Latest / Selling on Giants: The eCommerce Marketplace Podcast / Your Shopify Ads Aren’t as Profitable as You Think | Adam Callinan

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Your Shopify Ads Aren’t as Profitable as You Think | Adam Callinan · Selling on Giants: The eCommerce Marketplace Podcast

• 0:14
  SPEAKER_01: Welcome to Selling on Giants.
• 0:17
  SPEAKER_01: Today's episode is a rural operator-to-operator conversation with Adam Kalnan, co-founder of Bottlekeeper and founder of Pantane.
• 0:25
  SPEAKER_01: Adam helped scale Bottlekeeper from a product idea into a business that reached more than$60 million in sales before being acquired.
• 0:35
  SPEAKER_01: What makes the story even more interesting is how lean the company stayed while doing it.
• 0:40
  SPEAKER_01: Early on, Adam was building the website, writing emails, managing ads, shooting video, and figuring out how to make the whole thing work without a big team or outside funding.
• 0:52
  SPEAKER_01: In this conversation, we get into the math behind profitable growth.
• 0:56
  SPEAKER_01: Adam breaks down why contribution profit matters more than surface level metrics, how founders should think about ad budgets, pricing, discounts, and bundling, and why knowing your financial guardrails changes how you scale.
• 1:12
  SPEAKER_01: We also talked about Bottle Keeper's early Facebook video breakout, why constraints can be a real advantage, how Shopify and Amazon revenue need to be viewed together when customers move across channels, and what Pantane is building to help operators connect financial data with marketing decisions.
• 1:31
  SPEAKER_01: If you are spending money on ads, testing pricing, running promotions, or trying to scale without guessing, this episode is worth your time.
• 1:40
  SPEAKER_01: Let's dive in, guys.
• 1:41
  SPEAKER_01: Hey Adam, welcome to the show.
• 1:43
  SPEAKER_01: We're excited to have you on selling on giants to talk about how D2C brands move beyond gut feel and scale profitably on Shopify.
• 1:51
  SPEAKER_01: And you have a really impressive resume.
• 1:53
  SPEAKER_01: So to kick it off, can you tell me why you decided to build Bottlekeeper and what were some of the key moments where you started to learn and grow in the e-commerce space?
• 2:04
  SPEAKER_00: I can say very honestly, because I have an email history of this, that I did not decide to build Bottlekeeper.
• 2:11
  SPEAKER_00: I didn't want to build Bottle Keeper.
• 2:13
  SPEAKER_00: I thought Bottlekeeper was like this cool product that my cousin invented on the beach, drinking a beer out of a red solo cup.
• 2:20
  SPEAKER_00: And it was like the kit, it was, I mean, I thought it was cool.
• 2:22
  SPEAKER_00: It was this like kitschy thing.
• 2:23
  SPEAKER_00: He saw people drinking out of water bottles and is uh a brilliant maniac in that he wants to drink a corona out of a bottle at a specific temperature.
• 2:32
  SPEAKER_00: And if he's not, you know, he's drinking this red solo cup and it's like warm in four minutes and makes him crazy.
• 2:37
  SPEAKER_00: And he comes up with this idea to take a stainless steel water bottle and hacksaw it in half and stuff it with neoprene, like koozie or wetsuit material, to insulate his corona bottle to his perfect temperature and allow him to drink the bottle where glass is a bad idea.
• 2:51
  SPEAKER_00: And so he made this product, and I had just uh exited a medical tech company and was looking for the next thing to do.
• 2:58
  SPEAKER_00: I was like starting a venture fund, which is the worst idea ever because I'm awful at fundraising because I hate doing it.
• 3:03
  SPEAKER_00: Um, and he pushed me and pushed me for months and months and months and months to the point where I was literally like, bro, I'll like consult if you want, but like I'm just not that interested in this.
• 3:15
  SPEAKER_00: And we have an email exchange that he framed for me years later that's on a wall of my house, of me saying, like, I'll take, I'll do like a 10% of the company advisory thing and just help where I can.
• 3:23
  SPEAKER_00: And he like brute forced me into splitting this company up with him, which turned out to be a very fortuitous brute forcing on his part.
• 3:33
  SPEAKER_00: But we wanted to do it really different.
• 3:35
  SPEAKER_00: The company before that was big and heavy and had devices and delivery vehicles and warehouses and just tons of stuff.
• 3:41
  SPEAKER_00: So when I agreed to come and do that with him, uh, we we decided that we were going to do it very differently.
• 3:47
  SPEAKER_00: And and I wanted to build the company in a way that had honestly had no employees.
• 3:50
  SPEAKER_00: Like that was like a hard guardrail at the very beginning, no employees.
• 3:54
  SPEAKER_01: So, what did you learn from the medical device that made you decide, like, I don't want to deal with employees, just my cousin, because we're family, and a lot of people don't start businesses with their family.
• 4:04
  SPEAKER_01: Uh, it's uh there's tons of horror stories.
• 4:07
  SPEAKER_01: So, kind of what was it just the brute force and the pressure?
• 4:10
  SPEAKER_01: Was your wife uh pressuring you to help out your cousin?
• 4:13
  SPEAKER_01: Like, how did it all how did it come together?
• 4:15
  SPEAKER_01: Because that's pretty interesting.
• 4:16
  SPEAKER_01: And the no employee aspect is unique.
• 4:18
  SPEAKER_00: There's two two separate pieces there.
• 4:21
  SPEAKER_00: I mean, the medical device thing we could spend a whole podcast talking about, which we should not do.
• 4:25
  SPEAKER_00: Yes, it was it was big and ugly and heavy, and it was the top-down leadership, which I grew to be a part of that I always just had such disdain for.
• 4:34
  SPEAKER_00: I mean, I literally had to like I had to create an insane scenario to get myself out of that business.
• 4:39
  SPEAKER_00: Um, it was just ugly and maniacal and patriarchal and nepotistic and ugly.
• 4:45
  SPEAKER_00: So we should not spend a bunch of time talking about that.
• 4:47
  SPEAKER_00: All that to be said, I learned a lot about what not to do and how not to build.
• 4:51
  SPEAKER_00: And coming out of that, because the company was heavy, I mean, we had 80 people in multiple states and again, like warehouses and just tons of stuff.
• 4:59
  SPEAKER_00: I wasn't able to get away, I was really hard to get away from.
• 5:04
  SPEAKER_00: And so coming out of that into the next phase, you know, I did the knee-jerk reaction of like, I'm the next thing I do is gonna be the polar opposite of that last decade of my life.
• 5:14
  SPEAKER_00: And this is about the time fortuitously that Tim Ferris's for our work week was big and popular, and a friend recommended it, and I read it and was like, oh, you know, it that just sort of set the I didn't go and do what he did, but it did set the framework for to help me start to rethink how to build and put together the puzzle that is a startup, you know, it's all always changing, like all the pieces on the puzzle aren't the same size, but how to put the puzzle together in a way that that created a lifestyle outcome that I wanted to achieve.
• 5:45
  SPEAKER_00: But I'm I'm kind of a maniac in the fact that I didn't want to just have the lifestyle, I wanted the lifestyle with the capacity for significant revenue.
• 5:52
  SPEAKER_01: So hey, you made it work.
• 5:54
  SPEAKER_01: I mean, it's impressive.
• 5:55
  SPEAKER_01: And uh, it's interesting you say, I know we're not gonna talk about the medical device, but I've I have a history.
• 5:59
  SPEAKER_01: I did the military and I did some other stuff, and my style of leadership is based on a lot of uh uh being underpoor leaders.
• 6:07
  SPEAKER_01: And I feel like that you learn a lot, especially young when you you know, like you don't just start in a leadership position.
• 6:13
  SPEAKER_01: So it gives you a lot of perspective on how you want to be perceived.
• 6:18
  SPEAKER_01: But so how did you kind of shape that that lifestyle that what you were building?
• 6:24
  SPEAKER_01: Uh, and how did you think about like constraints, efficiency, and even decision making?
• 6:28
  SPEAKER_01: Were you just the the CEO and like what you said went?
• 6:32
  SPEAKER_01: Did you end up outsourcing to a lot of agencies, or did you guys just bootstrap it and and pull it to 10 mil in three years?
• 6:41
  SPEAKER_00: Uh no, it didn't happen.
• 6:43
  SPEAKER_00: Yeah, it did.
• 6:43
  SPEAKER_00: It didn't.
• 6:44
  SPEAKER_00: We didn't just like snap our fingers.
• 6:45
  SPEAKER_00: And let's be clear, three years is still a long time.
• 6:48
  SPEAKER_00: The there's a a word in that in that question that is really, really important, and that's constraint.
