In this episode, we dive deep... and I mean Marianas Trench deep, into the brilliant brain of Chris Johnson (of Common Thread Collective). A common name, for an uncommon guy, Chris showed a mastery on a multitude of Ecommerce topics and we dug into them in this bonus guest episode.

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We discussed iOS14.5 and how brands may have overreacted to reporting issues, thoughts on inventory management during a supply chain crisis, and the importance of recognizing where specific ad channels are in the buyer journey. As a reminder, Chris was interviewed in our last Core episode on the Supply Chain crisis, so if you haven't caught that one yet, make sure to give it a listen first. The Supply Chain Crisis Explained. Why Did It Break, and How Did It Impact Ecommerce? - PPC Pondering Podcast - Ep 4

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In today's bonus episode, you'll hear the rest of the conversation Chris and I had that we couldn't fit into our full Core episode on attribution as we all ponder digital attribution together.  

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Chris Johnson is the Director of Growth Strategy at Common Thread Collective, an Ecommerce Growth Agency that has worked clients like Wilson, IGLOO, APL, and Native.

Follow Chris:

• Twitter: @chris_commerce
• LinkedIn: Chris Johnson

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Episode Transcript

Chris Johnson:

If you were following Twitter in the early days, it wasjust like e-com apocalypse or the best thing ever for e-com. It was not clearin March what was going to happen.

Kirk Williams:

I kind of want to just dump this on people and be like,just listen to this and take notes.

Chris Reeves:

Welcome to the ZATOWorks PPC Ponderings Podcast, where wediscuss the philosophy of PPC and ponder everything related to digitalmarketing. Today's show is a bonus episode of our full interview with thedirector of strategy at Common Thread Collective, Chris Johnson. In thisepisode, Chris shares his expansive knowledge on running great tests, iOS 14,and he even has some great thoughts on the supply chain crisis. If you haven'theard Chris on our fourth official PPC Ponderings Podcast episode about thesupply chain crisis, go give a listen. Otherwise, please enjoy our behind thescenes conversation with Chris.

Kirk Williams:

Yeah. Can you give us your name, title, and where youwork?

Chris Johnson:

Yeah. So my name's Chris Johnson, probably the most commonname on the planet, and I'm the director of growth strategy at Common ThreadCollective. We're an agency that originally were based in Orange County, nowwe're all over the nation. We're a fully remote company of about 150 peopleprimarily focused on direct to consumer eCommerce and really focused on thepaid media side. So saying how do we continue to push growth through multiplepaid media channels. And then we also have an arm around retention and creativeas well.

Kirk Williams:

How long have you been with Common Thread?

Chris Johnson:

So I've been there almost five years, which in eCommercekind of marketing year feels like 50 years. So I kind of self-proclaim I'm thedinosaur of CTC. So I was there pretty early. I think I was the secondstrategist that they had brought on to build out their team after Andrew. Soyeah, I've been there for a pretty long time.

Kirk Williams:

That's really cool. I think I first started... I'm tryingto remember if it was from following Aaron Orendorff on Twitter or if I firstconnected with Taylor, but at some point in the last few years started to see,hey, these Common Thread Collective people, these CTC people, they'reeverywhere.

Chris Johnson:

Yeah. It is incredible. I kind of look up and it's like...I remember the early days, it was this little tiny office in Orange County,there's 15 of us all huddled around this little table with the worst chairs youcould find. They're these stadium seats, because it was all sports themed. AndTaylor would just have this whiteboard and just be sketching out the formula.And so it's definitely grown from that day to now we have some incrediblepeople that are all over Twitter obviously, I feel like. If you just look onTwitter on Taylor's following, a lot of those are either PPC alumni who havegone on the start brands or work on brands, work at agencies, or current CTCemployees.

Kirk Williams:

Yeah. I'm always very impressed by business trajectorieslike that, because I've done... I mean, we're pretty small. We have fivepeople. We utilize freelancers, so six of us. And even just that, just theadmin side, the things that come into your brain as the founder/management,that sort of thing that you have to think through with just a few more people,I can't even imagine having to navigate all of that change as well, and thenover the last couple years. So that's pretty cool. Props to everyone there.

Chris Johnson:

It's a rocket ship. I think eCommerce by itself is so... Imean, it's changing every day, and then you put in COVID, and it jumps forwarda decade almost in terms of its development, and then you're in an agencythat's doubling every year. So it has been a ride to my life. I don't thinkit's going to slow down ever, but we have grown. And so a lot of it has beenaround how do we service growing e-com brands that have started off early andhave grown with us, to how do we scale our strategy team from just a fewstrategists to we're going to be probably around 15 to 16 teams soon. So thequestion of scale is everywhere for brands, agency side people. So it's a funplace to be.

Kirk Williams:

As we look at e-commerce, especially the last coupleyears, one of the reasons why I wanted to talk to you representing CTC is just,I know also you all have your own brands as well, kind of have some experiencethere with both sides, basically at the same company. So in that sense too, aswe go through some of these, feel free to speak to, if you'd like, just theteam at CTC, or clients or e-com industry that you're seeing in the whole. Solet's start with January, February, March, 2020, maybe just talk us through alittle bit of what that was like for you all, what was happening in the team,clients, the start of everything? What were some of your emotions?

Chris Johnson:

Yeah. I mean, I think for all of us, no one had planned ona giant global pandemic, and so I was planning to go on vacation actually. Iwas like, hey, Q4 is always busy, I usually took Q1 to go take some vacationtime. And so I had a plan to go on a cruise to China, Korea and Japan. Soclearly that did not happen. And so personally I was kind of thrown into, oh,we're not going, and we need to really figure out what this means for ourbrands. At the same time, we were all in-office. So we had just consolidatedall of our offices across SoCal into one main office, put everyone under oneroof, which was amazing, it was so fun. We had room to scale out our teams. Andso we have this news just starting to awaken around, hey, there's this is thinghappening, and we're seeing Apple shut down and Microsoft shut down theiroffices, whereas the team's saying, what should we do?

