I was talking to a direct-to-consumer (DTC) brand recently who has struggled to break into the 8 figure range. Their industry is saturated with advertisers who rely on low priced ads and heavy discounts as their main drivers of growth.
This guide came together as I thought more about their challenges. Let’s dig in.
The DTC space is competitive
The DTC space is competitive with low cost tools like Shopify and Alibaba making it easier than ever to launch an e-commerce brand.
It’s especially difficult for brands that sell low margin products or for those who lack a repeat customer base to help offset the rising costs across platforms.
These dynamics can lead teams to run tactics like low priced ads or heavy discounts to boost sales. This works in the short-term, but over time this causes margin compression and begins a race to the bottom as other advertisers drop prices in an attempt to compete.
There are ways to grow efficiently, however, without relying on price or discounts as the main drivers of growth.
The key is to find growth levers that are low cost and easy to test. The test winners then become part of a larger evergreen growth loop that (hopefully) begins to compound on itself.
Brian Balfour (founder of Reforge) recently explained that growth boils down to 4 things:
- Find an abitrage opportunity
- Use that to spark some type of compounding system
- Optimize the crap out of that system
- Repeat that, but dont wait too late
Below are my thoughts on how to put Brian’s 4 step plan into practice for DTC brands.
The playbook for efficient growth
The growth playbook that I recommend for early stage brands includes two primary levers:
- Low cost acquisition channels
- Conversion rate optimization
The use of low cost acquisition channels will help keep traffic costs low given that they are “cheap” relative to the other channels.
Some of the low cost acquisition channels that I like include:
- Influencers
- Meta (Facebook) ads
- Google search ads
- Email campaigns
I would avoid high cost channels like CTV/TV, Direct mail, Podcasts, and YouTube ads during the early stages because these channels typically require a lot of capital and time to see any kind of conversion lift.
The secondary lever for converting that traffic comes from conversion rate optimization (CRO). CRO will help balance out customer-acquisition-costs (CAC’s) as ad spend grows.
It can also help to improve average-order-values (AOV) and margins.
An example of a low cost growth loop in action could look like:
- Leverage micro-creators to promote products to their audiences through video content
- Run the top performing videos from creators as ads on Instagram and TikTok
- Send paid traffic to an optimized landing page that captures emails and highlights the customer benefit
- Run email sign-ups through an optimized email funnel that brings traffic back to shop pages
- Simplify the checkout flow with Shop Pay to boost CVR
- Cross-sell products in a post-purchase upsell to boost AOV
Let’s dig into the benefits of low cost acquisition channels and the easy ones to set up and test.
Testing low cost acquisition channels
An efficient growth strategy hinges on the proper use of low cost acquisition channels. The majority of team resources and budgets during the early days should be spent here.
Some of the pro’s of these channels include:
- Commission based payouts only after an order is placed
- Lower budget thresholds to get an initial test setup and gain learnings
- The ability to quickly pause or iterate on campaigns that aren’t performing
Influencers
Influencers are a cost efficient way to build brand awareness.
They allow brands to get in front of new audiences at relatively low costs. They also create video content that can be run as paid ads, which reduces the creative burden on in-house teams.
Influencer deals can work in 4 ways:
- Gifted product for content:
- This works well if your product costs are low (IE: Athletic Greens or Liquid IV) and you are not ready to begin paying out commissions or flat fee costs for content.
- The creators available at this stage are usually smaller, which makes it a volume game to get content at scale, but a few viral posts can have a big impact on sales.
- Commission basis when an order is placed (% of sale deals):
- This is often called an affiliate deal.
- The only costs in this structure are the product costs that you seed and the commission payout for the sales generated.
- An example of this structure would be paying a creator 10% of revenue for every sale they drive.
- The creators available at this stage tend to be larger than the gifted for content group.
- Building a list of affiliate based influencers that post content on a recurring basis is one of the best ways to build an efficient growth channel as the CAC’s remain consistent with every sale.
- Flat fee rates for a post or a series of posts ($ / post):
- This is a great double down tactic to push for more content from creators who show strong performance from your commission bucket.
- It’s also a strong option if you have a high degree of confidence that the creators audience is aligned with your product because the ad costs do not scale with every sale like they do in the commission only model.
- The creators at this stage are usually bigger (Marques Brownlee, iJustine, Mr. Beast, etc.).
