEO that I report to for a very large company, 80 million. Him and I talk about blended OS.

When there's a problem, he'll ask to understand some of the other numbers. But typically, if the blended row is on target and revenues on target, he's happy you don't tell me anything else. It's fine. Why? Well, revenue. And then if you sort of, if you divide that by your blood and grow as you get your ads back. So you're doing income statement work with this blood and grow as which is of course CEO needs to make sure that there's profit in the company. So that's why. Now, when you move from your CEO hat to your director of marketing hat, again, you're going to get deeper at all things. But for me as a CFO, if revenue is growing, the way it's supposed to and blended row as is on target, I don't even ask any other questions. Yeah, happy. I love the simplicity of that because the problem we have in the world at the moment, and certainly in e -commerce, you can try and measure everything.

You can have spreadsheets with 40 ,000 different numbers on it, and you're constantly consuming them. And it's like understanding what it is you should be watching and managing is actually important isn't it? All this other stuff I think just becomes noise. It does. It does. Yeah. And actually it can make you feel better about a business that's not running that efficiently because you've found this metric over here that's really, really good. Yes. Because I must ask my little patch.

Well, I'm a little patch. How's that like a second to first thing that we do? First thing we do. I have a client that just spoke with this morning and they're going, hey, where our attribution says this and are not attributed on platform says that. I was like, well, try to increase that and watch your blended row S. If your blended row S holds the way it is and then just keep going until that breaks, then then dig into Dimension, the forget what's wrong. Yeah, no powerful. So you mentioned before, I want to find that little CO track.

You mentioned Knowing what your blended row ads should be is the key. So how do I know what my blended row ads should be? How do I figure that out? Yeah, so it's a derivative. So what I want you to do is to take out a Google sheet or Excel workbook and have the following work beyond these rows. So revenue, 100 pounds.

Cost of goods sold most people would be between 20 and 40%. Let's put minus 30 there for cost of goods sold. Okay. Skipping. Pay -on -processing, affiliate commissions, all those are the variable things.

Let's call those 15 pounds. Okay, so now you have 100 pounds revenue and you have 45 pounds of variable cost so you have 55 pounds left over. That 55 pounds is called contribution margin 2 or CM2. Okay, it is revenue after your move. Variable costs that are not ads. Yeah. Now, make a couple spaces and you have to set your desired Contribution margin, CM3.

This is the number of dollars you keep from every hundred pounds of rep or number of pounds you keep from every hundred pounds of revenue yourself. This is what's left over after every single variable expenses removed. And it's to let you cover your fixed costs when you hit break even that money goes straight in your pocket. HMRC takes some but goes straight into your pocket otherwise. Now when you set that target CM3 contribution margin, it tells you exactly what's left over for ads Right? men. So it was 35, I don't know, 55, wait, 55 was left over for CM2 after, whatever. And if you set your target contribution margin at, 25.

You know that you have $30 to spend on marketing. Now that's 30 divided by 100 that's 30 % Okay, so out of your net revenue, it's been 30 % of that, unabortizing. And if you stay within that number and you... Do the trajectory you're supposed to do. You'll be as profitable as you think you will be. And require some modeling of course, but that's how we look at it. So as long as my, my MEON number is 30 % for my blended rowers is 3 to 1. Or higher than I'm doing, I'm on target, right?

For this company, I would say everybody needs to target, you know, set their own targets. So your cogs might be 40 pounds of 100 and your shipping and whatever else might be 20 pounds. 60 pounds of costs, 40 pounds left over, and if you're still targeting 20, then you only have 20 pounds left to spend on market. Yeah, just 20%. Right. So that's how you work this out.

From there you set up that is to you. Now what you can do next if you want is look at your monthly fixed costs. Let's say those are about 100 ,000 pounds, let's say. So divide 100 ,000 pounds. By 30 % and that tells you the level of sales you need to break even every single month.

Right, so that's how we use this number to help people in the set targets. So you take your fixed cost, you divide that by your marketing spend and that gives you the amount you need to. that divided by your CM3. So that ending 20 target for the contribution margin? Yeah, it's 20%. 20 % call it right? Yeah, so. Do I do a fixed cost by that 20 % or 30 % whatever you target? Okay. So as long as you're doing more than that number you're on track.

This is very maths heavy. I'm glad I've got a notebook and pen and I'm making lots of notes as we go along. It's like I actually my degree no one really knows this because I don't really publish it but my degree was in accounting and so I feel like I'm back in university which is just this is just just flashbacks. So these are the, I'm loving this right because it's making very simple metrics, blended rowers. or and then looking at that in relation to your fixed monthly car so you've got some simple targets which you're going for.

That all makes sense. That's very high level, very top level. Let's drill down a little bit further if I can. What should I then, I'm the marketing director. I've got a bit more of... I want to have a bit more insight or I'm a CEO of a smaller company. Are there any other things that I should be looking at beyond that?