• 6:54
  SPEAKER_00: Constraints are incredibly valuable when used and understood.
• 6:59
  SPEAKER_00: And the constraint that I put on the business early on was I did not want to have employees, like that was just a hard stop.
• 7:05
  SPEAKER_00: I wanted to be able to operate the business from anywhere in the world with internet, period.
• 7:09
  SPEAKER_00: So my wife and I could travel, and we were at a place in time 10 years before that, 15 years before that would have been dramatically more difficult.
• 7:17
  SPEAKER_00: This is in 2013-14.
• 7:19
  SPEAKER_00: So, you know, we were on WooCommerce or WordPress with WooCommerce, which was scalable enough.
• 7:24
  SPEAKER_00: Most of the technologies at that time you could get to talk to each other.
• 7:27
  SPEAKER_00: If you couldn't, you had Zapier to make them talk to each other.
• 7:29
  SPEAKER_00: So, you know, you were like that really early.
• 7:31
  SPEAKER_00: This is way before AIs and like, you know, the LLM stuff they're all dealing with now.
• 7:35
  SPEAKER_00: But you could, if you were, if you were, I guess, like strategically minded around building the puzzle pieces in a way.
• 7:45
  SPEAKER_00: I keep saying puzzle because I like I like puzzles, like I really like doing complex things, and I always have since I was a kid.
• 7:51
  SPEAKER_00: So this was just how do I solve?
• 7:53
  SPEAKER_00: This is where I know I want to get at the end of the day, is I want to get a gener get to a business that can generate millions of dollars a year that I can operate from anywhere in the world with internet.
• 8:01
  SPEAKER_00: And right now I have this prototype product in my hand.
• 8:04
  SPEAKER_00: What you're doing then is filling in the spaces in between, knowing that that the puzzle is going to shift constantly.
• 8:09
  SPEAKER_00: And all that is that that problem solving system is exactly how math is done.
• 8:16
  SPEAKER_00: It's how science is done.
• 8:18
  SPEAKER_00: I have a heavy math and science background.
• 8:20
  SPEAKER_00: So it was like I was familiar with that.
• 8:21
  SPEAKER_00: I was familiar with the we're at the beginning, we need to get to the end, fill the stuff in between.
• 8:24
  SPEAKER_00: That's what organic chemistry is and physics and all this stuff.
• 8:27
  SPEAKER_00: So I just approached it like that.
• 8:29
  SPEAKER_00: We just started testing, and I wanted to prove that we could get people to pay for this product that I thought was mildly ridiculous at a real price point that weren't our moms and dads and aunts and uncles.
• 8:38
  SPEAKER_00: And so I, you know, I popped up a website with a landing page and an email capture, and I shot a video with a GoPro duct tape to the side of this product out on the beach.
• 8:46
  SPEAKER_00: And we collected enough emails on a couple hundred bucks in ad spend that was like, okay, I mean, it's interesting that we did crowdfunding to make sure people to get people to swipe credit cards again that weren't our aunts and uncles.
• 8:56
  SPEAKER_00: So we followed a very methodical process to prove that this thing was a thing before we went and spent any time or money in it.
• 9:03
  SPEAKER_01: The value you had an MVP, a minimal viable product, and you kind of sound like you did uh the working backwards.
• 9:09
  SPEAKER_01: Amazon has a book on it, but you started out with the end goal and essentially reverse-engineered it to take step by step.
• 9:16
  SPEAKER_01: When you uh when you validated it and you saw that there was a market for it, did you guys have like the the$10 million number in mind, or was it was it incremental?
• 9:28
  SPEAKER_01: It's like let's just get to a million, then what does it look like at three million?
• 9:32
  SPEAKER_00: You know, we had none of that in my.
• 9:37
  SPEAKER_00: I mean, this was from a timeline standpoint.
• 9:40
  SPEAKER_00: Like we did the crowdfunding thing in the fall of 2013.
• 9:42
  SPEAKER_00: We got our first product.
• 9:44
  SPEAKER_00: We started this in 2012.
• 9:45
  SPEAKER_00: So I mean, this is this didn't happen overnight.
• 9:48
  SPEAKER_00: Yeah, we shipped our first product in January of 2014.
• 9:52
  SPEAKER_00: We because again, if I didn't want to have employees, that means that meant that I needed to figure out how to do everything, which was build the website, write the branding, take the pictures, shoot the videos, edit them.
• 10:03
  SPEAKER_00: So they looked at least like mediocre, okay, functional.
• 10:08
  SPEAKER_00: Set, write the emails, do the marketing.
• 10:10
  SPEAKER_00: I mean, I was doing all the Facebook at that point.
• 10:12
  SPEAKER_00: It was, it was, you know, it wasn't meta, it was just Facebook.
• 10:15
  SPEAKER_00: Um, and and I did that for months until until like August.
• 10:20
  SPEAKER_00: So what eight months later, we were in the right place at the right time with the right structure in place, the right sequence of that sequencing of that puzzle in place to take advantage of something lucky.
• 10:31
  SPEAKER_00: And there's this is really, really important.
• 10:33
  SPEAKER_00: It took us a year and a half to get to this point.
• 10:35
  SPEAKER_00: And like I talk, I spent a lot of time talking about this on my own podcast and and on other more like outdoors type podcast stuff.
• 10:42
  SPEAKER_00: A huge part of entrepreneurship and startup is just being able to mentally and physically stay in the game for as long as possible to allow for something lucky to happen.
• 10:51
  SPEAKER_00: And that's where often your first like big inflection point, you don't usually plan it.
• 10:56
  SPEAKER_00: You never plan it.
• 10:56
  SPEAKER_00: Like the ones that you hear plan it is the one in a million.
• 10:59
  SPEAKER_00: That's not how it usually works.
• 11:00
  SPEAKER_00: It's being in the right place at the right time for something to happen that you can take advantage of.
• 11:04
  SPEAKER_00: And for us in August of 2014, Facebook launched their video ad manager, and that changed from that point on.
• 11:12
  SPEAKER_00: We were a rocket ship.
• 11:13
  SPEAKER_00: We were holding a tiger by the tail, holding on for dear life because we got to show our product, which just looks like a water bottle.
• 11:20
  SPEAKER_00: We got to show it in action.
• 11:21
  SPEAKER_00: So I shot a video with a camera propped up on a backpack on the beach of like our bottle keeper in action, and and it went insane.
• 11:29
  SPEAKER_00: I mean, it went like we went from 2,000 a month, like fuddling along to 20 to 40 to 80 to 100 and sold out a product.
• 11:35
  SPEAKER_00: And we did that rinse and repeat for years on the same single video.
• 11:38
  SPEAKER_00: That single video got billions of views because we were just it was that stage that we were lucky to be in where you could not spend money on Facebook fast enough.
• 11:48
  SPEAKER_00: The returns were wild, which is how we went from you know, 2014 we did um 150 grand, 180 grand, something like that.
• 11:55
  SPEAKER_00: In 2015, we did 1.8 million, in 2016, we did 8 million.
• 11:58
  SPEAKER_02: Wow.
• 11:59
  SPEAKER_00: 8 million.
• 12:00
  SPEAKER_00: And again, no employees.
• 12:01
  SPEAKER_00: I was personally managing millions of dollars on Meta or on Facebook at the time, Facebook and Google.
• 12:07
  SPEAKER_00: And so it it was it just right place, right time, right sequence, right structures.
• 12:13
  SPEAKER_00: Um, but it takes a it always takes longer than you think to get to that point.
• 12:17
  SPEAKER_00: And we didn't, you know, we weren't paying ourselves for two years.
• 12:20
  SPEAKER_00: Took two years to take a first$500 paycheck, which I had framed on a wall in my house.
• 12:25
  SPEAKER_01: That's pretty amazing.
• 12:26
  SPEAKER_01: And what did they say?
• 12:27
  SPEAKER_01: Was it Thomas Jefferson?
• 12:29
  SPEAKER_01: Luck is preparation meets opportunity.
• 12:31
  SPEAKER_01: So it just sounds like you were in it, uh, prepared, and and as they took off, you guys were uh attached to the rocket ship.
• 12:38
  SPEAKER_01: So that's an amazing story, Adam.
• 12:40
  SPEAKER_01: Um, let's jump into the main topic.
• 12:42
  SPEAKER_01: So I'd love to pick your brain.
• 12:44
  SPEAKER_01: So you have a lot of experience having scaled your own business to the point uh of being bought out.
• 12:50
  SPEAKER_01: So the main topic is how D2C brands move beyond gut feel and scale profitably on Shopify.
