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Drive and Convert (Ep. 039): Chasing Bad Forecasts

There's currently lots of frustrations in the E-commerce world around ad performance. What we all expected to happen in 2021 is not happening. Cost per click is up, sales have dipped, and the data is telling us that there is a lack of volume of sales –– but is this just poor advertising channel performance? Or is this pandemic hangover as more folks rush back to retail? Today, Ryan and Jon unpack these questions.

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About This Episode:

There’s currently lots of frustrations in the E-commerce world around ad performance. What we all expected to happen in 2021 is not happening. Cost per click is up, sales have dipped, and the data is telling us that there is a lack of volume of sales –– but is this just poor advertising channel performance? Or is this pandemic hangover as more folks rush back to retail? Today, Ryan and Jon unpack these questions.

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Episode Transcript:

Participant #1:
So, Ryan, I was at a conference this past week and it was really the first one post-pandemic if we can say that yet. And there were so many frustrations I kept hearing from everybody there from, of course, all the ad planners and SEO SEM folks to the brands especially. And they’re all frustrated in this ecommerce world around their ad performance. Basically, what we all expected to happen in 2 021 is just not happening. Cost per click is Super high. Sales have dipped and the data is telling us that there’s just the lack of volume of these sales. But I think the question becomes, is this just a poor advertising channel performance? There’s been a lot of Privacy changes and Facebook is blaming a lot of their performance on that. Or is this kind of a post pandemic hangover where all of these folks are rushing back to retail and it’s causing a poor performance online? I’m interested in picking your brain about this because it came up so much and I know you have thousands of clients and great data around this. I guess I’ll start there. Have you seen this as well? Is this something you’d be complaining about?

Participant #2:
Oh, man. I’ve had so many conversations around this topic recently, done a lot of webinars, a lot of education, just even internally, externally, it’s just nothing is going the way that people thought it was. And I joke around that we all know 2020 was just a dumpster fire across the world. Ecom. It was a shining spot for most companies. And we kind of thought, Wow, this is the time that Ecom was going to break through and all the habits change and Ecom becomes dominant. You know, we all had Unfortunately, I think our rose colored glasses on. And the reality is 20 21 is proving to be weirder. 20 20, everything kind of went up into the right and e commerce or like, this is awesome. We are so smart. And then I realized, well, it’s just a lot of that was riding a wave of people. It’s buying more. Now. There’s a kind of it’s like a perfect storm of different things coming together. If you could have picked the worst time for Facebook to get blasted by an iOS update, it would not exist. I mean, this is the worst possible time was April 26, 20 21, when all the ecommerce brands are finding great success on Facebook. All of a sudden get chopped off at the knees, and Facebook is not working the same way it did April. From a Facebook perspective, we saw sales tracking and the ability to attribute revenue directly to Facebook conversion value is down about 40%, just gone. My wife’s business, we are advertising pretty well on Facebook. And almost overnight, her return to the same exact audience. She has a very specific audience. Went from a three X to below a one. Just then, nothing changing in the advertising piece itself. So massive shifts. And I think that money was earmarked for marketing. And so if it’s not working on Facebook, it’s got to find a new home. And then I think you combine that issue with the fact that people are spending money outside of online. They’re still spending online. But my family was a great example. We went on a three week trip where I could work remote for a couple of weeks and took a week of vacation. But we were down in California in Arizona, and for three weeks Amazon did not send a package to our house. And then somebody at Amazon is probably like, Oh my gosh, what happened to the Garrows? Because we’re like a two or 3 package day family, like, gets Christmas every day cause we don’t remember what we did yesterday. Three weeks, we didn’t buy anything online. We were in grocery stores around the country down there. We were going to restaurants, we had activities we were spending money on. And I don’t think we were weird. I think that’s actually becoming more normal. Our economy opens up and people can go places and we can spend money going into a movie theater now. And so, Yes, a lot of stimulus out there still. But I think it’s going to much different things. So obviously, our world changed. Companies did not pivot nearly as quickly as the public spending money with them. And so I’ve got a lot of data points to help add some clarity to this. But the punch line is I feel like a lot of companies, myself included, I was guilty of this. So I am including myself in this saw 2020 numbers and said, okay, I see the seasonality. Yep. Okay. We were up here. So people reset habits. I expect people to continue buying online at the same rate or higher. So we’re going to forecast these numbers couldn’t have been further off. So we have all these companies to forecast wrong. And generally the larger the company, the more difficult it is to change your forecast. And so most LP clients, we were talking to them pretty good, saying, look, the data is telling us this is not good, not going the direction you thought it was going to go. You need to go re forecast. So we had a lot of companies probably in May because of the Facebook kind of force them to take a look at their forecasts. Again, reforecast like, okay, we were here. Now we’re here. Let’s make sure we’re not trying to just chase dollars. Large businesses, on the other hand, generally have very specific windows where they can re forecast. And so they’ve got a budget that if you’re generally publicly traded company doing over billion in revenue, you either spend it or you lose it scenario. And when you’re budgeting from a marketing Department. And so all of these companies are now they forecast poorly or they should know. But now they have to try to chase that with that marketing dollars because they have to spend it. Even if the search volume is not there, they don’t want to go into 22, saying, Oh, well, you spent less this in 21, so you can’t spend as much in 22. They need to get it out there and come up with reasons that it’s not working, not spend it. And so we’re seeing dramatic increases in costs and spend. And so what we saw as a company, Facebook, CPCs or CPMs were up year over year. This is the end of May, beginning of June and up 30% just since January. So the people that are left on Facebook just turned up the dial and said, we’ve got to capture everything we can and see if Facebook’s algorithm is going to like us better also

