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icon-calendar 2022-05-11 | icon-microphone 1h 5m 17s Listening Time | icon-user Debutify INC
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In this episode, we are joined by Evan Padgett, Co-founder and COO of Stealth Venture Labs, an e-commerce marketing firm. Evan is an ecommerce and subscription commerce executive with 20 years of experience.

He shares with us his backstory, the history of advertising, and how subscriptions can be the driving force of revenue for your business.

His Backstory And The History Of Advertising

Evan Padgett: Yeah. So, you know, going back to the nineties, the blossoming time of home internet. Growing up in high school, I had a, one of my best friends, me and him geek out on all things technology, as it was coming up, building websites from scratch, sort of like learning HTML as like new things were released from, for HTML.

He actually dropped out of high school. Not that I recommend that, but he dropped out of high school to. I joined a company in Los Angeles, California as a graphic designer. He also had graphic design. I never really got into design work, but he was working with this company called Flogo, which was this content network, like greeting cards, silly things like that in the early, you know, late nineties, early two thousands. 

Three years later in 2002, I reconnected with the guy and he was just on a trip and we were in the same areas. We went and grabbed lunch, hung out for the day. Know this was sort of when like, cell phones were relatively new and like, you know, keeping in touch with harder. So I just caught up with them and just like, yeah, how's work going and all that stuff.

And yeah, I still kept really in tune with technology. And I was like, you know, if something ever comes up and I was living in Oregon, north of California at the time, I was like, hey, if something interesting comes up, like, you know, I could do. You know what I've been a part of. Like, we grew up together, like, let me know. 

Connor: What were you before that?

Evan Padgett: You know, so we were just like building websites. We were heavily into gaming, heavily into tag, building websites. Like, you know, it was an accomplishment to know a lot about how to use a computer tools back then. So things like excel and word back when in the early two thousands, when they were very rudimentary, knowing how to do, you know, basically being, I would say, highly computer literate for before that age and for that timeframe.

And I just knew about technology. Like I knew how the internet works when it was like, sort of becoming mainstream when people were just like, I don't know, I dial a phone number and this moto makes noise and I have internet now. So I understood how this all worked from a technology perspective.

So I wouldn't say I was as into stuff. It's just like, we just had this knowledge, we just grew up with it. So then a couple of weeks later, he's like, hey, you want to come down here and work for this company? Make $32,000 a year, which at the time was amazing. I was an analyst. I was like, sure, well, what I do, and this was back when you were, I was basically in charge of running invoices and insertion orders around for signatures and everything.

Cause back in the early days, the internet advertising was up two people on the phone, no video calls, cause that didn't exist back then two people on the phone, hashing out a deal, someone faxed over an insertion order with the aspects of the deal. At the time, things like targeting were very nascent. So it was like, you're going to get 200 million impressions for this Yahoo homepage over the day. And here's the price. You'd sign it. Then you'd wire funds and you get on there and you'd have your day of running products on the internet. Right?

Probably okay to talk about rates now, but I mean, I remember, you had three home pages that were sort of private, the prime real estate, Yahoo homepage, MSN homepage, AOL homepage. Everyone always wanted Yahoo was the big one that would range from $200 to $250,000 to take over their page for the day. Sometimes more, depending on the holidays if you were the day before, a few days before mother's day or Christmas rates change season that we, I remember MSN being about in the $150,000 range.

And this was early 2000 prices and then you'd have AOL and like the a hundred thousand dollar range or 80 50 and 75, 200 didn't quite get as much traffic. But what you did is back then they have like a 300 by 250 ad that was the primary ad unit on the homepage. And this is where most people ended up when they started on the internet, because you would get around a hundred, you know, a couple hundred million impressions, basically over a day because anyone who like browsers would just open up and land on MSN, like nobody changed their homepage.

So anyone that was on like a PC, it could just open up internet explorer and just end up on msn.com and then there's other, other placements. So like ad networks work through ad servers. So you would either rent your own or sort of licensed your own ad server. You drop an ad code in, and basically publishers would take that code that you give them, drop it on their site. And then they would manually turn things on and off. Or it got more sophisticated to have scheduling and stuff like that to run your snippet of code. 

We had to host your own ad. You have to track it and everything. And those were days in product marketing. We were selling skin products and all sorts of crazy stuff on the internet. Simpsons bottle openers. I've sold little micro RC cars. Like you name it. I sold it on the internet. Pretty much. 

Connor: How do people actually like follow through the ad back then? You were saying like, people use the phone to another website. 

Evan Padgett: Yeah, no, you get the deal done over the phone. Like you would call up a salesperson at MSN and you would say, hey, you know, you've got any availability half day, a full day what's what's available. 

And this is also so the homepage is, we're always like the prime real estate, but ad sales still work through a team of people if you want it to be on the weather page. And like the fun tactics is like, no blind in here. You would be like, okay, there's severe weather. How much for weather page placement right now?

So like, there is storms and all that stuff, but those pages would get high, high impressions. And you would, they would price a premium on there. And if you had good relate, it was a relationship game, like ad sales back then. 2002, 2003, 2004 basically. And all the way up to kind of like 2006. 

