1864 – Intelligent Marketing Strategy with William Harris

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2:08Let's push the boundaries of customer experience together.

2:16With us right now, it's William Harris. William, you are the founder and CEO of Element. And Element is not spelled like you might think. It is E-L-U-M-Y-N-T. Your website is elementinetspelling.com. Well, it's great to have you, William. Thank you so much for joining us. Yeah, thanks for having me, Josh. Excited to be here. And so please give us an overview of the work you do. Pretty exciting topic. By the way, to our friend that's listening, you may want to go to element.com so you can kind of follow along. But yeah, William, give us an overview of your work. Yeah, so the basic gist of what we do is going to be optimizing campaigns for growth around EBITDA, specifically for e-commerce stores.

2:58So a lot of people will optimize paid media, social media, Facebook ads, TikTok ads, Google ads, YouTube, whatever. They'll optimize around like a top line revenue number or what we call like ROAS. We developed systems that allow us to optimize more towards the bottom line, which is a very interesting concept. I'm sure we could dig into it more. it's counterintuitive. And a lot of the things that people think would be, well, wouldn't that just be better if I optimize for the top line? Should the bottom line go up? Not necessarily. In fact, there's a lot of times that it doesn't. And so there's a lot of ways that we kind of have fixed the way that people do media buying in the space and more specifically for e-commerce brands.

3:33Well, okay. Help me understand the connection between media buying and that and how this fits into, again, looking at that overall bottom line number as opposed to, because I agree with you, top line doesn't mean anything. No. So there's two main ways we look at this. One is going to be aggregate EBITDA, aggregate profitability. And so let's say that you're optimizing for a return of four to one. And let's say that you're getting$100 ,000 in sales for that. But then if you go to a 3.5 to one, you can get$500 ,000 in sales. Well, when you take out all of your cost of goods sold and everything else, the amount of actual profit that you got from that by that small incremental change there, allowing you to scale five times more with just 0.05 % change or whatever on the return makes a big difference.

4:21The other side of this is going to be on unit level. And this is where I think it gets really interesting and a lot more fun. Let's say that you have a product that is$200 and another product that's$100. And let's say that on a$200 item, you have a margin or a profit on that product of$50. Let's say on the$100 item, you have a profit of$75, right? So once you factor in your cost of goods sold, what happens is a lot of people that are optimizing for ROAS will miss this. Let's imagine you have a customer acquisition cost of$50 for either one of these. You just set that as your campaign goal. We want a$50 CAC.

4:59On the$200 item, since you only have$50 profit, the$200 divided by$50 to acquire that customer is a 4-to-1 return on ad spend ROAS. but you have$0 in bottom line from that one. The$100 item though, on the flip side, you had$75 of profit. Now, 100 divided by$50 to acquire a customer means that you have a two to one ROAS. Worst performance if you're just looking in platform, but that one actually improved your bottom line. And so what we've done is we figure out, well, how do we feed that information back into the ads platforms? How do we make sure we set campaigns up in a way that better understands what your actual goal is and optimize that way?

5:37Well, that just seems like common sense to me. But if you think this would be the standard way that we do business, why is it not? Because it's a lot harder. So it's very easy for people to just look in the platform and see what is collected as top line revenue. That's what the platform is reporting on. A lot of people aren't feeding profit data back into the platforms. It's difficult. And so I think that there's just a level of complexity that gets in the way for a lot of people. I also think that a lot of people don't think that way. when I started the agency, I remember people saying, well, they don't understand my business.

6:09And I never worked at an agency before this. I was in-house at SaaS companies before this in an e-commerce company. And I can remember thinking, it's not that they don't understand the vertical. They just don't understand business. And so no fault to the media buyers, but the media buyers are only programmed to understand what they've been programmed to, which the platform's telling them top-line revenue. They're reporting on top-line revenue. It looks sexier, right? Top line revenue more than bottom line revenue. So you got a bigger ROAS number. This is fun. And so I think that it was more out of just a, let's just say a naivety as well as a complexity problem.

6:44So take me through maybe a story or two or an example or case study of some clients that you've worked with. I know you've kind of touched on a couple here already, but maybe just one story where you can kind of talk about the before, you know, kind of the due diligence, you know, kind of the change in direction and then what those outcomes ended up being. Yeah, I'm really bad at talking publicly about a lot of people. And a lot of times that's because they have really interesting NDAs that say you're not allowed to talk about are publicly traded. So without getting into maybe the specifics of names, I'm going to think about there is an apparel brand, a coat brand that came to us, outdoor apparel brand.

