Agency vs In-House: What's Right for Brands? (Week 14)

Ads on Threads?, TikTok Shop Affiliate Follower Count, Google and Cookies.

Agency vs In-House? Juicy... 👀

Before we get into the thick of things - let me take a moment to speak a bit about the NEW YORK KNICKS. NYK is up 3-2 in the series over the despised Philadelphia 76ers and blew their chance to turn the lights out at home last night and close out the series 4-1. Nothing wrong with a little bit of adversity though and trying to close this out tomorrow night in Game 6.

Before we move on, I want to acknowledge Knicks point guard, Jalen Brunson. He is an absolute stud, dropping 47 points and 10 assists in the game on Sunday in Philly and dropped another 40 points last night. There are a few real life lessons we can take away from this guy.

Yelling National Basketball Association GIF by NBA

Jalen Brunson, NY Knicks

He’s been the ultimate underdog in his career. We could learn a few things from him that translate to the business world. He’s been doubted his entire career. He’s not exactly a physical specimen - he’s on the shorter side and a bit chubby, yet has the heart of a lion. His work ethic is known to be among the strongest in the league (to make up for what he lacks physically).

After winning 2 national championships as a starter at Villanova, Brunson was drafted in the SECOND round. Not even good enough to go in the Top 30. They said he was undersized and his winning mentality wouldn’t be enough to translate him into an NBA starter, let alone superstar.

He went to Dallas and rode the bench for a few years before signing a contract with the Knicks that made him the 2nd highest player on the team - a contract that many criticized. Well, last year he led them to their first playoff series win in over 10 years. This year he led the team to the #2 Seed in the whole Eastern Conference, despite missing Julius Randle (their highest paid player) for more than half the year. Brunson finished the season as a Top 5 scorer in the entire NBA this season. Let’s see what else he has in store for us. He’s proved all doubters wrong each and every step of the way.

Jalen Brunson has the raw skills you can’t teach: work ethic, heart, hunger, resilience, and leadership.

In business, these are the traits that most contribute to building a winning culture. You can teach soft skills, but you can’t teach these championship traits.

Want to build a winning team? Find yourself a few Jalen Brunsons.

Now onto the content that you’re all here for!👇

1. Meta to Launch Ads on Threads This Year?

According to Digiday, Meta told its ad execs that it’s launching ads on its new app Threads as early as the second half of this year. We all knew that this launch would eventually come to fruition, but none expected it to come this soon. Meta originally stated that it would launch ad placements on Threads once it reached 1 billion regular users. For reference, this would equate to roughly half the number of active users on Instagram.

On Meta’s February earnings call, it announced that Threads currently had around 130 million users. So it’s probably still in the 100-200 million user range - far off from the 1B target.

Perhaps this launch is being rushed and comes at an opportune time to shift the script. The script that sunk $META stock 15% following its Q1 2024 earnings call last week.

$META cratered 15% overnight following it’s earnings call on April 24, 2024.

$META got hit by Wall Street for its increase in projected expenditures, namely in AI. Meta expects to spend between $35 billion and $40 billion this year on CAPEX, an increase of ~$5B from its prior range.

As I’ve been saying ad nauseam, the stock market prioritizes efficiency and profitability anytime we’re in a “high” interest rate environment.

So, if Meta is increasing expenses from prior forecasts by $5B, what does it have to do to offset that and allay fears? AD REVENUE.

Easiest way to do that? Increase ad inventory/impressions.

And thus, Threads ad placements are front and center.

Meta just needs to tread lightly and not nuke its current audience there.

These are still all rumors. But usually where there’s smoke, there’s fire 👀

Look forward to seeing how this will look in the wild, but rumblings are that Meta will also enable Partnership Ads there. This would be a tremendous feature.

Especially since Threads recently started incentivizing Creators to post and engage in the app through a bonus program. It will reward Creators that get over 2,500 views on a post or reply within Threads.

Sound familiar? cough * 𝕏 * cough… except it’s way easier to qualify on Threads than 𝕏 (which requires at least 5m impressions per quarter to be eligible).