It was relationship. It was salespeople talking to each other and you had people in your business that would go out and say, okay, you know, these are the CPMs we're going to get, and this is how many guaranteed clicks we're going to get, et cetera, et cetera. And you'd sign an insertion order, fax it around that you'd give them. You'd have you had just basically, you had team members that would go through and deliver the ad code to them. 

So you generate your own ad code in your own ad server. Here's the code, here's the creative. It would go live and, you know, you would hope for the best. Right. And that's how I got started in this industry, but just sort of like, wow, this is interesting place to be like, there's so many people here advertising CPMs, you know, you've talked in CPMs are like, oh, it's 50 cent CPMs. Like, man, we've killed 57 CPMs right now. 

So that's how I got started. I jumped in and then from there I learned about landing page optimization and building out funnels and just sort of the psychology of like, this was, would have been 2003, 2004, literally sort of on the forefront of direct response funnel optimization and, and trying to figure out like, what are the best practices? What are putting place? What looks like, what needs to be, what is the definition of like, what should a hero image have, which is your headlines and sub-headlines be, and testing and testing and testing because we were selling a lot of subscription products in that timeframe. 

Connor: So this is when you're an analyst or did you sort of see?

Evan Padgett: The wild west of, of like the internet? So it was just kind of. You just kind of took, I became an analyst. Yeah, exactly. It was like, oh, marketing seems interesting. Okay. Let me learn about making web pages and then learning how to make those webpages and like, well, like if we change this, I bet we get more people to order. And then all of a sudden it's now called conversion rate optimization.

But back then it was just like, let's move the button around and see if it works. So those same people ended up. So we got bought in, in 2005 by Fox interactive media, because the same company that I was a part of, which, which ended up being called intermixed media at the end owned and built my space.

So I worked for a product marketing division that was selling consumer packaged goods inside the same company, adjacent to my space. Interesting as a social network, taking off very popular for a period of time, you know, you got, you gotta have your, your profile, your song, you gotta figure out who's going to be in your top friends.

A lot of people learned HTML. It was for my space, truthfully cold fusion, that a little bit outdated technology, originally, so Fox. They weren't really interested in us scout selling skin products and wrinkle creams and all that sort of stuff. Same group of people started up a new business and I joined up with them. We started this company that's grown and grown and grown. And, you know, it's gone through a couple of different iterations and I grew with that company.

So I started as like a marketing manager. I was doing search engine marketing. I'm still doing landing page optimization, turn that into analytics. Cause I really just loved the amount of data that you could extract. And we built our own technology. So I worked hand in hand with our development team, largely who's still there at that company to help build out technology for tracking and for optimization.

And this was back before data warehousing and like even like goo analytics was a thing you just sort of had to build your own. You had your own ad server, you had your own web server. You just had, you know, technologists that would put tracking along the way you built your own funnel analysis and all these things. 

Connor: So what did the tracking look like? Was it kind of like a spreadsheet?

Evan Padgett: Yeah, pretty much. It was like raw server logs of people that made it to certain stages you have that kind of have a linear funnel, meaning like I would identify like, hey, here's the homepage. Here's the first, you know, here's the product detail page. Here's checkout page one, here's checkout page two here's confirmation page. And you would basically have a senior RA or senior developer go through extract server log information that we had stored and say, okay, from this traffic source, here's what we saw come through this page.

And this page is just very raw and it, you know, get output in a sequel query and then dropped in a excel spreadsheet, right? Like very rudimentary stuff. But we turned it into our own console and our technology. So we started getting more sophisticated and this is 2006, 2007. Not a lot of tools off the shelf could do what we did. And I grew with that company. So I became an analyst. I leverage analytics to help us raise money and grow. And that same company ended up becoming, what's now known as a company called textile fashion group. 

We got into fashion in 2009, and then they started building brands like just fab Fabletics, which is a major athleisure line and a women's fitness wear line Savage X by Rihanna. All these big brands were built off of the same core methodologies with a lot of really smart DR marketers. I personally grew with that company as well. Just sort of as a marketing manager, doing Google to analytics, to FP and a financial planning and analysis, and then parlay that into running our member service operation grew as a manager and leader and long story short, I ended up running two of the brands there for about two years managing a $300 million a year revenue PNL about $50 million a year in advertising on TV and all over the internet.

And then I've been working with those guys for about 14 years soup to nuts because the same people I first started with that previous company decided to leave on really great terms where I'm just like, Hey, like I just kinda wanna see what else the world has to offer. Landed at an awesome cause driven company called thrive market, online grocery company, membership-based company, a really cool product. Awesome mission behind it. He came in as our chief marketing officer, during a big hyper-growth period.

But I would stay there for about a year and a half. Cause ultimately my desire was to be more of an operator of a business, not just a marketer, not that I'm against marketing because I've been surrounded by it my whole career, but I spent so much time just operating businesses and then landed here at stealth through a mutual friend, introduced me to the founder here at stealth.

I mean, been partnered up ever since then and what stealth does is we're a marketing agency and an incubator arm that helps build businesses or just spend advertising to the tune of, we spend about 20 to $30 million collectively a month for all of our clients in all sorts of pretty much managed verticals. So everything social, Google, snap, TikTok, Pinterest, Live and 10, anything we can manage minus screen. We pretty much do it. And that's what we're doing now. And then my job as COO here is just running the ship and building the team, trying to stay ahead of, what's always changing in advertising and marketing.