Chris Johnson:

And we have clients as well, we're kind of getting a sensefor them, like what are they going to do. Because so much of, again, supplychain is dependent on people being in the actual warehouses. And the officewe're at shared a wall with another 3PL that we have some ownership stake in,and so we were already seeing how are we going to move product if there's noone there to actually pick and pack and label. And so it was kind of a crazymoment. So our CEO made the call to, like I think many people, let's go workfrom home, let's see how it goes. I was a huge advocate before for work fromhome. I was like, "Hey, can we do this?"

Chris Johnson:

And it was kind of like, no, let's really think about theculture, which was important. I totally understand. Our culture was what makesus different. But about three weeks in, our CEO said we're going fully remote,and it was one of the best things for our company, and I think a lot of otherbrands were doing the same. And so that was a huge shift. And the big questionwas, how do we service e-com brands when we don't really know what's going on,and we're completely changing our model of how we work, and we're now scalingfaster than ever? So we did not slow down as an agency, we doubled head count.And so it was incredible. And so what we learned in that first few weeks is,the best thing we can do is be a partner and be really honest about how we'reprocessing as our own company and with other brands as well.

Chris Johnson:

So saying, hey, here's what we're seeing, this is whatwe're noticing, and then data became so important, because there's so much conjecture.If you were following Twitter in the early days, it was just like e-comapocalypse or the best thing ever for e-com. It was not clear in March what wasgoing to happen. And clearly if you look back in time and look at Shopify'sstock price, it clearly was at the time a incredible rise. I don't know todayhow Shopify's doing. But that's really the answer, is we were still beinghonest and open about our own transformation as a company, and also with thebrands how we could best service them, and we really focused on how do wecollect data and share that with them in a way that they can make betterdecisions using not just what's happening on social, but really within thebroad e-com ecosystem to make those decisions from.

Kirk Williams:

So when everything is starting to hit mid-March,especially here in the US... And doing all the research on that, March 11th waskind of that key date, then most people are kind of like, okay, March 11th, andthen you start talking, that's when the Utah Jazz game shut down, all of asudden the NBA shuts down, all of a sudden the WHO is like, hey, by the way,this is a global pandemic, and then president Trump made that announcement thatnight. Next day, stock market crashed, single biggest crash since I think '80s.So especially around those two days, like you said, everyone is kind ofreeling, a little unsure of what's going to happen. How initially were youseeing a lot of your clients reacting? What sort of communication were youhaving with them? Talk us through some of that.

Chris Johnson:

Yeah, absolutely. I think a lot of clients... At the time,I was helping a lot on the sales side as well. And so we're talking to clientswho, they wanted to slow down, because they weren't sure about how cash wasgoing to look. So the idea is, this is really new, we don't know what's goingto happen, we don't know if there's going to be customers buying... Andremember, a lot of these brands were at the time trying to do some retail andexpand into wholesale. So that's really scary for them, because they have abunch of inventory sitting that's supposed to go to stores, and none of thestores are open. So they were pulling back initially. They were pulling back ontheir spends, so not trying to spend as much, and they were really scaredinitially. And I get it. I think it's easier in retrospect to be like, that wasthe dumb decision, but in the moment, what other information did you have?

Chris Johnson:

You have no idea how bad this is going to get. We don'teven know how far this is going to go. We were thinking it's three weeks or soof a lockdown, not almost two plus years of massive change. So we were alsothinking short-term like, oh this is going to be kind of like a blip, how do wetake advantage of it, how do we see opportunities, but also get clients tocontinue to spend, not just so we get paid, but because it was an importantmoment? Think about the year for e-commerce, Q4 is massive. So everyone'sspending... You have that Q1. If you're a healthcare brand, March is a momentthat sets up your summer. That is an important time to spend into summermoments to really what we call fill up the sponge, bring in more volume ofcustomers, really think about how do I begin to message and position my brandso that when there's a moment of the sale, it's not the first time they'reseeing it.

Chris Johnson:

And so we were really encouraging brands, you need toconsider keep spending in these moments, it's better to have some momentum thanto go full stop and try to start up again. Some people were convinced, somepeople were not. I'm going to be honest, some people were like, nope, we'regoing to pull back completely and see how it goes, but a lot of our best brandswere like, let's push into this, and then it became really apparent veryquickly in March what kind of products people were looking into, work fromhome, if you think about some of those components. We have some athleticbrands, so think athletic wear. So sweatpants, through the roof. And so wecould already see some early signs that there may be some categories that maybe insulated from this, let's continue to push into those.

Chris Johnson:

The last one, I'll give a story. This was later in thepandemic, but one of the brands that had a good thread in this is a brandcalled BornPrimitive. It's one of the brands we love working with. They're in aCrossFit athletic space, really focused on sports bras, but have expanded.They're one of our earliest clients. They did a program called, Back the Gyms,because the gyms closed down. So early on, a lot of CrossFit gyms were notopen, and they were really hurting. And so part of this was a question thatcame up, how do we help our brands beyond just ad spend? How do we think aboutmoments and creating moments? And that was one that came out of it, of havingBornPrimitive think about how do we take our sales and the momentum we'reseeing in our category that's not really hurting, it's actually going up, andsupport the industry that we're in that it needs to survive for our brand to beable to thrive?

Chris Johnson:

And so backing the gyms, taking a portion of sales, andthen giving them back into the CrossFit ecosystem became a massive moment forthem, and it invented almost a new space in what should be a down moment fortheir brand. It was the kind of fuel that pushed them in 2020. So those arekind of those moments that we were seeing early on. We weren't that forwardthinking until about probably a little bit after March, but we were starting toget the sense of this feels like an opportunity, even though it's scary, wherecan we push in?

Kirk Williams:

Were there any, and if so, what were some inventorychallenges during maybe the first six months or so? Because obviously thenwe'll shift into the bigger conversation of supply chain.

Chris Johnson:

Yeah. So this is the biggest challenge coming into early2020, which was we didn't have the supply chain issue yet. It was kind ofearly, so no one knew that was going to be a big issue. Again, we look back,we're like, clearly that would make sense. If you have everyone stopping andthen starting at the same time... It's like traffic in LA. Everyone wants to beon the 405 at the same time, of course it's going to be slow. But in themoment, you don't think about that. So brands pull backed their spend, delayedtheir buys and started to kind of run thin on some of the inventories, so ofcourse they need to restock. And so there was kind of two issues. Some brandswere great. They were like, let's keep pushing into this. We have the efficiencies,and we have the setup within our 3PLs and our manufacturing to afford it, whichwe can talk about. What are the specific pay windows and that terms we have interms of how do we have more cash on demand.

