What Brands Really Spend on Marketing: 15% at $10M, 2% at $1B | Harness the Halo 1/6

0:00Previously, marketing mix modeling was kind of a once a year thing that people just ran once, took a look at it, put on a shelf. Now we're actually seeing that it's becoming much more ingrained in the day to day. A lot of our brands are updating their models monthly, quarterly. They're using it as more of an always on type of system to evaluate their performance. The halo is just the value that you're getting when you place those dollars at the top of the funnel that ultimately gets attributed to a lot of the other things. Your CTV ad, ultimately that sale gets attributed to the Google or whoever is kind of at that bottom of the funnel conference.

0:29So really what we're thinking about is like, how do you make that bottom of funnel work more effectively? How do you make sure that funnel stays full for you to capture and not just over index on that bottom?

0:47Hello and welcome to a very special podcast series from the D2C podcast. For years, growth had something close to a cheat code. You put a dollar into meta, you got a customer back. You could watch it happen in the same day. So that's where a lot of the money went for many, many brands. But that's been getting harder. Costs have climbed, returns have compressed, and more brands are running into the same wall. Buying your next customer isn't the same as building a brand people come back to again and again. And building a brand usually means spending in places that don't pay you back right away, places where you can't draw a clean line from dollar to sale.

1:22That's a hard thing to defend because the job now is proving what you spent was worth it. That's the big idea behind this series. Better measurement is what earns you the room to make bigger bets. When you can see what's actually working across everything you do, you get the confidence to spend where the payoff isn't obvious yet. That's the halo. And learning to harness it might be what separates the brands that keep growing from the ones that just keep buying customers until the math stops working. This is Harness the Halo, a six-part series from D2C and Keen. Over the next six episodes, we'll be talking to the people making these bets and the people who have to sign off on them.

1:57To kick it off, I'm sitting down with Justin Jefferson, VP of Strategy and Insights at Keen. Justin has a view across hundreds of brands and their numbers and about as clear a read as anyone on what's working right now and what isn't. He's been on the show before and he's the right person to start with the state of things. Justin, welcome back to the DTC podcast. Thank you. Thank you. Great to be back, Eric. Looking forward to jumping into the conversation. Yeah. So you spent your days really close to the DTC market. Set the stage for us. What has changed maybe over the past couple years for brands and why is it getting harder to grow the way that they may have used to?

2:30Yeah, no, I appreciate that. Just for context, I actually work for a marketing mix modeling type company that has not only the historic performance, but also the future looking planning and optimizations. And we work with a little over 450 brands, a little over$45 billion in investments. So we have a good eye on kind of brands that are less than 100 million, less than 50 million, around 10 million or so, all the way up to north of a billion dollars in revenue a year. So we have a pretty wide spectrum of who we're being able to support, understand how performance is playing out for them. And you're very correct with a lot of what you said at the outset.

3:05I think it's very much worth saying that at the end of the day, the meta game, the Google game, it's changed. It's become a lot more competitive. They're auction dynamic. So by default, you're going to start to see more and more expensive impressions, clicks, et cetera. So being able to just kind of pop a dollar in there and be able to see your brand grow is really not the street that we're on anymore. We're playing a much different game. And at the end of the day, as you mentioned, we're in a world these days where the journey for the customer is becoming more diverse. There's more channels. There's more platforms.

3:37There's more ways to get in front of that customer. At the same time, a lot of the market has just been historically anchored on the Google meta playbook, right? of just, you know, I'll do some meta, I'll do some Google to capture it, and that'll be that my whole, you know, ecosystem. And what we're really seeing here is that at the end of the day, those are becoming more and more competitive. So the dollars aren't going to be able to be as efficient or as effective because, you know, you're just having to pay more. But you're also essentially at the same time losing some of the visibility into the performance and the attribution at that lower level.

4:08And so there's this kind of world where as the mix is kind of becoming more diverse and brands are having to spend across more channels, they're also losing visibility into that attribution and what's actually working. If we think about just those kind of platform specific reporting. And so in this world, brands have really had to start to think outside of the box on kind of how do I make sure my dollars are still working for me? And oftentimes brands ignore that top of funnel, that more awareness, more kind of the driving of the actual brand interest because those are harder to track. But thankfully over the last year or two, I would say that measurement has kind of caught up a little bit more in the marketing than where it has before.

