Latest / The CMO Podcast with Fexingo: Marketing Leadership, Budgets, and Executive Strategy / Why Performance Marketing Is Peaking at the Wrong Time
Transcript
- Lucas: So there's this number that's been sitting in the back of my head for a couple of weeks now. A mid-market DTC brand — cosmetics, about sixty million in annual revenue — told me their performance marketing ROAS hit 4.2 last quarter. That's up from about 3 even a year ago. Sounds great, right? Luna: On paper, yeah. But I'm guessing the rest of the story isn't as rosy. Lucas: Exactly. Their repeat purchase rate dropped from 28 percent to 22 percent over the same twelve months. So they're getting more efficient at acquiring first-time buyers, but those buyers aren't sticking around. And because customer acquisition costs have gone up about 15 percent industry-wide since the start of 2025, the unit economics are actually getting worse. Luna: That's the paradox. You're optimizing for a metric that's moving in the wrong direction, and your attribution model is basically lying to you. Lucas: Right. And look — if these marketing conversations have sparked something you've actually used in your own work, honestly, if this episode was worth a coffee to you, that's the link. It's buy me a coffee dot com slash fexingo. No pressure, no rewards, just keeps the show ad-free and independent. Luna: Yeah, we don't do sponsorships, so listener support is genuinely what keeps us going. And honestly, it's a small way to tell us you want more deep dives like this one. Lucas: Alright, back to the numbers. So this brand is seeing 4.2 ROAS on paid social, but their blended customer lifetime value is actually declining. The acquisition cost per new customer is now 38 dollars — up from 32 a year ago. Their average order value went from 54 to 57 dollars, so that's barely budged. Luna: So the math works if you only look at first purchase. But if you factor in retention, the payback period has stretched from about four months to six. That's a huge shift for a business that needs to reinvest cash into inventory. Lucas: Exactly. And the weird thing is, the marketing team is hitting every short-term KPI the board cares about. Higher ROAS, lower cost per click, more conversions. But the underlying health of the customer base is eroding. Luna: This is where I think we have to talk about attribution. Because last-click is still the default for a lot of teams, and it's optimized for conversion, not for value. Lucas: Yeah, and that's the problem. Last-click gives all the credit to the final touchpoint — usually a retargeting ad or a search ad. But it ignores all the brand-building that happened upstream. The podcast they heard, the influencer post they scrolled past three weeks ago. Luna: So the performance channel gets the budget increase because it shows the best last-click ROAS. But it's essentially cannibalizing demand that brand marketing created. And when you cut brand to fund performance, you're eating your own seed corn. Lucas: That's exactly what happened to this cosmetics brand. They shifted about 20 percent of their brand budget into performance over the last two quarters. And now their aided awareness is down, their organic search traffic is flat, and their repeat rate is slipping. Luna: So what's the fix? Do they just reverse the allocation? Lucas: It's not that simple. The CFO likes the ROAS numbers. The board sees efficiency gains. The CMO needs to show that a dollar spent on brand today yields a dollar fifty in performance efficiency six months from now. Luna: That's a hard argument to make when your attribution model doesn't give you the data. You need a different measurement framework. Lucas: Right. Some teams are moving to media mix modeling or even doing controlled experiments — holdout groups where they cut brand spend in a specific market and watch what happens to performance metrics over a quarter. Luna: I've seen a few of those. The results are usually pretty stark. One outdoor gear brand I talked to did a six-week brand ad pause in one DMA. Their ROAS on paid search actually went up in weeks two and three — because people were still searching for them. But by week five, conversion rates on all channels dropped about 15 percent. Lucas: That's a great example. So the short-term signal was positive, but the lag effect caught up. And that's the real danger in this environment: if every CMO is optimizing for the quarter, the cumulative effect across the industry is that brand equity for everyone is getting thinner. Luna: I wonder if part of it is also creative fatigue. When you're running performance campaigns, you tend to iterate on the same winning formula — product shot, testimonial, discount code. But after a while, that gets tuned out. Lucas: That's a good point. The cosmetics brand I mentioned was running basically three creative templates for nine months. Their click-through rate was steady, but their post-click engagement — time on site, pages visited — was declining. So they were getting less interested shoppers through the door. Luna: That aligns with some data I saw from a platform analytics report. They looked at two thousand DTC campaigns from 2024 to early 2026. Campaigns that refreshed creative every 30 days had a 22 percent higher repeat purchase rate than those that refreshed every 90 days, controlling for spend. Lucas: So it's not just about channel allocation. It's about creative strategy, too. If you're running performance-heavy, you need to rotate creative faster. But that costs time and money — you need a bigger creative team or better tools. Luna: And that's a tough sell when you're already being told to cut costs. So the CMO is stuck between the CFO wanting efficiency and the brand team wanting investment. Lucas: Yeah. And I think the smart ones are starting to reframe the conversation. Instead of saying 'we need more brand budget,' they're saying 'we need to measure the full funnel and tie brand spend to downstream conversion efficiency.' Luna: That requires a different kind of analytics infrastructure. Not every company has it. Lucas: True. But even a basic approach — like running a brand tracker alongside your performance data, or doing geo holdout tests — can give you enough signal to make the case. I think the real shift is in how CMOs think about their role. They're not just demand generators anymore. They're stewards of a long-term asset. Luna: That's a nice line. But in practice, when the CEO says 'revenue is down this quarter, what are you doing about it?', the temptation is always to reach for the performance lever. Lucas: Right. And that's why I think this moment — right now, in May 2026 — is actually a critical inflection. We're coming off a period where digital ad costs were relatively low and performance marketing felt like a cheat code. But as costs rise and competition intensifies, the brands that built real brand equity are going to have lower acquisition costs naturally. Luna: You're saying the pendulum is swinging back toward brand. Lucas: I think it has to. Not because brand is inherently better than performance, but because the math stops working if you only optimize for the last click. The cosmetics brand I mentioned — they're now planning to shift 15 percent of their performance budget back into brand over the next two quarters. They're going to run a six-month test with a holdout market to quantify the lift. Luna: That's the right move. And it gives them data to prove the case for the next budget cycle. Lucas: Exactly. I think the CMOs who survive this cycle will be the ones who can tell a story that connects brand investment to unit economics. Not just awareness for awareness's sake. Luna: So what's the one thing our listeners should take away from this? Lucas: If your ROAS is going up but your repeat purchase rate is flat or falling, you're probably over-optimizing for the wrong metric. Dig into your cohort data. Look at the customer journey beyond the first purchase. And if you can't see the full picture, build the measurement to show it. Because the market is about to force that conversation anyway. Luna: Yeah. And maybe rotate your creative while you're at it. Lucas: Always.