How Stealth Venture Labs Helps Their Clients

Connor: So are you helping businesses with their creatives on those platforms or are you helping them with the kind of like analytics backend stuff? 

Evan Padgett: More so the creative and front end advertising. So our typical client comes to us. We do creative production. We've started doing create a production, meaning we actually have the means to shoot or direct to shoot our own raw content. And then we edited it for production. 

Most of our clients, they have assets and they don't know what to do with it. Right. Having a photo or a video within making a finished ad two, four appropriately platform, two different things.

So our typical client, we do create a post-production, so we can help build ads for the right format for the right advertising. So Facebook ads are different than in-state even, and instead they're all different than snap and TikTok, et cetera. And then we do the media buying and optimization into those platforms. 

So there's significant analytics involved in doing that, of course, because largely media optimization is math tells you, and the data tells you where you need to go or where you are, where you're at right now, a little harder to get some of that data these days, with the changes with apple. But the fact of the matter is its highly data-driven output with creative feeding those machines. And that's what we've been doing and growing really well, doing it. 

The Future Of Advertising And His Insights About Consumer Privacy

Connor: Nice. Yeah. I mean that actually kind of segues into a later question I had, like, what do you think is going to happen? I kind of feel like we're coming to like a singularity in advertising where like consume as a kind of realizing, oh, this is actually a sponsored posts. App companies are incentivized to protect our privacy. Do you think that consumers are going to wisen up to a point where we can't sell them things? 

Evan Padgett: You know, it's funny. Here's the interesting truth, right? The internet is propped up on average. And some people don't want to accept that. But the fact of the matter is that the internet at large being individual websites, most of them being free. The reason why they're free is a propped up in some capacity by advertising dollars, right? Like, you know, Facebook is free because of advertising. That's where they make their money. 

And the incentivization of people of companies leaning towards privacy. Facebook doesn't want this. Meta does not want this, you know, TikTok does not want this. Apple made a decision and Google is making one like kind next year that is to the sake of consumer privacy. What is going to happen? I think there's a lot of the old stuff in advertising will become new again. Meaning I think I, I would predict that Mehta has to, at some point start creating relief in CPMs.

CPMs are higher than they've ever been. Yet you have less tools at your disposal as a marketer to target people, the beauty of the internet. And look, I don't think it was right. Don't get me wrong with this. But like the, the peak ability to scale on Facebook was pre Cambridge Analytica where, where people were trading through, above or below the market type actions of like, you could get an email list of a hundred thousand Facebook accounts and target your stuff to those a hundred thousand people can't do that anymore. Right? 

Cambridge Analytica blew that up. And then sort of the last nail in that coffin was iOS 14.5, which really put the kibosh on tracking and sophisticated targeting, which has actually fully crippled. A lot of small businesses want to say and why small businesses with small businesses. Tend to have a niche audience because you know, you're a meal at home company everyone's got to eat.

Okay. You're not as impacted most likely as somebody that's selling bathing suits or they're selling prescription eyeglasses on the internet because there's kind of a specific targeting you need there. And you need to be able to leverage intent based marketing or action based marketing. So things like, oh, I want to go to people that went to this product detail page and track that event, and then target them as a lookalike audience for people that made it this far in my purchase process, because you know, the beauty of Facebook when it was at its peak.

As an advertising platform, as an advertiser look, I'm for privacy. So, but as an advertiser, that data is juicy. The fact that you could sit there and say, I want to get people that look like people that, that bought my product or that, that went to the checkout page, or that went to this page or did all three of these things are made. I added the cart and went to check up. They didn't purchase yet. And you can combine that and leverage that. And the black box inside of Facebook was able to deliver you to customers at the right price. Like that was glorious. The fact is a lot of that's gone now. 

So where I'm going with that is traditional advertising methods, channel diversification right now. Fantastic move places like tech talk and snap do not have the CPMs, but they're sort of bound by the same targeting rules now because Facebook's targeting is much more restricted. You have other opportunities to get on. You know, OTT, try to get on, you know, if you have video assets, get on Hulu ads, get on, you know, YouTube more.

Connor: What's the OTT for us down under? 

Evan Padgett: Oh, over the top. So yeah. Those being able to get on all these new advertising channels. It's kind of a forced factor. Now. I also think things like direct mail, you know, the least inflated cost of advertising over the past 10 years has its place.

And you're able to target still people and addresses when there's databases there. But I think all businesses now have to shift to, you used to be able to build huge businesses on just mta or now knows, man, I'm still gonna call it Facebook forever, but like Facebook, I don't like you calling it meta.

So it's like, yeah, you used to be able to build gigantic businesses just by being sophisticated. Now you need to have a full advertising fingerprint that has you on multiple channels as you focusing on organic. So being in creating and cultivating a community and a, and a presence, and also I think have that's the thing is you need, you need amazing creative. It is not enough. 

Like I built a living off of just having an image with a Starburst on it that said 25% off this thing. And that would just sell because it would take a designer 15 minutes to make and we would go and make hundreds of thousands of dollars off of it. Now you got to up your game, you have to invest in a creative that's catching that, that catches people's eyes details you as a brand and your product and how it's being used has social proofing.

