E-Commerce Cash Flow Problems: The Hidden Reason Your Marketing Isn’t Working | EP. 225

Andrew Maff 00:03
A lot of brands don't actually have a marketing problem. They actually have, like a cash flow structure problem.

Narrator 00:09
Welcome to the E-comm Show podcast. I am your host. Andrew Maff, owner and founder of BlueTusker, from groundbreaking industry updates to success stories and strategies. Get to know the ins and outs of the E-Commerce Industry, from top leaders in the space. Let's get into it.

Andrew Maff 00:23
Hello everyone, and welcome to another episode of the E-comm show as usual. I'm your host, Andrew Maff, and today I'm coming off having a pretty rough cold, so I apologize if I sound like I'm underwater, but it's getting better. So it was time to do another podcast, and this one's going hit home. This one's going to hit home for a lot of brands out there.

Andrew Maff 00:46
So today I wanted to talk to you about, basically, how there are kind of, like hidden cash flow killers in E-commerce that really, no one ever really seems to talk about, at least not as much. And this, this is going to turn into, it's going to turn into another venting session. I know it what, basically, what happens is the ideas of where I get these webinar, these podcasts from are, you know, consistent conversations we have with brands and where, you know, it just becomes frustrating as an agency, because you only have so much control. I honestly think that one day this podcast might very well turn into like, you know, sometimes brands have to understand that it's actually not the agency's fault, and sometimes they have to look within and I know so many people probably already turned off this episode, but hear me out for a little bit, okay? So there's a few things, and I've got some notes here because I knew I wasn't going to remember all of it. There's a few things though, that I want to talk about, right?

Andrew Maff 01:54
So basically, a lot of brands don't actually have a marketing problem. They actually have, like, a cash flow structure problem. And it's, this is where, granted, this is also where it becomes a big problem for a lot of agencies, and they don't know how to do this. And a lot of agency owners, and just agencies in general, they think that they're really good at marketing, so they start an agency, which is fantastic, cool. I guess that's why there's 1000s upon 1000s of them. But what they don't usually factor in is marketing is such the lifeblood of a company that if you don't have the knowledge of how the business is run outside of marketing, then how can you possibly give insight into the marketing, right? It basically is, like there's a huge difference between, like, tactics and strategy, which is a whole different podcast in itself.

Andrew Maff 02:52
But, you know, like we always talk about that, let's say you're, you know, I personally don't believe in quote, unquote, specialist agencies, is a lot of them refer to themselves just because that, I actually think that they're extremely limiting. Let's use, you know, let's use, like, a social ads agency, like, there's, they only do social ads. Cool, I love that. The idea there is that that's the one thing that you do, and that's what you specialize in. You know, it's a interesting positioning. But then the problem you run into is like, All right, well, if you're driving traffic to the website and the website doesn't convert, well, can you help with that? Like, oh no, you can't. So you hit a wall, and so you can't perform well. Or if you don't know what email marketing campaigns are going on and how those lists are segmented, how can you actually feed that data into, like, a Meta and you leverage that, right? So, like, there's, there's so much gray area in marketing that it's you have to be dangerous in the other areas in order to be successful in your one tactic that you're focused on. It's the same thing from an overarching perspective, right? Like you, the only way that you can be good at marketing is you have to have marketing just in general. You have to have to be dangerous enough in those other areas to understand how the marketing is affecting those things.

Andrew Maff 04:12
And I think that from a financial perspective, understanding a business's cash flow structure is extremely important in marketing perspective, because it's going to affect when you can and can't push certain things. It also is a, you know, a big effect on inventory. So let's start there. Right? The Inventory trap, basically, scaling ads before inventory forecasting is dialed In is pretty obvious, right? That one like, you really shouldn't be, you can't scale your ads unless you know that you can scale inventory side by side, right? So, like, cool ads are in a great spot, tactically, you're doing well, let's start to ramp things up. Everyone always says, like, Oh, I'm willing to spend, as you know, as much as physically possible, if it's bringing us a great return bullshit. Because if I can, all of a sudden turn on a fire hose overnight, which can is doable, if you find that sweet spot, you find, like, even if it's Google, and you find, like, a keyword that you're like, oh, this crushes every single time. I can spin this thing out and basically put hundreds of 1000s of dollars behind it, and you'll make a ton of money. Well, guess what? You don't have enough inventory, and you're eight weeks out from any new shipment coming in, so not really doable. Overstocking becomes a different problem, because then you're sitting on the shelves CPG brands, that's obviously a whole different problem. But then you run into like, okay, now marketing is forced to focus on things that may or may not be a top seller, because you overstocked.