7:25And when they came to us, it was the same concept where let's just say they're looking at tack across the board and they've got coats. But then they've also got gloves and hats and other things like that. and acquiring the purchase of a hat versus acquiring a purchase of a$500 coat were very different in far as what it meant to the business. So being able to come in and say, okay, based on what we're doing for your business, how do we make sure that we're optimizing this around what's more impactful for your business? Yeah. So obviously, talk about the kind of primed for acquisition or primed for exit aspect of this.

8:02Yeah. Yeah. So we've helped now 13 companies get acquired. One sold to GoDaddy. One sold for about$800 million. One recently IPO'd. When we're looking at exiting, as I'm sure many of your listeners know, for the most part, the gold standard is it's some type of a multiple based on your EBITDA. And so when we're talking to businesses, EBITDA isn't always the main factor that we're optimizing for every business. Some businesses are smaller and they're looking for just acquisition right now. And they're willing to be less profitable because they're saying, I just need to acquire more users, more people into our customer base for a later time.

8:37And so then we're looking at different metrics for them. But for a lot of people, they're reaching that point where they're saying, hey, we're doing$30 million,$40 million,$50 million a year right now. Our EBITDA is in a good spot. We're looking at being acquired. Maybe we even have some conversations or an LOI or whatever. How do we make sure that we're optimizing towards what's most impactful for them? And that's where the EBITDA comes into play because that's going to significantly increase whatever they actually end up with, either their payout or their earnout on that side of things. It also becomes more attractive.

9:05I think even when you talk to a lot of the marketing teams at other, let's say, e-commerce stores, and here's another good example. There was one that came to us. Marketing teams aren't necessarily always thinking in terms of EBITDA. The marketing teams are still thinking in terms internally of as far as top line revenue or sales or customers. And I think that's by design and that's just fine. But there was a customer that came to us and we charged a little bit more than their previous agency. And I can remember the first month that we were with them. I don't remember the exact numbers, but let's just say for easy numbers for here, we ended up charging them about twice what they had been charged from their previous agency.

9:42So$20 ,000 to manage their ads versus$10 ,000. And I remember the marketing guy being a little bit shocked. He goes, this is terrible. I'm going to get in trouble for my boss. Like, what happened here? Kind of thing. It's like, well, wait a minute. You know, we were able to scale your ad spend by$200 ,000. You made an extra$1 million minus cost of goods sold, minus everything else. You made it about$400 ,000 in net new profit within a single month of us coming on board. Is your boss happy with the$400 ,000 in extra EBITDA that you gained to pay us an extra$10 ,000? And he goes, well, yeah, I guess when you put it like that, that's exactly how I'd like to put it.

10:16And so I think a lot of this comes down to almost educating some of the brands that we work with on what are the private equity firms or these other people that are looking to acquire them? What are they looking for? How do we make sure that we start managing your campaigns in a way that's going to help for your future exit as well? Yeah. Okay. So your website is element.com. Like how does someone know that they might be a really good candidate to work or partner with you? Yeah. Our sweet spot is going to be somebody that's on Shopify. We do work with people that are e-commerce brands off Shopify, but that's where we have the most systems built out for.

10:54Typically within the 10 to$50 million range, we have some that are well over 300 million. We have some that are down in 1 million or whatever, but like, that's our sweet spot. And the reason why I say that is because if you're doing less than 5 million, a lot of times you just don't have the data for us and our team to come in and do what we need to do. And we need more of that data for what we're doing to really have so much of a really big immediate impact. We don't have a lot of junior level people on this. These are senior level people. And so it costs a lot. We're not the most cheapest agency on the high side of this though.

11:24A lot of times when you get into really, really big brands the reason why sometimes i would say they're not our favorite fit is because they're just slow we don't like working with some brands but they get to the point where it's like hey great that sounds good i wouldn't think you would this happened one time we wanted to implement bing for them microsoft ads and i think it was about 13 months before they finally had all the approval to set the microsoft ads account up for us to even be in reading so it's like that's just brutal we're if you can't tell we're high energy and uh i don't want to have to wait for all of those different things to be able to finally get something exciting moving.

11:56Yeah. Okay, someone is in that target, that range. What would you recommend? Like, what does their path look like to maybe this kind of initial conversation or walk me through that? Yeah, so the first thing that we like to do is just jump on a regular call where we're gonna learn more about your business. And that's because there's a lot of these things that I just talked about that are nuances that I want to know. So I can bring that to our team before we audit your account. If you are looking to maximize EBITDA, that's a very different game plan than if you're looking to maximize user growth.

12:28And so we need to understand, or if you're looking to raise a Series B or whatever this might be, I need to understand those types of goals. I need to understand where your COGS are. I need to understand where your OPEX is. I need to understand these types of numbers to be able to say, okay, great. Now, team, take this in when you do the audit with this kind of understanding of the business. That allows us to be more intelligent. So we start with that call. We get access to the accounts. We do the audit. We put together our plan and we say, okay, based on your goals and what we understand to be best practice within this, within our agency, not best practice within other agencies, this is how we're going to approach improving your ad account and growing you.