• 12:57
  SPEAKER_01: So, based on that, for founders who are still making decisions based on gut feel, what changes once the business starts to scale?
• 13:05
  SPEAKER_01: So early on, you guys were you know riding by the seat of your pants, but as you got and you you kept no employees.
• 13:11
  SPEAKER_01: So as scale started to happen, when did you realize that maybe I need some data to make decisions and um my gut's not going to be as effective anymore?
• 13:22
  SPEAKER_00: There was a there was a point in the fall of 2016.
• 13:26
  SPEAKER_00: So our business was really cyclical.
• 13:28
  SPEAKER_00: Most e-com has some cyclical days or two just because consumers buy in a cyclical pattern to an extent.
• 13:34
  SPEAKER_00: Our business, we would lose money in Q1, we would do reasonably okay in Q2 with Father's Day in summer.
• 13:40
  SPEAKER_00: We'd maybe break even if we were lucky in Q3, and we would do half our revenue in the last four weeks of Q4.
• 13:46
  SPEAKER_02: Wow.
• 13:46
  SPEAKER_00: So I mean, like that eight million dollar year, we did four million dollars of revenue between November 25th and December 20th.
• 13:53
  unknown: Wow.
• 13:53
  SPEAKER_00: With no employees.
• 13:55
  SPEAKER_00: And that was insane.
• 13:57
  SPEAKER_00: I mean, it was awesome, but it was we were, you know, the the wheels on the wagon were wobbling.
• 14:02
  SPEAKER_00: They were they were half off the wagon by the end of that.
• 14:05
  SPEAKER_00: So so that was the that that was the end of let's just fly by the seat of our pants and try to do this alone.
• 14:12
  SPEAKER_00: I did start hiring after that.
• 14:14
  SPEAKER_00: I hired the first person in January of 2017 to help with customer service because that was a big thing.
• 14:18
  SPEAKER_00: I mean, we'd automated most of it.
• 14:20
  SPEAKER_00: And when you're doing 50 orders a day, it's not a big deal.
• 14:23
  SPEAKER_00: When you're doing 4,000 orders a day, it's a massive deal.
• 14:26
  SPEAKER_00: Just by, you know, and it's different today in the world of AI, but then you know, it it wasn't.
• 14:30
  SPEAKER_00: You could automate a lot of it, but not all of it.
• 14:33
  SPEAKER_00: So I did start hiring a bit.
• 14:34
  SPEAKER_00: And the the other piece is that once we started hiring and adding expenses into the business and paying ourselves, um, we I needed clarity on how to advertise and build campaign structure and and understand how to set the ad budgets that we were gonna do and how it needed to perform in order to be profitable, in order to hit our profit goal, because we didn't raise money, we didn't want to raise money, so it had to be profitable.
• 15:01
  SPEAKER_00: And and I couldn't find that anywhere.
• 15:03
  SPEAKER_00: So what I wrote math with my cousin, who's also uh really good at math.
• 15:08
  SPEAKER_00: Uh, we both have crazy science backgrounds, so we did a lot of math.
• 15:11
  SPEAKER_00: So I wrote math to answer questions that I needed as the CEO of the business, also spending millions of dollars a year on paid advertising to understand how, as we changed the business, if we increased our prices, which is a thing that we did consistently over the course of years, we doubled the the price of the product over two years.
• 15:29
  SPEAKER_00: Nice.
• 15:30
  SPEAKER_00: Um if we were gonna add fixed expenses through payroll and salary and you know, eventually an office, which we did eventually do.
• 15:39
  SPEAKER_00: Um, if we were gonna make changes, we were gonna add a discount, we were gonna do bundling, we were all these things.
• 15:44
  SPEAKER_00: These are all levers that you can pull into the business that create the outcome metrics that we measure, like return on ad spend, like average order value, like LTV.
• 15:52
  SPEAKER_00: Those are all output metrics based on the decisions that we make and how the consumers respond to those decisions.
• 15:58
  SPEAKER_00: But those are important measurements.
• 16:00
  SPEAKER_00: And so I needed to understand how to do that.
• 16:02
  SPEAKER_00: So we just built systems internally on spreadsheets to answer those questions.
• 16:05
  SPEAKER_00: And we ran the business on that from that point, which was pretty near start uh through our acquisition in 21.
• 16:11
  SPEAKER_01: Beautiful.
• 16:12
  SPEAKER_01: That's actually really helpful.
• 16:13
  SPEAKER_01: And it's interesting that you guys did math, but really you were looking at your KPIs, your inputs, and how they affect your outputs.
• 16:20
  SPEAKER_01: So for some of our listeners who may be new to e-commerce and they're just trying to understand, maybe they're bootstrapping it and it's them and their wife, or them and their best friend, or even the solopreneur's doing it alone.
• 16:32
  SPEAKER_01: In your early stage, let's say some 2015 uh 2018, what were the what were your gold star KPIs?
• 16:39
  SPEAKER_01: Were you looking at, was it always ROAS?
• 16:41
  SPEAKER_01: Was it net profitability?
• 16:43
  SPEAKER_01: Were you even involved in frequency and like impression share, or was that not even a thought that early in the game?
• 16:52
  SPEAKER_00: The gold star, the only thing that matters is contribution profit.
• 17:00
  SPEAKER_00: And I'll explain what that is because that person that you described, which is a lot of who our clients are in my my now company Pentain, they don't know what that means.
• 17:09
  SPEAKER_00: And it's really important.
• 17:10
  SPEAKER_00: And it's not complex.
• 17:12
  SPEAKER_00: That's we're not doing calculus to get there.
• 17:14
  SPEAKER_00: Um, all the rest of those, the other metrics are important.
• 17:18
  SPEAKER_00: Again, I talk about this like puzzle.
• 17:20
  SPEAKER_00: They're all pieces of the puzzle.
• 17:21
  SPEAKER_00: Impressions are a piece of the puzzle.
• 17:24
  SPEAKER_00: You know, purchase frequency is a piece of the puzzle.
• 17:27
  SPEAKER_00: Doing CPA caps inside of Meta is a piece of like all these things are a piece of the puzzle.
• 17:32
  SPEAKER_00: There's just there are other pieces of the puzzle that are bigger.
• 17:34
  SPEAKER_00: And if we can impact them, they have more of an impact on the bottom line and on the net profit at the end of the day.
• 17:40
  SPEAKER_00: So, this idea of contribution profit is is if you make a dollar, subtract the expenses related to making that dollar.
• 17:49
  SPEAKER_00: So let's say your business has a 70% gross profit margin, which means 30% of every dollar earned goes to cost of goods to make the product, get the product to the point it's fulfilled to the customer or fulfillable to the customer.
• 18:03
  SPEAKER_00: There are two different thoughts on this.
• 18:04
  SPEAKER_00: I'll keep the simple one, plus what it costs to actually ship and fulfill it to the customer, which is you know another 15%.
• 18:11
  SPEAKER_00: So, like all of those costs, um, including advertising, what you spend on paid ads, what you have left from that dollar, say it's 10 cents, that's your contribution profit.
• 18:23
  SPEAKER_00: It's that 10 cents or 10% that contributes to pay for your operating expenses, your fixed expenses, things like your payroll.
• 18:30
  SPEAKER_00: And at the beginning, when you're by yourself, you probably don't have any, which is incredible.
• 18:34
  SPEAKER_00: It's a beautiful thing.
• 18:35
  SPEAKER_00: Because your net profit at the end of the day is equal to that contribution profit amount minus your fixed expenses.
• 18:42
  SPEAKER_00: That's how you get net profit.
• 18:44
  SPEAKER_00: So as long as we can keep fixed expenses relatively flat or even decrease them, every dollar you save in operating expenses goes directly to net profit.
• 18:52
  SPEAKER_00: There's no margin, there's no calcul, there's again, there's no math.
• 18:56
  SPEAKER_00: Like it's literally take a dollar from this bucket, put it in that bucket.
• 18:59
  SPEAKER_00: With contribution profit, the goal in the business is to increase that, those number of dollars coming into the company.
• 19:04
  SPEAKER_00: And there's a lot of ways to do that.
• 19:06
  SPEAKER_00: They're not super straightforward and they do require some math.
• 19:09
  SPEAKER_00: But at the end of the day, following that contribution profit amount is the answer to the question is it working?
• 19:14
  SPEAKER_00: Is my new ad campaign working?
• 19:16
  SPEAKER_00: Is my new ad uh team agency working?
• 19:20
  SPEAKER_00: Is free shipping working?
• 19:22
  SPEAKER_00: Is testing free shipping at a hundred dollar threshold instead of a fifty dollar threshold?
