it's terrifying in so many ways because, you know, we're agency owners and media buyers and one click sounds a whole lot like hands off, don't touch it, don't pay your agency, bring it in house. When we met, but y'all reminded me of me and John, you guys are like the new me and John, the younger, Improved versions sort of, where do we go from here? And I think John's been talking about it for a year and a half, which is you need to be moving out of ROAS to MIRV. It's Carson with Solutions 8 and this is your daily Google news. I'm here with a buddy who I've been trying to get on the channel for, it's at least a year, you've been elusive. it's my buddy Nathan BlueSenseDigital based out of Australia, which is a real place I found out. public school students were mighty surprised. I figured it was like, lore and J. R. R. Tolkien, but no, there's a real continent. You and your partner Sebastian started BlueSenseDigital how long ago? Three, three and a half years ago now. And since then we had this conversation, when we had met, but y'all reminded me of me and John, the younger. Improved versions. Cause you're doing all the things that agencies generally don't do. You're doing the deep dives. You're kind of at the vanguard. You're cracking codes and figuring shit out. And you just launched your own YouTube channel. So for our subscribers that, cause we get a lot of, well, I wish you guys would go back to the way things were. this is the place to go. This is going to be, my prediction would be that BlueSenseDigital's, YouTube channel ends up being the new solutions eight in terms of some of the more tactical. Like, hey, let's actually dive deep and figure it out. And that's not to say that you should stop watching solutions at YouTube channel, by the way, because we're still bringing fire. but we do a lot of, the day to day. Like, how do you manage Google ads campaigns on a recurring basis? That's where we found our bread and butter is. And to be honest with you, it tends to bring in more clients. the thing that sucked about producing the content that you produce is. You get a lot of people they're almost too smart to sell. it's a good problem to have though, because that's where all of our, really high end clients came from the content strategy. So I'm excited for you, man. and you've got a podcast too, right? Yeah, we do. It's it's called, the blues brother podcast. And we just talk about e commerce. That's awesome. Um, so they're friends of solutions. Eight, follow the channel, check out the podcast. Let's support them. Uh, finally got you on my channel and, we're going to be talking about quite a bit here, but the thing that caught my attention when you fired off your talking points is, the move to a one click world. That is the best clickbait title I've ever heard. it's terrifying in so many ways because know, we're agency owners and media buyers and one click sounds a whole lot like hands off. Don't touch it. Don't pay your agency, bring it in house. So tell me more about the one click world and whether or not agencies survive. Yeah. So if you look at the intent of Google and Facebook, what is their intent? And that's to maximize revenue and maximize inventory and the best way that they can possibly do that. Is to build towards a one click world where any advertiser can hop on the platform, click one button, launch a campaign, and be spending. But I think it goes a little bit deeper than that, which is, if it's a one click world, anyone can hop on, create a PMAX in one click, auto generates images, everything, now you're advertising. Why wouldn't Google even out CPAs with gross margins? So that they can squeeze every brand as much as possible, because that's ultimately how Google maximizes Rev. Is that they take as much of your gross margin as they can, and they leave you with just enough. So that you keep spending on the platform. And so I think it's a, dangerous position that we're moving towards, particularly with Facebook as well, rolling out advantage plus, which is essentially a completely automated version of current campaigns. There's no targeting. You just drop ads in and it just goes, and you don't really know what it's doing. and performance max is similar. You can pull in backend scripts, you can pull data, but it really is. Nearly one click, you're dropping in assets, most of the assets that get served in PMAX are auto generated anyway. It's normally serving DSA, it's not serving any of the static titles or descriptions that you're providing it with. And so sort of, where do we go from here? And I think John's been talking about it for a year, a year and a half, which is you need to be moving out of ROAS to MIRM. and I think that's almost becoming the standard for most agencies and most people that are looking in platform. And that sort of comes back to the one click world as well, which is. Google wants to attribute as much revenue as humanly possible to the platform because they're incentivized to make you spend more. And so if you think, Oh, my entire business is reliant on Google. I do 150, 000 in rev a month. And a hundred thousand of that is from Google. We can't stop spending. In fact, we should probably spend more, but performance max is just going and retargeting all existing customers. And you do some quick math on the backend and you find out that you had your Google attributed revenue with Facebook. And it's two X, what your actual PNL is. And so things don't start