Yeah, I think so the next step after you do this exercise is to clearly communicate your targeting to your marketing agency and give them very, very clear guidelines. So the way that I approach this and I do this for our clients is we have sort of green yellow red lights on blended row S and we expect agencies to be monitoring the blended row S, not their on platform row S. What we tell them is if your blended target row has a 3 .5, well then anything above You know, 3 .75, they get to spend as much money as they want. Yeah. Through above my target. Right. Between 3 .75 and 3 .5. So that's a green light is above 3 .75.

I'm spending as much as you want, increase spend as much as you want, because you're above the target, which means you're making more, or exactly what I wanted to make on a margin. If I'm between 3 .75 to 3 .5, that's the LLI. So it's, you know, communicate more often weekly, daily, whatever you set with them. Don't ramp spend as aggressively and be monitoring the account more often as well because you're approaching our target. Now if you break through the target in your 3 .4, that's red light. So stop increasing, start pulling back. and communicate with us regularly daily and pull back until the rosettes get above our target again then it's yellow light where you can do slower increases.

If you get back in the green zone, again, start increasing as much as you want. Yeah, but we know that service Apple clients of mine, their agency, was on the green light for some reason they pulled back and that's just... margin that we didn't get that much because for some reason they put back so conversation has to be had right. So the the the again red amber green love this because we actually have red amber green post in our snare office because I'm a bit analog so I I I I'm a big fan of it. I love it. Yeah, it's great. So red amber green.

Now when you're communicating this to your marketing page, so let's say you've got an agency which does Google shopping, you've got an agency which does matter, you've got an agency which does email for example. So you've got your three different marketing agencies. Do they all have the same blended rowers number or are they Do you break it down and say actually for me to get my blended row eyes of three Facebook or Meta needs to be doing seven because Google only does 3 .5 and E -Met, just here to mean. Exactly, yes. So from that aggregated level, You do need to then go through and figure out what your ROS target is by channel. And so there's a...

It's not as easy to do it that way, but what you're typically going to do is you're going to make the sheet where you have three, let's say three rows. So menna. Google and I don't know, TikTok. Okay, so you're going to have your ads been free there. Then you're going to have three rows below that.

You're going to enter in your target row as. For each channel, then the next row after that is you're going to multiply and add them all together. And that multiplication should come up with your... Revenue target for the year. Then of course you can capture the total ads spend and check on your blended. But what it allows you to do is fiddle with each channel and see what you think your targets should be.

When you have three agencies, I you can see the results. have found it's hard. They don't do a great job coordinating themselves around these red evergreen. It does require a bit more internal support for them to manage them on this. I haven't seen it done well when there's multiple agencies. And so, to know that if that's your view, you'll have to assist in how they manage themselves. Right. Of course. They can manage their channel, RoAS target, but even that, typically you're able to, but again, they need to not be watching their on -platform RoAS.

It's the channel blended. So how many dollars are you spending on Facebook? How many dollars are coming in from Facebook if you have a tool? Triple will maybe be easier, but someone's gonna be watching the overall plant. Otherwise, nobody is. Yeah. That's interesting and I...

I mean, I've intrigued the stick a little bit deeper into the, you've not seen it work well when you're managing, so it can be done when you're managing say two or three different individual agencies. So does it in your experience has it work better when you're dealing with one marketing agency that manages multiple channels? Where it doesn't work is where you asked agencies to self manage the red amber greens and there's multiple because they're going well I'm not. I'm not capturing that, so they're going, well this guy spent whatever and this girl spent whatever. And no, they're not doing a good job of looking holistically when one agency is managing all the channels. It's easy, right? They're pulling the revenue.

They're reporting their total spend. They can see the blender does quite easily. The troubles that I've had is just where they're not. I'm going to go do the effort of pulling someone else's ads and revenue. So that's an internal support. So whoever's, yeah, which is fine.

I mean, that's your internal marketing director who manages those agencies. He has to track those numbers. So then if I'm following this remat attribution becomes quite important and I mean we've always known that attribution was quite important so the ability to connect a sail to a source. But what I'm understanding is attribution is becoming more and more complicated. And We had Neil Hoynes on the show a couple weeks ago. Who's the Chief Strategist at Google?

Great guy, really interesting guy, I met him at Sub -Summit, the show. And one of the things he talked about in his book, Converted, which is a great book by the way, I recommend everyone to eat it. He talked about how there was a lady who bought a pair of shoes. And this lady had 246 interactions with the company before she actually bought the shoes. So visiting the website, emails, social media, ads, retargeting ads across various different channels. And his basic comment was what we don't know, even at Google, is where that sale occurred. So how do you attribute that, right? It's like at what point did this lady decide I'm now going to buy these shoes? And so I get now because there are so many channels and so many interactions that people can have with companies before they buy. What are your roles in thinking then around attribution?