Chris Johnson:

So those were different things brands were working withthat could order inventory and not be so hurt. The brands that were strugglinghad kind of overextended themselves. They were running really thin already, andso they needed to make a really critical decision about when to buy inventory,and they maybe pushed it back too late, and so they paid a premium later. Sowhat we found initially, it wasn't that there was any supply chain issuesinitially, it was later because people delayed that caused a bunch of issuesfor them. So one of the examples is, we had a brand...

Chris Johnson:

This is more recent we're talking now, where in 2020, theysold through their best seller, a dog product focused in the pet space. And oneof their best sellers was, it's a chew toy kind of thing. So they pivoted toanother product, and that product sold like hotcakes. It was amazing. Mainlybecause they didn't have their best seller though. So the question comes, whatdo we buy next? Is this just because we didn't have our best seller, or is thisthe product we should continue to focus on? And it's way harder now, becausenow the cost of a shipping container has gone up by nearly double, triple. Youhave as well the margin side in terms of the general cost of the actual productbeing made, the cost of delivery's going up, not down.

Chris Johnson:

So that decision of, do I invest on this category movingforward is a massive decision. Before, it would be like, let's just hedge ourbets, let's do both. They don't have that option. They need to choose which onethey think they're going to scale. Buy too little, they're going to miss out anopportunity, and there's not enough time to get it back here to sell more. Buytoo much, you're sitting with that inventory, and it really constrains the cashflow for all the other things you want to do this year, and so it becomesreally, really complicated. And so it forces us as an agency to be very, veryclear about forecasting, which is what we spent a lot of time in 2020 doing,because of supply chain issues, saying we need to be very, very clear on whatis going to be the forecasting model we're using, be open with that with ourclients, communicate how that plays into demand planning, and partner with themin those conversations.

Chris Johnson:

Some brands got ahead of it, and it was amazing for thembecause they took a risk and it paid off for them. They arbitrage of the costwas lower because they took a risk. Some brands that were doing thin waited,because they were not having as much cash on hand and didn't have the rightterms set up, and so then they bought late, and they paid a premium for it, andmade it really, really tough for them to scale around Q4 in 2021. We've seenthat kind of slow down where people were really, really struggling, especiallywith iOS changes, which we'll probably talk about.

Kirk Williams:

So did you notice specific consumer purchasing shiftsaround things like stimulus in that key times? Was that also part of it, or wasthat not as evident for you?

Chris Johnson:

Absolutely. Absolutely. I think if I could kind of draw aline of our ability to spend and stimulus checks, I feel like they're verycorrelated. Now, the category has shifted through time. If you look at thetimelines, it wasn't the toilet paper. That's not our focus. But mainly thinkabout gym equipment, and gym and sports when the gyms shut down. Big momentearly, and continued on, but not as high. It's a high spike, kind of continueson. If you think about supplements and CPG brands that we have, those were kindof bigger as we get a bit later into the year as people would think, maybe Ishouldn't have just sat at home and ate all this food, and then have terriblehealth, and I want to really focus on health. I think in terms of the consumerbuying... The same thing happened though in the same moments, it just wasamplified.

Chris Johnson:

So if you think in a e-commerce year, Q4 was still Q4.It's still a massive amount of revenue for our clients. It was just amplifiedin a way that I think honestly we kind of anticipated. One thing that wascounter to a lot of people talking about the year was, hey, people are going tobuy early because of the supply chain issues. We didn't really see thatactually. We didn't really see demand being pulled forward too much on the consumerside. Brands pushed sales earlier, and that maybe helped with some of theirexisting customers, but the general demand curve was not necessarily muchearlier. We saw it still in the same windows of time, because that behaviorcycle is still pretty locked in for people. I kind of buy around Black Friday,Cyber Monday, and that's the opportunity I want to buy in.

Chris Johnson:

We'll talk about 2020 versus 2021. 2021, obviously thelimitation was you didn't have as many SKUs to pick from, so prices went up.But generally speaking, those moments were still those moments. They weren'tlike, hey, all the demand went up two weeks, and so Black Friday was smaller.No. People still acted in 2020 and 2021 the same way. We're going to buy onBlack Fridays, Cyber Monday, because that's just the cultural rhythm ofpurchase that we have in eCommerce today. Obviously in the agency side, weexperienced brands trying to figure out cost cuttings because of the inventoryissues. So some brands were trying to in-house pretty quickly and try to findthat talent. So we saw that happen a lot, which we understand. Again, we're inthe space of saying, we need to think about what makes sense for your profitand loss statement.

Chris Johnson:

But in terms of some other brands, they realized, in orderfor us to capitalize, we need to outsource more, we need to bring on morepartners. And so we did see heavy demand coming in during... Kind of similar tothe stimulus check. Not the same thing. Not B2B. I'm not really saying that thebusiness loans were a big contributor for that. We saw a lot more demand thoughsaying, hey, we want to scale into these moments, we need a partner whounderstands that right away, and it's going to take us too long to build thecapabilities, let's focus on bringing CTC. So that helped us in our growth aswell. We saw that correspond to our headcount going up, with also demand forour services go up as well.

Kirk Williams:

Let's switch gears. And at some point, we'll hit thesupply chain stuff, but that probably is a big part of the conversation. Youbrought up iOS 14, which is great. Can we talk a little bit about that? What isiOS 14 thing that you're talking about, and then how did you see that impactbrands?

Chris Johnson:

Yeah. I think the mega trend we're seeing in eCommerce andjust in general in advertising is the consumer is very savvy and has choicesand options. And when it comes to privacy, in terms of privacy, their demand isreally they want to have more control over their information and data. We knowthat. That's been a trend that's clear. I think Apple and iOS 14, what washappening is that, with the release of the new update for iPhones, iOS 14 isthe update on the operating system what's going to put in a prompt that wouldsay, would you like these apps to track you these ways? It wasn't saying thatthey would default not track you, they just asked you would you want them totrack or not. At the time, Facebook was projecting... Now, Meta. Forgot thetimelines. At the time, they were Facebook. Now, Meta.