Andrew Maff 05:39
So you get stuff, you get issues where cash is stuck sitting in product. So the business doesn't want to spend more because you've overstocked and so we really don't want to put too much behind advertising, but then you have a bigger cash flow issue because you can't sell enough, because you can't advertise enough.

Andrew Maff 05:56
That's where you then run into like this, like these always turn into venting sessions. These are fun. This is really more therapy for me at this point.

Andrew Maff 06:05
It's like a paid media, like illusion, right? Like it's your scaling spend, but while your contribution margin actually shrinks, right? Like this, this is a common problem. Let's look at it this way, actually, this is a big issue that I always see. I've seen this a lot more in the past, like six months, than I have in most of my career. Where brands are actually having issues.

Andrew Maff 06:38
How do I phrase this? Brands are actually having issues with scaling. To me, that's usually the easiest part, right? Hitting a target return, like hitting a target ROAS is actually super easy. That's not hard at all. Because realistically, I mean, if I don't care if you're spending $5 if you make you know, if you spend $1 and you make Fourier and a 4x return, that's fantastic, but the reality is, you only profit in $3 What the hell are you going to do with $3 nothing? So you've got to scale it up, right? So as you start to scale things up, where, where brands tend to go blind is they look at just the return for that initial sale. And in some products, that makes a ton of sense, right? Because you have no repeat purchases, you have no subscription you have nothing like that, so that's just going to happen. But you don't really have eyes on, like the overall contribution margin, where this might be affecting other things, right? So you look at like ROAS versus emmyr, and your reverse, like your blended contribution margin, like, basically, it looks like you're profitable on the platform, but you're actually broke in the bank, right?

Andrew Maff 07:45
So, like, you have this issue where, you know platforms can over attribute and they're supposed to, that's actually a good thing. A lot of brands, every time I have a conversation with someone, and they're like, I don't care what it says, like, that's wrong. Like, you're wrong. Like, I don't know what to tell you, you have to give the ads some credit for view, right? Like, the big thing is always, like, if they clicked on it and they purchased, that's all I care about. But if they clicked on it and they purchased two days later, you know, it's going to be up beauty is in the eye of the holder on who actually wants to give that ad credit, which, as a marketer, I go, it should get credit. It should get weighted credit if it involved in other things, but it absolutely should get credit. Plus, I need this damn platform to know who it's actually targeting and whether or not they actually converted, so this thing can learn faster and so it could make us more money. So like, people don't realize that if you try to really reduce attribution, as if you can tell I'm already going off on a tangent here, if you try to reduce attribution, you're basically hindering the platform.

Andrew Maff 08:44
So baby steps don't always take what's in the platform as as the reality. Just because it says you got, you know, a 10x return doesn't actually mean that you got a 10x return in your eyes. But in some other eyes, it might mean the exact same. And by the way, it also could mean that you actually got a higher return, because you're not factoring in other things. But then the other big issue becomes, are you not factoring in LTV? Are you not factoring in how frequently this person is going to come back and purchase you over the next you know, year? Is your email marketing in a really good spot? Because if it is, and you're retaining those people, then this is a fantastic return. If others and it's like a one time purchase, then maybe it sucks. So it kind of becomes this bigger issue where it's like a cash flow thing, where you have to factor in how much money you're willing to spend on marketing in general, to kind of have that more rising tides lift all boats sort of things.

Narrator 09:36
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Andrew Maff 10:09
This is the one I had this note here.This is the one where, like, there's no way I don't go off on a tangent on this. So this because it's because it really, it hits home agency switching. It's basically like, it's a symptom.