Participant #1:
Yeah.

Participant #1:
Wow.

Participant #1:
Bye.

Participant #1:
Right.

Participant #1:
Wow.

Participant #1:
Do you think that’s going to cause a problem with Facebook where now Facebook sees that they were under charging because people are willing to pay more? Right. And

Participant #2:
for at least a window of time. So I don’t know. I don’t think the data is going to show that you should continue spending the level that they are. But what we’re also seeing is that post engagement on, like Instagram went down dramatically after the change. So whether either you’re not seeing the engagement or it’s just not happening, companies are having to promote posts now to get their engagement back up. And there’s been a lot of blogs, vlogs, everything talking about this algorithm change and a lot of influencers on Instagram took notice right away because they’re so dependent on that interaction in the views that they were trying to figure out how what this algorithm looked like an a lot of them came to the conclusion that I need to start advertising the to jump start the algorithm within Facebook to get my post to show more often, because once you get down a terrible spiral, not interaction, you’re not keeping people on the Instagram and Facebook app. So they’re going to put other things in front of them that are and so big changes there. And we’ve seen honestly, it’s frustrating as a brand owner on Instagram that if you don’t post memes, your interactions go down, like posting real valuable content, like for us in plant food. Yeah. Talking to people how to take care of their plans, figure the right light, valuable things for plant owners. If I put a meme of like Jim from the office talking about plants, like our interaction rates go through the roof, but it does absolutely nothing valuable to the people following it. It’s just I talk a lot of companies are moving there, and I think there’s some value there. But it is a commitment as a brand from a time and investment perspective to be able to record the videos because you might spend 20 to 30 minutes recording and editing a video that’s only going to be 30 seconds. And that’s to have that content plan. It is it’s a lot. And I think there’s some value there for brands, but not all of them are going to be set up for that. And if you’ve outsource your social media management, that company is probably not going to be set up to handle Tick Tock as well, because it’s not you. And TikTok is very personal, so it’s about influencers. But if you’re I haven’t seen Nike’s Tick talks, I’m not even on it. But Nike, I would think, would have difficulty running a TikTok with a consistent brand messaging, because all the people that are Nike are athletes that have their own tech talks. And so it’s going to be it’s just very different than I can as a brand, have an Instagram and still interact with my fans, and it doesn’t require personality, and it doesn’t require a human taking a video, whereas TikTok at this point is mainly humans. Catherine video.

Participant #1:
okay,

Participant #1:
I

Participant #1:
see.

Participant #1:
Okay.

Participant #1:
For the audience. Right. You got to be on TikTok. Sounds like

Participant #1:
that’s a lot of effort.

Participant #1:
Right.

Participant #1:
Yeah.

Participant #1:
Well, I hope you get on to talk soon because I’d love to see some of your dances.

Participant #2:
Yeah. I got to get some rhythm first, so I have to take some lessons or just have my kids to be my TikTok, which may be more valuable anyway.

Participant #1:
So are you seeing the same issues on Google and Bing? And I should say Microsoft Ads. Right. And maybe even Amazon.