• 19:25
  SPEAKER_00: Is that positive to the business or is it negative to the business?
• 19:28
  SPEAKER_00: The answer to that is is contribution profit increasing over time or is it decreasing?
• 19:32
  SPEAKER_00: It's like having a handle on that is magic.
• 19:35
  SPEAKER_00: I literally call it the magical magic.
• 19:37
  SPEAKER_01: Yeah, it makes sense too.
• 19:39
  SPEAKER_01: And you gotta, you know, obviously you want to be making money.
• 19:42
  SPEAKER_01: And it brings a question.
• 19:43
  SPEAKER_01: So we do a lot of launch brands on Amazon, and I hear this a lot.
• 19:46
  SPEAKER_01: And it like I'm working with somebody now who's like, they're okay being negative for the first year, they have deep pockets, it's the private equity company.
• 19:55
  SPEAKER_01: So like it's it's a little different.
• 19:56
  SPEAKER_01: But whenever I hear that, it always baffles me as somebody who runs my own business.
• 20:00
  SPEAKER_01: I'm never trying to run negative, even for a short term.
• 20:04
  SPEAKER_01: With some of these brands that are launching, when they say I'm okay breaking even or I'm okay losing a little bit of money, is that crazy to you as somebody who's bootstrapped your own business?
• 20:14
  SPEAKER_01: And what is a an acceptable, even if it's a rule of thumb, contribution profit margin that you look for to that is enough to validate the idea yet still continue to grow the business if it's not okay to go negative?
• 20:29
  SPEAKER_00: Um the first question is entirely personal.
• 20:35
  SPEAKER_00: I have I know people as well that have gone and raised bucket loads of money, tens of millions of dollars on pre-product companies that will operate at a massive loss for a significant period of time.
• 20:46
  SPEAKER_00: And the game that they are playing is which is a game, all all of these things are games, is a game that they are playing, is that they will be able to either get to profitability within that fundraising amount, which rarely happens because they don't have any constraint on the decisions they make inside the business.
• 21:02
  SPEAKER_00: So they think about money differently, or that they'll be able to raise capital kind of forever, like continue to be able to raise capital, which also doesn't really happen because capital comes in cycles and sometimes it's easy to get and sometimes it's really, really hard to get.
• 21:19
  SPEAKER_00: That's just not a game I'm interested in.
• 21:21
  SPEAKER_00: It doesn't make it wrong.
• 21:23
  SPEAKER_00: They make the choice to go and do that.
• 21:25
  SPEAKER_00: And and some of them, not many of them, some of them that works out and they go and sell, you know, they go and raise a bazillion dollars and sell the company for 10 times the bazillion dollars and work for a a decade and walk away with three million dollars and sold the company for$200 million.
• 21:41
  SPEAKER_00: Like that's a real story.
• 21:42
  SPEAKER_00: Now,$3 million is a lot of money, but the amount of time and effort and blood and sweat and still sleepless nights and fundraising, all the stuff that it takes to get to a company, a company to that nine figure place, like I would rather, I would rather scale a business, like make numbers up.
• 21:58
  SPEAKER_00: I'd rather scale a business to 30 million.
• 22:00
  SPEAKER_00: Million dollars and sell it for 40 million dollars, you know, and and own 97% of it.
• 22:06
  SPEAKER_00: Same amount of effort.
• 22:07
  SPEAKER_00: Like it, it's just it's a different game.
• 22:09
  SPEAKER_00: I don't, I'm not interested in in the other game.
• 22:11
  SPEAKER_00: So, I mean, we generally speaking in Penting don't have a lot of companies that are coming in under that thesis of we're just gonna lose money for a year or two or three.
• 22:19
  SPEAKER_00: And and I think a big part of that is because what we have built and are continuing to build is about driving profitability.
• 22:25
  SPEAKER_00: And if that's not your priority, then we're not a good fit.
• 22:30
  SPEAKER_01: And on the other side, so these brands that come in, what do you consider for a launch?
• 22:34
  SPEAKER_01: Like what is an acceptable contribution profit margin?
• 22:38
  SPEAKER_00: Yeah, great question.
• 22:39
  SPEAKER_00: So I I would going back to our earlier discussion around sort of starting at the end and then working backwards, a really good exercise to do, and I and I do end up getting to do this exercise pretty frequently, is to say, what do you think you're gonna sell the product for?
• 22:55
  SPEAKER_00: Let's say it's$30.
• 22:57
  SPEAKER_00: Okay.
• 22:58
  SPEAKER_00: What do you think you're gonna make the product for?
• 23:01
  SPEAKER_00: Let's say it's$7.
• 23:03
  SPEAKER_00: Okay.
• 23:04
  SPEAKER_00: So then we have to ship and fill fulfill the product to the customer, which is let's say another$6.
• 23:10
  SPEAKER_00: Now we're at$13 of cost.
• 23:12
  SPEAKER_00: And then we have our Shopify fees and our Amazon fees, like all the fees associated and credit card fees.
• 23:17
  SPEAKER_00: So let's say now we're at$15 or so dollars in cost.
• 23:23
  SPEAKER_00: We've already eaten up half of the revenue and we haven't advertised the product yet.
• 23:29
  SPEAKER_00: Right.
• 23:29
  SPEAKER_00: So now what we have left is$15 of that$30 left to acquire a customer and have contribution profit be zero, which was not what we want to do.
• 23:41
  SPEAKER_00: Generally speaking, a healthy contribution margin is 15 to 20%.
• 23:46
  SPEAKER_00: We want it to be as high as possible.
• 23:48
  SPEAKER_00: So if the goal is that, let's call it 10% to be, you know, conservative on the early side, or we're now down to$27.
• 23:57
  SPEAKER_00: So that the difference there means you have$12 to acquire a customer.
• 24:01
  SPEAKER_00: That's probably not going to happen.
• 24:02
  SPEAKER_00: Like just mathematically, using ads inside of Meta and Google and TikTok and all the places right now, this is not 2015.
• 24:10
  SPEAKER_00: The likelihood that you're going to acquire a customer for$12 is fantastically low.
• 24:13
  SPEAKER_00: So we either have to figure out how to sell them two or maybe three of those units in a single order.
• 24:19
  SPEAKER_00: We get into bundling.
• 24:19
  SPEAKER_00: So like you can do this exercise and get down pretty quickly to an understanding of like, is what you have to acquire a customer, is that reasonable or is it not?
• 24:28
  SPEAKER_00: And if it's not, let's find a way.
• 24:30
  SPEAKER_00: Let's figure out, you know, other ways of doing it.
• 24:33
  SPEAKER_00: And that's where like pricing becomes important.
• 24:35
  SPEAKER_00: If it's a$35 price point, we've added, you know, a significant amount of margin that has no cost associated to it.
• 24:41
  SPEAKER_00: The product price doesn't, or the cost to make the product doesn't go up, shipping fulfillment doesn't go up.
• 24:46
  SPEAKER_00: It's just like pure contribution profit.
• 24:48
  SPEAKER_00: It makes a big difference.
• 24:49
  SPEAKER_00: So you know, there's a lot of levers and things that you can pull, but it's starting out, that's always a really helpful exercise.
• 24:55
  SPEAKER_01: I like that.
• 24:55
  SPEAKER_01: Net net 10 to 20% makes a lot of sense.
• 24:58
  SPEAKER_01: We're on the service side, we deal with people, but we we strive for net 20.
• 25:02
  SPEAKER_01: So it makes sense on the product side to be around the same.
• 25:06
  SPEAKER_01: When you're setting this up and you're kind of reverse engineering it, where how do you account for pricing elasticity?
• 25:12
  SPEAKER_01: Because at some point, if I'm selling um a stuffed animal or something, like there is a point where a consumer is not going to drop$50.
• 25:21
  SPEAKER_01: Yeah.
• 25:22
  SPEAKER_01: Do you eventually get to the point where it's like, hey, maybe we should go after a different product market or anything along those lines?
• 25:29
  SPEAKER_01: Like, how do you test elasticity?
• 25:31
  SPEAKER_00: There's you know, price elasticity is is down mostly science and part art.
• 25:38
  SPEAKER_00: The way that I approach and have built solutions in and around understanding pricing is to first create the guardrail of what at your current price where does your, you know, if the if the goal, let's set your net profit goal at 10% net profit margin, if you set your net profit at 10%, knowing all the expenses that exist in your business, the variable or sales related expenses, the advertising expenses, and the fixed or operating expenses, all those expenses, and they impact the business differently.
• 26:10
  SPEAKER_00: It's important to understand that.