4:45Obviously, I think previously marketing mix modeling was kind of a once a year thing that people just ran once, took a look at it, put on the shelf. Now we're actually seeing that it's becoming much more ingrained in the day to day. A lot of our brands are updating their models monthly, quarterly. They're using it as more of an always on type of system to evaluate their performance. Add that to incrementality as well. Like that's also helped to drive a lot of that understanding of kind of what does that type of funnel do for us. And so while a lot of people have been just over-indexing at the same couple of channels, we have started to see brands that have expanded outside and seen really strong performance.

5:17So it's been a very quickly evolving type of market where, you know, you have the haves and the have-nots. I hear it on the podcast all the time. I have so many brands talking about TikTok shop kind of rivaling the size of their meta spend at this point. But the huge amount of work that it takes in order to take on the TikTok shop scaling, you know, multi thousand, hundred thousand affiliates kind of situation. And what a juggling practice that is to kind of keep that going. But it's crazy to see that it can rival the scale of something like meta. I'm hearing about YouTube as a top of funnel, not only for the Google suite, but for a brand's entire digital funnel, essentially.

5:54You know, WhatsApp, streaming is coming up again and again. And these are all things that are sort of outside the normal workflow, maybe, of what of the traditional, like we say, Google meta playbook. Is there a size of brand where it really becomes essential to start looking beyond Google and meta? Because I know brands, just starting out, you really can find your product market fit. You can get your traction. You can build a great business on those two platforms. Is there a scale that you see brands really starting to think more about these bigger bets at top of funnel than others? Or is it sort of really dependent on the brand?

6:31Yeah, there is definitely a trend based off of scale that we see. We can look across all of our customers' portfolio and pretty much say, as you grow, the amount of investment or your share of the media dollars going towards more top of funnel awareness type tactics increases, right? You look at the largest brands, they actually spend more there than they do more on capture. Look at the smallest brands, they spend a lot more on capture than they do on kind of demand driving. And so there is that kind of natural progression that we see across. But I would say it's less so about like your annual revenue at any one point.

7:03And it's really the marginal investment returns. And that's really what we like to focus on is like Like ROI is just, hey, how much did you drive and what was the value of your investments and what did you get back? MRI or that marginal ROI is really the concept of like, where are you on that return curve, on that point of diminishing returns? How much are you getting back for that next dollar you invest? And really, that's where we find that kind of impetus to really start to flow those dollars up the funnel. At the end of the day, what you're going to do is you're going to overinvest on the bottom of funnel and you're going to invest it earlier in the stage in a way that's capturing the demand and helping the brand grow.

7:38But at some point, you're going to essentially maximize that. And you're just paying more to not really be able to drive incrementally new customers. And so in that world, you have to start to drive the demand that you are then able to capture better. We actually, you know, this has been a fairly common topic for a lot of our brands as we've been really trying to advocate in this form. And we've had a couple of case studies that we've been able to elevate, you know, two positives and one negative. But what we've ultimately found is that brands that have started to move those dollars to the top of funnel have been able to kind of break out of that kind of stable, consistent sales and be able to start to trigger more growth.

8:15But it takes two things. One is really good strategy, being able to understand like, what are those right types of channels? How do I make sure I'm monitoring and not overspending on those? Where are my audience at? How can I best meet them? but two it also takes uh i'd say the appetite and the kind of the the right confidence one of our kind of you know bad case stories is actually where a customer went pretty much from zero to 100 where they had very minimal top of funnel but they went overly aggressive on that top of funnel and they actually saw some sales volume loss in the first year and that sales volume loss led the brand to ultimately start cutting their budget right and that meant that they couldn't actually have the budget to capture some of the demand they were driving.