I’m still not an active user of Threads, but Meta is usually world-class at copying and improving on existing products. This is certainly also all part of Meta’s anticipated relaunch of the affiliate marketplace.

STAY TUNED!

2. TikTok Shop Affiliate: Follower Count is MEANINGLESS!

TikTok Shop Affiliates w/ “low” follower counts but HIGH revenue generation.

Too many brands are discriminating against sending samples out to affiliates with low follower counts.

REMEMBER: the beauty of TikTok Shop-tagged content is that reach goes FAR BEYOND your followers! The “For You Page” is where the magic happens.

If your affiliate creates decent content, the potential is limitless (especially when you juice the organic post with ad dollars).

See the above picture which highlights 3 TikTok Shop affiliates that have 5.9k, 4.8k, and 2.7k followers respectively.

Can’t tell you how many brands would have written these people off.

Well, these 3 affiliates drove over $1.25M in revenue for brands and earned $220k+ in affiliate commissions in the last 30 days alone!

#1 - This guy w/ 5.9k followers made $100k cash this month.

He generated $484k revenue w/ 20% commission.

Sold 3x more products than his entire follower count.

#2 - This lady w/ 4.8k followers made $70k cash this month.

She generated $468k revenue w/ 15% commission.

Sold 4x more products than her entire follower count.

#3 - This guy w/ 2.7k followers made $50k cash this month.

He generated $315k revenue w/ 15% commission.

Sold 5x more products than his entire follower count.

TikTok Shop affiliate is a VOLUME game. Incentivize your affiliates to make money & your brand will make more money.

TikTok's algorithm doesn't discriminate against follower count.

Neither should you.

3. Google Kicks the Can of Cookies Down the Road

Last week, Google announced that it was delaying "2024" 3rd Party Cookie Deprecation in Chrome...AGAIN.

There are only 3 certainties in life: death, taxes, and Google extending the life of cookies.

This can has gotten kicked down the road on 3 occasions over 4 years.

Google's "Privacy Sandbox" still isn't ready to meet compliance & needs of the industry and regulating bodies.

In 2020, it promised it would phase out cookies within 2 years.

There's still no clear deadline in place.

Will it be 2025?

I'm sure Google will say "yes."

Agency vs In-House 🍿

The age old debate.

First- let me preface this by saying I’ve built (and sold) businesses on both sides.

Prior to launching the agency, I was on the BRAND side. For 5 years. My brother Dan and I launched an ecommerce holding company that created and operated a bunch of brands. We never hired a media buyer or ecommerce ops person until we mastered it ourselves.

We ended up doing everything in-house. But it was a unique setup.

We were launching a brand nearly every quarter for a few years, but we were using the same centralized “in-house” team that we assembled. We literally built ourselves an agency infrastructure to service our own brands.

Each brand was treated like “a client.”

So, we were fortunate enough to benefit from economies of scale.

Unfortunately though, not many DTC brands today can say the same.

Before we debate whether or not you’ll get better performance in-house vs agency, we must first look at the math. Profitability and positive cash flow are everything.

Without having both in order, the writing is on the wall for your brand. It won’t last long. Good luck raising capital without having these boxes checked.

Lets take a look at the makeup of DTC marketing essentials:

  1. Paid Social (Meta and TikTok Ads primarily)

  2. Paid Search (Google and Bing primarily)

  3. Retention (Email / SMS / Push)

  4. Content Curation (Influencer / Affiliate)

  5. Social Media Management/Community (Organic Social on all major platforms)

Let’s break down the side-by-side cost comparison of Agency vs In-House for PAID SOCIAL alone:

Paid Social

per mo. cost

In-House

Marketer (range)

$6,000 - $12,000

Cost of Employment (tax, benefits, etc)

$600 - $1200

Video/Image Editor

$1,000

Total (monthly)

$7,600 - $14,200

If you’re looking to run just table stakes for paid social, your costs are summarized above. This assumes one full-time employee (FTE) and one offshore video editor. This does not include any software, resources, supporting resources like net new creative or creative strategy, or incentives that you also need to consider.