So influencers like influencers as a performance channel, not as much, but influencers as content creators, a goldmine who knows better how to make stuff for tick-tock than somebody that's. 3 million followers on TikTok and they make awesome content. You pay them to basically shoot your product. I don't care how many orders they're pushing, but now I have good. I have a good ad unit native to the platform by somebody who's an expert at it more than me. Right? 

So I think the things that sort of changed, like advertising is not going to go anywhere. Brands are going to have the dollars to spend direct marketing is a art, or is a function older than time since people have been selling stuff and, and buy now. And we'll also do this, or, hey, just go back to pre electricity. People are selling things and given deals, so that's not going to change, but what I'm keeping my eye out on is what does the market do to shift to that will Facebook. Lower ad rates create more ad units. If there's a lot of unknowns with the metaverse and how advertising is going to play into that, that's a ever evolving thing right now you have the fact that people aren't spending less time on the internet, just advertising is harder right now.

So there's going to be more opportunities for us to still find people and advertise to them. And people are going to have to buy stuff in order to keep the internet propped up. Right. And prices of gifts like that that'll happen. I think, but I don't think, I think it's just, everyone's gotta be able to weather the storm. You have to keep your eyes out for engaging new ways to market and tell your brand story.

And then from all of that grow and adapt your product needs to do that and be ready to try new things, because this is this sort of setback, if you will, and the ability to advertise the people. Is without a doubt going to create opportunity somewhere. That's how this always works.

So that's how I've seen it work for 20 years. People freaked out when canned spam became a thing. All of a sudden email wasn't going to work anymore. People freaked out when flash Adobe flash was no longer an acceptable ad unit and everyone had to switch to HTML five or something similar that worked itself out. We had a global financial crisis in 2008. People thought you couldn't advertise anywhere. It worked itself out. So it's going to be hard. I'm not saying it's easy. I'm not going to say it's quick, but from this setback will come innovation. And I think it's a great opportunity for brands out there to find fun, new ways to market their products.

Connor: Yeah. This is exactly what I'm getting at. Like, you kind of have a meta thing going on where the internet is built on ads, but I think certain people are realizing that like you can charge people directly. And say like we're not going to give you any ads. It's just, you pay me, I give you the thing you want but then if everybody did that and we got rid of all ads, then no one would have any money because we would just be paying everybody one.

Evan Padgett: Yeah. So as a consumer, would anybody pay per megabyte used over the internet and would they say, oh, Hey, you know, we're, we're you and I are doing this call right now. We're sending traffic through the internet. It's going to cost both of us 25 cents or a dollar or something like that for us to do this.

Now, then I'm going to do that consumer wouldn't do that. My biggest concern, I guess let's say concern is what could happen is the monolithic approach of an Amazon and the Alibabas of the world becoming the destination to buy anything, because without your ability to market your own product, everybody knows Amazon, everybody in other parts of the world knows Alibaba.

And all of that just means like, hey, at a certain point, If I can't buy it on that website because I'm not getting ads and I can't buy direct from a brand anymore. Is that just going to create a world where you only buy from those sites and that kind of happens now, like brands that are happening now. I mean, brands that are on both, like, I, we deal with this a lot in the service provider and professionals or professional services world.

We'll get brands that are like trying to do both. They're like we have, yeah, we have, we have this. Yeah. And it's like, okay. But you realize that if I'm running ads, I'm going to get X number of people that are going to see your ad. A certain percent of them are literally just going to look for your product on Amazon and not buy direct. And you're sending. You know, Amazon is going to take their cut. It's gotta to be similar price, but you're just advertising for Amazon. If you're running on both, I'm not saying it's a bad thing, but I'm saying your direct to consumer advertising will not pencil out like almost a hundred percent of the time.

When you start with an Amazon store and you're trying to build your own vertical brand because you want to taste a vertical. You want to control your margins. You want to do all that. It is a real challenge. I'm not saying it's impossible, but I've seen it fail more often than succeed. Because if anyone's going to, if you're going to buy from Amazon or direct your.com, people are going to buy from Amazon eight out of 10 times a hundred percent because you can't make, the prices aren't competitive. People love their prime. People know that Amazon's got their back. They they're like, so like, why would I go to your website when I can just buy your product from Amazon? So yeah, it's the world we're headed to and I hope it doesn't get that vertical, but advertising is not going to go away. We'll find new ways. 

Subscription Models And Its Future

Evan Padgett: You know, subscription services, and recurring revenue models, which is really the better way I think about it because there is nuance there. I like to tell people, and I've said this now on a few podcasts, that's not new. It's about creating a relationship between you and the consumer. If you're a subscription or recurring revenue model of some kind, it's not enough to just be stuffed in a box. It's not enough to just like exist. You got to create and nurture a relationship with your customer and that takes work. Like it's like any other relationship in one's life. It takes work. 

And that work comes in the form of really great communication. A lot of parallels to how people interact personally, like it's a subscription or recurring revenue company is now. In essence, a utility to them, it's a bill that they get every month or quarter or whatever they're on. So with that comes expectations. Part of those expectations are quality service. It comes with a quality product, when you need it and not more than you need and not less than you need, it's like just the right amount. It also comes with, you know, needing to solve pain for that consumer. 