• 26:12
  SPEAKER_00: All those things in line, we can then use math to say if you want to get a 10% net profit and you set your ad budget at$25,000 a month, the needed return on ad spend is 2.74 in order to achieve that.
• 26:26
  SPEAKER_00: Anything above that, you're going to exceed your 10%.
• 26:28
  SPEAKER_00: Anything below it, you're going to miss the 10%.
• 26:31
  SPEAKER_00: And so we can what we can do is take a lever that is pricing and move the pricing up.
• 26:36
  SPEAKER_00: And as we increase the pricing, you can see that needed return on ad spend drop because it's more efficient.
• 26:43
  SPEAKER_00: You have more margin.
• 26:44
  SPEAKER_00: So it needs, it can perform worse and still create that 10% net profit margin.
• 26:49
  SPEAKER_00: So that's the way that I look at it.
• 26:50
  SPEAKER_00: That's the way I used it at BottleKeeper.
• 26:52
  SPEAKER_00: And that's how we are how we have built that into independent as an example, is to is not to say whether or not it's going to work.
• 26:59
  SPEAKER_00: You need to test it.
• 27:01
  SPEAKER_00: The point is when you go to test it, understand what good looks like.
• 27:04
  SPEAKER_00: Understand what the guardrail is.
• 27:06
  SPEAKER_00: Because if you increase your prices 20% and the needed return on ad spend to achieve your goal goes from 2.74 to 2.25, which can happen.
• 27:15
  SPEAKER_00: It depends on the margins in your business, but like that can happen.
• 27:18
  SPEAKER_00: If return on ad spend then comes in at 2.15, you're losing contribution profit by that decision.
• 27:24
  SPEAKER_00: So pull it back.
• 27:26
  SPEAKER_00: But you need to know that.
• 27:27
  SPEAKER_00: Don't find out when you get your PL next month.
• 27:29
  SPEAKER_00: Like, know that going into it.
• 27:30
  SPEAKER_00: And if you ex if you're at 2.25 or exceed 2.25, that higher price is producing more contribution profit.
• 27:37
  SPEAKER_00: And let's be clear, it's more efficient.
• 27:39
  SPEAKER_00: You're selling less product, which means you have more inventory to sell.
• 27:43
  SPEAKER_00: So, and you have more, you have more room to acquire a customer.
• 27:46
  SPEAKER_00: That's how the return on ads pen comes down.
• 27:48
  SPEAKER_00: Like you're going to acquire more customers at a 2.25 than you were at a 2.75, 2.74.
• 27:54
  SPEAKER_00: Right.
• 27:55
  SPEAKER_00: So it's like it's just creating clarity around all these things and understanding where the guardrails are.
• 27:59
  SPEAKER_00: So that when you go to execute on them, you know, and the marketing team knows, or the agency knows, or whoever it is that's pulling these levers, they know what good looks like.
• 28:07
  SPEAKER_00: They know where the guardrails are.
• 28:08
  SPEAKER_01: I love that you use increment incrementality testing, and that makes a lot of sense.
• 28:13
  SPEAKER_01: And you're right.
• 28:14
  SPEAKER_01: If you raise prices, then you don't need to have a such strong return on ad spend.
• 28:20
  SPEAKER_01: What's a rough timeline?
• 28:21
  SPEAKER_01: Do you guys go by impressions spend, or you're like, hey, we run it for a week, uh, and that's enough time usually for us to get results to be able to make an educated decision to see if the math is actually mathing.
• 28:34
  SPEAKER_00: Yeah.
• 28:35
  SPEAKER_00: The the underlying systems that create those outputs live inside of a company's single PL.
• 28:42
  SPEAKER_00: To be clear, like it doesn't take months of historical context and marketing data and all the stuff.
• 28:48
  SPEAKER_00: I mean, that can be helpful as indicators for other things, but that information lives in their PL.
• 28:52
  SPEAKER_00: From my perspective, I'm hard pressed to advise, again, whether it's within Pentainer or out, that a company tests something for less than a week.
• 29:02
  SPEAKER_00: But there are circumstances, and I've done this, so I know what this looks and feels like, where you go and do something and things fall off a cliff.
• 29:11
  SPEAKER_00: You know, and it doesn't, you know, for a day, fine, that's a data point.
• 29:14
  SPEAKER_00: Two days, like, oh, we're getting uncomfortable.
• 29:16
  SPEAKER_00: Three days, like, okay, if it fell off a cliff in three days, pull it back, hit reset.
• 29:21
  SPEAKER_00: Uh, but generally speaking, you want to give things at least a a week.
• 29:25
  SPEAKER_00: I mean, testing again, now we get into this whole like statistical significance argument.
• 29:29
  SPEAKER_00: Testing has its own its own structure and process when you're getting into A B tests and whatnot.
• 29:37
  SPEAKER_00: And I I do have some strong opinions on that as well.
• 29:39
  SPEAKER_00: Like generally, we're not testing cancer therapies where we need a 95% confidence interval that something is good.
• 29:45
  SPEAKER_00: I mean, I feel like if it happens 80 out of 100 times, that's pretty good.
• 29:48
  SPEAKER_00: But um, but yeah, I think there is a little bit of feel to it.
• 29:54
  SPEAKER_00: I think as operators, we have a tendency to get itchy and want to change things really fast when you know you have 10 good days and one bad day and you think the world's coming to an end.
• 30:03
  SPEAKER_00: Um, so you gotta try to step away from that and you know, go out, get outside, go for a walk, get into the study or something.
• 30:09
  SPEAKER_01: Yeah.
• 30:11
  SPEAKER_01: I love that.
• 30:11
  SPEAKER_01: That's super helpful too.
• 30:13
  SPEAKER_01: Um, so when a founder is thinking about ad spend or they're thinking about how much to start with, and even like if they're currently investing, like um is it just straight the math?
• 30:26
  SPEAKER_01: You're like, okay, if it's this your example, selling a$30 product, I have a$15 margin, I want to sell 100 units, so I'm expecting a$1,500 budget.
• 30:36
  SPEAKER_01: Is that kind of how you get started, or do you need more spend to get data?
• 30:41
  SPEAKER_01: Because I've heard both sides of the story.
• 30:43
  SPEAKER_01: I've heard like, hey, let's just throw$10,000 on it, spend it all, and see the results, and it's enough for us to gather data and figure out is it causate causation or correlation, or do you actually reverse engineer it based on the profit margins into how much we should be spending in a in a given week, for example?
• 31:04
  SPEAKER_00: It depends on the state of the business.
• 31:06
  SPEAKER_00: If the business is brand new and they're you know doing a thousand dollars a month and they haven't started doing paid ads yet, there's a lot that still needs to be figured out.
• 31:14
  SPEAKER_00: And no, I don't generally think like let's throw 10 grand at it and see what happens usually feels good for most for that solo preneur that's like working this in their kitchen and has proof of concept, really like they think they have proof of concept.
• 31:27
  SPEAKER_00: It's much easier to have proof of concept in consumer products than it is in in tech.
• 31:31
  SPEAKER_00: So um I think there's there's a lot more to that circumstance.
• 31:35
  SPEAKER_00: I mean, most of the companies that that I end up working with are, you know, at least a half a million a year in revenue, generally above one up to about 20.
• 31:46
  SPEAKER_00: Um so they can be true startups.
• 31:48
  SPEAKER_00: We do have some clients and customers that I do work with that are that are like true pre-revenue startups.
• 31:55
  SPEAKER_00: So I I would dancing around and answer your question, I would treat them very differently.
• 32:00
  SPEAKER_00: The company that already has marketing data that's been advertising on, you know, generally Meta and Google.
• 32:05
  SPEAKER_00: That's kind of where we get stuck, which we should talk about because we did just launch something to get outside of that.
• 32:10
  SPEAKER_00: But generally, marketing on on Meta and Google, they have some historical context that is tells a story on where there might be flexibility and where there is not.
• 32:20
  SPEAKER_00: How much they should be spending is a part cash flow question, which we do not deal with.
• 32:28
  SPEAKER_00: I mean, we're not an accounting system, there are lots of systems for that.
• 32:32
  SPEAKER_00: Um, but it is also a performance question.
• 32:34
  SPEAKER_00: I mean, if if they don't generally know that the ad budgets that they go into their marketing agencies or internals or however they're doing it, they generally spend what they're comfortable losing, which is not a good process.
• 32:47
  SPEAKER_00: There's not there's not a scientific mathematical, and I understand why.
• 32:51
  SPEAKER_00: I mean, I understand that I'm good at science and math, or I spend a lot of time doing it and have built stuff around it.
• 32:55
  SPEAKER_00: And most people don't approach it like that.