Chris Johnson:

Meta was projecting, hey, we're thinking about probablyhalf of those people will be opting in, 30% to half. It was close to 60 to 70%.It was much higher than their forecasted projection. So what was happening? Atthe time, everyone would, once it rolled out across iOS devices... It gotpushed back a bit, but it rolled out. We were seeing really, really poor returnon Instagram, Facebook, all Meta products. We were seeing that. So here was thequestion that we had to ask as a team, is this that the performance is bad,meaning the actual auctions are more expensive, we're losing those auctions,people are not purchasing on-site, or is that we don't have the data to confirmthat? And a lot of people were pulling their spend because they said Facebookis underperforming... That was the narrative. And we need to move our dollars.

Chris Johnson:

So we said, look, let's just look at it first, continuecourse, and let's see what happens. And what we found is that, when we did thedata... We have a tool called Statlas that we use across our clients, we pullin their data and make it anonymous and aggregate the trends. We have a reportfor every brand on their data versus the trend across our 200+ brands withinStatlas. It was not a performance loss, it was a pullback of spend and a lossof data reporting. So iOS 14 goes out and removes the reporting of thisconversions, but the consumer behavior was the same. People were still buyingon the ads that people were seeing, Meta just couldn't tell you that they were.What happened is, it's kind of like, is it the chicken or the egg? What was theresult of this? Performance did go down for brands, but it wasn't because Metawas underperforming, it was because brands pulled back their spend by a significantamount of money, sometimes 30, 40, 50% of their spend they pulled back.

Chris Johnson:

And that was their engine of growth, and so they felt thatin October later, they felt that in November where they don't have theaudiences that they used to have, and so they have to spend a premium duringthe highest moment of cost to drive the same growth in volume. That hurt theirperformance later. As a team, we were trying to be very careful about theassumptions we were making about what's happening, and we were trying to bevery slow about actually saying, this is what is happening, until we have thedata to back that up. And so the summary from us brands is that Facebookperformance wasn't underperforming at the time and just didn't have the data toshow you it was performing.

Chris Johnson:

What we used to figure that out... Just to give a kind ofsense, was we use a term called MER, or marketing efficiency rating or ratio,depending on who you talk to, and that is taking your total revenue divided byyour spend, or if you have the inverse, we call it ACOST or advertising costsof sale, you just do a percentage. So MER is kind of our central source oftruth of are we making money on the first purchase, or generally the totalrevenue of the company. A variation of that we call AMER, acquisition MER. Soall of our acquisition efforts, is that profitable. We were trending that line,both MER, total revenue against total spend, as well as acquisition, newcustomer acquisition, and we saw that performance line stay pretty steady forbrands that continued spending.

Chris Johnson:

It got worse for people who pulled back and tried to rampit back up again. And so our kind of takeaway, the so what for brands is that,when these moments happen, it is usually not changing consumer behavior, whichis what you really want to focus on. The reporting is going to changedramatically. We're going to see those changes happen across the board.Google's delayed on their end. They haven't rolled out their changes, butthat's going to happen on search. And so that's going to affect the data thatwe're getting on ROAS on the platform, but it does not change the behavior ofthe consumer.

Chris Johnson:

And what you really are looking at is the total revenueagainst your total spend as your governor of are we winning here or not, andthen we have some nuances that we talk about about anti-fragile eCommerce andall that to help do that. But iOS 14 was a pivot point for us to be very clearabout our role in this industry, that we need to be very clear on communicatingwhat are we seeing across the dataset before we just jump on the bandwagon of,here's what Twitter's saying about it's the end of iOS and Facebook's abilityto drive sales. Not yet, just harder to see.

Kirk Williams:

So did you actually see then brands shift spend fromFacebook to other channels? If so, where typically were they going with thatmoney?

Chris Johnson:

So a lot of brands got very scared quickly, and of coursethe trigger response is Facebook's not working for me, I still need to spend, Iknow I need to grow, I'm going to move the money now. And so a lot of brands,obviously TikTok, Snapchat were two major channels for them. Google wasprobably the biggest shift for people. So moving more money from Meta productsinto Google was a big shift for the majority of our clients that they wanted totry and test. We'd already been telling brands to increase their spend onGoogle anyway, because the product is just significantly better than it wasprevious years. It's just improved over time. That was more of a increase yourspend in general, if you can afford it. We'll help you show you if you canafford this, but don't pull back on Meta just because you're scared. You'rewanting to move money to Google because there's opportunity there, as well ason Meta.

Chris Johnson:

So that's a complicated answer for most brands. It's notas clean cut as, yep, everyone does this, but a lot of brands did. Some of itwas a mistake. They lost demand. They didn't drive demand. So they looked atthe ROAS on platform and associated that for the best opportunity for growth,which was not. It was in a sense robbing the opportunity to grow net newcustomers. So you saw AMER, that acquisition MER in a sense go down, or theACOST go up. The amount it took to drive the volume got way out of control. Andso they tried to... Because they pulled all of their demand gen out and put itright into the bottom of the funnel. When that's gone, now the same activityisn't working and it's getting really, really expensive.

Chris Johnson:

Brands who work more cautious, saying, hey, let's actuallycontinue with Meta, we understand there's some data loss, what is the average?Meta released information pretty late, but told us it was 30%, so we couldapply that metric, 30% on average data loss, and say, okay, well let's applythat to your current ROAS, here's what it really looks like in reality, andlet's compare that to MER. And we found that brands were fine. Meta was fine.If you just added that 30% back, you're actually winning. Let's scale morehere. So TikTok and Snap, everyone is asking right now in 2022, where do Ispend my money? Because it's a different challenge with Meta today around theiractual product, which is inventory. So that's a separate thing than 2021, but2022 is their inventory is less. And so we can see that by daily active users.

