Ask Us Anything: How Does Adir READ SO MUCH? + Performance Marketing with Fixed Costs?

0:00I'm Adam Schwab. I'm Adir Shifman. And this is The Contrarians with Adam and Adir.

0:08We are back. Episode 143, Ask Us Anything. Don't forget, keep those questions coming. We've got an absolute ripping bunch according to the chief question. Ask Us. I'll go straight to him and let's get into it. All right, guys. This one comes in over on LinkedIn from Rod King. And Rod asks, and I think this is specifically directed to Adir, but Adam, please feel free to answer. Adir, you're a prolific and avid reader. How do you find time to read so many books? What gave away that that question was mostly directed towards me, do you think? Because if you're not talking about business, you're usually talking about books.

0:49It could have also been the fact that the question started with Adir. Adir is certainly not wasting time preparing for the pod, So that helps a couple of hours a week. Oh, for sure that's true, 100%. I mean, that's the difference. I'll tell you the honest answer. Like basically there's a limited number of things that I find fun and the things that, you know, typical human beings find entertaining are not very entertaining for me. So when I have – so like I do lots of work. Lots of people do lots of work. But when I'm not doing work, what am I interested in? Spending time with my kids and family?

1:25Okay. Just stop on that. How much time do you spend a day working? You know, I can ask that question a lot. Look, I don't think there's a line between when I'm working and when I'm not working. I don't mean I'm working all the time. I mean, I don't know what to characterize as work. If you're playing games or reading books or eating, you're not working or sleeping. So just isolate those times. How many hours a day am I doing things that could only be considered leisure activities, you mean? Yeah. Yeah. God, three. Or call it domestic duties. three or four hours a day yeah i think so yeah yeah because i'm usually you're doing something that like i include what about working out put working out in that category as well because that's not work yeah i think that's doesn't change the number really very much

2:14so yeah i think i mean that's people often ask me how long how many hours a day do i work and there's no answer to that question because you know if i'm writing something let's say i'm right I'll do your favorite making fun of me. So I'll make fun of myself. And then we'll talk about how I read books. So let's say I'm writing something on LinkedIn and it's about something to do with work related, right? So you might want to put that in the non-work basket. So if I put that in a non-work basket, it might go up to five hours, just not LinkedIn, like other stuff, right? But to me, like when I post that, like there's a heavy work reason I'm posting.

2:50Often it's pure work. but I'd call LinkedIn inverted commas work. Yeah, right. So that's the thing. So I'm always doing something because that's the stuff I find interesting, right? And so the only other things I'm interested in, so what do I do in those, let's even stretch to five hours a day. It won't be five hours. It's probably four. I don't spend much time eating. I'm not a foodie. I must eat as quickly as I humanly can, right? And so, yeah, and so like what do I do in that four or five hours? Well, I'm not interested in like, I don't know. There's also time to prepare the food as well. Well, you'd be shocked by how little time there is to prepare that food, okay?

3:22Like I just want to emphasize I'm not a foodie. So all of this, like for my kids, like maybe I'll prepare some like salmon and rice for my kids, right, and some salad on my son's away, but for my daughter. And so, yeah, look, it's going to take me, what, three minutes to cut the salad and maybe five minutes to cook the salmon. And the rice is in a rice cooker. So you put that in or whatever, that's cooking, right? You've got to clean the rice cooker. That takes time. So that's why I'm saying five hours, right? So maybe four to five hours. So what do I do in the time that like in a few hours I have that I'm not doing stuff?

3:56Well, I'm not interested in what I'd loosely call TV. That's got no interest. And so there's five hours of people day. Most people's days gone straight there, right? It's like three, four hours of Netflix or whatever they're watching. I've got no interest. Mike, how much time do you spend on Netflix or slash TV day? I watch a lot of YouTube as I think we've kind of discussed in the past. honestly maybe an hour a day after work stuff i'll watch a few videos i'm about an hour i'm an hour a day as well yeah i'd but to be honest i'd love to watch more if i had time well people are watching three hours a day like this is my understanding in a non-disparaging at all way people go home from work they'll do like the whatever their dinner this and that talk but the way they spend time with their partner is basically watching tv and so i don't do any of that.