So one of the easiest examples, like given we work with a lot of meal at home companies, but look, everyone's got to eat and getting food delivered to your front door. That's, you know ready to get ready to prepare or pop it into the microwave and you're ready to eat. Does a few things. One it's not just convenience. It's not just a feature is that food shows up at your door. That's awesome. 

Connor: But someone's already prepared it as well as it's going to be like healthy. 

Evan Padgett: And it's got the right macros. You're looking for, it's got the right nutrition profile you're looking for, but you know what else it does. It saves you time from going to the grocery store time that you could spend with your family, your friends, or just not the grocery store. It could be less expensive. So saves you money that you could spend doing something else.

It gives you peace of mind. If you have dietary concerns as you may be either trying to lose weight or you have gluten problems, all these sorts of things, you know, this food's coming to you. It's going to be good. It's going to be tasty. It's going to also be good for you in that case. So it relieves, it relieves a huge stressor because everyone's got to eat.

Now, part of that problem is being taken care of for you when you have a product that can do that. And that's like an extreme case because eating is a necessity, but say you're a fashion company. People want to keep their wardrobe and their self image up to date. Right? So you work with a fashion subscription company that keeps your wardrobe modern. It keeps it to your style, footwear, outerwear, whatever you're into. And if you're somebody that cares about that now you're not. And you have trust with a brand that vibes with your style. 

Now, all of a sudden you're able to re reduce the pain. Going to a store or just buying something online and be like, I don't know if is going to work out. Maybe this will work. Maybe it's not. Like, hey, you got a subscription. That's, that's bringing you fashion and solving part of your inner turmoil of like, of your overall image, right? Like your own personal image, which is important to everybody to have a sense of that and style. 

So that's what subscriptions have to do. It's not just, hey, here's stuff we're throwing in a box for you. You can't do that. E-commerce can do that. E-commerce and advertising is a very different piece between both of those as well. So description you're buying and acquiring customers mathematically to their lifetime value, which you can predict.

It's very predictable number, usually pretty consistent with e-commerce. You gotta have a row as that's sort of a return on ad spend that presents itself immediately. You might be able to buy a customer. That's spending $400 with you for a hundred dollars and get that four to one row ass right now, with that same a hundred dollars, you could get a customer that is going to be having $800 LTV, right? Or you could pay $200 to get that $800 LTV customer and actually make more money with them.

How To Predict LTV

Evan Padgett: So predicting LTV, it's just a couple of numbers on the most basic level, your revenue that you're getting on a per transaction basis, you need to know your churn or taking a guess at your turn and understanding cohort. So cohort in this case, typically new customers in a, in a new, in a period in a month, right? 

So, you know, April 2022 is how many new customers we got. It's a fixed number. It doesn't really change. You're not going to go back historically and update that. And then you look at their churn over time. So much like a recency frequency model that exists with, with e-commerce where you're saying, hey, they're going to average customer purchases, 2.5 to three times a year, every 90 days. 

And once they're 180 days out or something that they drop off, it's kind of the same thing where you're like, but the thing is, you're like, okay, we started with a hundred customers next month.

We're going to have 80 X months up to that. We're going to have 60 next month up to that starts dropping 5% per month or whatever. There's sort of, I would say I have a feel for it from an industry perspective, but it makes logical sense. Your biggest churn is in your first payment or first, you know, after your first payment between that and the second payment, then it's sort of going down really aggressively from there.

So usually around 20% ten-ish percent. Then, you know, somewhere between seven and 5% in perpetuity until, you know, the cohort runs dry, but subscriptions give you more typically a higher customer LTV. They give you predictability with your business, meaning how much product you're going to need in the upcoming months.

So your supply chain and, you know, the ability to model your business makes a lot of sense. And if you just like, look, you have to take a guess and then chew it up over time. Like you don't know until, you know, but you can, you can be conservative when I say that is like really aggressive with like your churn rates. And if they come in under great, you adjust, right. But you need churn. You need revenue based on whenever you're getting, if it's monthly, quarterly, semi-annually annually or annually, right. Whatever you're doing, you just model all that out. And you can come to LTV. 

One hidden piece, I would say, or one important piece, which is, this is like an important piece for any type of businesses, having good margins. If you're an advertising company, as in, if you're a company that acquires customers through advertising, you need to have a certain amount of margin for advertising. Meaning if you're a product that operates on 20% margins delivery to the customer from there, not including media and team and salaries and all that, but just to the customer, you're not leaving a lot of room to acquire customers, right?

We say 50% about the bare minimum for you to be able to do that 50% gross margin to the customer. So if a customer buys a product for a hundred dollars, Your cost of goods. Plus shipping needs to be $50 or less to get that to that customer store. And then you start chipping away at you. I know your, your, the rest of your economics, your customer acquisition costs your team from there. So you can come up with an LTV. It's relatively, you know, you're talking about addition, subtraction, and multiplication division here. It's not very, it's not, it's not hard calculus. 

Connor: Yeah. I just thought that you were like predicting LTV or from an individual, not from like prior customers. 

Evan Padgett: Predicting LTV as is basically just creating a proforma model that looks at your business. And then you come up with an LTV. That's easy math for those two, honestly, like most, if you're a subscription brand of about, you know, 50 to a hundred dollars per order, you use use four and a half orders a year as your, as a basic litmus, that's your LTV. And I will say plus, or minus 10%, that's about right.

