Mike and Nevin grab a cold beverage and talk about avoiding the ROAS Trap. As capital has become more expensive, eCommerce brands should look to get smarter about the metrics they use to gauge success. ROAS leaves us wanting.
They delve into the significance of capital efficiency in the eCommerce industry, particularly during periods when capital is not readily available. They explain that businesses in this sector have been fortunate to experience a time of abundant and inexpensive capital, with investors eagerly supporting software, online e-tailers, and e-commerce companies. However, this trend has begun to slow down, compelling the industry to confront the necessity of capital efficiency.
Capital efficiency entails making wise use of the funds a business is able to acquire. It involves maximizing the impact of every dollar to effectively grow the business. The guys note that there was once a time when growth at any cost was the norm, but now it is crucial for businesses to be as efficient as possible with their capital.
They also stress the importance of stretching every dollar as far as it can go, given the current scarcity of inexpensive capital. They emphasize the need to maximize the impact of advertising on the business, rather than solely focusing on brand building. They mention specific metrics, such as return on advertising spend (ROAS), that can help gauge the effectiveness of advertising efforts, requiring mathematical calculations or the use of partner platforms.
Overall, the episode underscores the significance of capital efficiency in the eCommerce industry, particularly during periods when capital is not readily available. It encourages businesses to be strategic with their financial resources and to make every dollar count in order to effectively grow their business.
Digital marketing is an iterative process and that there is no one-size-fits-all strategy. Marketers cannot risk their entire marketing budget on a single hunch or expect every campaign to be successful. Experimentation and A/B testing is important in social media, display advertising, search campaigns, and Amazon campaigns. Some campaigns may not yield desired results. You need to continuously try different approaches to find successful strategies. It's important that you're able to pivot and adjust strategies based on the obtained results. Avoid agencies that claim all their campaigns will be profitable, poppycock. Instead, focus on the overall health and sustainability of the business, rather than getting caught up in individual metrics.
Capital efficiency refers to maximizing the impact of every dollar in a business. The guys mention that in the past, there was a time when growth at any cost was the priority, but now it is crucial to be as efficient as possible with financial resources. Make every dollar go as far as it can in order to effectively grow a business.
The hosts also highlight that the current economy may not provide as many emergency resources, so it is crucial to ensure that a business is in a healthy position before investing more money. They stress the importance of analyzing the market, the overall efficiency of the brand, and the potential for profitability before scaling up operations. Rushing forward without considering these factors can lead to disastrous financial losses.
The eCommerce and online industry has experienced a significant influx of capital in the past, with investments pouring into software and eCommerce companies. However, this trend has started to slow down, prompting businesses in this industry to prioritize capital efficiency.
Overall, the episode underscores the importance of making every dollar work as hard as possible to effectively grow a business. It emphasizes the need to consider profitability, efficiency, and the overall financial health of the brand before scaling up operations.