13:03And then from there, then it's just a matter of, okay, if that makes sense to you, let's move forward. If it doesn't make sense, we like to start on a three-month pilot with the goal being, okay, let's give it three months. Let's prove out our plan. And if that works, then let's continue to commit further. Yeah. Your website is element.com. And aside from perhaps, you know, just booking a call initially, do you have any resources or, you know, maybe anything on your social media or, you know, anything that you've put together or someone that's like, well, this sounds pretty incredible, but I'd love to learn a little bit more.

13:34And anything else that you'd recommend on that front? Yeah, there's two really fun things there. On the blog, there's several really, really, really good articles that really help people to understand a little bit more about what we're talking about. One is going to be called the Facebook ROAS Death Spiral. and it's this idea where people kind of get into this desk bar where they're trying to increment their ROAS but to the detriment of their bottom line. And so we walk them through, it's like 7 ,000 words but a lot of GIFs and images and things to really help this make sense. If you're like, I think I get it but I'm not sure if I get it, that will help them.

14:04A lot of other really good articles too that show how we approach advertising even on social media very differently from others. One's going to be the TikTok ad, what is it? A Simpsons Paradox with TikTok ads. So Simpson's paradox is a statistical thing that you look at where you understand maybe something that seems like it makes sense and is completely the opposite of what you would expect. And so similarly, Bayes' theorem is another statistical analysis tool that we use. And when we're doing this, this challenges a lot of what other people are already saying. So if you're somebody who's following D2C media on Twitter and you're seeing all of these people saying, oh, do this, do this, do this, we challenge a lot of that.

14:41And we actually do that from a data science perspective. Those are good articles to read. The other thing would be the podcast. So we actually have a podcast as well, which is called Up Arrow. And we've got a lot of really fun guests. Harley Finkelstein, actually, the president of Shopify was on there. Stephanie Pugliese, the president of Under Armour. So really just brilliant minds taking us through their thoughts as far as what it takes to grow and build an e-commerce business as well. And so we get into a lot of just our way of thinking, their way of thinking. So you could really start to see how are we approaching campaigns differently from other people.

15:16Yeah. Final thoughts on where are we when it comes to e-com and the intersection between e-com and growth through advertising and, you know, kind of media buying? Where do you see like maybe where we've been and, you know, kind of if you're looking in your crystal ball, what's going to be pretty vital moving forward? Yeah. So the profitability is extremely vital. We've seen this a lot where there was a hyper push for acquisition over the last couple of years. PE money was very easy. VC money, very easy to come by or a lot more easier than it was now. And that's tightened up. And so there's been a bigger call to you have to get profitable.

15:52So that's a big part of it. Moving beyond this immediate thing, though, I think that's going to continue to be there. E-commerce has gotten more, let's just say, more exciting, but also more challenging. And I say that's exciting, though, because I like challenges where you used to be able to come in, kind of throw up the website. And for the most part, you were getting something. There's a lot of smarter people that have gotten into this. And if you're looking at this saying I have to be profitable on purchase one, there's a very good chance that there's somebody else in your category. A lot of other somebody else is in your category that have smart teams that are saying you actually don't have to be profitable until purchase number three.

16:23So here's how we're going to be able to optimize. And now you're competing against these people and their sophistication. So I would say that's a big part of this is you have to level up where your thinking was before that. The other part about this that I'm excited about is spatial commerce. And so I don't know if you've seen the Apple Vision Pro or where that's going right now. But I did get the Apple Vision Pro. They came out and it's wild to see how people are going to start purchasing there. So Aloe Yoga was the first one that I tested. I actually put a review on this on my YouTube channel.

16:49But you enter into the Vision Pro. And now if I'm going to buy their yoga clothes, I'm actually transported to like a beach. or I'm transported to whatever environment you could imagine yourself actually using those clothes, those products, and now you're buying it. It's much different than when I'm looking out my window here in Minnesota, seeing snow saying, I don't know if that's what I want to buy right now versus being on the beach saying, yeah, I want those swim trunks. And so, which my girls tease me all the time about calling them swim trunks. I don't know if anybody else does, swimming through, whatever you call it.

17:17But the point is that I think the ability for people to be able to start buying things in a completely different environment than what they're seeing right now around them is going to just enhance that understanding of the product that they're buying, the desire to buy that product, et cetera. Yeah. All right. So William Harris, again, element.com, E-L-U-M-Y-N-T.com. Again, when you go there, there's a button right now, get a free growth roadmap, which you can click on, you can check out. And again, there's some really great resources in the blog as well. So it's a great conversation. William, thank you so much for joining us.

17:53Josh, it was really nice to be here. Thank you again.

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