to line up. Are you using third party attribution tools? We are, but, triple well. Oh my goodness. All right. Yeah. I've heard really good things about triple well, John worked with them for a while, early stage. Yeah. there really any sense in trying to identify the attribution thread at this point? mean, part of me wants to just say, screw it. Three buckets, top of funnel performance, middle of funnel performance, bottom of funnel performance. And then we're just measuring cash in cash out. We're just going more. I'm not even going to attempt to see on individual transactions where the thread goes, because it's too hard. It's too impossible. correct. John Ivanko, who is the co founder of FormToro, which is pop up forms on site, collecting zero party data. He has a quote, which is Attribution. Is trying to find a customer journey in a company journey. And so you'll never end up figuring out what the customer is doing because you're just looking at a few companies and how they're attributing the customer. And in reality, if we were to sit back and say, all right, your average Econ brand or even your average lead gen brand, how good is attribution in Google and Facebook out of 100%? It's probably like 80, maybe 75, maybe 70. And so how much of a squeeze is there putting all of your time and focus going from 70 to 80 or from 80 to 90 when there's a hundred other bottlenecks in your business and that's why you're not actually growing. I think business owners get really caught up on attribution and it makes sense, right? Because as a business owner, you have your cash flow and you're going, I want to grow, where do I put it? Do I put it into Google ads? Do I put it into Facebook? Do I put it into my SEO team over here? Who's saying that they're driving all the revenue? Where should I put the cash? And then everyone's telling you different numbers. It doesn't all add up. And so you're trying to just quickly grow the business with a single decision, but you can't because it's all a bit cloudy. How would you un murky the waters for us? So I'm a brand, I have a tax relevant spend. I have the, paradox of success and I am I'm doing social and I'm doing paid and I'm doing search and I'm doing organic and I'm doing a Little outreach and PR and direct and all that just media mix. You're my CMO What decision do we make now or what do we start looking for? Like what's the next step? I think firstly, you do look at the attributed numbers with an assumption that they are 60 to 70 percent accurate. and generally speaking, if you have a good media buyer, you can tell where people are pathwaying. There's the basics, Facebook will normally over attribute on retargeting if you're doing a lot of Google spend. If you're doing a lot of Facebook spend, Google will just scoop up brand search and look better than it is. So you need to look one layer deeper than whatever's being attributed. And then I would be looking at Top level CAC or NMR, which is just Acquisition Merged. So you're looking at new customer revenue rather than total revenue. And then you're making tweaks on a week to week basis with the acquisition strategy and seeing how that impacts your top line numbers. for example, if you're spending 50 50 on Google and Facebook, And the CMO has a prediction working with the media buying agency or whatever it might be, that if we spend more on Facebook, we'll see better returns, increase spend on Facebook for 2 to 3 weeks and just directly track top line revenue and try to keep other variables constant. It's going to be tough to do keeping variables constant, especially when you're at a certain scale, but taking a more holistic view while also having consideration of the in platform numbers is going Yeah, well, I like what you said, too. It's actually, it's not an answer. It's sequence of tests that probably never end. We're not going to make a decision and then drive hard in that direction. We're going to start tweaking things so we know what our knobs and our levers are. And then we're going to see how those tweaks impact whatever the relevant KPI is at the moment, right? Be it Mer, NCAC, or however, because I know everybody's measuring success differently and so should they. It's really easy for me to say LTV is the only number that matters, because it is, but not in a 90 day period, right? There's no such thing as LTV. So now it's, hyper dependent upon the business model too. And that's the other thing that I think that we did a really poor job as educators getting across. there's no template. There can't because your business is, So unique and then the approach that your business needs to take is so unique. And so even you saying like, Mer is the only way that we need to measure and correct me here, if you think that I'm wrong, Nathan, but, if I'm zooming out, Mer is. the golden ratio, but if you're doing the week over week analysis that you just referenced, can Murray even be relevant because it doesn't take into consideration things like, lag indicators, people in the pipeline, it doesn't Murr have to be a longterm. I mean, at least quarter over quarter, if not year over year analysis. Yeah. what you're saying is that there's an attribution lag on new customers as they enter the funnel. Yeah. Because if you increase spend really rapidly, your MER will just drop. Well, you said that way better than I did. So, what are the other KPIs that you recommend businesses look at as lead indicators for MER? So, if