Participant #2:
Yeah. We are seeing a lot of the same things, basically anywhere from 20 to 30% increase in CPCs across the board since March going up pretty dramatically. And from a high level, I can tell you macro numbers across some of our largest clients at LP, which is, you know, millions upon millions of dollars of monthly spend. Cpcs were up in June, year over year, revenue is only up. So having to chase a lot more of that, but from other numbers that are important, the CPCs are up. Thankfully, we got better at getting more clicks or click through. Rate went up because we’re pretty solid on the ad itself. But impressions were down. Generally, when impressions are down on Google, that’s going to add a whole correlate to less revenue going through that pipeline. So our clients were able to capture a larger percentage of that and what we believe to be a larger market share. But when impressions are down, that usually means less people are searching. That means less people are buying. So.

Participant #1:
Wow.

Participant #1:
Right. Well, less people are trapped in their homes in the United States right now. Right. Like we talked about. So I could see that there’s been some correlation there.

Participant #2:
Yup.

Participant #2:
Yeah. So I think companies are going to have to mix, make smarter decisions at the end of the day, which is usually a punch line. I come too often it does stop making stupid decisions and stop saying just because I forecast this means I have to get it. But at a larger company, you don’t have that flexibility. So I would say, you know, mid market SMB, if you can pivot and change course or adjust what you expected to have happen so that you can make better decisions on the ads you’re running, because in some cases you should be pulling back and not spending as much. In other cases, you get maybe more aggressive to see if you can push competitors out. And so I took the second option there, which was on Amazon. I know there’s a lot of automated systems running ads for people, and I took the stance like, I’m going to spend a little more time lighting money on fire, pushing those competitors out, because once those algorithms realize that they’re losing money and hopefully the business owners, too, they’re just going to pull back and think that okay if we couldn’t get it. Because two months ago, like, Holy smokes, why are my ads not working anymore? Yell at your ad team, get mad at them. They yell back at me like, we’re doing everything we can. We’re great. I’m like, Okay, fine, fine. Let’s look at the data, because my first opinion was like, I’m getting smoked on ads, and there must be a competitor that is figuring something out that I haven’t, because that’s one of my biggest fears as well, that I’m not in it enough, and I need to go that I might be beat. So I’m kind of paranoid. So. But what we did was I said, okay, if we’re going to hypothesize, this is before we had all the data about the market kind of going down. If we hypothesize that the market’s going down, we have less ad inventory. But I know that I’m a larger, larger Advertiser and a larger brand, and some of the competitors out there, and if they’re using cheaper systems or just automated systems to manage their bids, and they’re setting just a target, a cost. And Amazon that algorithm is going to start working against them and pull their bids all back once they get frustrated enough that they can’t get a profit on Amazon. And so I stayed aggressive on Ads. And so to give you an example, my ad budget on Amazon in June of 20 20, we spent 15 Grand on Amazon for 35,000 dollars of our revenue from Ads. We also get a bunch of organic traffic. But my CPCs were a dollar eight in June of 20 20 for plant food this year. In June, two dollars and 22 cents a click. So we went up over year over year, which is astronomical. We spent 38,000 dollars in Ads for 44,000 dollars in revenue from Ads. I legitimately lit money on Fire. It was also Prime Day. So we went pretty aggressive on Prime Day with discounts that cut our revenue down a little bit because the discount we gave. But it seems to be having a benefit on Amazon the last week. At least we are seeing an improved A cost from Ads. We are seeing an increase in revenue overall on the Amazon channel versus the previous week. And so in the CPCs are down. And so we’re looking at the potential that some of our competitors have jumped out of the auction or they pulled drastically back on Ads. So far this month we spent 17,000, but our CPCs are down at a dollar 88 down from 2 22. So it’s looking a little better, and our conversion rate stayed pretty healthy through the whole thing. So my strategy on Amazon is a little different. I mean, if everybody did that, we’d be in a bad, bad scenario. But

Participant #1:
I was going to say it comes down to that a lot for us, I think.

Participant #1:
Right.

Participant #1:
Oh,

Participant #1:
Wow.

Participant #1:
Well, but at the same point. Okay. So I heard you say you basically made six K or so off spending that money. So you didn’t exactly like money on fire, but compared to what you were doing, it’s obviously down.