- Hybrid model (commission % + flat fee rate $):
- This model works best as a negotiation tactic if you lack the full capital needed to pay the creators upfront rate, but you still want to work with them.
A healthy influencers program usually deploys some combination of the above models.
Note: I don’t recommend affiliate deals with coupon sites like Rakuten or Honey for incrementality reasons mentioned in my previous post about session hijacking.
The most cost efficient way to source creators is to search for terms related to your business (IE: health supplement reviews) on platforms like YouTube, Instagram and TikTok and see who is already posting reviews.
You can then reach out to these creators and ask if they would be interested in an influencer deal with your company.
The bigger influencers will have rate cards that you can usually negotiate down if you ask for a series of posts. It’s important to keep the long-term view in mind when working with them.
The best deal structures are beneficial for both parties. It’s better to work with one creator for a full year than it is to have to go through the whole sourcing process every time you need content.
Platforms like Minisocial or agencies like growth assistant (~$3k/mo) are paid options if you are looking to be a bit more aggressive in your scaling or you are limited on time.
There is an amazing episode on the 20 Minute VC Podcast with the Founder of Butcher Box (Mike Salguero) who used influencers and affiliates to build his business to $100m/yr+ before deploying any other ad channels. It’s worth the listen if you are looking to deploy an influencers program.
Meta (Facebook) ads
Meta (Facebook) ads is the typical powerhouse for DTC brands to reach audiences who convert at scale.
The key to making Meta ads work these days (post-iOS 14) really comes down to a consolidated account structure and strong ad creatives:
I wrote a whole post about how to quickly improve Facebook ad accounts, but the TLDR for strong Meta performance includes:
- Consolidated account structures
- The use of automated campaign types like Advantage+ Shopping Campaigns
- Strong ad creatives
- Custom landing page testing
A consolidated account structure helps the machine learning (ML) algorithm find more people who look like your top customers. It also simplifies the day-to-day management of the account.
The new Advantage+ Shopping Campaigns are a good campaign type to start with as they streamline the audience and structure decisions needed to get an ad test up and running. They also perform suprisingly well as a broad targeting option.
The next big lever after the above foundation is set is to focus on creative testing.
Great creatives on Meta typically have high thumb stop rates and high click-through-rates (CTR’s). The combination of the two usually drives down CPM’s (costs-per-thousand impressions), which is important for increased reach at low costs.
Thump stop rate is a custom ads metric that is calculated as = 3-second video plays / impressions. This metric is helpful for understanding how engaging your ads are.
Brands can also leverage whitelisting creatives or repurposed assets from their influencer partners to supercharge their efforts. These ads tend to have higher click-through-rates (CTR’s) than overly branded assets given that they look more native to the ad platforms.
We will talk more about custom landing page testing in the section on CRO, but the final piece to make Meta ads work at scale is to contextualize the ad to landing page experience through the use of custom landing pages.
Google search ads
Google search ads act as the bridge between the top of the funnel tactics like running Influencers and Meta ads to the bottom of the funnel.
In this stage customers are now aware of your products and conducting additional research before they buy.
Common campaign types to run in at this stage include:
- Product category search campaigns
- Competitor search campaigns
- Performance Max campaigns
Product category search campaigns ensure that your brand shows up when customers are looking for a solution in your category, but they are still not sure on which brand to go with.
Here’s an example of this ad type for Athletic Greens on the term “daily nutritional supplements”:
Conquesting and competitor ads can be used when you want to show up on your competitors terms and steal some of their traffic.
The key for these ads to work is to focus on the reasons why your product is better than the competitions. IE:
- Faster shipping
- Higher quality products
- Life-time warranties
I don’t recommend leading with price, but you can see how Printivity is specifally targeting cost conscious shoppers on “vistaprint” terms below:
Performance max campaigns are the Advantage+ Shopping equivalent in the Google ads ecosystem.
The main benefit of Performance Max campaigns is that they unlock all of the available ad inventory that Google has to offer (YouTube, Display, Search, Gmail, and Maps) and it bundles it into single campaign type.
The drawback with Pmax is that it leans heavily into branded search terms and ad inventory that typically has lower conversion rates like Display. My recommendation is to keep Pmax budgets at ~30% of total Google ad spend to leave the majority of your budget more incremental efforts.