So if you don't even want to go through all that, if you know your AOB. $50 assume about a 200 to $250 LTB, like start there now you true it up with actuals over time, but like four and a half orders in that first year of that customer's life cycle, pretty much where you're going to sit with subscription some better, some worse, but that's, that's a conservative number, I'd say.

How Subscriptions Started

Evan Padgett: So back a long time ago, things like terms and conditions where we're suspect at best those subscriptions. Go go pre-internet there. There have been subscriptions over time, music clubs, things like that, that have existed. That I've had a very confusing subscription economy, the internet and stuff that I did early on the internet in terms of conditions, legislation around that didn't really exist.

So we didn't say that there wasn't a subscription, but you know, you would have, oh, this is a totally free trial. And then after 14 days, we're going to bill you this big prize and there's no refunds, no returns, no anything. Right. That's how it was in the early two thousands and know a little dicey. And then over time it took a decade or more to really get their subscription has turned into something that people are unaware of.

And too, they don't shy away from any more. And I can distinctly remember in like the mid two thousands, there was a absolute distinct. For a subscription economy from the consumer though, like, because of maybe things that I was a part of, maybe not, but a lot of really shitty, excuse me, subscriptions out there that screwed people over.

Like they really did. And you couldn't cancel you. Like, you'd be on subscription for 10 months, the customer service won't work. No one would ever answer an email. And like, you had to take it up with your bank. And that was like, there was a lag, I was a part of ones that bad, but there were a lot of them that were that bad.

Now over time because of subscription promise and because more recurring revenue models exist, it's all a vast majority of those subscriptions, not just because of the law with laws that exist, but just because in order to be competitive, people are looking out for themselves. And when they're jumping into a subscription, there's a couple of things. 

You got to have terms that are easy to deal with. You can't have a confusing subscription that makes people wonder when I'm going to get billed, how I'm gonna get billed, how much I'm going to get billed. So transparency is key, obviously good customer service and resolution, right? Like I preach now after everything is like a customer wants to leave. You let them leave and you give them the best off-boarding experience possible because there was a time where you had to make canceling really hard because you try to keep every customer you could get. But now cancel a frictionless.

Canceling is actually offboarding a customer. Yeah. If they're going to talk about you say yeah, but it was easy to cancel. I liked the product, but it's easy to cancel. That's most people that want to cancel you by the way, they're like product was good. I got too much of it. It was really easy to cancel.

I'm not a big deal. You should try it, buddy. Like good. Instead of like, instead of like, yeah, you want me to tell you about this brand? I bought it. I tried to cancel it for three months. I sent something to the BBB. I blasted them on Facebook and Google reviews. And, you know, I wrote a letter to the president of the company and talk to their entire book, like all this stuff. Then I finally got a, you know, half my refund and I hate that company, right? 

So like subscription has become over time, not just a acceptable thing, but a reasonable thing that people will do as long as it meets those needs. It's gotta be something that removes pain. It's gotta be convenient. It's gotta be the right price point and have a unique value proposition. All of these things that is a subscription promise holistically are commonplace now and those best subscriptions haven't and they provide a consistent value for what you pay for. That's like, that's really what it is. 

People, you know, people have to pay their power bill. They have to pay their phone bill. But I think most people, you don't hear people really complain too much these days about the price of their cell phone bill because of the utility of brains. The same thing goes with a subscription. Good. If it's not something that people need in their life, they got. You know, this is a great product and it's definitely worth the price.

And I'm definitely getting the value for that, but it has changed a lot and had been adopted a lot more and, and candidly investors and people that are going to put money into your business. They love recurring revenue just because it's predictable. You can see it. It's a calculator that looks into the future and forward looking revenue becomes less of a mystery when you're an e-commerce store.

You know, if you've ever been a part of those or seen those, it's like we had our biggest month followed by. We had our worst month followed by a new record, followed by a big route of business, like, like subscriptions, smooth that out. And then the outside of the promise, I thought of all that, the basics was subscription and recurring revenue models kind of comes down to this. If you got a product or a service that people. With liken their lives. 

Now it's not for everybody, but they're going to love it and they're going to stay with it. And you're going to have an awesome customer. That'll bring you a high LTV where 10 years ago, 15 years ago. It was shady and weird and it subscriptions had a bad rap because 80% of the people out there were bad actors in that space.

Now I would say, it's the opposite there. There's still some scams out there. Don't get me wrong. I would never say there's not one, but you're not going to get scammed if you're buying on a store on Shopify really on subscription. And if you do, you're going to figure it out quickly and that they're going to solve it for you. It just your ability to do research on a company now so much easier looking at how legit a company is. It's not just like, oh, where's this coming to? They started two weeks ago and they have 5,000 customer reviews and they all say the same thing. Yeah. Maybe this is a little shady that doesn't really happen these days either.

So it's changed a lot. It's a lot more acceptable. It's not for everybody though, but it's not. I would say it's not as it's not filled with as much vitriol and hatred as it used to be. If I'm being honest, because there was. It's getting there, it's getting there. I think the demystification, honestly, I think a lot of the credit of that goes to also like streaming services, some of the biggest subscriptions world, Spotify, you know, Amazon prime, all of these things, Netflix, all these companies have now said, okay, things can be on subscription and they have good ones.

