I've taken hundreds of calls with early-stage CPG founders over the last few months, and a recurring theme has started to develop when the topic shifts to their digital marketing efforts. These are incredibly intelligent, hardworking individuals who often get taken advantage of by bad agencies, or worse, waste tons of money from trying to go the DIY route but executing poorly. This guide is meant to help CPG brands skip the “error” phase of “trial and error” when testing paid advertising for the first time.
First, some assumptions. In order for this guide to apply to you, I’m assuming the following:
- Your product is not a luxury good
- Your product does not have extremely restrictive brand guidelines and you’re open to a “test-and-learn” approach
- Your product has a TAM greater than 20 million customers in the US
- Your product is consumable
You’ll need to evaluate each of the following sectors of your business for weaknesses before you spend a single dollar on paid ads. I’ll be going through these more in-depth one-by-one:
- Unit Economics and Pricing
- Marketing Mix and Content Strategy
- Website and Landing Page Experience
- Benchmarks to Determine Success
- Considerations When Evaluating an Agency Partner
UNIT ECONOMICS AND PRICING
Price-pack architecture is a huge component to success in DTC, just like it is in wholesale. Typically with paid advertising, an AOV greater than $25 but less than $100 is considered to be the “sweet spot”. This range is high enough to offset your shipping costs and give you some room for ad dollars, but low enough that it is viable for direct response and possible get the daily conversion volume necessary to learn and scale on platforms like Facebook ads.
When considering price pack architecture, you need to evaluate the logistical implications of your product. For example, how much does it weigh? What are the shipping costs on your hero SKU? If your all-in COGS + shipping cost don’t give you a high enough gross margin rate to accommodate your marketing spend, paid advertising becomes 10x harder due to this margin pressure.
When evaluating how to package your product for DTC customers, remember that focus is everything - if you have 25 different flavors, do not give the customer 25 flavor options. Instead, consider building something a “starter bundle” that removes some of the decision paralysis that comes with optionality. You can scale to millions a month without diversifying beyond a single starter bundle SKU. We saw Magic Spoon do exactly this.
Lastly, you should evaluate your brand’s historical purchase behavior from other sales channels (assuming you have any sales coming in at all). Take a look at the sales coming through your wholesale accounts, organic marketing channels, etc. - are you able to identify your average customer’s repeat purchase rate, first purchase AOV, and LTV across these channels? If you have these benchmarks on hand, you can use this data to formulate your paid ads strategy. for example, if you have an extremely high repeat purchase rate/LTV, This gives you more tolerance when formulating a CAC target for your paid advertising.
Keep in mind that customers coming through paid channels like Facebook will typically be a lower quality customer than those who come through organic, direct, or wholesale channels. you may want to be conservative with your projections on purchase behavior as a result.
MARKETING MIX AND CONTENT STRATEGY
The theme of “focus” should also apply when considering your marketing mix. Just as you can scale to millions with one SKU, you can also scale to millions with one paid marketing channel. 99% of the time, this is Meta (Facebook + Instagram ads). Meta’s sheer scale and the maturity of its ad delivery algorithm allows it to find you your target audience much faster than the smaller, “sexier” channels like TikTok. It’s helpful to supplement this with Google Search, a higher-intent channel that will be more profitable thanks to its ability to “capture the demand” of your higher funnel marketing channels, but this should not be your main driver of growth at scale. Down the road, it makes sense to diversify your channel mix to ensure the long term defensibility of your business, but early on having a relentless focus on a single SKU, a single channel, and a single offer is key to making DTC work.
Let’s talk content. Poor ad creative, lack of consistent content, and an incoherent messaging strategy is the cause of 90% of the DTC failures I witness. Ahead of launching a paid channel, you should have 2-3 months worth of organic content built up and have launched on an organic social channel. The most effective combo in my experience that leads to organic social audience growth, insights about messaging that works with your target customer, and in some cases true sales volume, are videos posted to TikTok and cross-posted to IG Reels. Do not rely on an agency to be your only source of ad creative, and do not test paid ads without having a backlog of content.
So what are the most useful content formats to have when launching paid advertising? Asset type #1 is UGC creative. This doesn’t have to be expensive. Get the product in the hands of our friends and family to start getting footage. Influencer testimonials, footage of your product shot with an iphone, founder testimonials you shoot yourself, factory/manufacturer footage, anything that will stick out when someone’s scrolling their IG feed looking at their friend’s stories is key to accumulate. Every clip you shoot is ammo that a creative agency or your internal team can use down the road to iterate on ads for paid social. Some other affordable sources of UGC content:
- The TikTok creator marketplace - completely free platform to search for influencers and content creators
- Billo and Insense - the two most popular UGC sourcing platforms which can be extremely affordable
Asset type #2 is polished, professional-looking studio footage and product photography. This style of content can be really effective when cut up into montage ads with your more low-fi UGC content. You can also use these assets on your site, in landing pages, and in standalone static image ads. One really affordable source of more polished studio content is Soona - a virtual studio for startups.