Chris Johnson:

So they report on this in their earnings call, and you cansee their stock price did not like that, and so what does that mean? Ourfounder, Taylor, has a great threat about this, but basically it means the waythis works is, if I have less inventory there, it's going to get more expensivefor me to do anything there. It's not just competition, it's saying for everysingle person I need to reach, there's less of them, that means it's moreexpensive to scale. And so we are seeing brands trying to move into other moresocial visual platforms like TikTok and Instagram to drive demand gen.Remember, a lot of times Google's kind of demand capture still. Now, they don'tlike when I say that, because it is more than demand capture. I do know that.But for many of our brands, their ability to leverage all of the products isn'tquite up to speed yet, so we want to say, how do we best take advantage of thismoment and develop a plan against Google to do some more demand generation onsome of their other products that we can talk about?

Chris Johnson:

And so we're testing there aggressively, but it's hit ormiss with any new platform. Just think early days of Instagram, or think aboutInstagram stories, I remember when I was starting to lead strategy with some ofmy teams, Instagram stories was what Facebook was pushing, and it was great, itwas super low cost. I remember it was a third of the cost for traffic, but theconversion rate was terrible at the time. It was just new people. The peoplewho were using that product were more about the social than about the shopping,and so it just wasn't that great.

Chris Johnson:

And we're seeing some of that on some of these otherplatforms. It's hit or miss. Some brands are killing it. Social shopping kindof format brands, cosmetics, awesome. Sometimes though, some other brands thatare more hard goods maybe struggle here, higher AOV products maybe strugglehere on those channels. So we say, let's look at the landscape, we can try it,but let's not just rip out the engine to try and pursue... That's really risky.Let's think about running this on a platform we know has great supply rightnow. It is declining, but it's not dead. And let's start trying on these otherchannels, but there is a precursor, which is can you afford to on all the othercomponents of your business, is your cost of delivery, your actual cost ofgoods being maintained, or is it going up? We're looking at things like interms of your OPEX...

Chris Johnson:

And this is how deep we get. Are you just adding a bunchof head count and causing way more weight to the business in a moment where allyour supply is getting more expensive? All that squeezes margin and squeezesability to spend, and opportunity. So we ask these questions first, before weeven talk about channels. Can your business sustain a loss on that channelcompletely? If we don't make a single dime on that channel, can you stillsustain that? If not, it's not the time. We got to focus on the rest of thebusiness before you can even afford to test there. If every dollar matters sodramatically, it's not fair to your team to be like, get me great return whilealso testing and guarantee a return on this new channel that's not proven. Andso we tell brands, let's be very clear about the priority.

Chris Johnson:

Right now for many brands, it's not the time. They need toreally tighten up on some of the business operation side, really think about creatingthe right kind of content base to support those channels, and then slowly testto the place where they can tolerate losing that amount of money on Snapchatand TikTok, and then when they win, it's icing on the cake. It's amazing growthfor them, and it's diversifying their account. We love that, but not at thedeficit of profitability that will kill them if they overspend, because they'rejust scared that Facebook today is slightly down, but is not completely gone.

Kirk Williams:

That's fantastic. You you alluded to this. So we just doPPC, just Google Ads, Microsoft, that sort of thing, but obviously we'll workwith either in-house teams or other agencies on the social side. It is funnyhow for the brands who had the issues and struggles and concerns, as youbrought up, with Facebook tanking, to then shift it, if they didn't fullyunderstand exactly what you had noted, which is you're moving from primarily ademand gen platform... So especially if they were... Let's just say they weretaking that and like, well, let's pump more into Google shopping. Googleshopping is by its very nature for the most part... Now, admittedly, they'restarting to play more in YouTube and display in that too. So you are startingto actually get some element of that.

Kirk Williams:

But for the most part, especially when it's search-based,it's kind of simple in how it works into being demand capture, and that'sbasically you need someone to think of their need for something, and thereforesearch for it. That's what search is. It is just extremely differentphilosophically from Facebook, from social media, and that's exactly what younoted. And we've seen that as well, is it wasn't just enough to say, hey, wewant to shift dollars to see where we can get our ROAS? If they were shiftingtheir funding from primarily that demand gen to demand capture, they reallywere going to get into trouble at some point.

Chris Johnson:

Yeah, it's not immediate. That's the thing. It's kind oflike a drug. It's, oh my... If you're a marketing manager today working on ane-com brand, and your boss is like, my ROAS is down, give me better ROAS, I'mreporting to the board next week, we can push the volume up on that shoppingcampaign through the roof. We could do that on the branded side. We can pushmore volume through for Google at the expense of pulling spend from the placeyou're generating all that demand. Especially if you're leading a category, andinventing the demand for the category on Facebook, you don't see that tomorrow,you just see better return. As an agency, we think in one year horizons, wedon't think in one month. We forecast an entire year together, because we hopethat you stick with us.

Chris Johnson:

And so for us though, it's like, that's not going to helpme get to new customers, because you have a boss like me who's looking at netnew customer growth saying, great, your return is fantastic, but your number ofnew customers is down by 30%, you will die if you continue this process. Andthat's a challenge for brands, because it is so easy, it's a drug to focus on asingular metric, a singular number to drive their business, which it doesn'texist. There is not a single number to drive your business with. It's acombination. It is a consolation of numbers you have to keep an eye on thatmakes health.

Chris Johnson:

It's like a person. Health is a series of components thatlead into that ultimate result. And so a lot of times I am sitting on callswith a head of growth, or a VP of marketing, or you name the person, trying toremind them that the goal is growth, the goal is not immediate return all thetime, that they hire us generally speaking to scale their growth, and there aretimes where that is a painful investment that pays off, and we're partneredwith them in that we're compensated in that way. And so it's hard.

Chris Johnson:

It's really hard though if you're really under pressureand you're under tight situations for some agency to tell you, yeah, no, investon something that is declining in terms of users, but is the best bet for youright now, because it feels like the boat is leaving and I'm not getting on it,because everyone's on that boat, when really it's just a lot of people onTwitter saying, this is really cool and it drives engagement, but it's notactually driving the business growth for the majority of the brands we workwith, and we will get there, just not probably today. And a lot of times tooit's the sexy thing to do, because the other stuff is not very sexy. Drivingorganic growth through SEO is not very sexy. Content development that reallyfocuses on solving problems, pulling from your customer service reps whatthey're asking and developing content, not sexy at all. No one's going to belike, let's retweet that, let's make a thread about that on Twitter. That's nothappening, but it's essential.