Like, I mean, the value is everyone's opinion, but you cancel your Amazon, you cancel Spotify. It's easy to do that. Right. Like, so people are used to it now people find room for it and you know, they don't hit it as much. 

Significance Of Your Brand Having A Social Cause

Evan Padgett: So my opinion on this is if you can, you should. And that's like sort of a personal cost-driven mindset of just like, I think that a business, a for-profit enterprise can find ways to help people, not just, or help people through it's commerce now, isn't way as necessary. I don't know about that. I'm very passionate about though, and it's got to also be authentic to what you do. 

So there's like things that fit. So like your example, you know, a beer that is donated to an elephant sanctuary. Beer's a little weird, right. But if a beer is donating to a healthy hop supply chain making something up right there, but you know. 

Connor: Sustainability in the rainforests. 

Evan Padgett: It's a little bit more connected. Right. When I was at thrive, one thing that we did, the whole purpose of that company, big part of its cause was to solve what in the states is sort of referred to as food deserts, where, you know, people that have dietary restrictions or gluten is a big one. Right. They live in food deserts. Yeah. Well, yeah. 

Connor: So like to the east. 

Evan Padgett: Yeah. Right, right, right. There you go. 

Connor: So like supermarkets have just. No fruit and vegetables. 

Evan Padgett: Correct. So you can't get anything that suits your dietary needs. We help deliver that right to the doorstep at thrive in. And that was, that was a purpose of the company, but the social cause behind it is the prices on thrive for comparable products, regularly beat Amazon.

That was a big thing like on a per skew basis. Once you're a member, you paid $60 a year to be a member like, like Costco or something like that. What we did is every time we got a member, we donated a membership for free to a low-income family. So now the low-income family is able to buy through us things that they need, dietary wise, organic gluten-free foods, et cetera, at prices cheaper than they could buy them into any grocery store.

So even if they're not in a food desert, say they're in Los Angeles, California, but they can't afford to go to whole foods and any, and other grocery stores where organics are more expensive. Then the comparable products, we flip that. So that was a cause that we had, and it sort of perfectly, every week, every membership we gave, we got, we gave away another one.

So having a social cause, especially to a younger consumer here, meaning like the people that are just, you know, that the new 25 to 35, or, you know, 25 to 34 rung, having something that makes sense for you to stand by and showing the part of the dollars we collect as a company are making a positive impact is important.

Is it absolutely required? No, obviously you're not get a hundred businesses together. You know, maybe I'd be stoked if 25% of them had a cause that they were truly passionate about, but that is always something that helps, like, you know, any company could probably find half a point of its, of its bottom line to give away to something, to make the world a better place.

And that might, that's going to gain you more customers than it's going to lose you. So why not? And it's not just about getting more customers, but it's also just like, it's a good thing to do. As I think about it, it's just a good thing to do. It's it's money. That's not missed, but can make a difference. And like one thing that we do at stealth, and I mean, as we live this example, it's easy for me to say, oh, you brands do it. 

So this is like a shameless plug of something we're doing at stealth. So this part is like we created, we have a part of our business called the impact lab. And what we do is we actually created a product that is teaches people how to make a Shopify store, how to run their ads, how to get assets made and how to build a business. And we're actually having a young entrepreneurs like inner city kids go through this program, learn how to bring a product to market. 

And we actually donate them to them hard cash at the end, for like $5,000 to $10,000 in cash to spend on advertising and to take their product and to make their dream a reality. Like they work on getting the product in the house and we have, like, there was one of our spoiling something, but one of our kids in this, they they're creating a product is, I don't want to spoil it too much cause it's, so it's not a launch soon, but basically long story short, it meant a lot to him as a kid that spent a lot of time in hospitals growing up to create something that helps those kids. 

We're launching a product that helps kids that are spending a lot of their life in the hospital. Like to me, that's just amazing. And it, this kid doesn't come from a, from a wealthy family that can just throw a bunch of money at that. It's like, he's bootstrapping this himself. He's working, he's doing all this stuff. He's coming to us. And he didn't know how to do any of this. And like, you're going to bring that to market. So this is like a social cause we believe in and that money comes out of our pockets. Like we built this ourselves, we're donating it. 

Like we're a marketing agency, right? Like we're a service provider to brands who spend their money and make them more. But what we see as important is how do we make the next entrepreneurs? How do we create entrepreneurial-ism among kids. Many of them have the least hope possible. So this is a cause that we created, right?

So like a company can do that. And a company can, you'll find from like an internal culture perspective at a company. If you're a big company, you got hundreds of people employed there, let them let the most passionate of them, go out and make an impact, donate company money to go out and say, hey, like, we're going to go sponsor a food kitchen for a week and you'll have passionate team members.

That'll be appreciative for us doing that. They'll execute it. It doesn't have to be something that you write a huge part about on the west side, but just like that's a newsletter piece. That's, that's a good local PR that's just a good thing to do. So like I had a little bit of scratch and it does it.

You'd be surprised on how in your company making millions of dollars a month and all this stuff. What just a couple thousand dollars a year can make an impact to certain families that are concerned about putting food on their table and you could solve some of that, all that adds up. And it's just a good thing to do. So that's my take. 