4:44And so, and like, also I'm like a lot, I spent a lot of time with myself. So what am I doing? Sport, video games, and reading books. That's all I do really, if I'm not spending time with my kids. And so that leaves a lot of time for reading books. And also I'm a fast reader and I find it the most, like there's agency-based entertainment, I'll now call it video games, and there's passive entertainment. And my passive entertainment is books. I find them like very engaging. It's what I want to be doing. And so that's the answer. The answer is, I mean, I could have just answered with one question called prioritization, but when other people are watching TV, I'm probably playing sport video games or reading books.

5:26That's how my life works. Fair enough. Next question. Well answered. All right. Second question for this week comes in from Brayden Fraser. You've mentioned a few times about how you manage the marketing as you grow a company, stating you focus on performance marketing like crazy, then start reducing your CAC and put the savings into brand building to reduce CAC further. For the early days in a consumer-targeted startup when you still need heavy performance marketing, have either of you explored performance marketing using fixed costs? In industries with heavy cult following, such as sporting, if you utilized player sponsorships initially, could this generate enough market reach to kickstart growth while maintaining more manageable costs.

6:13In the very early days, could these allow you to get off the ground without the heavy investment into ads? Thanks, Brayden. I'm going to say a line, but even though that was directed towards me, people should be asking Adam questions, not me. He's on much more interesting answers. Your answers are much better. But I think, Adam, you can obviously answer all of them as well. I know, but let me say, I'm going to say there's three kinds of ways you can pay for marketing, broadly speaking. And then Adam, you should talk about how you do these because you've built this big brand with Luxury Escape.

6:44So like, these are my three views. It's where you pay for, ultimately all marketing is paid per acquisition. That's ultimately how it's paid. And so the question is how close to paying for acquisition are you going to get? And so if you want to pay for acquisition, which is rare, that would be saying to someone, you go and get me sales. And every time you make a sale, I'll pay you. That might be a sales commission, for example. Cost per sale, you'd call that, which is like shop back, for example. Yeah. And then you go back a step and you say, well, what's the step before a sale? Let's say in the internet world, we'll call it a click.

7:20So just on that, it's also affiliates tend to, so any kind of inverted commas affiliate usually charges that way, which could be a publisher on the internet and you'll do a deal with an affiliate and say, I'll give you 10 % of the total sales value back to you every time you make a sale. So what that is, is low risk for the vendor, for the Luxury Escapes or for the Catapult, whoever it is. But it's obviously high risk for the affiliate who is getting a fixed amount. But if they don't make a sale, then they don't get paid. But as a company, you can't scale your costs. If you sell one, If you sell$1 ,000, it's the same cost per sale.

7:57You cannot reduce the variable cost. That's the challenge with that model. It's a fixed cost. But let's say if you're making a margin of 70 % selling clothes and you're only being paid – you're only charged 20%, that's obviously a pretty good marketing return. Yeah, maybe. But it's a variable cost and you can't reduce – like it's a fixed payment but it's a variable cost for your acquisition and you can't reduce it. The bigger challenge with the affiliate channel is it's hard to scale because it takes a bit of skill in finding the right affiliates and having enough brand that affiliates trust you because affiliates taking a chance, which is like a publisher, for example, any publisher is taking a chance on you because the risk transfers from the advertiser to the advertisee.

8:37And their destiny is in your hands in terms of how well you convert once that lead gets to you. Which is why publishers aren't stupid. They don't just go, I'm going to go to some rando travel site who I've never heard of and do an affiliate deal because they might not get paid at all. So often initially you may have to pay a fixed amount or even they move to a cost per sale basis later on after you do the first two categories you're about to talk to. All right. So now we go one step back and we say, so what leads to sales? Well, that's like people, let's say, I'm going to say internet businesses, people clicking through to your websites.

9:08There's the most common way that people are paying now for sales. Basically, they say cost per click. That's how you pay all of the social channels, really by and large. Just to elaborate on that one, because while we're there, so that transfers a lot more risk to the seller, as in to the advertiser. So using Luxury Escapes, because obviously it's my business, if we're advertising on Google and if we get lots of clicks but we can't convert those clicks because we've stuffed something up in the flow somewhere. Or they were bad clicks, like all the customer was not really ready to buy or they weren't really your customer.

9:41Yeah, we don't target. Well, that's partially Google's fault and partially our fault for not giving the right data to Google. Yeah. And remember, this is another sort of side track because it's pretty interesting is now these days as you know but a lot of listeners might not know used to call it 15 years ago what was really important being a good search engine market was getting the right obviously after a good quality score but getting the right keywords and advertising on the right keywords and probably for the last i don't know two three four years google's basically said no no guys you leave it to us you feed us with as much data as you can and we'll do all that for you whether that's the high level of pmax or whether that's a bit more specific at sort of you're creating the campaigns.