Performance max combined with branded search ads, however, are great way to own the search engine results page (SERP) and capture all of the incoming demand for your brand.
Athletic Greens does this well on their branded terms:
You can also see that Athletic Greens does a nice job of leveraging product reviews to help build consumer trust prior to the ad click. Review platforms like Okendo make integrations like this easy.
Andecdotally, I’ve seen Google Shopping CTR’s jump 15-20% following the addition of review extensions.
Email campaigns
The email channel offers full funnel support to the marketing channels discussed above.
It’s a powerful tool to bring website visitors back into the funnel at a fraction of the cost compared to the remarketing targeting options on digital channels.
The two primary email flows that I recommend for brands to set up before running ads includes:
- Welcome series flow
- Abandonment cart flow
Welcome series flow
The welcome series flow is one of the largest sales drivers of DTC brands. The typical email capture at this stage usually includes some sort of discount in exchange for an email address.
Vuori does this well by offering 10% off of the first purchase in exchange of an email.
They even take it one step further by capturing product preferences that can later be used to build more personalized email flows based on the selections.
Abandon cart flow
The next flow that is critical for brands to implement in order to winback lost customers is the abandon cart flow.
The abandon cart flow triggers an email when someone has added an item to their cart, but left before they ended up purchasing. You’ll often see abandon cart emails in your inbox with the subject headline of “Did you forget something?”.
Here’s an example from a recent abandon cart email that was sent to me from Fresh Clean Tees:
Tools like Retention.com are a more aggressive paid option for increasing email lists and abandon cart sends if you are looking for additional scale.
Conversion rate optimization
Conversion rate optimization is the second growth lever in the playbook.
I often see brands who send paid traffic directly to their shop pages or collection pages. The problem with this is that these pages are usually not built for new website visitors who are still learning about the brand.
This landing page experience usually results in lower conversion rates and higher CAC’s. A way to mitigate this is to use custom landing pages for all paid traffic sources.
Custom landing pages
The best custom landing pages are able to contextualize the ad to landing page experience in a way that makes brand education native to the plaform they were coming in from.
An example of this in action would be to send TikTok traffic to a short listicle that highlights the 3 main benefits of your product. Another example would be to send Instagram traffic to a custom landing page that features the creators that you are using in ads.
The custom landing pages that work well highlight the customer benefits (not just the features) and answer commonly asked questions:
- What is this product?
- How does it benefit me?
- How soon will I get it delivered?
- What’s the return policy?
- Who else recommends this product that I trust?
They also capture emails for later remarketing efforts.
It’s key to test a variety of landing pages across the ad channels to find which combinations lead to higher conversion rates when compared to your evergreen pages.
Oddit and Hoox are two paid solutions that are worth checking out if you are looking to double down on your landing page efforts. I’ve anecdotally used Hoox in the past and they delivered double digit improvements to our paid conversion rates!
Simplified checkout experience
The last step is to simplify the checkout experience as much as possible.
If you are on Shopify, then a quick win to boost conversion is to install Shop Pay. Shop Pay streamlines the checkout experience with one click checkouts and buy now, pay later (BNPL) options.
Shopify claims that Shop Pay can deliver up to 50% better conversion compared to guest checkout.
My guess is that actual conversion improvement on most stores is closer to 10-15%, but it is still worth testing.
If you are not on Shopify, then the goal should be to reduce the amount of clicks from the shop page to order confirmation page. Test getting rid of unneccesary add-to-cart sliders and unneccesary fields in your checkout pages.
Customers want to buy if they have made it this far down funnel. Make it as easy as possible for them.
Bonus: Test post-purchase cross-sells to boost AOV
A bonus step would be to include a post-purchase upsell on the order confirmation page. Even a small attachment rate improvement here will increase AOV’s and lead to healthier margins over the long-term.
There are number of post-purchase apps that can check out in the Shopify app store.
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Recap
- The DTC space is competitive, but there are tactics to help brands compete
- Low cost traffic sources and conversion rate optimization are key levers to efficient growth
- The influencer, Meta, Google ads, and email channels are powerful low cost traffic drivers that are easy to get started with
- Landing page testing will help improve conversion rates and marketing efficiency
- Simplified checkout flows and post-purchase upsells will ensure that you get the most of your ad dollars while preserving margins
Continue reading: How to improve Meta (Facebook) Ads performance