What’s the ideal split between brand and performance? (And why that’s the wrong question.)

VP Growth: what’s the right split between brand and performance?

New CMO: wrong question.

VP Growth: why you gotta hate on bucketing things?

CMO: because when we talk about the split between brand and performance, we’re unnecessarily bucketing goals, activities, measurement, and spend — and that’s an ass backwards way of going about it.

VP Growth: are you allowed to say “ass backwards” at work?

CMO: welcome to the modern workplace.

VP Growth: I still don’t understand the problem with bucketing things into brand or performance. How else are we supposed to talk about it?

CMO: we’re starting from the wrong place. Rather than coming up with some random split between two arbitrary buckets, we should start with the results we want for the business and work backwards to the right mix of demand creation and demand capture. It’s a gradual spectrum, not two neat buckets. That’s how we get balanced growth.

VP Growth: okay… but everyone says they want balanced growth.

CMO: exactly. That’s why we define it. For e-commerce, balanced growth means a balance of:

• A resilient base of revenue from traffic sources where the purchase comes from people seeking us out, actively coming TO us (branded search, direct traffic) — AKA Baseline Revenue
• Plus scalable, profitable incremental revenue from demand capture

VP Growth: I just want revenue to go up. I get a fatty bonus if we hit 30% revenue growth this quarter.

CMO: don’t even get me started on broken incentive structures.

VP Growth: why? you think we’re not gonna hit it?

CMO: do you even know what our contribution margin was last quarter?

VP Growth: silly CMO, I think you mean attribution, not contribution. And yes, I know everything there is to know about attribution.

CMO: silly VP Growth, contribution margin is how much revenue we have left after we subtract the cost to get that revenue — that’s all that really matters, because those are the dollars that pay your salary (and this bonus of which you speak):

revenue

– discounts

– returns

– COGS

– marketing spend

– pick, pack, ship

– and other costs you only incur when you get revenue

= contribution

VP Growth: costs are for Accounting to think about. Look at my title — I do Growth. G-R-O-W-T-H. I can’t be held down thinking about costs. I need to be free. Free to drive growth, unshackled by unimportant details.

CMO: nice. We are close to our 30% revenue growth goal, but our contribution margin is down 50%. As a result, the business doesn’t even have enough cash to pay out bonuses this quarter.

VP Growth: for reals? Didn’t even think that was a possibility. Let’s get back to the split of brand and performance — slightly more interested now that my bonus is fully borked.

If it’s not buckets, then what is it? All this “not having enough cash to pay out bonuses even though I hit my goal” malarkey has got me a little miffed.

CMO: what we want in our business is balanced growth. All of the revenue we’ve been adding over the last three years has come from clicks on ads or discount events.

VP Growth: yeah, cuz I’m awesome at running ads and people love discounts.

CMO: notwithstanding the fact that you are awesome, the big problem is that our baseline revenue — AKA the revenue from people who performed a branded organic search or entered our URL directly in their browser, AKA the new customer acquisition we still get even if Meta’s algo stinks it up, or we’re not on promo — has stayed flat, and even declined, over that same timeframe.

That’s why our business feels so volatile, and why our revenue dropped so massively when Meta’s Algopocalypse was rearing its ugly head earlier this year.

And the year before that.

And the year before that.

Or the year before that.

Or when iOS 14 happened the year before that.

And then there was last week — the come-to-Jesus moment where we decided not to increase the YoY discount on our anniversary sale… and missed our forecast by 25%.

VP Growth: well when you put it that way... it sounds like a Discount-and-Direct-Response Doom Cycle of Destruction and Despair.

CMO: Alliteration Andy for the win, but yes, you’re correct.

VP Growth: now I think I’m remembering all of your soliloquies at our marketing offsites I completely tuned out. I guess some of it worked its way into my subconscious, much to my chagrin.

You were talking about balance — that we want our owned ecom business to have about:

• 50% from baseline (branded organic search + direct)
• 25% from paid
• 25% from triggered (email + SMS)

CMO: exactly, and when we’re growing, we want those percentages to—

VP Growth: interrupting exsqueeze me… and we want those percentages to hold.

But that’s clearly not the case for us. Over the last 3 years, our mix of revenue has shifted.

Now:

• 60% of our revenue is from a click on an ad
• Which means even more than 60% of our growth is from paid, given that just 3 years ago, last-click paid revenue was closer to 30%

We’ve gotten out of balance.

CMO: preach 🙌

VP Growth: while I was triggered earlier because I thought you were completely invalidating my job, I realized you’re not saying don’t do performance marketing.

You’re saying both sides have to be done to do growth marketing optimally.

And for us, because pretty much all we’re doing is demand capture performance marketing to drive short-term revenue, that means we have to find a way to reach more people — and do it with content and experiences that don’t beg for the immediate sale.

Instead, they should help accomplish the goal that when that person does become an active shopper — AKA comes in-market — they automatically choose our brand and actively seek us out by performing a branded organic search for us, or coming directly to our site, our store, or our aisle.

And... it should give us more people in the funnel to fuel our demand capture activities, potentially being more incremental.

Bluntly, our sales campaigns should be more efficient and effective.

All good things. All good things.

CMO: exactly. And we’ll know we’re in a good place when roughly half of our revenue is coming from baseline, while re-accelerating contribution margin % and contribution dollar growth. We’ll balance that with a nice healthy split between our conversion revenue coming from clicks on ads and clicks on emails.

And to bring it back to the why behind all this: the only reason we do this stuff is so that we grow faster than had we not done this balance stuff.

VP Growth: yeah, I like this whole idea of true performance marketing being full-funnel (not just a throwaway 2–3%), because the ultimate goal is to maximize contribution dollar growth of the business — and what we’ve learned over the last 5 years is that the current status quo of simply capturing demand, blindly assuming existing tactics will also generate demand, won’t get us there.

CMO: yes. So if we can keep those percentages consistent as we scale, I’ve seen time and time again that that leads to the greatest total growth over multi-year periods — which, again, is everyone’s goal: performance marketing, finance, operations, product, etc.

And ultimately, your bonus will be bigger.

VP Growth: me likey. It’s kind of like The Sixth Sense — when you realize at the end that he was dead the whole time.

CMO: dark, but I think I see what you mean?

VP Growth: yeah, it’s like… this is obviously the right way to operate and has been right forever, well before Facebook ads. And once you realize it you get this aha moment where you’re like, “How did I not know this all along?” But now that I know it, I can’t unknow it.

CMO: clear?

VP Growth: crystal.

Side notes:

The notes on the revenue breakdown are defined on a last-click basis, which is obviously imperfect.

Obviously our paid efforts drive baseline, which is actually the point.

[Insert all other obvious caveats here, etc. etc.] blah blah blahhhhh.

But every operator needs to pick some kind of metric to operationalize around and layer on triangulation, context, and judgment to make the number do its job — help connect improving it to increasing your contribution dollars.

The percentage breakdowns will obviously be different by category and by stage of business.

Every brand is different and at a different stage of growth, so a newer brand won’t be able to drive 25% of their revenue from email or SMS

Or, if you are the fastest-growing brand in the world because you found some way to get clicks on ads and find pockets of arbitrage in the algorithm, then more than 25% of your revenue could be coming from paid.

But I would still contend that brands would be very well-served thinking more about how to use paid media to also drive revenue from branded organic search volume and direct traffic just as much as a tool to drive short-term click-based purchase-optimized demand capture — again, fully knowing that branded organic search volume is an imperfect metric (just like any other metric I mention here and in every post), but good enough to operationalize around.