Participant #2:
well, that doesn’t take into my cost of Amazon cost of good sold. So that was top line revenue, not profit. So I did because it’s Let’s see, 44 Grand. My profit on that, I think, is in the ballpark of I basically I spent 38 Grand for probably 22 Grand in profit. So I lit the 16 Grand on Fire. I could say that because my wife doesn’t listen to this podcast that I know of, so she’s not necessarily aware of that. But we’re playing a long game on this one.

Participant #1:
Okay. Okay.

Participant #1:
Okay. Yeah.

Participant #1:
Yeah. You did get new customer data, which could be helpful. Now you can market to them, so there’s some value there. Okay. True. Yeah.

Participant #2:
Yup. Well, it’s Amazon data. So the lifetime value is in Amazon getting the butt purchase again. And so we get subscriptions, which is good. But again, Amazon is the weird one. And my strategies make very little sense to the majority of the world. But playing a long game rather than a short term profit game can allow me to do more creative things like that, because we also have organic traffic coming in as well. That helps cover that. So it wasn’t a total loss of 16 Grand to the business, but even Google, I mean, Google and June CPCs for me were up and all kinds of things were going on. I was sending some of my traffic to Amazon. Frustrating, but also as an agency that’s doing very well for their clients and keeping them and we have a lot of data for them. It’s been a real boon to us for customer acquisition because there is a lot of frustrated business owners out there. And so it’s opening up the doors for our sales team to be like, Alright, you didn’t like us or want to talk a year ago when most agencies were doing an okay job because writing this massive wave of Ecom didn’t take as much skill. Now with volume down a decent percentage and competition higher than it was last year, it really does allow the cream to rise to the top from an agency perspective. But and you’re going to like this. It becomes an opportunity not just for maybe improving the results of your ads, but it causes a lot of business or to step back and say, do I need to plow all this money to ads if I have it? Or should I actually just improve my site? And that’s been a conversation I’ve had on your behalf more than a few times over the past. Muppet, If your site works better, you can overcome market issues and not even in the short run, but in the long run because you can convert so much higher. And if you’re converting higher, it allows you to make that extra investment from a cost per click perspective. An overall budget perspective because you are gaining more revenue from your organic traffic, your direct traffic, your email traffic, your social traffic, all these things coming together to just increase the effective of the site. That doesn’t just hit one channel, which I’ve had to beat a lot of clients over the head with that. Like, no, if you spend 10,000 a month on Google, it helps the Google Ads channel spend 10,000 a month on CRO. You can help every channel and it doesn’t just help in the short run. You converse rate in theory, should stay up for a decent amount of time. Right? It’s not one and done.

Participant #1:
Right.

Participant #1:
Alright. I appreciate that.

Participant #1:
Right.

Participant #1:
So let me ask you this. Right. So I’m hearing that all these people out and that are having this issue, which is almost everybody in e commerce right now. But what should people be thinking about in terms of adjusting their forecasting. Right. So the whole point here is that these folks are all chasing, like, last year’s forecast no longer relevant. What should they do based on this? Right? Obviously the picture that we’re painting is as bleak as I kept hearing from everyone else. So that’s good to see that confirmed. But what should brands do from here? Like you said, optimize the site? I’m all for that, of course, but I’m a bit biased. One of the things that happened at this event that I was at was day two, the 1. Everybody complained, right? Everyone on stage was like, Hey, things are going down Here’s. What you can do here is challenges around this. Move your money, the influencers, move your money to sweepstakes, do all these other things that aren’t advertising on Facebook, basically because you’re not going to get a return. The second morning of the second day, the event organizer comes up to me. He’s like, Hey, John, will you get up and talk to people about conversion optimization? Because everyone’s complaining about their ads and I think they need to move their money over to optimizing their site. So when people do get there, it performs better. And I was like, I was sitting here yesterday thinking the exact same thing the whole time. Like, Hey guys, I’m right here. Like, this is what you need. I’ve been saying this forever, but now it’s almost a dire consequences. You have to be figuring this out. And so it was really interesting to get up there and talk to all these folks about this because I was expecting some pushback on it. And instead they were all like, Oh, you know, I never thought about that, which just kind of blew my mind is like CRO has been around for decade plus.

Participant #2:
Yup.