I think you have to after certain size you have to try. Yeah, there's no other way. It doesn't matter. Let's say I don't know what the size is. But let's say 4 .5 million you have to be trying at least at that level sometimes too, but 4 .5 million you need to be trying. It's imperfect. It's always going to be imperfect. And this was a conversation this morning.

have client, they're in London, their agency just changed the attribution model, but they're now they have both attribution models. The early distribution model says Pmax is not working. The current distribution model says Pmax is rifting in a good way. And so that I like, well, spend my Pmax full of fuel, but the old model says it's not working. Well, what can you do?

Try it and watch your blender go as. That's all you can do at this point. They're smaller so they don't have as much sophisticated tools and people and whatnot as. Just gentleman from Google probably have. But like again, you know, with the old attribution look bad and you don't even really know, right? And so again, that's why I'm under a support. But I would say everybody has to try. And if there's a child that looks like it's doing well, throw more money in it, and then watch your blended still, because your blended is still going to be the tree.

I, Tim, there's a guy named Tim Keane from Struxford Marketing, he came up with a Attribution model based off post purchase surveys. So you should be trying that as well. And I think you can blend your attribution sources together. And you're going to make the best guess you can and that's all you can do as far as I can tell with that's Bruce and today. Yeah. Yeah, it's one of those isn't it?

I Personally as an e -commerce entrepreneur I get a little bit despondent with attribution but I've realized we can spend so much time trying to perfect The data that becomes pointless in many ways. And if it's not perfect this month, it's not going to be perfect next month. But it's the same system measuring the imperfectness if that makes sense. And so I can generally get some sense of idea if it's getting better or worse because that system whilst it's not perfect will be using the same method of measurement hopefully the following month and it will give me at least some general direction of what's going on. Yeah, and I think that's kind of where I'm at at the moment with that kind of thing, you know. And I think there are other things you can do, so not just attribution, I think you can be monitoring.

Other headline rates that we know can be true like average CTRs, average conversion rates, things like that because those add to carts and Those can highlight broken pieces of the journey. Oh, for example, I have a client with the CTR's generally industry average, but the CTR's shit. Well, we know what they have to do. They have to fix their on website journey. Yeah. If your CTR tank's conversion rate stays the same, well, we know we have to do.

probably it's add creative at fatigue things like that so I would say put the most weight in things that are verifiably true Let it row as completely verifiable. Inverse and rate, as far as I understand, they're totally verifiable. Sessions and whatnot. Add to cards, I think those are totally verifiable.

I think click through rates. Again, we're getting a bit out of my lane, but I think those are for the most part of verifiable. Yeah. Or at least you can measure clicks to... visits. So, but anyway, I would put the most weight in things that are very, very true from there. Make educated guests. Yeah, yeah, absolutely. No, it's fascinating. That's fascinating. So, I'd like to say, Matt, I'm learning a lot here and I'm enjoying the conversation.

I just like figures really trying to try and figure it out. It's quite fascinating. What about, I mean, these are all great, you know, I've run a multi -million. Poundy, Conbusiness. So, you know, I'm paying like this is cool, that's cool week and tweaked this and I'm thinking in my head as we're going through things. What about The guy that's just starting a business, you know, is sort of in the running as he comes business from his kitchen as I like to call him the kitchen table entrepreneur. What are these things should he be thinking about or she or they what what should be going through their mind? as they're listening to this because I think it would be easy to listen to this and go this doesn't make this is not for me because I'm running two million or more, right? Yeah. Whereas I don't think that's the right answer. So I'm just making a point if I highlight it.

I would say number one contribution margin. You have to know what you can possibly recover after you remove all your variable costs from counter -revenue. How many pets will have to over? You have to know. And you have to set a target and you have to learn that as quick as you can.

Then, and Contribute to Margin as a Relays to London Drow as we talked about how those relate. So, know how that stack is calculated, know how it relates to your fixed cost of break even for someone starting. That's probably the very first thing. But actually that they need to know from there get a bookkeeper that will keep your books in order and then just look at the ship all the time and verify that because again because all these things are in -code statement metrics. So they have the source of truth about what your business is actually doing. You can verify your sort of calculated stack of numbers and you can match that against our books.

Looking that way, for me, out of financial for an early stage company, this is the only thing you need to worry about. Yeah, I was a year to figure out how to get people to look at your product and buy it, but it's a different thing. Yeah, I mean, so I hope that's the other side of the equation, isn't it? But it's just to understand the right things to monitor and measure, and I think it's an important thing. And I think it's a good habit to get into from the early because I think you're so busy sometimes when you set up a business You don't think about half of these things, but actually Being on top of your financial data, I think it's one of the keys to long -term business success.