• 32:57
  SPEAKER_00: Like we come up with a product to solve our own problem, we find out other people have the same problem, we start selling them that product, and now we have a business.
• 33:04
  SPEAKER_00: And that's the American dream.
• 33:06
  SPEAKER_00: Yeah.
• 33:07
  SPEAKER_00: So when you start talking about ad budget, it is completely at risk.
• 33:12
  SPEAKER_00: And I understand it is at risk if you don't know how it needs to perform.
• 33:15
  SPEAKER_00: I mean, if you set your ad budget at$5,000 and based on your margin, you might need a 20x return on ad spend to get to break even.
• 33:23
  SPEAKER_00: If you don't know that, that 5,000, you're like it's dead.
• 33:27
  SPEAKER_00: It's gone.
• 33:27
  SPEAKER_00: There's no way to know that.
• 33:29
  SPEAKER_00: So a big part is just creating the clarity.
• 33:31
  SPEAKER_00: If we if we know that the ad budget is realistic, that 5,000 needs a 2.7 return on ad spend, and you're currently at you know a 3.1 return on ad spend, we can push that budget to 7,000.
• 33:44
  SPEAKER_00: The needed return on ad spend to meet your goal will come down.
• 33:46
  SPEAKER_00: But we also know that as we push on ad budget, performance is going to come down.
• 33:49
  SPEAKER_02: Yeah.
• 33:49
  SPEAKER_00: So there's some balancing act there that is part projecting and using the math to say if we do this, then this is the expectation of what can happen.
• 34:00
  SPEAKER_00: And then watching what happens, but but seeing it in real time, don't find out you know, weeks and weeks after whether or not it worked.
• 34:06
  SPEAKER_01: That's well said.
• 34:07
  SPEAKER_01: How do you guys think about the funnel then?
• 34:09
  SPEAKER_01: So, like you're not every dollar, eventually you saturate.
• 34:13
  SPEAKER_01: In my experience, maybe because I'm I'm just an Amazon guy, but I find that you eventually get to the point where you saturate the bottom of the funnel, competitors come in, and if you're only leaning on intent-based marketing, you're not really growing the brand.
• 34:27
  SPEAKER_01: And for us, when brands get to maybe around$100,000 a month on that platform, for me, it's an indicator of like, okay, we need to start going mid-funnel.
• 34:37
  SPEAKER_01: I like to do a bottom-up approach.
• 34:39
  SPEAKER_01: We don't do a ton of top of funnel, but we usually can occupy pretty well.
• 34:43
  SPEAKER_01: And I also find that Meta and Google are just way better platforms for mid and upper funnel in general.
• 34:50
  SPEAKER_01: How do you think about the funnel?
• 34:53
  SPEAKER_01: I mean, at some point you guys had to invest in, and maybe I'm totally wrong, but I'd imagine you had to invest in um audiences that just weren't going to perform.
• 35:02
  SPEAKER_01: Were they part of your ROAS calculation?
• 35:05
  SPEAKER_01: Did they have a separate budget?
• 35:07
  SPEAKER_01: Did you think about them as a marketing expense and not an advertising expense?
• 35:10
  SPEAKER_01: I'm interested to hear, especially that you're running an ad agency now.
• 35:14
  SPEAKER_01: How do you think about the full funnel experience?
• 35:19
  SPEAKER_00: Um, I well, let's clarify, I'm not running an ad ad agency.
• 35:23
  SPEAKER_00: We are like dipping our toe into ad stuff, which again we should talk about because it's interesting.
• 35:27
  SPEAKER_00: But I was not that complex.
• 35:30
  SPEAKER_00: I literally had, I'm spending this amount of money.
• 35:32
  SPEAKER_00: I know we need to have some balance balance between top of funnel and bottom funnel.
• 35:36
  SPEAKER_00: And and we did things which are now dramatically more important than they were in 2017 to drive organic traffic top of funnel, and then used, you know, this is back in like the I don't even know that you can do this on Facebook anymore, but like in like offer ads and things like that in the Facebook ecosystem.
• 35:57
  SPEAKER_00: I mean, pressing all of that stuff and running that through the bottom of funnel in meta, I do agree with you entirely that Meta and Google today are better used in top of funnel, particularly in an Amazon strategy, because it just operates as its own ecosystem.
• 36:14
  SPEAKER_00: And I look at that all as direct-to-consumer, to be clear.
• 36:17
  SPEAKER_00: Like if you're you have a Shopify store and you have Amazon and you have some B2B distribution or whatever, I look at all of the revenue that's being driven from Shopify and Amazon.
• 36:27
  SPEAKER_00: They have different expense structures to them, and that's important to note.
• 36:29
  SPEAKER_00: Not wildly different, but they're different.
• 36:31
  SPEAKER_00: I put those in the same bucket because some percent of your Amazon revenue or dollars spent on Amazon is going to end, excuse me, let me resay that.
• 36:39
  SPEAKER_00: Some of the percent of the revenue, the dollars that you spend on meta is going to end up in Amazon, and you're not gonna know what that is.
• 36:45
  SPEAKER_00: It's like you're you're not gonna know what it is unless you turn one of them off.
• 36:48
  SPEAKER_00: We go like hardcore holdout tests, which are really uncomfortable, really, really uncomfortable.
• 36:54
  SPEAKER_00: Um, we're not gonna know what that is.
• 36:55
  SPEAKER_00: So we need to put them in the same bucket.
• 36:57
  SPEAKER_00: Um, so I was not nearly as sophisticated, and I think we've gone through kind of a you know, a bell curve where it's like at the beginning, you literally, if you had dollars to spend, you just made money.
• 37:07
  SPEAKER_00: And then it got harder and you had to get really sophisticated.
• 37:09
  SPEAKER_00: Now I think we're on the other side of that where the like the platforms as a whole, like they know who your customer is, they know what to do.
• 37:16
  SPEAKER_00: I mean, a lot of the the segmenting and things have been have been stripped out of meta and Google for legal reasons, but um attribution's always been a joke.
• 37:26
  SPEAKER_00: Now it's even more of a joke.
• 37:27
  SPEAKER_00: Yeah, that's that's all just part of the part of the fun.
• 37:31
  SPEAKER_01: I mean, it's uh data science and um marketing is a beautiful um uh career path because there's the creative side and then there's the data side.
• 37:41
  SPEAKER_01: And you could really advertising's always been really fun to me because it's a good blend of both.
• 37:45
  SPEAKER_01: We are on the creative side because we're looking at conversion rates and click-throughs and how creative performs, but you're also on the science side, the data side, because it's about that return on investment and how are we building audiences and and all the other fun stuff that comes with it.
• 38:00
  SPEAKER_01: And I did misspeak, I said you guys were in aid agency.
• 38:02
  SPEAKER_01: Can you tell me about Pantane and kind of what what you guys do and who you serve?
• 38:06
  SPEAKER_00: No, it's it's important because you didn't you didn't entirely misspeak because we're now like venturing into this this interesting world.
• 38:14
  SPEAKER_00: I mean, Pentain is a platform that's built on my frameworks that I used at Bottle Keeper.
• 38:19
  SPEAKER_00: Uh, there's this huge problem, which is a lot of what we're talking about here, where there's this massive disconnect between the information in the finance and the information in the marketing or customer acquisition.
• 38:28
  SPEAKER_00: And what happens, the decisions that we make in customer acquisition are dependent on the information in finance.
• 38:33
  SPEAKER_00: So we have all this Martech and marketing technology and all this fintech or financial technology that solve the problem separately, but they they do them in a vacuum.
• 38:41
  SPEAKER_00: They don't connect those two pieces, and you have to connect the pieces.
• 38:44
  SPEAKER_00: So Pentane takes those, like it connects your QuickBooks or your French loop or whatever, takes in what it needs, uses a bunch of math, not AI, important note, to create structure and frameworks around how the business needs to operate to make money.
• 38:58
  SPEAKER_00: And then it takes in your Shopify and Amazon and Meta and TikTok and Google and all the stuff to inform what we do with that information.
• 39:06
  SPEAKER_00: How do we get to our net profit goal?
• 39:08
  SPEAKER_00: How do we get to break even if we're losing money?
• 39:09
  SPEAKER_00: Like very specifically.
• 39:11
  SPEAKER_00: I mean, it quite literally just tells you what to do and helps you make the decisions.
• 39:15
  SPEAKER_00: And then the next phase of that, which we just recently launched, is a Pentain ad network through a partnership that gives us and our clients exposure to hundreds of ad networks that are reserved for the biggest companies in the country that we don't have access to, that we now have access to.
• 39:33
  SPEAKER_00: So there's this all this whole world of advertising out there that that small businesses don't generate, don't have access to because they don't spend enough to have access to them.