Participant #2:
Yeah,

Participant #2:
Yeah. And so I think it’s going to be last year was just generally the year of e com for most of the world. I think this year can just be the the year of making your experience better and getting rid of all the bad web experiences, which is one of your main goals. I think not every brand can jump into full blown CRO, so I get that. And so some of you out there have to be better at forecasting and understanding when and how to re forecast. And so my general rule of thumb, I have an idea of where you’re going, but don’t attach hard, fast budgets to it. I actually hate large. I don’t hate large brands. I dislike a lot the large brands and their fixed budget. Well, they’re fixed budget mentality. It doesn’t make any sense because if the volume is there and the return is there, spend more. If it’s not, don’t spend it. But don’t look at it. The next you’ll be like, well, Bob and marketing didn’t spend his 2,000,000 dollars. He only spent 1 6. So you can only get 1 6 this year. Like, that is the dumbest way to look at business, in my opinion, because online marketing is not a typical marketing P and L line item like it was 50 years ago. So I feel like all these large brands are forecasting like it’s 19 70 saying, Oh, Here’s our radio, Here’s our TV, Here’s our Billboard budget. Go spend it, don’t spend a dollar more and hope it works well. Now we have a very dynamic marketing channels that can go up and down based on demand and volume and impressions. Why would you not match with the platforms allowing and Google Ads is a line item on your PNL technically, but it works differently in that almost all the time. You are paying for the click after you’ve already received the revenue from our merchant processor before, you would never be able to go to the TV and be like, Hey, I’m going to advertise on this TV show and we’re going to sell a million dollars and I’ll pay you 100,000 for that ad, but I’m only going to pay you after I get the million dollars. Never would happened because it is a different marketing line item. Start treating it that way and have dynamic budgets go out with a plan, but know that that plan is going to be in a moving constantly. It’s going to be up. It’s going to be down depending on the goals. And then we’ve already talked multiple about goals. But if your marketing goals don’t align with your business goals, you got big problems too.

Participant #1:
Yup.

Participant #1:
Only the ones competing with you. Yes.

Participant #1:
Yeah.

Participant #1:
Yup. So I have one final question for you. What did we basically wipe out the gains from 20 20 the pandemic time, if you will.

Participant #1:
Okay.

Participant #2:
I don’t think so. I think we’re in kind of a we’re in kind of, I don’t know, kind of a euphoric scenario and which should be good. Like, I was in Arizona. And if you’re in Arizona in the last what was it early mid June, you never would have known there was ever a pandemic. And we came from Oregon where we are still masking up at the time. So it was really strange for us, but there was literally nothing going on except my bartenders had masks. Who cares? So I think people are traveling and spending their money in different ways, but they’re going to come back to back home. And I think there have been some patterns in things established that I now can buy things online that I don’t need to anymore. Like, if I never go into a grocery store again, I’m probably going to be fine. Like, I’ll still go to Costco because they don’t sell as well online and their samples. And I like those. So hopefully those come back soon. But I think there’s a lot of things that are going to come back. So if I had to guess we’re kind of in a maybe we’re going to use the letters We’re N-A-U shaped recovery for Ecom, but it will probably be exacerbated if we go back into lock down because of the new Delta variant. So.

Participant #1:
Right.

Participant #1:
I heard they are.

Participant #1:
Okay. Okay,

Participant #1:
right. Okay. Well, Here’s hoping that doesn’t happen, but I do appreciate your perspective on this and being open. You’re always so open and willing to share the numbers, which is just amazing. It’s hard to find numbers you can trust and numbers that have a sample size that you are able to provide, so that’s really great to see. So anything else on brands and chasing bad forecasts,

Participant #2:
Oh, Yeah.

Participant #2:
Now, if anybody out there wants to talk forecasting, I have some strong opinions. If you haven’t figured that out, feel free to reach out. I love helping people make better decisions. Not a problem. Enjoy it. Thanks, John.

Participant #1:
it’d be hard to have a show with you, Ryan, without strong opinions, so I appreciate that. Alright. Thank you, Sir.

Participant #1:
Alright, so I’m going to put another time stamp in here and then we can hop over to the next one. Do you need a break for a second? Okay, I’m going to do this. I’m going to create a new session so he has two different things. Okay, so I’ll send you another link in a second. Alright. I’ll be back in a second. Bye.

Participant #2:
Yeah. Let me clean up my water that I spilled.

Announcer:
Thanks for listening to Drive and Convert with Jon MacDonald and Ryan Garrow. To keep up to date with new episodes, you could subscribe at www.driveandconvert.com.

About the Author

James Sowers

James Sowers is the Director of Marketing at The Good. He has more than a decade of experience helping software and ecommerce companies accelerate their growth and improve their customer experience.