Go brand-first, read blended return and cost a permanent customer

1. The constraint and what graduates it

Item	At this stage
The constraint	Attributing leads by channel becomes really difficult: you are marketing all over the place, with many different channels for getting customers. Platform and regulatory compliance become an issue too
To graduate	Shift to brand-first advertising with an omnichannel approach, and read return on ad spend blended across all products; on top of that, install a compliance process

The compliance process has its own page, SOP 176 — Install a compliance process for marketing.

2. A turnaround that shows the timing

The view here is that this is probably the best self-contained story about branding this page can give. An athletic-footwear maker is now in the middle of a big resurgence, after 15 years of straight decline. After those 15 years of falling sales, a new CMO came in and asked the CEO whether he could swing for the fences. The CEO said yes.

The switch. The spending went from 70/30 in favor of direct response to 70/30 in favor of branding. The 70 went to the top of the funnel: brand awareness, brand associations, collaborations, partnerships and endorsements. Only 30% went to the bottom of the funnel: direct-response offers, the spending aimed at a direct sale and judged on its return. The split was heard secondhand, from someone who had talked to the CMO.

What happened. After the switch they kept losing money for 18 more months, and in fact lost even more than before. At month 19 the numbers turned sharply, then shot straight back up, and the resurgence is still running now.

3. What the turnaround shows

Two lessons are drawn from it, as ones that businesses of this size would, in the view here, benefit from.

Brand takes a long time. It takes a long time, 18 months, for branding to start paying dividends. So if you decide the business needs to reinvest in the brand, do not expect it to be something like a two-month job: it is going to take years, plural. The reason given is that the maker probably had a pretty big budget, and it still spent through that whole period before returns really showed.

The split is called close to the give-to-ask ratio. 70/30, which is what they had as far as could be said from the account heard, is called very close to the 4:1 ratio of give to ask, a ratio said to have been well studied. As it is explained here, in every four pieces, three are content and one is a commercial:

• On television, every fourth minute is a commercial. The minutes might be blocked together, so it might run 12 minutes of programming and then three minutes of commercials; that is how it might work.
• YouTube is the same.
• On a Facebook news feed: three posts, then an ad; three posts, then an ad.

That ratio of give to ask is said to have already been studied as kind of the sweet spot for a mature platform: enough to benefit financially, while still able to at least keep its position in the market.

To grow, give more. If you want to grow, push the ratio even further toward giving. When TikTok started, it is said, it ran no ads for three years, because it wanted value all the way through. Carry the same idea into your content, or whatever you choose to brand: what ratio of value to asks do your prospects hold in their minds?

Why 18 months. The reading offered of the 18-month wait, as a personal one: people had already seen so many asks that the company had to keep giving for 18 months before it could shift the ratio back, to the point where people thought well of it again.

4. Set the budget between giving and asking

If you are going to invest in brand at this point, you have to be able to say how the spending will divide. For simple math, say your advertising budget is a million a month. Of that, 750, meaning 750 thousand, goes to giving:

• content;
• giveaways;
• tools and products you can give your base for almost nothing;
• if you sell direct to consumer, endorsements (a star athlete's deal is the example) and collaborations with other creators or influencers who stand for things your ideal customers resonate with, in parallel with your brand and the things you want to resonate with.

5. Read the return blended

Once you start branding, you have to look at return on ad spend blended. If you do have a good brand, the direct-response side of the business, the side judged on that return, is all about optimizing the funnel and getting the immediate sale, and its numbers are going to look absurd. But you have to take into account the money you are putting into branding.

The natural inclination. Your natural inclination is going to be: we should double down on the direct-response spending, because we are getting 20 to 1. The answer: you are not really getting 20 to 1. You might actually be getting four or 5 to 1, because you had to put the branding in place to get that result.

How a new chief executive can look brilliant for a year. This, the view here holds, is why a chief executive can come into a big publicly traded company and look really brilliant for a year. All they do is pull revenue forward: stop doing goodwill, make the asks, and empty the goodwill the audience holds into the company's bank account. Then the goodwill is gone, and the company has to spend those 18 months of giving all over again.

Build before you need it. So keep building goodwill before you need it, and always over-deliver before the ask. That, in the view here, is fundamentally how branding works, over a longer period of time.

