CFO: we’ve got to hit profitability, so we have to cut all brand spend
CMO: that’s the opposite of what we should be doing
CFO: I don’t get it
CMO: cutting brand spend will boost blended ROAS, giving a false sense of certainty. we might see a short-term profit pop, but achieving sustainable profit long-term will become even harder
CFO: how? sounds like a smart move to me. I need to be sure we're not wasting money
CMO: by cutting brand and other “underperforming” conversion DR spend, putting more of the remaining spend into high ROAS places, we reduce the incrementality of our spend
CFO: remind me what that means again?
CMO: driving purchases that would not have happened otherwise
CFO: wait - why would we spend any money to claim credit for a purchase that would have happened anyway?
CMO: great question. we're doing the very thing we don't want to do with our precious remaining capital: waste money
CFO: so cutting brand and low ROAS spend and over-rotating to high ROAS feels good short-term but harms the business even more long term?
CMO: there's nuance, but overall, yes. we might even cut more from bottom funnel spend
CFO: that makes no sense
CMO: try to apply the thinking from this conversation
CFO: ok, let's do this: many brands are going to do what we were planning: cut all low ROAS spend and shift to the highest ROAS areas. because we've been maniacal about cost controls across our P&L, and because we are in a good inventory position, we can withstand a drop in revenue in the short and mid-term. therefore, to apply the thinking of this conversation, if we pull back on the highest ROAS areas more than brand, we might see overall CPMs drop as other brands cut brand spend. and, surprise potential benefit: the customers we do acquire digitally could be higher margin because a smaller portion of them was purchased with discount + urgency ads
CMO: now we're talking
CFO: wait, I'm on a roll, let me cook. and when we consider our wholesale and owned store businesses, putting more of our spend into bottom funnel will not have as much impact on driving those businesses as our broad reach, brand-first content. this may even drive a higher contribution margin percentage across the overall business, without as large a drop in contribution margin dollars as we might otherwise see
CMO: yaaaas chef
CFO: this may limit the shrinkage in our new customer cohorts, which always bites us in the a** when we need that repeat revenue later. it forces us into suboptimal tactics like over-emailing and discounts to pull forward LTV and cover short term revenue shortfalls. it protects our contribution $ LTV, which is our real goal. So in sum, doing the opposite of what I thought might actually make the most sense
CMO: you cooked up quite a feast
CFO: thank you. I channeled my inner Gordon Ramsay
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