10:19But either way, now the best Google marketers are the businesses that give the most data to Google and then let Google do its thing. And Google doesn't really let you manipulate keywords and do all that stuff anymore because Google wanted to sort of control the whole thing because they obviously make more money that way. That's true. But they also go out of control quite often. Like they do dumb things quite often and you have to like whether you use an agency or you've got someone internally, you're constantly arguing with Google about something that that system has done wrong. Well, Google's always trying to make more money off you.

10:48So Google's a classic tax. So if you start doing too well, so if your return on ad spend starts getting too high, Google will notice this and will start charging you more and taxing you more. They're not stupid. They're the ultimate money-making machine. And then the furthest way away from the sale that you can spend money for marketing is just to get a megaphone and to pay someone, an organization, this was the traditional way that marketing worked before the internet. For brand marketing. Most brand marketing works like this, but even in general, like before there was an internet, yeah, you could pay people on sale and they might go door to door and try and sell the vacuum cleaner and then you'd pay them for each vacuum cleaner they sold.

11:29Well, that's more like the affiliate model actually. That's right. That's the end of this pipeline. But mostly when people like big companies were advertising, they advertised at the top of the funnel, you call it, which is just get my, I'll pay you to get my message out to lots of people. The more people you get it out to, the more I'll pay you. And the better the quality of people or the more niche you can reach sometimes, the more that I'll pay you. And so this question, now that we've explained this, this question is basically, do you think at the start of building a business, often that's charged as CPM and the M stands for thousand because we're living in the Roman times of Roman numerals.

12:09It means cost per mm, which means a thousand. Not million, as you might think it would be otherwise. Exactly. And so you're basically saying, and by the way, that's how YouTube pays creators, which is for every 1 ,000 views, we're going to pay you$6,$8, whatever it might be. And that's how we advertise on our pod as well, on a CPM basis. Do we? But we also have sponsorship, which is? We're now pretty much fully CPM, with a couple of very minor exceptions. We must have the highest CPM in the whole country. I think we have the highest CPM in Australia because we've got the best customers, best audience in Australia.

12:42So there's a great example, actually. It's a great example, which is why people are paying so much for this pod. One is they want to be associated with you, but two is also – For you. For mine. But two is because we have people, but they're very hard to reach high-spending, high-quality people. People will pay more for that. I had no idea. We mostly charge on a CPM. There you go, Lint. I mean, you work about this podcast every day. Yeah, when we move to nine, nine do CPM. All right. So do you think at the front of a – so say what you're going to say, but also say do you think at the front of a business you can effectively pay sponsorship, which is the question, which is a form of CPM because it's like I'm going to broadcast this out with my brand to lots of customers.

13:22Do you think you could build a business at the beginning by paying like for CPM type stuff? Before we go to that answer, which is a pretty easy answer, but the final category called the brand marketing category, And that can be radio advertising, TV advertising, sponsorship, anything that you're not being really specific in target. It's called above the line, essentially. And it's where 100 % of the risk is transferred to the advertiser. So remember, in the affiliate category, 0 % of the risk is the advertiser because the affiliate is doing all the work. If you make a sale, you pay. But obviously, the more risk you take on as an advertiser, be it branding, you're taking on all the risk, the less you pay in a sense that if you're going on TV, you're getting 300 ,000 people potentially seeing or hearing or a million people seeing or hearing you and you're not paying that much compared to like an affiliate marketing.

14:08Imagine how many people using your door-to-door salesperson example to get to a million people door-to-door would cost like an extraordinary amount of money. So obviously you're shifting the risk around. So the question is, the original question, your question is, well, obviously it's really much cheaper to do brand marketing on radio or TV or newspaper. Should I do that instead of a much more targeted marketing at Google? Or sponsor an athlete, for example, which is the same kind of thing. I'll put that in brand marketing. Yeah. So you call it brand marketing, but I feel a bit differently about it before you answer the question.

14:39I think every piece of marketing needs to be somewhere between 20 and 80 % brand and performance, which means making a sale. Or direct response versus brand. Well, I don't think anything should be 100%. Oh, I can just say we're not expecting any performance from this$20 ,000 we're spending because we're just building it to being a brand. Yeah, I'm being brought up. You don't want to say, I'm just going to blow 100K and I can't really measure it that well. I don't expect any sales from it. Forget it. But big companies do that. They say, we've got$5 million. We're just going to spend it on brand.