Chris Johnson:

I talked to a brand yesterday, she was really, reallypassionate to get on our growth team levels, our platinum product, it's our toplevel strategist and all those components, and she wants to start, and I said,"Look, I understand, and I would love to take your money, but this is myresponsibility as kind of a fiduciary of e-commerce, your e-com health is nothere yet. We will crush you just by the weight of our cost if you don't get theseother things up. We will start, we will hit everything we're trying to do, andyour engine will stall. You don't have enough organic. You're overlycapitalized within ad spend. You don't have organic social driving this.There's nothing here to support the weight that I'm asking you to increaseon."

Chris Johnson:

And it's a hard conversation for brands, but it is theright conversation. You want to be ready for growth. You can't just do itbecause you want to. You have to be at the place where you can supply it, andthat is not sexy at all.

Kirk Williams:

And what we've seen is, one of the places that they'llturn... You noted it's like a drug, and it really is, is kind of that demandcapture type side. And the problem is, the more you focus and pour into it...It's a limited resources type of a situation. Unless you're building demand andliterally creating searches, there's a cap to the number of people who are evenlet's say searching for this. It starts to become inefficient the more youinvest and invest, at least that we've found. And so totally agree, if you'renot also focused on building that demand, then the more you focus on more ofthose mid, bottom funnel searches, it's getting more expensive, it's gettingmore inefficient, you're starting to struggle, there kind of as that point, andall of a sudden they're looking around saying, hey, this must be someone'sfault, agency just can't bring us the results like they used to be able to.It's like, well no, that's because you're trying to dip too heavily into thispool. So anyways-

Chris Johnson:

Yeah. One thing I'll just add is, obviously the testingside's still important, it's just coming in with an intentionality around howyou're testing. What I find, if people are honest, is they're coupling, I haveto get performance from this test, which is not a test. That's not a fair test.You're saying to this opportunity, this is not about me winning on this oneopportunity, it's for me to learn if this is going to work. Now, I don'tbelieve that you should have your entire spend be testing. That's bad. Metadoesn't agree with that, Google doesn't love that either, but you should have aset side of it. The idea is, where are we aligning our intention with this? Andit's not fair to change your mind. It's like, well, I'm going to punish themarketer. I'm going to punish the performance growth marketer in-house in theagency, because that test didn't yield us 6X results from our current base ofspend.

Chris Johnson:

You should actually plan for it not to. In most cases, theaverage, the bell curve is what the majority are doing, and that's working.It's a bell curve for a reason. Most people are spending that way because it'sgenerating results. When you're testing, you're pushing out to the edges ofthat, and that's okay, that's good. One of the things I love with search I tellbrands is, it's a treasure trove of intelligence for you. If you do PPC, ifyou're doing paid Google ads, you're getting way more intelligence than fromsearch console. Search console is going to give you some senses of, hey, here'swhat the search from organic generated for you, but you don't get what exactlythey looked for, which I love.

Chris Johnson:

When a brand comes in and I want to know about theircustomers, I'm looking at their search term report within their searches to seewhat are they looking for. And so many times the category that they'researching the most for is not the main objective that they set their accountfor. And it's an opportunity right there. Now, that's why I have a love/hatewith smart shopping. I love the engine it creates, I just don't like that Idon't get to see that intelligence. And that's just because I'm a strategist.My job is to provide intelligence to brands on what they should do. So it's adouble edged sword. This is going to get you results, you're going to lose outon some of that information. But the testing to get intelligence is worth it.You can totally set up separate campaigns just to understand what is people'sintention here, what are they looking for, what long-term opportunities couldwe maximize in a more competitive search space?

Chris Johnson:

Because what's going to happen is, search is going to getway more competitive now. As people move all their money there, what's going tohappen to all those auctions? So much more expensive. And so I tell brands,let's get out of that expensive red ocean into something blue, which is morefocused on more long-tail, thinking more about use case comparison. Those arereally good opportunities for YouTube ads. There's so much you can do there,you have to just give it space though to mature and become an opportunity foryou. If you treat it as if it needs to be the lifeline for your business,you're never going to give it the chance to really succeed.

Kirk Williams:

Love it. Okay. So I don't want to take up too much more ofyour time. A few minutes left. Let's talk maybe some supply chain stuff. So Ireally like that we got some great iOS 14 stuff, but maybe talk us through interms of client-based stuff. What maybe were specific ways you saw you hadsupply chain challenges? Kind of take it where you want. If you want to talkthrough a little bit of story of things that you saw, or maybe specificchallenges, specific little insights, stories about this, that or the other,container prices, whatever it might be.

Chris Johnson:

So my favorite thing was brands saying, hey, we're out ofour best seller, but we want you to perform at the same rate as you did before.And so that makes it hard as a partner to be like, well, look, we both knowthat both these things are related. It's not... Again, I always bring it backto consumer psychology, their behavior. If they like the black legging, andthat's your best seller, and it's gone, you're trying to convince them tochange their mind on, you don't really want black, you want pink, or you wantnavy. And so that's going to take more energy and more cost and more testing,and it's just going to get more expensive. And so that's one thing for us onour end where we're driving the volume. If you remember, in our placement,we're kind of at the front end. We're trying to drive in new customers.

Chris Johnson:

We do have the retention side, which has been huge for us,and that's counteracted some of the cost side, which we can talk about, butspecifically what I've noticed with brands is, one, just the material costs hasgone up, so that affects everything down the road. So if your cost to make theproduct, just the material's gone up, let alone the shipping and the timelinesfor that shipping, what it's doing is, it's crunching those cash flow windows,those cash payback windows. And so if you don't have the right setup where nowyou're saying, okay, we're going to make this giant PO, and I have X dollars inthe bank, and as a strategist, something pops up. It's amazing we're seeingsales. I want double the spend. They can't. They cannot. And so what are somespecific examples?

Chris Johnson:

Okay. So we work with a large cooler company, and for themwhat we've noticed is specifically this same issue, whether it be supplyconstraints around some of their best products. So it means we have to getreally, really creative on surfacing other kind of products. That puts moreconstraint on us as an agency to create new advertising and creatives and adsaround not best sellers, which means it's pushing into testing, and it pushesinto poor performance sometimes. That's really tough where it's like, hey, thisis the thing they want, you don't have it, we got to navigate that. And so that'stough. I think in terms of like other brands, what we have seen is then a lotof competitors show up too in terms of the same space.