• 39:43
  SPEAKER_00: Where big huge companies, I mean, pick one like Live Nation spends a million dollars a month or whatever, a million dollars a day, like whatever, some huge amount of money.
• 39:52
  SPEAKER_00: Um and they, you know, they're not their head of ads or whatever internally is not logging into their Facebook ads manager to place ads.
• 39:59
  SPEAKER_00: Like they're doing it through a different system with wholesale, massive wholesale discounts and better segmenting.
• 40:05
  SPEAKER_00: And and they have access to hundreds of other ad networks outside of Facebook that that allow them that are dramatically less expensive, that allow them to really diversify their ad budgets and bring costs down.
• 40:17
  SPEAKER_00: And and we we now have access to those systems for our clients.
• 40:21
  SPEAKER_00: So we've just started to advertise through that.
• 40:23
  SPEAKER_00: And the the early numbers are pretty wild.
• 40:26
  SPEAKER_01: That is wild.
• 40:27
  SPEAKER_01: Now, what type of advertising is this?
• 40:29
  SPEAKER_01: I hear ad networks and I immediately think display advertising and possibly streaming TV.
• 40:34
  SPEAKER_01: Is that what what type of placements are we we talking about and where general reach?
• 40:40
  SPEAKER_01: I mean, obviously in the US, is it specific?
• 40:42
  SPEAKER_01: Can I if I have a home product, can I advertise on HGTV through these networks, or is it uh a little more high-level?
• 40:52
  SPEAKER_00: Yeah, programmatic display, native OTT, CTV, digital billboards, which is outdoors, audio, video, which includes Facebook, YouTube, um, and 275 networks that we don't have access, you know, that I didn't have access to a bottle keeper that I would have really liked to have access to because the CPM rates are so that it's I mean, it's laughable the difference in the CPM rates that you pay for retargeting on Meta versus what you can pay for retargeting in in this other world.
• 41:26
  SPEAKER_01: That is pretty amazing.
• 41:27
  SPEAKER_01: So if I was a brand and I was gonna decide I want access to these networks, what is it, what does an engagement look like with Pantane Pantine?
• 41:36
  SPEAKER_00: The um we have, I mean, the the we have an operator plan that allows the the basis is the Pentain product because it's critical.
• 41:47
  SPEAKER_00: Like we can't make decisions around how to build profitable ad budgets if we don't know what profitable means.
• 41:53
  SPEAKER_00: So like the start is we we get into Pentane, we get your company functional, you do that with me.
• 41:59
  SPEAKER_00: It's fast.
• 42:00
  SPEAKER_00: I mean, onboarding is 15 minutes.
• 42:01
  SPEAKER_00: We do it together.
• 42:02
  SPEAKER_00: We just make sure everything's connected and doing what it's supposed to be doing, which is if it's not, it's literally because a button got pushed the wrong way.
• 42:08
  SPEAKER_00: Um, again, this is not an AI system, this is a math system.
• 42:11
  SPEAKER_00: Um, we answer, I can look at the data in your in your company's account and your brand's account and tell you in 30 seconds exactly what is good and what's bad and what we need to do about it.
• 42:20
  SPEAKER_00: Because there are leading in, there are three specific indicators on a business's capacity for profit and scale using paid ads.
• 42:29
  SPEAKER_00: It's your variable margin without your advertising spend, your fixed cost ratio, and your MER.
• 42:34
  SPEAKER_00: Um, I also made a profit masterclass that explains what all those things are and tells you what to do with them.
• 42:39
  SPEAKER_00: You can find it at theprofitmasterclass.com.
• 42:41
  SPEAKER_00: It's free.
• 42:43
  SPEAKER_01: So from there, notes.
• 42:45
  SPEAKER_01: Thanks, Adam.
• 42:46
  SPEAKER_00: Yeah.
• 42:47
  SPEAKER_00: From there, yeah, we go, we go into the process of placing pixels on your website.
• 42:54
  SPEAKER_00: We have our own like pixel infrastructure that's really important.
• 42:58
  SPEAKER_00: Um, we pull part of that pixel placement is like transaction and order level ID out of Shopify.
• 43:03
  SPEAKER_00: So we're able to actually connect orders to orders in campaigns directly to orders in the Shopify infrastructure by click.
• 43:10
  SPEAKER_00: So I mean, you can go and look at the actual orders, which is you can't do anywhere else.
• 43:14
  SPEAKER_00: Um, and we go and build the campaigns.
• 43:17
  SPEAKER_00: I mean, we do it, it's kind of like an anti-agency model, like the it's not a percent of ad spend, you're not paying seat fees or whatever, it's just a fixed cost that basically covers our cost, and we generate some Rev share from the ad network.
• 43:30
  SPEAKER_00: And I'd rather have the revenue come from them than from the brand.
• 43:32
  SPEAKER_00: It's like I'm doing this in a way that is how I would have wanted it to be done at Bottle Keeper.
• 43:36
  SPEAKER_00: Yeah, like consider like the opposite of what uh some of the experiences we had when we tried to use uh use agencies.
• 43:43
  SPEAKER_01: Makes it really unique too, and I like that.
• 43:45
  SPEAKER_01: And what I'm hearing too.
• 43:46
  SPEAKER_01: So the first thing is you connect to the software and you need to know how profitable you are.
• 43:51
  SPEAKER_01: No way to around it.
• 43:52
  SPEAKER_01: It's like, do I even have budget to do this?
• 43:55
  SPEAKER_01: And then based on that margin and working with you and the team, we could figure out which network.
• 44:00
  SPEAKER_01: And targeting strategies and everything else we need to do that's going to help you, gonna help the brand drive sales and awareness and everything that needs to happen working through your network, essentially.
• 44:12
  SPEAKER_00: Yeah, and there's there's sort of a blending process.
• 44:14
  SPEAKER_00: So, you know, when you go, any of you e-commerce operators out there that have gone through this will know exactly what I'm talking about.
• 44:21
  SPEAKER_00: When you go from like agency A and you decide agency A is not good for any list of reasons that we all may understand or may not understand, it's just like the end of the day, it's not profitable, so we can't do that.
• 44:32
  SPEAKER_00: And we're gonna go to agency B.
• 44:34
  SPEAKER_00: What generally happens is that there's a day where all the stuff that agency A is doing is turned off, and then agency B, who has their own opinions about how things should be done, they start to spin it up.
• 44:43
  SPEAKER_00: That is a really violent transition.
• 44:45
  SPEAKER_00: Like it is so hard on a company for that to happen.
• 44:48
  SPEAKER_00: It's like you're restarting everything.
• 44:50
  SPEAKER_02: Yeah.
• 44:51
  SPEAKER_00: And so what and I don't want to do that to anybody because I have been through it and it's brutal.
• 44:57
  SPEAKER_00: What we want to do is be able to add access to both top of funnel and bottom of funnel that you don't have access to right now.
• 45:06
  SPEAKER_00: So we're not duplicating efforts.
• 45:08
  SPEAKER_00: Meta and Google can function the way that they're already functioning, and we can add this whole other world of programmatic display, native, like all these things that you don't have access to, top of funnel and bottle funnel, to start and start shifting budget out of that.
• 45:24
  SPEAKER_00: So it's a much smoother transition from whatever you're currently doing.
• 45:29
  SPEAKER_00: And it our intent is not to replace the agency.
• 45:31
  SPEAKER_00: I mean, agencies in a lot of cases are doing way more than just campaign structure.
• 45:35
  SPEAKER_00: You know, they're creating creative, they're managing affiliates, they're doing influencer, they're in a lot of cases doing email.
• 45:41
  SPEAKER_00: Like there's a lot of stuff left in there.
• 45:44
  SPEAKER_00: Um, but is but what we're what we're doing now and seeing some really good early success with is that that much safer controlled transition by being able to supplement with lower cost you know, CPM and CPA on on this whole other world that we don't have access to.
• 46:01
  SPEAKER_00: So we're not duplicating efforts.
• 46:02
  SPEAKER_00: And then we can decide, you know, kind of where to shift budget based on performance.
• 46:06
  SPEAKER_01: That's pretty amazing.
• 46:08
  SPEAKER_01: That sounds like it's a really good tool.
• 46:10
  SPEAKER_01: Is there a specific size?
• 46:12
  SPEAKER_01: So you mentioned like typically the business and brand you're working with are about half a million dollars a year, and then they're the right size where they've they've established a minimal viable product, they have a little bit of a customer base, and then it makes sense to engage you and your team.
• 46:26
  SPEAKER_01: Or do you take like cold launches or who who is your ideal customer and who is this solution for?
