Why You’ll Never Make Money on Meta Again

Digital commerce is in the midst of a mass delusion. Countless founders, marketing execs and investors believe you can build a profitable, growing brand on digital advertising only. It’s the holy scripture of Direct-to-Consumer (DTC), and its commandments go something like this.

— A/B test, A/B test, A/B test to find the winning creative

— Make constant optimizations to Meta and Google

— Rinse and Repeat to drive down the Customer Acquisition Cost and increase Lifetime Value (LTV)

Presto: You’re not just in the black, you’re scaling.

The problem is this strategy simply won’t work for most brands.

Public companies like Blue Apron, Caspar and AllBirds have struggled mightily. High valuation startups like Care/Of and Outdoor Voices haven’t built sustainable business either. Strategics have shuttered expensive acquisitions like Freshly.

Here’s why?

Most consumer brands don’t have sufficient Average Order Values (AOV) to pay $60 to $100 to acquire each new customer. And they struggle to make it up on second and third sales. It’s just too hard to keep a customer in the midst of fierce competition and ever more commoditized product categories, from apparel and beauty to supplements and snacks.

That’s before we even get to those pesky below-the-line costs: salaries, leases, healthcare and more.

The result is that investors and lenders are throwing good money after bad, and founders and teams are wasting their time.

Here’s the mystery. Lots of folks know all this. So why then are brands still spending on Meta and Google when, to paraphrase New York City mayoral candidate Jimmy MacMillan, the CAC is just too damn high?

Simple. It’s an addiction.

Every DTC team needs a sales fix. It’s the beating heart of the business, the proof of product-market fit, the thrill of winning a new customer. Without it, there’s no energy and morale. Instagram and Facebook deliver it better than any other channel. Google rounds out the campaign by reaching high intent consumers via keywords and across display ads, YouTube, etc. But like any dealer, the big players have got you fixed and can keep the prices high–longer than you can stay in business!

So what’s the solution? Quit cold turkey?

For most brands, no. Yet in nearly every case we’ve seen in the last five years, DTC players are far too dependent on Meta and Google. They need to diversify, and it’s easier said than done. While there’s no obvious answer, e.g., a new social ad platform, there’s a solution. Change your mindset. Here’s five simple principles to start rethinking your marketing strategy and find what works.

Optimization isn’t the Holy Grail: You cannot get Meta and Google to work better by constant tinkering. The algorithms don’t respond well to anxiety. You need to let them perform as best they can and that takes some time. While you’re waiting, figure out other less expensive ways to reach consumers, such as Pay-Per-Click media placements, aka Performance PR.

First Party Data is the Future: For the past decade or more, many marketers have counted on third parties to interpret data and target the right consumers. Instead you need to own the relationship with your consumers to the greatest extent possible. You will both better understand your product-market fit and build deeper connections with your consumers, driving higher LTV, the key to long-term profitability.

Don’t Skimp on Creative: It’s become an industry cliché to say you need more assets to put in your paid and organic digital channels, yet surprisingly few brands act upon it. Most invest little. Few do regular shoots. Yet why pay for Meta and Google’s algorithms to serve the same consumers the same ads over and over again? It’s a prime reason for the often diminishing effectiveness of higher marketing spends. Ad fatigue is real. Force yourself to think of new ways to express your brand and offer. It may lead to a big idea or three.

The Thirty-Five Percent Rule: No one platform or ad channel should drive more than thirty-five percent of your sales. Otherwise you’re too vulnerable to further changes in privacy policies — iOS14 and its knock-on effects. You need to put your First Party Data (see above!) to work to understand every way you can connect as directly as possible with your consumers. Whether it’s affiliate marketing, connected TV or even retail and wholesale!

You’ll Never Make Money on Meta Again: Just accept that you cannot beat Meta or Google’s auction model. Both are designed to drive prices upward, forcing you to pay the maximum every time. Meta and Google are necessary to build your brand–but they’re rarely the backbone of a growing, sustainable business.

Bottom line: Like so many DTC founders and investors, you’re an addict. The good news: it’s easy to get clean. The catch: there’s no simple solution to scaling. Everything you do needs to be driven by the relationships between your brand, product-market fit, and the consumer. What are you waiting for? Reach out to the consumer and start growing today!