Asset type #3 is a consolidated asset library with logos, font files, your brand’s color pallet, and if you have it, approved ad copy lines. This is especially helpful if you plan on working with third party Partners like agencies. Everyone you work with will ask for a consolidated group of brand assets. Try to come up with some copy lines to use in advertising. If you don’t do it, an agency that doesn’t know your brand as well will. Brainstorm a mix of short form (max 40 characters) and long form (around 250 characters) taglines, testing both product features (e.g. low carb) and benefits (e.g. “a guilt free ____”)
WEBSITE AND LANDING PAGE EXPERIENCE
Where are you going to send your ad traffic to? Most early stage brands start by sending traffic to their homepage, a collection page, or a product page. Unless you worked with a design agency that really knew what they were doing when building your site, your Shopify theme probably isn't going to cut it here from a conversion rate perspective.
If your product is >$45, you will typically need a “pre-sale” page, or a landing page. This is a single page with stripped down user experience, limited external navigation, and a simple hierarchy of information explaining your product to someone who is 100% unfamiliar with it. Even if you 100% plan on driving traffic directly to your homepage or your product page initially, it’s helpful to build a Landing Page just to test against your main strategy. Always be testing!
When building your landing page, don’t reinvent the wheel. Copy a larger competitor or use a template with tried-and-true design elements that will improve your conversion rate. I’d recommend downloading a Landing Page builder like Replo that builds the page right on your Shopify domain and has tons of useful templates you can just plug your brand info/theme into. If you don’t want to build a landing page in-house, I recommend working with an agency that specializes in landing page design like Flighted. 🙂
Subscribe and save: as a CPG brand with a consumable product, believe it or not, a certain percentage of new customers will want to subscribe right away. Use a subscription platform like Smartrr to allow them to do so on their first purchase from your product page. I recommend offering some kind of discount to incentivize users to subscribe. You will want the recurring revenue that this brings early on to give you more breathing room in CAC as you’re scaling paid ads.
EVALUATING POTENTIAL AGENCIES: RED FLAGS TO LOOK OUT FOR
Unfortunately, 99% of agencies suck. I would only recommend working with an agency that either has a robust library of case studies and is happy to share client referrals, or an agency who was referred to you by someone you trust. When taking calls with prospective agencies, watch out for some of the following buzzwords which would suggest they are still using an old-school methodology in paid advertising which is no longer effective: if they mention “building the top of the funnel”, “seasoning the pixel”, “retargeting strategy” or “proper exclusions” when discussing Facebook ads, they’re probably a dinosaur. Similarly, never let an agency run an ad campaign for you optimizing for traffic or Adds To Cart!! I’ve seen countless companies blow thousands of dollars on cheap low-quality traffic campaigns that have a 99% bounce rate and yield no results. A positive signal I’d look out for is if they’re familiar and up to date with the latest Meta ad products like Advantage+ Shopping and Shop ads (checkout on FB/IG).
Agency pricing can also be a strong signal for future performance. If they use a percent of spend, model, ask them if they will be devoting the necessary resources to launch your brand in month’s 1/2/3? How are they going to cover the up-front costs of the increased time investment it will take to optimize your ad creative, landing page, and account structure when you’re not yet at profitability? Agencies with a cheaper up-front cost may get offset by the additional months you’ll probably be unprofitable on paid thanks to their lazier approach. Down the road, when things have gotten easier and you’ve validated your funnel, they are simply taxing your success with the percent of spend model - even though it typically means less work for them.
You should find a partner who helps you across all 3 phases of the funnel: the ad creative, the media buying, and the landing page experience. Unless you plan on hiring specialists for all 3 of these areas, you’re going to lag behind in at least one of them which will only lead to sustained lack of profitability on paid.
CONSIDERATIONS WHEN LAUNCHING ADS
There are three signals of success you should track ruthlessly in your early days of testing a paid channel for the first time: First is Cost Per Click (CPC), an outcome of 2 more granular metrics: CTR and CPM. Cost Per Click answers the question, how efficiently are we driving traffic to the site? A baseline CPC is $1.50 - if you’re around this number, you’re doing ok. A good CPC is <$1.25. If you’re above $2.50, you’re usually dead in the water. Second is conversion Rate (CR) - how efficiently are you converting site visitors into customers? You should evaluate 2 CRs - your “paid” CR (sessions attributable to your cold prospecting ad traffic, which you will track via UTMs), and your sitewide CR - your blended CR from all of your traffic sources. Your sitewide CR should be above 3% most of the time. Your paid CR Should be above 1.5% most of the time. That being said, CR is very dependent on your AOV and what you’re charging first-time customers. Check out this handy dandy chart which shows the full spectrum:
Another more qualitative data point you should be tracking ruthlessly early on is customer insights. Are you testing your product’s features and value props in a way in which you can tell which are resonating with your target customer? You should be formally testing different value props as different “hooks” at the beginning of your ads, and in your ad copy. Track what works and what doesn’t. Don’t stop at simply testing your product features though. Go deeper to the benefit. A low calorie candy bar = enjoy a daily routine of delicious chocolate, completely guilt free, for example. Make sure you also implement a post-purchase survey tool like Kno to ask customers 2 questions: “what was the MAIN reason you purchased from us today?” and “was anything on our site unclear or confusing?”
The insights you glean from the early days of paid advertising will help you to optimize your entire business, whether it’s applying winning ad copy to your landing page to bring up your conversion rate, or using the qualitative customer data you collect to inform your wholesale expansion strategy. Whether or not your ads are profitable, you should step away from your first foray into paid ads knowing that you learned a lot.