8:57Whereas we actually have another side of the coin, which is more of an online, mostly golf apparel, golf supplies. They were a little bit more, I would say, deliberate in their approach. They hadn't really done a lot of CTV, a lot of linear TV, a lot of audio. And so they started leaning into that. In the first year, they saw pretty similar revenue sales volume, nothing too significantly changed. Maybe I think we saw maybe plus 5%, but the next year is actually where we saw the revenue start to take a shift. And so we saw actually I think around 23 % growth in the following year based off of the investments beforehand, because at the end of the day, there's a significant timeline here that you have to be comfortable with and you have to be okay with.

9:41And if you expect that top of funnel investment to pay off next week, next month, you're not going to see those returns and you're going to immediately either flip or kind of overcorrect. And so it's really about like taking that right approach, but you know, being willing to make the bet and wait till that bet pays out. Can you give me some examples or, or if you, if say you were running a$10 million brand where you had kind of, you really have your funnel dialed on Meta and Google and you're looking to like grow the top part of your funnel. How would you think about that? Would you, how would you think about which platforms to extend to and how much of your budget to extend into those new channels?

10:16I think it's a tough question. I'd say there's two major concepts that I'd like to explore here. One is when you talk about shifting that, a lot of people think take from the bottom and support the top. It's not necessarily the best situation because at the end of the day, your bottom of funnel tactics will become more effective when you have top of funnel presence. And so when you're trying to do more of that top of funnel, you still need to keep that bottom of funnel to be there to capture it and make sure that you're getting those sales. And so the first thing you really need to think about is like, great, I'm a 10 million.

10:47I want to grow. I need to incrementally invest my top of funnel. I can't just rob one to pay the other. And so we've seen a lot of bad happen from that. But ultimately, you have to kind of grow them both. The other aspect is really just the minimal amount of investment you need to actually run any new channel. Every linear TV, CTV, they all take a creative asset that you kind of have to put together that takes time, money, investment. like there isn't an easy on off switch like there is on Google, right? With some of these top funnel tactics, you have to really have a good strategy and spend the time getting ahead of it.

11:19And so the formats that are acceptable for the creative assets on TV versus CTV versus, you know, social versus audio, if you want to do more podcasting, those are all going to be different. And so you have to really think about what are you willing to lean into, to develop, to be able to support the brand. I would say from our perspective, what we see in the data is that going more top of funnel, it's pretty much TV, video, social, display, and audio. And I'd say like TV and video, TV is obviously the largest piece. Video is the quickest growing piece. And then audio is actually kind of growing pretty significantly as well, but starting from a much lower base.

11:57And then, you know, obviously some of the social like can be used for both top and bottom of funnel. So if I'm trying to slowly start to expand, you can do it across some of the social because it's probably a little more easy, a little bit more kind of intuitive. You already have those platforms probably up and running. If I wanted to make a bigger bet, I'd probably go into CTV. CBMs are a little higher there, but they've been paying back well from what we've seen in performance. And I'll throw out audio is probably my dark horse. We've actually seen a few brands kind of lean into the audio side and see kind of outsized performance from what they would have expected.

12:31So those are probably the ways I think about it. When you say video in this context, do you mean sort of like on the digital web, essentially like video on the web? Or when you say video in that pantheon there, what are you referring to video? Yeah, online video is certainly one of the things, but more of the connected TV is also what we're seeing grow, right? That's really where that growth is coming from. Don't get me wrong. YouTube is still doing well, especially on the short side. Like that's become a little bit more common. But CTV is kind of really the biggest top of funnel channel we're seeing growing.

13:03Talk to me about how a platform like Keen would allow this hypothetical brand that we've talked about that's at that maybe$10 million mark looking to grow their top of funnel. How does a platform like Keen get predictive where it can make a brand feel confident in taking one of these bigger swings where they do have to have a big strategy? They do have to invest, maybe invest in creative more than they were previously outside of their workflow that they've currently been doing. How does a platform like Keen give them the confidence to take those bigger swings? Yeah. Ultimately, there's a few different ways we attempt to do this.