Andrew Maff 10:28
It's one of my favorite things to ask new brands when they come to us and they're like, hey, you know, we are having problems with our current agency. We're not hitting certain targets and, you know, we really, we're looking to go elsewhere. Like, cool. Okay, look, that happens. It is what it is. Sometimes it's one of the first questions I ask, How long have you been with that current agency? And if it's like, six months, like, okay, the agency before that, how long are you with them? Like, oh, six months doing like, okay, in the past, like, let's say, three years. How many agencies have you worked with? And they're like, I want to think, like, I think, like, probably, like, four or five at this point, like, okay, there's a common denominator there. It's not the it's cheap is expensive. One of my favorite things to say, I will probably get it tattooed on me. One it, it's very possible that, you know, a brand can go to these really crazy, inexpensive agencies, or ones that just started up and they get burned, and for some reason, they just keep making the same mistake over and over again. But then that tells me that the agency A wasn't able to provide the value, and then B explain to them that once you hit certain targets, especially for especially for brands where they're kind of smaller, where the management fee is scary, but then once you actually scale them up, like even a little bit, the management fee is adorable. It's usually less than an employee in most cases.

Andrew Maff 11:53
So, like, that's where it becomes kind of interesting. But the constant changing of an agency is not smart, right? Because A think of it. Think of it. Think of an agency as an employee. First of all, when you hire a new agency, act like they're an employee. They are probably going to take a good 30 days to kind of get used to things and kind of learn a little bit more about the brand, etc. Then they're probably looking at another 30 days while things are up in motion and they're starting to test things. They might have had a great strategy in the beginning, but it may not be perfect. They might as long as they pivot. That's always my biggest thing is like, the fucking agencies that just come up with an idea and hammer at home for months on end, and then usually by the end of 90 days is kind of where you're like, All right, we're up and running. We got some data, and we're still tweaking and things are running. So the reality of someone being successful from an employee perspective is always like, oh, you know, they're kind of on a probationary period for the first 90 days. Cool. Well, guess what? The agency is also not full time. So that means that in 90 days of what you would expect an employee to get caught up on, you're expecting an entire agency where you probably have multiple people on the account to be up to speed in that same amount of time. It's ridiculous.

Andrew Maff 13:08
So the other issue you run into is if you keep changing agencies, it's like going to different doctors every time you don't get the answer that you wanted. As long as your agency is constantly pivoting and they are acknowledging that, like, hey, we had this strategy idea didn't work. Here's Plan B, this didn't work. Here's Plan C. Like, keep going through it, because it's just like a doctor. So if you went to another agency, they end up testing the same shit that you've probably done over and over and over again. And there's been so many times that we've spoken to brands, and they're like, Yeah, you know, we tried this. It didn't work. So we don't want to do that again. And then the issue we run into is A they probably went cheap. And so sometimes you look at the agencies, what they did in the past, it's like, Oh, I could tell you why this didn't work, because they didn't do the basics. And then you run into other issues where it's more like, Okay, the last agency was, I've had this actually happened to us several times in like, the past like six months or so, where we actually started working with a brand and found that the agency they were working with before was actually doing okay, like the results were were good, then the client really wasn't, like, they weren't happy with the agency's results, but when we looked at it, it's like, actually, these aren't too bad. And then you start to explain to them, like, okay, yeah, you're sitting at, you know, maybe this ROI, and you know that your product costs this and so obviously you only have so much margin to work with.

Andrew Maff 14:41
But you have a repeatable product, you have something that is frequently purchased. You have high retention rates. So when we look at these ads while they're bringing in like, let's say maybe worst case scenario, it's called a break even for an individual product that's purchased.

Andrew Maff 14:59
It's a net new customer that in your average LTV is looking at. You know, over the course of this, these ads are effectively acting at like a 10x return, if not higher. So if you actually pour some gas on this, you're investing in yourself long term as opposed to short term. The problem with the prior agency was their inability to educate the brand on that, but the ads were actually performing semi decent.