6. Split spending by time horizon

Start dividing ad spend between top-of-funnel social awareness and the bottom of the funnel, and blend the two together. The top of the funnel is the long term; the bottom is the short-term work. When in doubt, go long.

Founder-led against professionally managed. In the view here, the biggest difference between founder-led companies and, kind of, professionally managed ones is that the founder is almost always thinking much longer term, and so is willing to put a quarter, two quarters or a year toward giving. Corporate managers, handling quarterly expenses, tend to not think that long, because they will be moving to the next business, one they do not really care about: they take out the profits and move on. That, it is said, is what gives private equity and owners like it a bad name.

If you are kind of founder-driven, with that long-term expectation, you have to keep giving. The view here: if you are making excess profits right now, spend the extra cash on long-term branding, if you want to build something that lasts.

7. Add channels brand-first

At this point, add as many channels as you can, using the same approach. When you enter a new channel, still start brand-first, give-first and value-first, so you can kind of pave the way with goodwill. Then follow up later with your asks and your direct-response offers, to get that money back.

Adding a second channel at an earlier size is SOP 165 — Pick a second acquisition channel. The four lead channels for reaching people are laid out on SOP 12 — Run the four-channel grid.

8. Work out what a permanent customer costs

This is called a slightly more advanced business topic, though one said to apply to anyone this far along. Figure out the cost to acquire a permanent customer. The example given, kept simple:

• A software business sells a widget for $100 a month.
• Say it sells free trials, and one in three trials turns into a customer.
• You can look at month 12 and month 24, and ask what percentage of the customers who come in make it to the point after which people no longer churn.
• Say one in three of those customers makes it all the way to that point, where they basically do not leave again.

In a physical-products business, the same point is where a buyer becomes a permanent customer for life, who keeps buying the same drink, the same candy or the same athletic wear.

Once you know that, you can see the cost to acquire a permanent customer. It might be the cost of nine trials: that is what it costs to create one permanent node of revenue in the business.

Check the arithmetic. One trial in three becomes a customer, and one customer in three becomes permanent: three times three is nine trials for each permanent customer. The nine holds.

Then it is a math problem. From there it becomes a huge math problem: it will cost this many millions, tens of millions or hundreds of millions of dollars to push people all the way through to the point that builds permanent compounding in the business. It is called a back-of-the-napkin equation, and a very valuable one, because once you see it you know, in this view, how to get to a billion, or to 10 billion, from here: it is this much money; it takes this many trials, which make this many customers, of whom this many become permanent. Then you flow your cash through there.

What one customer costs to acquire, in general, is SOP 56 — Define and compute what a customer costs to acquire.

9. What this page does not decide for you

• The give-to-ask ratio. The ratio is given in several forms here: 70/30, "4:1", three pieces of content in every four, 12 minutes of programming to three of commercials, and three posts then an ad. As ratios of giving to asking, 70/30 is about 2.3 to 1, three in four and three posts to one ad are 3 to 1, and 12 minutes to three is 4 to 1. The worked budget, 750 of a million, is 75 percent. SOP 24, section 2, gives a mature feed as four posts of content to one ad in every five, and television as 47 minutes of content to 13 of commercials. This page does not settle which reading is right.
• Where the permanent point falls. Month 12 and month 24 are named as places to look; which one marks it is not given. Not established on this page.

10. The checklist

Question	The answer
When	At 250 to 500 people, when leads can no longer be credited to a channel
What to shift to	Brand-first advertising, in every channel, with return on ad spend read blended across all products
How long it takes	A long time: 18 months before branding paid in the turnaround given; years, plural
The split in the turnaround	70/30 toward branding: top of funnel 70, bottom of funnel 30
The worked budget	Of a million a month, 750 thousand to giving: content, giveaways, near-free tools and products, and, if you sell direct to consumer, endorsements and collaborations
Reading the return	Count the branding money: 20 to 1 on direct response might really be four or 5 to 1
Time horizon	Top of funnel is long term, bottom is short term; when in doubt, go long
A new channel	Start brand-first and give first; ask later
A permanent customer	Trials to customers, customers to permanent; one in three and one in three might mean nine trials each

11. What this page does not cover

Tracking leads back to a channel and negotiating endorsement deals are not covered on this page.