15:10We're not expecting any response in a sales sense. No, so what you're saying is, what's the time of the response? You always expect a response. Well, that's true. If you're doing a brand – so the difference is, if I'm doing a Google ad, which is quite low in the funnel, it's not the lowest, but it's quite low in the funnel. So you say the funnel is – the lowest in the funnel is the sale. And so the funnel means how close am I from a person becoming – connecting to my brand to making a sale. That's what the funnel is when people talk about high funnel, low funnel, mid funnel. Yeah. So bottom of funnel is somebody calling our call center, for example, or walking into our store because you're about to buy.

15:45Top of funnel is somebody seeing an ad of ours on TV and they've never seen a luxury scapegoat or even seeing an ad on Meta or Insta. That's what I call very high on funnel. And they're not thinking about – so they're not – not only – so I would say top of funnel is not only are they not thinking about buying from luxury escapes, they're not even planning to buy travel at that point in time. They're just floating around the market and at some point in future, they might consider their next trip. That's real top of funnel for you. Yeah, for sure. So when you talk about or should you do out of home, which is billboards or radio or TV, what you're basically saying is I'm trying to build brand and awareness.

16:22and hopefully that awareness will transfer into a sale at some point. But your point is you want that sooner rather than later. You don't want this happening in five years' time because you'll be dead by then. So the question is how do you – Well, hopefully you won't be dead in five years just to point that out. Yeah, all right. Well, as a business company. But in terms of the specific question, should you do brand marketing initially? I'd say absolutely not because the payback period is too long. So you'll basically kill your business doing this brand marketing in the hope – It's the classic young startup putting a Super Bowl ad on with 80 % of its funds raised and hoping that creates business.

16:54That's like the dumbest thing ever. It's just too risky. It makes no sense at all. I think almost every business will start with either social or Google, essentially. I'm using Google as an umbrella for SEM because there are others, obviously, because you can target it really clearly and you can test and learn. So that's the main reason. I can do a$100 Google campaign and test and learn and see what works. You can't do$100 sponsorship of Ronaldo. It just doesn't work. So it makes no sense to do this high risk. Actually, an affiliate, if you can somehow convince affiliates to do it, that's even better because you've got a fixed marketing cost.

17:29Yeah. The higher up the funnel you get, the more you're backing yourself. So if you're very low, you say, I'm going to pay$50 for an acquisition. The price of that acquisition is going to be$50 no matter what you do. If you get better at converting, you're going to get more sales. but the price doesn't go down. If I pay$5 for a click to the website and I convert one in 10, my price is$50 for a sale. But if I double my conversion rate, now my price is$25 to sell. So I can get more efficient and save money on the acquisition. If I advertise to thousands, tens of thousands, hundreds of people, then it's totally in my hands.

18:07Am I advertising to the right people? Am I running the right ads? Am I listening to the right landing pages? Am I nurturing them the right way through the funnel? Am I converting them? Maybe I can do$10, but maybe not. Maybe it's still$25 or$50. But also, there's a whole ton of people that's seeing my brand, but not buying today because they're top of funnel, but I'm starting to educate them about my brand. We can call that brand equity. And when you're at the new part of a business, you are in extreme hustle mode and you have to spend every dollar basically trying to get sales and you should go as low to the funnel as you possibly can so that every dollar is being spent as close as possible to guaranteeing a sale.

18:46Yes, we totally agree on that view. It doesn't surprise me. I'll give two quick Luxury Escape stories because they're both quite interesting and relevant. First one is basically the first way we really hit a genuine product market fit in the travel business is we started, and it was Mark's idea, started advertising the newspaper. And this is in 2011. So newspapers were still very much a thing, but already on the way down because I just saw the three protagonists in Killing Fairfax SA. So by then, see, car sales, real estate were well and truly established and going really well. But newspapers were still – was definitely still a thing and were still quite expensive.

19:23We spent$20 ,000 on an ad in the travel section in the Herald Sun. So pretty expensive. Notionally inverted commas brand advertising. But the way we do brand advertising, we're pretty lucky, is that we basically advertise a specific deal. So it's really a direct response ad with a big element of branding, which is the perfect kind of avatar. If you can get DR and brand. Above the line basically means like non-performance. So 80-20 brand versus response. But we were probably 20-80. We were 80 % direct response, 20 % brand. Oh, okay. All right. Interesting. So that's, which I think is the perfect situation.