13:35One is that Keen actually uses a Bayesian approach to our modeling, which means that while you may have never invested on a specific type of tactic, we have 400 plus other brands with 45, you know,$50 billion worth of investment where we've seen brands like you expand into new channels. And so we can kind of give you a relative kind of average or benchmark or kind of range of expectations for what you might see. We have a forecasting capability where we actually show you the kind of optimized plan, but also the associated sales volume and revenue tied to that plan. And we can provide that in kind of a probabilistic approach where you have kind of a curve of, you know, based on the probabilities, you know, what you're likely to achieve.

14:15And so when we're trying to give confidence to our brands to say, hey, you know what, we think we should move some here. This is the way we do it. We run different plans to say, like, you keep your same mix. you spend more concentrated on the bottom of the funnel versus, hey, we add an incremental $200 ,000 or a million, whatever your budget can sustain. We add that to the top of the funnel. We run some plans. We compare them. And ultimately, what we'll be able to show you is not only the incremental revenue you see, but over what duration of time. I think that's probably the most important concept because everyone is just hoping to see that revenue instantly.

14:47And what you actually have to give them the confidence in is that it's going to come, but it's not going to come exactly the timing you execute. It's going to come over this window and kind of this lagged payout. And so when they can understand like, hey, other people like me have seen success, there's probabilities, there's kind of a range of expectations. I can de-risk my plan by either investing more or changing some of the allocations. But also here's kind of the expected payout and over what time period that enables the finance and the marketing team to better speak to each other. Because sometimes finance is always looking at a close of book.

15:19What did you get, you know, for me, the end of this calendar year at the end of this quarter? Whereas the marketers are looking at investment as really something that pays out over the long term. And this helps them kind of conceptualize, here's the payout over the long term. And if you discount those future revenues back to their present value, this is the type of return you would expect. And then I want to go back to audio for a second because I did a podcast or an interview recently with someone who specialized in radio. And it was sort of a real blast from the past. And if I think back to like radio, you're getting incredible CPMs apparently on radio.

15:51You're reaching an older audience, definitely, who in theory is more affluent. They're sort of captive. They're there. When you say audio, how do you break down the opportunities within audio? Yeah, I think what we typically think about is there's terrestrial and then there's digital. Terrestrial is that kind of, you know, older AM, FM, like I'm just getting publicly on the airwaves. The digital side is really where we're seeing a lot more of the traction and a lot more of the expansion happening in that area, mostly around podcasts that we're seeing some good buy-ins. But honestly, even retailers are starting, like retail media, they're starting to open up audio.

16:30A lot of different platforms are starting to find ways to expand that type of inventory and to bring more top-of-funnel awareness inventory to market. So whether that's just being a partnership on a certain brand event and having some kind of audio type advertisements over the fact, partnering with a specific podcasting platform, I'd say there's kinds of different ways. But I'd say the digital side is obviously where you can get more accuracy on the targeting. You can kind of have a better sense of how those dollars are being deployed and tracking them. And to back up even further beyond individual channels, a lot of marketers want to know how normal they are.

17:10So like at this eight figure mark, say 10 to 15 million, what does a healthy spend to revenue ratio look like overall? I've seen some interesting tweets lately about people saying, you know, if you're spending X amount of, you know, on, on marketing, you're, you're really on a treadmill that over, over time could be a losing game if you're spending that much to always acquire customers. So at this hypothetical$10 million mark, what does a healthy spend to revenue ratio look like overall? I'd say in the 15-ish percent range. And like roughly, it's kind of an average of what I'd see, like 20%, more than 20 % is where you start to, you know, make sure that it needs to be paying itself back.

17:49But kind of like we talked about with the amount of investment in top of funnel, we see that obviously scale with the size of revenue that you're getting. When you are in that kind of 10 to 15 million a year, you're probably spending in that 15 to 20 % of your revenue back into the investments and marketing. When you get to the 100 to 500, that actually comes down closer to 10 % to 9, 8%. You get a 500 to a billion, that actually gets closer to 7, 5%. After a billion, you're looking at really 2 to 3%, right? So it is most of this like you have to buy ahead. You have to invest in driving that base of customers.

