Thread by @FaheemSiddiqi

(1/14)After observing $250M+ in ad spend on @facebook, I’ve noticed that DTC brands that scale very quickly have a few things in common:
- High margins & high AOV
- Business model is focused on retention
- Cross-border activation is simple
- Product is a consumable & impulse buy

(2/14) Metrics observed:
1) 70%+ GMs (varies across sectors. Beauty: 80% while food/bev: 30-40%)
2) $100+ AOV (non subscription)
3) Retention (subscription): 1M is 85%+, 6M is 50%+
4) LTV/CAC: 4X+ (plz identify your payback period (PB). Marketers love LTV but rarely discuss PB)

(3/14)
5) Conv rates on site (all traffic in GA): 3%+. (Note: very high AOV items don’t often see 3%+. Price and volume trade-off is a thing).
Ad metrics on FB/IG:
6) CTRs (link-through): 1%+
7) CPMs: <$10
8) CPCs (link-through): <$1

(4/14) High margin & AOV:
Strong margins have to be built into pricing strategy. All else equals, most brands play oCPM & CAC game on FB/IG. There isn’t anything wrong w/ that as long as brands do it responsibly & not lose sight of profitability. Perf marketing can get addicting

(5/14) Business model focused on retention.
Best brands prioritize retention. New customer acquisition (NCA) can get expensive fast. Ensure a solid retention program is in-place. This will help brands become profitable faster, ensure healthy LTV/CAC ratio & impact payback period.

(6/14) Cross-border activation.
Smaller products that are easily shippable overseas make it easier to diversify against single-channel-market risk. There was a period in time, where CPMs in Australia were 1/3 of what they are in the US. GDP per capita in AU is similar to US.

(7/14) Impulse buy (or easy gifts for others).
Shorter sales cycles. If the consideration phase is long, you end up spending more $ on RTG, messaging, creative, etc. which drives the cost up. Attribution is also (somewhat) easier since sales can happen within 1-day click window.

(8/14) The golden era of DTC brands scaling quickly on FB was 2013-2017. Auction dynamics have obviously changed as competition has increased. Many successful DTC brands became relevant during this time frame.

(9/14) The next gen brands that are now entering the market, however, will find it difficult to achieve those advertising and DR metrics. They might achieve components of it in the early stages but it’ll be hard to sustain once they increase ad spend.

(10/14) The next gen brands will actively think of unconventional ways to become top of mind for consumers. They will prioritize the “brand” above all. It will be defined by digital exp, customer exp, product quality, etc. etc. This will help create a moat.

(11/14) Performance marketing will play an important role to drive growth, but only after the “brand” is dialed-in. Performance marketing & particularly @facebook & @instagram will be used to amplify the “brand.”

(12/14) Circa 2013-2017, a strong growth team could scale a DTC brand. The “brand,” however, was not top priority. It was about maximizing CAC or ROAS intra-day. Everything else was secondary. There was an arbitrage. That no longer exist. You have to think creative-first.

(13/14) How will brands in 2019 and beyond scale? That’s a topic of discussion for another day.

(14/14) Note: The above metrics are not benchmarks. There are plenty of great brands that don’t have those numbers & were able to achieve success on the platform by expanding into different categories, had fantastic retention, launched into new markets, etc.