19:55So you're building your brand while covering the cost of that brand building with direct. So we spent 20 grand on an ad and did 40 grand in margin. So the ad cost us negative$20 ,000. We got a billboard that paid us. If I put a billboard on the Tilemon Freeway, that would cost me$10 ,000 or$8 ,000 or whatever it was. I may or may not get a sale in the next six months. I don't know. It would certainly help my performance marketing down the track, which is the benefit of brand building because it adds trust, but it's a long-term play. So that DR in newspapers for us, and that's why we still advertise in the newspaper, is you get a great combination of a free brand carry with a direct response out that covers its cost essentially, or maybe even makes money.

20:31And once upon a time, people used to say, which is still true. I mean, it's funny you say brand marketing. I never used the word brand marketing. I think every single piece of marketing you run has to be consistent with the brand message you're trying to communicate. But people used to say, and it's still true, like repetition is the key to - Yeah, frequency. And that is true. Like every time you put up a billboard or run a direct response in the paper, or I hear you on the radio, like all of that is just repeating, repeating, repeating, repeating. there is no doubt that frequency i can tell you for a fact that in all the literature like frequency is a very big contributor to brand equity there's no doubt about that my last week anecdote on luxury escapes is a more recent one and we created a new affiliate channel what do you can you take a guess of what our new affiliate channel is idea which is unique to the travel sector well it's not i mean influences is not new no it's not unique to us we do we sell through influences but it's not that uh no maybe the i don't know the people in the some hotel employees cross-selling something?

21:32No, we sell to travel agents. So we're a business where you can walk into a Hello World or a flight center and buy a Luxury Escapes item, which is literally bottom of the funnel. So somebody's walking to a travel agent and they may know about Luxury Escapes, but they know not. And the travel agent goes, you could buy this trip to Thailand or you could buy the trip to Bali on Luxury Escapes, which is, and we give a significant amount of margin back to the agent. But for us, this is a risk-free way to get sales that we otherwise wouldn't get because otherwise agents are funneling their customer somewhere else.

22:01So you can do that because one is you do have enough margin to pay them somehow, which is miraculous in itself. But two, if you only had 100 deals that you'd secured, you wouldn't want to be giving them away whilst giving away a chunk of margin. But obviously your barrel is deep enough that you're not going to run out of inventory by adding this channel. So more sales is better. Yeah. So it depends how you look at. So for a new customer, it's actually much cheaper for us. because often you'll pay virtually your entire margin in marketing costs or close to it. Maybe we'll make a little bit of money on first purchase, but not huge amounts.

22:34Whereas we can make half on first purchase with a travel agent. Obviously, as you get repeats, on a repeat purchase, you're expected paying a lot less. You know what I mean? It's very rare. Repeat purchases aren't free either. That's another topic for another day. We can talk about it another time. But obviously, as you start getting repeats, you start losing that sort of arbitrage. But this is a really fast-growing part of our business. This is growing sort of 20 % a month for us. and it's effectively a fixed marketing cost of sales we wouldn't otherwise get, which is almost completely non-cannibalizing because people who go to their agents, go their way to go to a relationship with them and they trust them and they wouldn't buy from us directly.

23:06So we're not losing a sale and we're just gaining a potential sale. So this is my last question on this topic because it was a Q &A Saturday morning so we want to be fast. Mike, you have to try and answer this question. What is a characteristic? There's one type of startup that does lots of very visible brand marketing very early in their life cycle before they have many customers or sales. What's why? Like what's the characteristic of that business? I'll give you a clue. It's got nothing to do with the business itself. Is it that they're like run by an influencer or a public figure or something?

23:42Well, it's got – you're right to think about the structure of the business, but it's mostly to do with maybe who's invested in the business. I've got no idea. Why did you ask Mike this question? Ah, well, you do know because maybe I just haven't asked it well. So venture capital comes along and they invest in businesses that, let's say, are consumer businesses, which are not very popular now, but they used to be. And then they say it's going to be a winner-takes-all market, which it almost never is in consumer. or we have to build this brand really quickly. This is what happened when direct-to-consumer first started taking off and they went to Casper, the mattress business, and Casper said, oh, we've got this great economic model, which turned out not to be true.