You've got to know beyond just looking at your bank statement, how well you're doing, as a company. Yeah, really. I represent, well, these metrics will sort of help you telegraph what the bank's going to do, right? Your contribution margin is very related to what's going to be in your bank at a future point. So if you don't do that right you're gonna fuck up your bank account, right? She's my language. But these things are very related to what you're being called to you.

Yeah, yeah, yeah, absolutely. Absolutely. The the the fascinating thing here is The simplicity with which you're talking. Matt, and I've mentioned this a couple of times, I just want to come back to this point. Are you deliberately and intentionally keeping this It's simple so people will do it or so people understand it or actually you're keeping it simple because it's the best thing to do. That's the best thing to do. 100 % hands down. Yeah. I walked into a company and I created 300 grand. Even though with this method in my first two weeks as they're still. Now, they're a big, big company, big revenue, right?

He figures mid and more, but their former The budgeting process was, this is the pharmacy foreset, you have this many pounds to spend it. And that's just so optimal. because what happened in November for them actually is they spent the number of pounds the CFO said and they left a shit ton of money on the table probably the million dollars revenue on the table because they weren't watching their blended ROS spiked So 6 or whatever the number was and if you spent it at 4, you rose was 4, you would have captured a million, possibly 2 million more dollars of revenue. and probably $4 ,000 of contribution margin, which would have dropped straight to the bottom line. So this is the best method at the CEO -CFO level. Yeah. And is this something that we would be looking at weekly, daily, monthly? Good hour. Good question. Nobody asked me that. Good question. Month to date is the ideal. So you watch I I track it for a number of people daily.

I use triple whale or or internal tracking mechanisms whatever. Watch it daily. Don't freak out if you're blended with OS dips on a day. Don't worry about that, but you want your month. You want to end the month at your target London grow -ass and your target contribution margin.

If you do that, it doesn't really matter what happens week to week. Now obviously if you're in a very tight spot, You have to be careful week to week day to day. Yeah. But if you have a decent amount of cash reserves or access to liquidity, monthly is better. Because you'll mix up all the decisions if you shorten the time frame too much. Okay. I feel very happy today.

Yeah, and it's, do you notice, I'm just thinking of trends here because I can watch this on a daily basis. I'm wondering to my month to date, but I'm currently at the time recording this is October. Next month is the crazy. month you know with the leading up for black Friday so sales spike everything goes up how do I How does my careful monitoring, well, let me ask you the question slightly for a minute. Does anything change in November? from October when I know that sales are going to go up just because generally people are interested and busy or is it still the same I'm still monitoring my blended rise I'm still monitoring my target contribution margin as long as we're sticking with that Everything's just accelerate now, quicker, right? So it can change if you have the resources, meaning that.

You can send a different target for November than you would for any other month. Now here's why. If you have figured out how to get people to purchase more than once or twice, if you have, A good customer experience. Then sometimes it is worth acquiring people paying more to acquire customers than we would otherwise. Yeah, they come back. And the members are good months for that.

Now, that's only the other resources in the team and the customer journey to support something like that. If you don't, if it sounds too crazy, just keep it the same. Watch it day to day. Make sure the month to date is on target. Keep the same target. And you should be able to spend more money and make more money. But if you have the appetite and the sophistication set a different target of OS for the member so that you can get quite more customers than you would otherwise. Fantastic. Fantastic. This map of time has got away from me sir, so I was in these conversations.

If people want to reach out to you, you mentioned, I can remember whether it was before we hit the record but in all sense, You mentioned about some spreadsheets that people can access that can maybe help them that you put together some resource. If we want to know more, get a hold of those or get a hold of you, have some more questions. What's the best way to do that? Yeah, probably one of the best ways to get in touch with me is on LinkedIn. 5 -man -linked -in, not for sure. Connect. Ask me anything you want.

If you're from the a number from the show or a listener, just say hey, you can have some tools. I can say some stuff. I can give you some links to put in the show notes if you like. That'd be great. And I'll send you a link for what we have as a growth plan product. It is a lead gen thing for sure, but it's super fucking valuable.

We will build a finance model. We'll give you a bunch of recommendations service providers. Free tools, an Excel model that you can use for your business. Only certain people will qualify, but those that don't will get a bunch of free tools anyway. Yeah. And I'll give you that like as well.

Well, we've done this for three people and they've been blown away by how much value we're giving and we're just trying to help people out. Fantastic. Well, we look forward to putting that in the show notes and I look forward to having a look at it myself. Matt listen, thanks for coming on the show man and taking some time out from your Busy day, you're four kids in the mountains, it's been great to connect, great to chat with you and really really appreciate your insight, man.

Thank you so much for having me. This was a great conversation. Brilliant. Thank you. What a great conversation. Huge thanks again to Matt for joining me today.

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You have to bear. Matt has to bear it. I have to bear it. You've got to bear it as well.

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