18:27so that you can be more efficient with your dollars later. But when no one really knows you, you kind of have to buy those customers and then make sure you have a good product and a good offering to keep those customers in your site. Let's talk about the halo. This was a rhetorical flourish that we kind of came up with together, just because I like alliteration. So harness the halo makes perfect sense. But marketers are always looking for these flywheels or ways that they can combine the dollars they put in to get 2x the dollars out on the other side. I would say the halo that I kind of hear most about these days is maybe the TikTok shop and Amazon.

19:02And like if you're going to be if you're going to invest heavily in TikTok shop, you're going to capture a lot of that demand, not on TikTok shop because people are maybe unfamiliar or maybe they got ripped off because they bought baby weights one time like I did. And so they see this really defined halo from TikTok shop into Amazon. How do you think of this term, harnessing the halo? And maybe do you have any other examples of like effective halos you see being created by one effort that helps boister another? Yeah, yeah. Like at the end of the day, when I think about harnessing the halo, to me, it's the halo is just the value that you're getting when you place those dollars at the top of a funnel that ultimately gets attributed to a lot of the other things, right?

19:41Your CTV ad ultimately goes to, the credit goes to your Google search ad, right? Because they see something on TV and then they go search for it. And then that sale gets attributed to the Google or whoever is kind of at that bottom of funnel capture. And so really what we're thinking about is like, how do you make that bottom of funnel work more effectively? How do you make sure that funnel stays full for you to capture and not just kind of over index on that bottom? From our side, you know, what we see is like TikTok, social, those are very much very popular for the top of funnel. I think we've seen like TikTok itself has actually become more efficient, especially because some of the costs were depressed relative to the other social channels when there's a lot more uncertainty around that platform.

20:26Obviously, once there was a little bit more kind of regulatory clarity there, people leaned back in and started advertising more and have seen really good performance because the CPMs were just cheaper. But, you know, ultimately for us, what we really want you to think about is like, how can you connect those non-capture tactics to the efforts and the timing of what you're doing through an application like what we offer? We're able to kind of model out these exposures and understand kind of when you're starting to see and understand the value of the Halo. I wish there was just like these two channel combos that you could always, you know, execute and that's the perfect Halo.

21:02That's really not the case as much as we've tried and seen people try that. It's really about just kind of finding the appropriate channels and then testing our cost across each of them. I will say one of the most interesting stats I've been able to find recently is that when we segmented our business into growing versus non-growing brands, the brands that were growing more than 5 % a year and also seeing improvements to the ROI actually had a more significant change in their mix from year to year than the brands that were not. And ultimately what we kind of learned in like, as we dove in, we were realizing like the brains that fit into that mold were just testing learning more and they were being more active about it, being more kind of diligent about it and being willing to take bigger bets and see how they paid out, fail fast and continue learning.

21:47The brains who just kind of, you know, slowly shift their things, you know, year by year, like they're going to go stale and be stable and, you know, eventually decline. So for us, it's really about like making a big bet, willing to take the time to evaluate how that bet pays out, but then willing to be able to shift and change course if it's not really paying out the way you want. Are there any other sort of commonalities that you see among the brands that are growing 5%, 10 % a year versus the ones that are stagnating? There's definitely a few. Probably one of the most obvious ones is the relative investment levels.

22:23So brands that are winning and growing at this level, let's say we're typically seeing their investment in the plus 10 percentage. Brands that are not are usually sub 10. And obviously, you want to normalize that for the size of the business. But there's usually like a 30 to 40 % clip difference on how much more they're investing from a reinvestment rate than the non-winning brands. So obviously, you need to invest more to grow. It's a pretty obvious one. But I think when we're looking at it, the marginal ROIs is really where we see the biggest delta in our brands. So we look at all of our tactics for each of the brands.

22:58What we typically see is those stable declining brands, their return on their next dollar is sub 70, sub 60 cents, where their historical ROI might be above one, right? It might be 1.3, 1.4, you know, looks healthy, looks great. But they use that as almost kind of self-reinforcing evidence to say, I should be investing more into that. When they're not really seeing that they've actually crossed that point of admission returns and like they're actually just kind of buying, they're paying more for the customers they would have gotten anyways. We see that a lot on like search and Amazon search in specific, like specifically.