MER can't, I mean, MER is our gold standard and we know that for a fact, but on a long enough timeline, as I'm in the thick of it and I'm doing the test that you referenced on a week over week basis, and I need to make decisions based off of yield of those tests, what is that yield? Like, what are the data points that you're looking at? It depends if you're rapidly increasing spend or not, because you could look at MER if you're not increasing spend week on week. And that's what you said about keeping variables. Yeah, because then technically that lag would catch up and then you're just backfilling into the lag. Okay. But I really like looking at CAC these days over MER and the reason being is that the best brands to work with end up being CPG brands, so consumable based brands that have repeat purchases and have a strong LTV, in which case CAC just makes a lot more sense when you can benchmark towards a 90 day or a 180 day LTV, which they're targeting, and we know that that cash flow is going to come off the back of acquiring a customer for a specific cost. especially with consumables, the interesting thing about what I'm seeing there is, first year shooting fish in a barrel, but then all you need is one other competitor to enter that space. And now people are spending more to acquire a customer than the customer's worth the first time, the second time, the third time, and then, you kind of have this race to the bottom, said this to somebody today, I feel like we're in a traffic bubble because you used to be able to self liquidate traffic. have very few customers that are self liquidating, especially in the consumable space because they're all such small purchases on the front end, generally speaking, with a few exceptions. So then it's like, all right, well, I'm not going to self liquidate, but I'm going to make money on the upsell or the order bump. And then it's like, well, the upsell on the order bump pays for my traffic, but I'm going to make money on the next purchase. Well, I'm not going to make money on the next purchase, but my, my LTV is this and my CAC is that. So as long as my LTV outpaces my CAC, You know, it takes me however long to maintain profitability. So based on the customers that you're seeing, do you think we're in a bubble? Do you think the traffic costs are viable? Or are we going to see a down regulation once certain brands realize this just isn't viable anymore? big yes. I tell someone what that used to be. I cost, they're up enormously. And I think that particularly last year, as well as this year, It's the squeeze that most agencies didn't expect because COVID was so easy. it would start a brand, launch a campaign, make money, full stop. And then what also ended up happening was all of these brands did so well. And there was such explosive growth through 2020, 2021, even 22 a little bit, is that everyone then over inflated their OPEX. Because there were now a new revenue level. So they went, okay, now we need to hire a marketing manager. We need to hire this. We need to hire that. And then suddenly their OPEX grew from nothing. It was just a one person brand. Now they have seven people on the team and revenues declined by 30 percent in the last year. And so everyone's saying this huge squeeze and we get clients coming to us all the time where they'll come and we'll go, okay, so let's lay out your financials. What's your target? And we are, and they'll go, and you've probably got this before. And they'll go, 10 and they go, Oh, actually, no, it might be 14 and you go, well, good luck. you sell a hundred dollar product. We're not acquiring customers for 8. Like it's just not happening on any platform. I don't know how you expect to scale at a 14 mirror. And they're like, Oh, well we have to, because we have 80, 000 in OPEX per month. You know, why do you have 80, Oh, because it's just there. It's just on the P& L. The accountant told us it's there, so it's there. start to find a situation where a majority of brands now aren't facing really a marketing problem. It's an operational issue. even their contribution margin on orders. So you'll have brands that will have 30 percent gross margins on non repeat purchase products. 80, 000. And you go, how do you expect to have any allocation towards marketing when you're only making 30 percent gross, right? Because 30 percent gross means that if you want to operate at 15 percent net as a company, assuming no fixed costs, no OPEX. You'd have to spend 15 percent on marketing, which is the equivalent to about a 6 MER, a 7 MER, and that's with no OPEX. Right. how does that operationally make sense unless you're at a huge scale doing really 20, 30, 40 million a year? Yeah, already said this, it's not accounting for OPEX, but I think what a lot of people don't realize when they're playing their Excel file games is we're all multi millionaires on Google Sheets, but it doesn't take into consideration things like returns, you know, I mean, the econ game. Is one or lost in some instances in certain industries, just on returns, or the fact that everybody's offering free shipping. Well, someone pays for that, lot of these, especially the students that enter the game, I don't think they're taught properly the way to look at numbers. I like what you said that most of these problems aren't marketing problems or operations problems. That also kind of lends itself to the idea that agencies they're not media buyers anymore. They're like