Chris Johnson:

I used to work with two of the largest percussion therapydevice products. So you can probably Google them, and you'll find them. And forthem, a lot of their supply chain was way more complicated. At the time, theyhad moved on, but I can see in the wake of those products way more competitorsshowing up at our door who don't have the same level of efficiency in terms ofscale, they don't have the same level of really dropping the cost of the unitsbecause they've bought a million plus units, and so they're asking us to do theimpossible, which is [inaudible 00:43:49] the main 300 pound gorilla in the category,do it at a higher return, while also not having the ability to even navigatebecause their costs are so high. And so that's something I'm seeing. It'ssquashing competition too, where we're seeing brands that typically would havemore competition scale, can't.

Chris Johnson:

It's removing those brands that don't have the value prop.I think the other side too is, sometimes the supply chain gets a littleinflated in terms of what's happening, but what I've noticed more that's beeninteresting is wholesale booming back to life and pulling D2C inventory. So oneof the brands we worked with is in the food space, in more of the keto proteinspace, and they had allocation set aside for direct to consumer good to go.What they found is that, because health as an industry, the healthcare spacehas gone up, their Whole Foods orders, their store orders went through theroof. And so they had all these POs now that they were oversold. Theyanticipated not having to fulfill all of those, because most of the time the storescancel.

Chris Johnson:

And again, I'm not the wholesale guy, so if I'm messing upthe language, sorry. I'm on the D2C side. But anyway, the way they explained itto me is, we now need to liquidate all of our D2C inventory into wholesale tofulfill the commitment we already made. That's hard, because I'm like, I have acontract with you, you need to stick around and work with us on this. But thatwas the thing that was happening too, is we're seeing wholesale... That's a lotof money. If you're a CFO, and you're like guaranteed sales versus spendingmoney for maybe having a sale, where are you going to put all your inventory?Put it all on wholesale. And it's shortsighted, because you don't own thecustomer data, you're trusting the store that they're going to keep doing that.So I don't agree with that move.

Chris Johnson:

It's a sense that, yeah, I understand why, but you want toown your customer. You really do in the future. That's where we're moving to.But we see wholesale roaring back to life in a way that most brands didn'tforecast, and they had already put those orders in and they're thinking,they're going to cancel. Well, they didn't, and now where is that inventorycoming from? And they can't get more here. They cannot get it in a boat to herein time. And so they have to make a difficult decision, in a sense mess up thewholesale opportunity, or in this case, which is easier, pull back in D2C andhope that they can do it later.

Kirk Williams:

Yeah, I like that. I think that's the first I've reallycome across that even temptation in thinking through that for some to liquidatetheir D2C inventory into wholesale. That's really interesting.

Chris Johnson:

It's interesting, and it's not surprising if you thinkabout it. If you're cash constrained... This is why I always bring it back tothe economics of the business, is that most of these decisions are tied to themechanics of the business operation. It's really not even about... As much as Iwould love it to be a problem on the marketing side, it's they're makingdecisions about their cash flow, and that is what we have pivoted all of ourstrategists to think in that same language. All of our teams now that we train,the first conversation we have is, here's what a healthy e-com business from acash perspective looks like. Our best strategists will take a profit and lossstatement, break it into four quarters, four pieces to isolate your CAC, costof delivery, OPEX and your profit.

Chris Johnson:

Because what we're talking about is trying to convincebrands to think about profit and long-term growth over short-term, reallyshortsighted short cash movements, and we're advising our brands, our bestones, not to make that quick jump, because it looks nice now. That drug looksso nice for me just to get that wholesale order, and that's cash today. ThatGoogle spend, shifting 80% of my budget there looks really nice today, but whenit comes to the long-term, what I think we're going to see is probably a lot ofbrands who are going to be in a really tight position later in Q4, because theydidn't set themselves up for success in this channel. And the winds havechanged, and the trendline and the arc of business is moving towards e-combeing the dominant player. It's not today. We've moved forward really rapidlyover the last four or five years. But think about how small it is compared tothe global GDP, and how much it's growing.

Chris Johnson:

It will become the dominant channel. And so you notinvesting in the future is like you not buying in Apple back in March of 2020when it was at a discount. It's you not investing in the ability for you to bepositioned well in this channel when... Remember back in wholesale, those aregoing to get constrained as well. Real estate will get more expensive over time.Those will be issues. You're competing for shelf space. Remember where D2C camefrom, this idea of efficiencies in me being able to go directly to my consumerand be able to pivot fast enough to respond to them, instead of trusting thestore's intention with my brand. And so that's what we're pleading with brandstoday, is saying, I understand the diversification story, that's fine, but notat the deficit of the main way you talk to customers, consumers today.

Chris Johnson:

You really need to own that channel and be able to scalethat. If not, it's going to be really hard to compete with Nike. It's going tobe really hard to compete with all these other brands who have way bettersupply chain than you, and can demand way better conditions than you could everdemand, because they have $1 billion, and you don't. So it's much better to tryto do it on this small pool than try to win globally in this space, unlessyou're really set up to be successful. And maybe you have some venture capitalI don't know about that's incredible, but I don't know.

Kirk Williams:

Yep. I think it's hitting a lot of those brands now.

Chris Johnson:

Yeah. Look, if the consumer is shifting towards a e-comfirst, I get to make it the way I want customization, none of those things lendthemselves to wholesale. I get it. I really do. And I think it's a greatmarketing channel. If I was going to say demand gen. Yeah, for sure. Think ofit just like if I was doing TikTok. I'm going to use this to drive in generaldemand for my category. But I'm pretty bullish on D2C continuing to be along-term payoff for people. Now, I'm focused on growth. I'm in advertising,but I'm focused on growth, and it doesn't always mean ramming ad spend to themoon. It's about a balance, right? It's about a balance, and I want to see50/50 split of organic... This last metaphor I'll give you is, we havesomething called a layer cake where we think about ad spend and marketingstack.