Connor: No, yeah, I agree. I'll say, you know, I really do. I like your phrase, like it's not bringing any harm. It's not a bad thing. It's just a good thing to do. The counter that we came up with in philosophy club was like, you can create a dependency. So like I have a pretty crackup example. Hey, like I made a video for the chief medical officer for the state of New York and he invited me for lunch in the empire state building. 

And the morning that I had the lunch with him, I went to the Harry Krishna food bank and I helped them, you know, feed the homeless. And then I told Lloyd that afternoon, I was like, you know, that's kind of a cool thing I did this morning. And he was like, oh, you know, because he's running the city on such a high level is like that those guys are keeping people on the streets. They're not helping the homeless because a homeless person goes to the food bank and they leave with a nice warm meal. And they're like, sweet. I'm prepared to face this, you know, this position I'm in.

Whereas Lloyd was like, we need to give those people the power to look after themselves. So it's kind of, it's a real tricky one. I'm so involved with what you're saying. And I want to do that too, but I guess it's case by case, but I I'm, I'm I'm really, I didn't expect you to say. Well, we've given up, how do you do the metric on that? Like, are they just coming to you going, we've kind of got an idea or?

 

Evan Padgett: Sort of. So we interview these kids and they have ideas and they talk us through their pitch and we help them. We help them through that pitch and ask them why they want to do it, teach them how to create models and understand the business economics of what they should be selling it for how to establish the supply chain, do all these things.

Then at the end, you know, we give them a grant to go out and spend advertisers start driving their customers. Right. So it's interesting. So your point about the dependency point is certainly a highly debatable topic that we can do on another podcast, but you know there's different aspects of that.

So you're talking you, when you're talking about basic human needs, like being able to eat and stuff like that, there's a certain, you know, certainly a debate on. You know, and I can speak for myself as a kid growing up homeless at times. You know, when you get that one warm meal, you're, you're not feeling super content, you're worried about your next warm meal.

But the other side of that is, you know, where we could create opportunity and actually create optimism in a world that can suppress and otherwise hold down certain types of people or that aren't presented with the same opportunities. Like that's one thing that we're looking to try to change. And that's why I like these young entrepreneurs. They're not coming from rich families that, you know, kid graduates college, he gets $200,000 grants. Doesn't have to worry about paying cutback college loans and they have a huge leg ahead. 

What we're trying to do is just trying to help them kickstart and recognize that like, you're not gonna, you're not going to build a business off of grants donations forever, but at the same time, it takes money to build a business. So creating enterprise and creating like hopefully the jobs that then they create after that, like, that's an awesome outcome.

If we could get one of these entrepreneurs to actually have a business that sticks, and then they hire 10 people and maybe they're looking at their past and be like, I'm going to give opportunities to 10 people that otherwise wouldn't have it because I didn't have it. Like, that's the ripple effect we're hoping to create. That's not a dependency in our opinion. That's just like creating opportunity through social enterprise. 

Connor: Oh yeah. I wouldn't say that your cases as dependency, it was more the food bank. Yeah. So what you're doing there is pretty admirable.

Evan Padgett: And so then you start looking at like, you know, things like heal the bay, you know, there's just trash on the beach that doesn't need to end up in our oceans and like filling up 20 or a hundred trash bags makes a minuscule impact, but it does make a positive impact. It makes it makes the beach a better place. And that's not the beach isn't dependent on it. Like a lot of social enterprise is cleaning up after ourselves collectively. Let's be honest. 

Connor: Oh yeah. Oh definitely. That's kind of another interesting point. It's like, why is that plastic on the beach? 

Evan Padgett: Right. Totally. We should just ban that. Yeah. Why is there that stupid? I don't remember what it's called, but like literal like island of trash in the middle of the pacific ocean. Oh, awesome. Right. It's like the size of Texas. Like that's cool. Like that sounds like a really fun thing to have out there. 

So, you know, to me, it's just like the social enterprise and having an impact. There's various degrees of that, but I look at it. If you ha if you, if you're a company that like, if you're a small company, yeah. It's a little harder to have that, but one thing, oh, one less thing we do here at stealth that I'm going to plug that that is sort of shows how social impact can happen. We give all of our team members here a day off a month, if they want to just participate in their community and just share what they did.

So some people go to the dog show, you know, the animal shelters and take care of the pets for the day. Some people mentor kids or you know, volunteer at their kids' school. And like, we just want, like that's a great way for a company to give, to have a social impact is just to say, Hey, we also let our team take 12 days off a year, one day off a month to just do something in their own community and have a community impact and whatever that is, it could be serving at a soup kitchen.

It could be taking care of animals. It could be cleaning up trash. Oh, that looks like that's a great way for this was to create a social impact that that's not even huge and they probably don't miss it. Right. Like one extra day off. It's like a sick day, you know? So that's what we try to encourage. And like, again, you don't always have to be public, but being able to talk about that, you talked about getting quality candidates, talking about getting quality people that work there that will.

We can get really deep into like, not just what you put out as a brand, but what you have going on inside a company as a company and capitalism is a thing. And for profit enterprises, what all these companies are, but then you start attracting people that love the passion that you have as a company. And most brands have so many brands, I should say, oh, social causes that aren't even on their website. Right. They just believe in.

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