business consultants, because you have to know what you just said. You'd have to know to look at how to look at a P& L. bet you 90 percent of agency owners don't know how to look at a P& L properly. So yeah, you'd have to know how to look at a P& L, how to zero in on where, you know, where's the inflated number, really start to pick it apart. And then it kind of begs an interesting philosophical question, which is the viability of a business. is entirely dependent upon your CAC. I'm backing into this too, because I'm having this thought as you and Eric talking, but right now what everybody does is they build a business, they build the assembly line, they build the product, they build the fulfillment team, and then they go and they tell guys like us, all right, we have to have 6X. We have to have 9x, we have to have 15x, based off of this. And really what should happen is, we should go try to sell this shit, and come back and say, okay, you can afford 4x business. So you gotta go figure out how to squeeze all of your crap into 4x, and if you can, you'll make some money. And if you can't, then don't do this. But that's not the way that we function. And we can't sell it that way either, sadly. you're spot on. that's why we particularly, we started losing, we lost a few clients. We lost two to three clients and every time we lose a client, man said, sit down for a 30 minute meeting and we just take complete ownership of why the client left and try to figure out how we can never have that situation again. Because if you can fix every time a client leaves, then eventually clients will just never leave because you've patched every single hole. what we found for three clients in a row was that even with all the ownership and responsibility that we could take, it ended up being operational issues. One was, overinflated opex. Their opex was so high from Covid. They hired, so their revenue went from 300 to 600. They went and increased their staff from two to 15. Oh, good. post covid drop, no cutting of staff. Staff remained the same. And so their targets got outta control. Just outrageous. And we're like, well, we, we can't hit this. Another one was a consumable brand, $60 a OV. So it's a consumable product gets a repeat purchase rate. wow. Okay. And so you can't sell a low AOV consumable product. If no one's going to buy the product again. Well, that also means no one likes your shit. Correct. it's a fun thing to come and tell your client, like, Hey, we're selling this and nobody's coming back. So, yeah. And so if you're going to run on like an LTV based business model where you'd, shift your KPI to, CAC to LTV, because you know, you're going to be profitable on second, third purchase. Yeah. You need a 2nd, 3rd purchase, and that is a baseline requirement. And then, we had another client, and this is really common, you probably have this as well, where it's almost a retailer. They have, they just stock other people's products, 1000 plus SKUs, 2000 plus SKUs. what ends up happening is. We say, okay, we're at a 10, 15, no, let's start scaling spend. Oh, we can't, we have no cashflow. where's your cashflow? Oh, it's all stuck up in inventory. And then you go, okay, well, let's, give us an inventory export of all SKUs. And let's have a look here. And then you can start building out Excel sheets to look at overstock and orders. And you start to go, wait a second. They're overstocked by 2 million in inventory. And this is a 2 million brand. so their revenue is their inventory being held right now. So as they're generating free cash flow, it's just straight into inventory and it's gone. And so, once again, it's an operational issue, not a marketing issue, is if they could tighten up their buying and they could craft offers around overstocked products and get rid of them, and even just cut down your SKU count. Most of the time, you can cut 60 percent of your SKUs and you'll be fine. It's Pareto's principle, 80 percent of revenue comes from 20 percent of the products. So, there's all those considerations that marketing agencies will, will lose those three clients. Every marketing agency will lose them. unless you're a strong financial operator and you understand operations within businesses or specifically e com or whoever you're working with. Because or else, how do you retain those clients? Just within the silos of Google and Facebook ads. This is the funny thing about being an agency owner is at a certain point, I mean, it used to be, we just ran the ads and then it was like, well, run the ads and tell me the numbers. And it was like, well, run the ads, tell the numbers and dig into my operations. had friend He goes, I'm looking for a marketing agency. Who's willing to run the ads performance based and pay the ad spend. And I'm like, All right, dude, that, good for you. he's got a well known brand and everybody knows who he is, that only goes so far. I'm like, I want that too. A B at a certain point, I start to wonder why do I need you? And I don't know if you've ever felt that way, but some of these brands that I've worked with, I'm like, all right, we did your top of funnel. We did your lead acquisition. We're now helping with your sales and now we're going to dump into your fulfillment at a certain point, you're irrelevant to this process. And I should just own your business. And feel that could be the way that good agencies go is we just start opening up our own businesses and our own brands because