Andrew Maff 15:23
So, like, sometimes stuff like that happens, right? And so the issue is these brands will have cash flow issues, and then they'll just change agencies, and it's like, you, you absolutely are going to make things even worse. You're going to make them so much worse. You run into problems where, like, you're, you're, you have cash flow issues. You don't realize that you're, you're, let's say you have your hard cost. And this is always where it's kind of an interesting question too. Some brands like to take the agency fee and put it into their metrics when they're trying to evaluate a return. And while I totally understand that in a lot of cases, you normally wouldn't do that if they were an employee, so it's like, why are you doing it this way? Because you're the management fee. Well, let me, let me rephrase this. The reason this irks me is because our management fees are typically flat, like there, there's not really a ton of scaling going on. So like a lot of agencies, they charge X percent on ads. Like, we don't do that. So, like, it doesn't, for me, it doesn't make sense. So what ends up happening is, if you do the math on it, it's like, okay, your fee is x. You're spending y. We have to get x return in order to break even. Like, okay, the struggle there is A our fee might be only you can only afford enough for us to do, like, a couple things. So maybe that means that you someone needs to be handling those other marketing strategies really well to make sure that they're helping everything else. And then B, maybe that's also limited the amount of advertising spend that we have, and so the amount of profit dollars you have coming in isn't as high as you want, and so your ads are not bringing in enough data to learn fast enough. Your management fee is effectively not covering everything. So if your other marketing strategies are failing, it's going to bring the other ones down with it.

Andrew Maff 17:18
And so then your problem kind of becomes like explaining to a brand if you put more cash into sometimes advertising, sometimes other things, if you put more cash into the advertising, that will scale up your ads to, you know, X maybe maintain the same ROAS it will scale you up To, you know, maybe two times where you're at your management fee, very well, may completely maintain it may not change. That happens to us all the time, where we'll have brands that will they can spend three times more on management fee doesn't change. So then your management fee, from a percentage perspective, is significantly lower, and so the amount of cash coming in is significantly higher. But the problem is, that first hurdle of taking that initial investment and putting it more into advertising is where like it doesn't it doesn't always click.

Andrew Maff 18:11
So that's kind of where the constant switching of an agency is probably costing you so much more money than you actually understand.

Andrew Maff 18:23
It's just, it's, it's astonishing the amount of times that we've had brands come to us and they're like, Oh, we've worked with like, five agencies over the past two years. Like, absolutely not. I'm not going to be number six. Like, I'm sorry. There's no way, you know. And it's very similar. Like, if you, if you were again looking as an employee. If you were an employee, you're applying for a job. You sit down with someone, you go, Oh, what happened the last person this role? Like, oh, they didn't work out. Like, oh, how long were they there? Like, six months. Like, okay, that's not very long. How about the person before that? Oh, six months. Like, okay, you have a churn problem, and no one wants to work with someone who has a churn problem, because typically, you need to look within and it's a, it's more of a common denominator issue.

Andrew Maff 19:06
Yeah, so this, I can talk about this forever. So there's really, like, three major financial metrics that I think every brand really needs to keep an eye on, right? It's your contribution margin by channel. You know, you one thing that I think brands do incorrectly that can also absolutely affect cash flow, is it's always the shiny object syndrome. I feel like I need to be on Tiktok. I feel like I need to be doing Reddit ads. I feel like we should do streaming TV, like it's always, I know someone in this group, and they're killing it with this, and so I need to do it too. Bullshit. No, you don't. First of all, you have to be wary of once you start a new marketing strategy, if you don't do it well, it will probably bring down your other ones, right?

Andrew Maff 19:58
So if you, you. How do I use this an example?

Andrew Maff 20:05
Let's take streaming TV, right? Let's say that you want to invest ton of money in streaming TV, fantastic. Is going to bring you brand awareness. It's going to be extremely difficult, if not basically, basically impossible, to judge how much it's bringing in. So the issue you see is that you're now increasing brand awareness. So people may go to your website to check you out, people may go to your Amazon, people may go to social media, and then if you have your retargeting in place, guess what? You're now retargeting all the people who visit your website. You're now maybe retargeting them they engage with you on social media or visit your profile or whatever.

Andrew Maff 20:38
So all of your retargeting ads and everything will kind of have this lift, but you're going to start feeling like, Oh, I'm spending, you know, $10,000 a month or whatever on streaming TV, and I'm just not seeing a return from it, because we wanted them to go to this one landing page, and they're not going. No one does that. Most people are going to do their due diligence and look into the company more so than they're going to go to the specific website you put in the damn commercial.