Chris Johnson:

The bottoms are existing customers' LTV. It's the lastpiece [inaudible 00:50:22]. It's those existing customer cohorts we talk abouttons where we base our forecast on. Those existing customers are the mostpredictable, they're the cheapest to maintain, and it's logic, if you have acustomer today, it's a lot cheaper to keep them than to find a new one, andthey are insulated from increased cost of the platforms. Above that is organic,right? It's the general mixed of earned media, so PR, think about some of theaffiliate components, but also it's organic search, which is an incrediblespace. That is not slowing down. With AI today and what Google's investing,search is not going away, and people are using it more than ever. And soorganic is a great category to start investing in. The last piece is that paidmedia at the top of that cake. If you think about kind of a pyramid, the baseneeds to be big to stabilize the top, but most brands are upside down.

Chris Johnson:

The top is on the bottom. Paid media is the biggestcomponent of their spend, but it's the most unstable. And so you see brandsthat are shifting wildly, because none of the base is stabilizing them. What weencourage them is saying, we will own and really work on paid, we really wantthat, but the ability and the speed of which we can scale is directly determinedon those bottom two pieces, your existing customer cohort and your organic orearned media that's driving in that volume for much cheaper spend than any paidmedia is ever going to be. The best brands across the board in the shoecategory that are incredible... I can't say which one, but a really incrediblebrand that is worn by a bunch of people, to then in terms of I think about ourlifestyle fitness brands, all these brands that have been the most efficientscalers have had high MERS.

Chris Johnson:

And where does that MER come from, that total efficiencycome from? Incredible retention of their customers. 60 day window time, making30% on that, increases, 30% of their revenue on that base of existingcustomers, and really strong organic. So it's actually not that they're thebiggest spenders in scale. In comparison to the other channels, it's actuallysmall. They may be spending $1 million a month in a Proctor & Gamble CPGkind of brand, but in terms of specifically the setup, it's really that base ofexisting customers, organic, and then paid being the smallest piece. And that'sthe future. That is where brands are going to thrive, and that's where they'regoing to double their spend every year, is because they've grown the base tosupport it. The last note on LTV, just a note on it, it's really hot right now.

Chris Johnson:

It's like LTV to CAC, you need that. We have somedefinitions that I think are helpful for people. Number one, we don't thinkabout that lifetime, we think about one year LTV, how much does my percentagego up in one year, and I think in 60 days. So our team digs into 60 day LTV.How much does the value go up from that initial purchase, and then within 60days, how much is the value there. That's usually the window of time, 60 to 90 daysis that cash payback window for most brands. So it doesn't help you to think,10 years, LTV is X. Some platforms will just fit that number out for you. It'snot very helpful. You're not going to survive 10 years if they don't buy againin 10 years.

Chris Johnson:

You need 60 day windows as a healthy window, which meansthat you can't just do everything on a monthly basis. You got to thinkquarterly. What am I doing quarterly to drive up my LTV there? Email retention,SMS, great, but you got to think about how does that work with the rest of mysystem. I can't just layer on SMS and hope that just drives my LTV up. You gotto think about what is the natural cadence of purchasing these products, andwhat is that window of time for my finances that I can support. And that blend,that's the magic of having a great base of retention, is it's enough time forme to make my money back so I can increase my spend, as well it's a cadencesthat's predictable. So I can forecast in advance to insulate from supply chain.If I know I have this many customers that are coming back, I already know howmuch money at minimum I'm going to get.

Chris Johnson:

So even if paid doesn't work or is in the red, I knowgenerally where I'm starting with. And so if I'm thinking about that PO, I canthink about that main forecast of my existing customers, because it's not goingto go up 30% with CPMs, it's going to stay pretty steady. That's super helpfulfor brands. That's the intelligence people really want today, and I think Irecommend it. And honestly, what I spend most of my time on is doing thatforecast. Let's just do the forecast together, look at your LTV and yourexisting customers and that cohort, and let's then forecast demand off of thiscohort. Not based on how much I could scale spend yet. Do that later. Start offwith existing customers, and then organic's next up. If you can do that withseasonality, those two are really solid, you really have a sense of how muchyou can spend and how much you need to buy.

Kirk Williams:

Cool. I'm glad you hopped in there, because that wasexcellent. You're giving us a masterclass on e-commerce as well, so I kind ofwant to just dump this on people and be like, just listen to this and takenotes.

Chris Johnson:

I hope it's helpful, but this has been my conversation thelast six months honestly with our teams, is really these components that I'vegone through, so hopefully it's helpful.

Kirk Williams:

If people want to hear more from you, or do you have aplace that you're writing right now, or speaking or social media, where canpeople find you?

Chris Johnson:

Twitter, Chris_Commerce. Very simple. So you can find methere. And then obviously Common Thread Collective. So commonthreadco.com iswhere, most of our intelligence is there. I think if anyone wants access tosome of the data that we have, I'm happy to give out some [inaudible 00:55:57]as well. So if you need that, I can give you. We have a monthly data report wepump out from Statlas that gives some insights into those trends, so people canmake decisions from their own sense of their business versus what we're seeingacross those same trends. Our strategies should use that same data set. So it'slike, okay, for you, for us, same data. And our hope is that we just... If Icould say what would make me sleep well at night is people not making decisionsbecause they read something on Twitter [inaudible 00:56:25], but they thoughtabout it against a dataset, and then they made a confident decision.

Chris Johnson:

So if that is what they do, fabulous. But yeah,commonthreadco, I'm on LinkedIn, Twitter, Chris_Commerce, and then my email ischris.commonthreadco.com. I love to respond to people who have questions andconnect. And then last thing I'll give is, we have a group called Admission.Admission is our community. So if you're not quite at the hypergrowth stage ofa company, you want to get started, all of this is in our Admission. Soyouradmission.co is another space that, I put content there, we have a group oncircle that kind of helps people navigate, and they get access to ourstrategists. So we jump in there and answer questions all the time.

Chris Reeves:

This has been a bonus episode of the PPC PonderingsPodcast. Keep checking back for more interviews in our next full episode. Ifyou like what you hear, please consider sharing this with your network, leavingus a review on Apple Podcasts. Until next time, may the auctions be ever inyour favor.

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