it's not worth the lift of trying to bring these other people with us, especially given how inept they are at everything. Hmm. thought about acquisitions at Tom is. with a lot of brands now, we're at the extent where we just run the whole company, right? we're looking at overstock. We're telling them, Hey, these products are out of stock. You need to change your buying cycles. We're looking at contribution margin. We have their whole P and L in excels and we're monitoring OPEX. And we're saying, Hey, OPEX went up last month. What did you do? I went out for a nice dinner. And we're like, Oh, well, don't think we should count that within our numbers. And I think we should back that out. Right. it is at the point where it's like, why don't we just, what's left? It's customer support. And. Product design. figure that shit out on Fiverr? Yeah, exactly. Yeah, it's interesting, right? Because, the best agencies will move to that. And then at that point, do you just move away from being an agency and just start becoming an incubator of businesses and brands under you? which actually sounds like a lot of fun. That's maybe my little sad pathetic dream is I'd love to have an incubator after I made my exit. That was kind of the plan is I'm just going to go and build businesses. So we'll see. Maybe that's the new agency model. Last words to you. they might be a potential client that could be an agency owner. when I sold my business, I had 185 clients and I have 130 now and we're phenomenal. And when I do the analysis of who we've lost, it's exactly what you're saying. It's topic issues, fulfillment issues, um, a lot of financial issues. We've had a few clients declare bankruptcy. And yet, if you look outside, everything seems to be fine, right? Like all the pundits, all the, usual suspects in terms of the barometers look okay. So I just think this is such a strange black box that we're in. Where do you see the next 18 months? Good question. I'll reiterate what you said, which is that most brands are down year on year. a few brands are up and doing well, I see over the next 18 months, it's going to be dark, probably for the next 6 to 12, with all the things that we've talked about, right, is that ad costs are going up. So there's this huge squeeze on most brands, and we're Ecom focused on the agency. That's why I'm always referencing Ecom, but a lot of businesses opened in Ecom during COVID. And a lot of people didn't get to go through tough times to learn all of the core fundamental skills that it takes. To maintain a business. If you start a business during a bull rally, what happens when you go into the recession? right. And so all of these businesses are now, everything's tightening up on the P and L. And then all it takes is a few lines to tighten and suddenly you're negative cash flowing. And you're going, what's going on? And the worst thing you could do at this moment, and this is going to sound bad, probably coming from us as agency owners. The worst thing you could do is turn to your agency and just scream at them. Because really the only thing that's going to fix operational issues with most of these brands is operational issues is looking internally and figuring out what's going on and then. Ideally, yeah, you might want to look for an agency that is better aligned with high level business strategy and is going to look in and consult and help you outside of the accounts, but it's really understanding numbers, number one. and it sounds so obvious, but I'm sure you talk to business owners every single day. it would blow people's minds how many businesses don't know what their gross margin number is. Yeah, I think that's the single biggest need in the, space of entrepreneurship is financial services that actually distill the information in a way that's actionable. Here's your dashboard. Green is good. Red is bad. You want it to be up to the right. And if it's not, then we need to start making decisions. Nobody knows their per service or per product margins. Do you not know that information? You know what I mean? Like, how do you not know what you make on what? And, what's interesting too, is every time I'm on the phone with somebody who we land in this part of the conversation, they know, they don't know. You know what I mean? It's not like a surprise. They're like, no, no, I know, but on a long enough timeline, we're making money. So I guess it's okay. And I think that's exactly what you were speaking to. The rising tide floats all ships. Money was flowing. You didn't need to be sophisticated to make any money. And so there's a lot of unsophisticated people in the market and they're getting annihilated right now. And I'm watching them drop like flies and, it'll taper. And then, you know, what's really interesting is, the market always overcorrects cause that's just the way the pendulum swings. This is a lot of fun, man. I really appreciate you hopping on. I'd love to have you back again. where can people find you? We're going to link to your podcast. If somebody wanted to work with you, how would they reach out? you could reach out through our website, which is bluesensedigital. com. au or you can find me on LinkedIn. Yeah. We'll drop that in the description and the show notes. Do you just do agency services or do you do consulting? we do consulting as well. Yeah. Okay. That's great. Yeah. that's awesome. Nathan super appreciate you man. High five if you're watching like comment subscribe