Andrew Maff 21:03
So that's where you start to have cash flow issues, because you think it's not working. So you take cash away from it, you're like, All right, we're gonna save $10,000 a month. Well, guess what? There goes everything else, right? It all starts to fall a blended CAC, oh, my god, gotta look at that like you're you've got to understand all of your marketing strategies. It's like a rising tides lift all boats. If you're doing well with all of them, your customer acquisition cost overall will come down you digital just call what you effectively understand at digital marketing, call it dead, right? We are now in the world of like digital traditional where, like, I look at it like look at watch a Mad Men episode. Give me one Mad Men episode where the brand owner was just like, can you tell me the ROI of that one fucking billboard you want? No, you can't do that. It's not possible, and it's not possible now people, especially after covid users, will start on Tiktok, and then they'll go to your Instagram, and then they'll go to your website, and then they'll see if they have it on Amazon, and then maybe they'll sign up for your newsletter, and then they'll buy it, like, a month later, like it, it's just doesn't work that way.

Andrew Maff 22:03
So you have to look at your overall marketing spend comparative to your overall revenue. Treat your E commerce business like a single business, not like 15 different sales channels and 15 different marketing channels. You have to know that each sales channel acts differently, so you might see better results, but like an Amazon, it could be fantastic for customer acquisition and absolute garbage for relationships or your or your marketing strategies. You look at Google very middle of funnel, very like people are actively looking for you, so it's right place, right time. But then you have social media, where it's a little bit more brand awareness, but it's probably feeding those other things. So like, you have to know that while you're looking at that kind of contribution margin by channel, each channel is very different. So you have to understand how each channel is effectively affecting your business. And so you have to look at that blended CAC, and then just the overall like cash conversion cycle. Like, what is your cash look like on a regular basis when you especially over an annual Right? Like when you've got inventory you got to order you have, like, when you're expecting seasonality. So maybe you have to ramp up advertising. So maybe, even though you might have a really good return, maybe the move is to pull your ad spend back during slow seasons. I don't know, every brand is different, right?

Andrew Maff 23:15
So that's, that's really why, I mean shit, that's, that's kind of why I started Bluetusker too, because it was like, you end up with all of these, like, there's so many different things going on, and you have to have everyone on the same page. So if they're not all under the same roof, communicating each other, it's basically non existent.

Andrew Maff 23:38
That's why I preach omni channel like you have to know that people are buying from you on Amazon, but they probably heard about you elsewhere. Like, if you look at your Amazon search terms and you see an influx in people searching your brand name, it's fucking social nine times out of 10. Like it's not, it's not like all of a sudden everyone had it purchased from you in the past was like, this was the best garlic press, so I'm coming back and searching. No, chances are they heard about you somewhere else, and then came to Amazon. Amazon's getting all the credit, right? Oh, my ads look great. My tacos is fantastic. Well, you should thank your social for that. So once again, I turned this episode into a whole venting process. But as usual, I will, I will digress, and I will let you all take that how you want. So as usual, thank you all for joining me.

Andrew Maff 18:17
Even millennials, they seem to be using it pretty frequently at work, and then have one they almost want nothing to do with outside of work. So some of them, it's kind of a split there. Same thing with Gen Z really, where it's like they'll use it for kind of their personal, everyday life. They're not really getting into it from a shopping perspective just yet, but it's slowly getting there. ChatGPT, obviously is working on their integration and stuff with Shopify to be able to check out in ChatGPT, that'll be a really cool thing.

Andrew Maff 24:34
It's another good episode. Please do the usual, rate, review, subscribe and check us out on all the famous podcast platforms, but as usual, see you next time. Have a good one!

Narrator 24:45
Thank you for tuning in to the E-comm show. Head over to Ecommshow.com to subscribe on your favorite podcast platform or on the BlueTusker YouTube channel. The E-comm show is brought to you by BlueTusker a full service digital marketing compCanies specifically for E-commerce, sellers looking to accelerate their growth, go to Blue tusker.com now for more information. Make sure to tune in next week for another amazing episode of the e-comm show