• 46:37
  SPEAKER_00: In order to get the benefit from the data and the direction or the the answers and the guidance that you're gonna get through the the system through Pentain, you need to have a profit and loss statement that is functional.
• 46:54
  SPEAKER_00: It doesn't need to be perfect, but it does need to be functional, which means you're not living out of it.
• 47:00
  SPEAKER_00: Like your business account, you're not paying your personal rent out of your business account.
• 47:04
  SPEAKER_00: And it's it's like if you're doing this now and you're like, oh gosh, should I not be doing that?
• 47:08
  SPEAKER_00: I mean, those are just questions that you get to you get to answer.
• 47:11
  SPEAKER_00: But like the reality is in order to make the data useful, the data needs to actually be applicable to the business.
• 47:17
  SPEAKER_00: Now we have we have companies um that come into Pentane that are doing a million dollars a year that aren't using an accounting system.
• 47:23
  SPEAKER_00: Like they have, you know, they have their stuff in spreadsheets, and we've built systems to be able to deal with that.
• 47:29
  SPEAKER_00: Um, generally speaking, by the time, you know, the the companies that come in and are really successful in Pentane are are usually in that half a million to a million plus.
• 47:40
  SPEAKER_00: Um the the amount of ad spend is not relevant.
• 47:44
  SPEAKER_00: I mean, we have we can inside of the Pentane ad network, we can spend as little as a thousand dollars a month.
• 47:49
  SPEAKER_00: I mean, there's not like a minimum amount of ad spend that has to go in to that.
• 47:52
  SPEAKER_00: There are some costs associated to it to us.
• 47:55
  SPEAKER_00: So so there is a there is a point at which maybe it doesn't make sense.
• 47:59
  SPEAKER_00: Most companies coming in are spending at least 10 or 15, which is amazing, which makes sense programmatic in general.
• 48:07
  SPEAKER_01: Very helpful, Adam.
• 48:08
  SPEAKER_01: And it's just interesting.
• 48:09
  SPEAKER_01: And I love what you guys are doing.
• 48:10
  SPEAKER_01: And uh your experience and to your point, what you've built and what you've learned makes positioned you in a really good spot to be able to offer this to other entrepreneurs who want that four-hour work week dream and and everything else that comes with it.
• 48:24
  SPEAKER_01: Adam, we nerded out.
• 48:25
  SPEAKER_01: This was Operator Operator.
• 48:27
  SPEAKER_01: I really enjoyed our conversation.
• 48:29
  SPEAKER_01: I like to end this uh podcast asking you to make a prediction about the future.
• 48:33
  SPEAKER_01: So I'll ask you to pull out your crystal ball.
• 48:36
  SPEAKER_01: And if um if you can answer this question, how do you see the role of financial intelligence changing for Shopify brands over the next few years?
• 48:46
  SPEAKER_00: In the world of AI, which I am, despite the fact that I've said we don't use it 52 times in this call or in this podcast, um, I do use it intensely uh to build and to create.
• 49:01
  SPEAKER_00: And we do have an AI, one AI functionality piece in Pentaine.
• 49:04
  SPEAKER_00: Uh, it's a financial analyst that's built on your on your data.
• 49:08
  SPEAKER_00: It's not again, it's not allowed to do math.
• 49:09
  SPEAKER_00: I have strong opinions on that.
• 49:12
  SPEAKER_00: In the world of AI, where I today it's still difficult for someone that's not really immersed in it, which most e-com operators are not, because they're building physical product and they're like trying to figure out how to grow the company and everything.
• 49:24
  SPEAKER_00: So it's like they're not generally speaking spending four hours a day, you know, like in the new some new agentic system trying to figure out how to automate some process.
• 49:34
  SPEAKER_00: But there will come a point in the next year or two where that person can pop up their dashboard and connect via MCP to wherever they want, whether or not they want Claude or OpenAI connected to their bank account.
• 49:47
  SPEAKER_00: I mean, I that seems pretty scary to me.
• 49:50
  SPEAKER_00: My position is that we need this, we need a safe, centralized framework for that information to live, the bank stuff, the PL stuff, all that stuff.
• 49:59
  SPEAKER_00: And then we will give you the ability to, whether it's inside of Pentain or not, to propagate your own dashboard systems or be able to really build bespoke infrastructure using AI and agents.
• 50:13
  SPEAKER_00: I do think that the e-commerce space as a whole is largely protected for at least the next five to 10 years.
• 50:19
  SPEAKER_00: I mean, as Elon Musk says, as long as you're moving electrons, or I think he said atoms, but electrons are part of an atoms.
• 50:24
  SPEAKER_00: As long as you're moving, you're moving atoms, you're probably good for a decade.
• 50:28
  SPEAKER_00: You know, it's like that, even if you know, setting aside like the AI apocalypse, we're like AI is not gonna physically think of a product and go to a manufacturer and make a thing and do a thing and build a thing and ship the thing.
• 50:41
  SPEAKER_00: Like, there's we can have a lot of robots involved in a lot of that at this point, but I think building physical things that are is a really safe and really exciting because of the efficiencies that we can start to create with AI.
• 50:53
  SPEAKER_00: I think it's a really exciting place right now and will be for the next couple of years.
• 50:58
  SPEAKER_01: That's well said, and it makes sense too.
• 51:00
  SPEAKER_01: I I don't think I told my team too, we're incorporating a lot of AI, and it's not that we're replacing the employee, we're teaching them how to use it to be more efficient and to use their time to have bigger impacts on other challenges we need to address as a business.
• 51:14
  SPEAKER_01: So I can see in the finance, I can see it in the Shopify, I can see it with e-commerce owners, and they you're right.
• 51:20
  SPEAKER_01: They have we have a lot going on, period.
• 51:22
  SPEAKER_01: Adam, thanks so much for coming on the podcast.
• 51:24
  SPEAKER_01: I really enjoyed our conversation.
• 51:26
  SPEAKER_01: Real quick, if you can let our listeners know where to find you and note, all links will be in the show notes.
• 51:34
  SPEAKER_00: Yeah, you can find Pentain at P-N-T-A-N-E.com.
• 51:38
  SPEAKER_00: Um, as I mentioned, the profitmasterclass.com is free and it's there.
• 51:42
  SPEAKER_00: Uh, I try to not spend too much time on the socials because it's bad for my brain, but I do spend a little bit of time yelling on Instagram.
• 51:49
  SPEAKER_00: I'm sorry, I'm not not on Instagram.
• 51:50
  SPEAKER_00: I don't even know how to get into my Instagram uh on LinkedIn.
• 51:53
  SPEAKER_00: So you can find me on LinkedIn a little bit.
• 51:55
  SPEAKER_01: Awesome.
• 51:56
  SPEAKER_01: Adam, thanks for coming on the show, man.
• 51:58
  SPEAKER_00: Appreciate it.
• 51:58
  SPEAKER_01: Well, that wraps up today's episode of Selling on Giants with Adam Kellman.
• 52:04
  SPEAKER_01: This is one of those conversations where the big takeaway is simple but powerful.
• 52:09
  SPEAKER_01: Growth gets a lot easier to understand when you stop looking at revenue alone and you start looking at contribution profit.
• 52:17
  SPEAKER_01: Adam made the case that metrics like ROAS, AOV, LTV, and impressions all matter, but they are pieces of the puzzle.
• 52:25
  SPEAKER_01: The question that really matters is whether the business keeps more money after the cost of the sale, the cost to fulfill, and the cost to acquire the customer.
• 52:34
  SPEAKER_01: That is what tells you whether a campaign, price change, bundle, or discount is actually helping the business.
• 52:40
  SPEAKER_01: We also covered why constraints help bottle keepers scale with discipline, why founders need to know what looks good, like testing pricing or ads, and why Shopify and Amazon performance cannot always be separated cleanly when customers are moving between channels.
• 52:58
  SPEAKER_01: To learn more about Adam, visit Pantane's website, P-E-N-T-A-N-E.com.
• 53:04
  SPEAKER_01: Adam also mentioned the Profit Masterclass, which is free, theprofitmasterclass.com.
• 53:10
  SPEAKER_01: You can find those links along with Adam's LinkedIn in the show notes below.
• 53:14
  SPEAKER_01: If you found this episode helpful, please like, follow, and subscribe wherever you're listening in.
• 53:19
  SPEAKER_01: Helps more operators find selling on giants and keeps the conversations going.
• 53:24
  SPEAKER_01: Thanks for tuning in, and we'll see you next time on Selling on Giants.
• 53:28
  SPEAKER_01: This is Mr.
• 53:28
  SPEAKER_01: Will signing out.