If we took the midpoint between $7,600 and $14,200- we’re at $10,900 per month in “in-house” cost to simply activate paid social.

Scenario: Brand has COGS of 25%, 2.5% merchant processing fees, and 5% of S&H&F costs per order. Paid Social fixed costs of $10,900.

This means for you to just break even on this “in-house” capability cost, you would need Contribution Margin of at least $10,900 each month.

For reference, this means you would need to be spending more than $30k/mo at a 2.0x ROAS or more than $11k/mo at a 3.0x ROAS to simply break even on this program.

In comparison, a decent agency retainer will run you roughly 30% less than this amount. Not to mention, if you terminate an agency, you likely don’t have to think about severance, legal ramifications, internal stress & uncertainty, and hit on morale. Bringing on an agency will enable you to accept lower performance than building in-house.

Paid Social is just ONE component of a table stakes marketing program.

Lets summarize the rest of your estimated in-house AVERAGE monthly costs for DTC brand essentials (the barebones minimum):

per month cost

In-House

Paid Social

$10,900

Paid Search

$7,000

Retention

$10,000

Content Curation

$6,000

SMM

$6,000

UGC Budget

$6,000

Total

$45,900

If we’re looking at a $45,900 per month fixed expense for delivering marketing internally, this means we need $45,900 in Contribution Margin to breakeven.

In other words, the brand would need to be generating $300k/mo in revenue at a 2x MER or $150k/mo in revenue at a 3x MER just to be breakeven.

I can assure you that 95% of Shopify brands are not currently at these levels. They’re simply not generating enough contribution margin to offset “in-house” marketing department costs.

This means the vast majority of ecommerce businesses absolutely must leverage agencies just to keep the lights on.

REMEMBER: the more fixed costs (salary) you add internally, the more contribution margin you need to generate to offset their costs.

I actually firmly believe that the brand’s operator MUST have a deep understanding of paid media and performance marketing in order to manage the day-to-day. Paid media drives ecommerce revenue. Without it, you don’t have a business. If the operator is aloof on paid media, there will be too much cash burned either in-house or at an agency because they weren’t able to manage it.

Beyond the simple math on the financial side, there are other downsides to building in-house:

  1. HR & Legal: hiring, firing, people issues. Opportunity cost and added stress of having to think through and manage a robust org chart. Very time consuming and the more you scale people, the further away you get from the core driver of your business and what you actually enjoy doing.

  2. Limitations on learning and innovation: your people don’t know what they don’t know. Easy to stagnate unless the founder or IC’s in-house are networking and constantly learning through other modes of education. Agencies have a wide purview of accounts and have a higher predilection for what’s working in the market vs. what’s not. Your in-house team will be limited to their past and present experience to apply learnings and expertise to your business.

  3. Risk: one bad hire in any program that you are not proficient in will be very difficult to critically assess and manage in-house. Bad hire can set you back an entire year or more. Agencies have a higher floor than in-house most of the time.

  4. You may not have full-time work for a FTE for a certain program. You may find yourself turning each FTE into a “jack-of-all-trades” which gets blurry and difficult scale.

  5. Less agility. If you want to test a new channel, new platform, new tactic, new anything- it will not be easy to give someone in-house extra responsibility on a whim. It also won’t be financially sound to hire someone specifically for something experimental. If the experiment doesn’t work out, you’ll have to let them go which is costly, risky, and a drain on morale.

HOWEVER, there is of course downside to outsourcing to an agency:

  1. Most of the time you never know who at the agency will be working on your account until you sign on the dotted line. This puts all your eggs in the agency’s basket to assign you someone that will deliver on the work you expect to get executed.

  2. Some agencies out there are REALLY BAD. You need to know how to vet agencies. There should be some form of agency certification process much like how lawyers and doctors need to pass the boards to get their license.

  3. Agencies can get expensive with scale. As many are aware, agencies generally take a percentage of ad spend. However, if an agency scaled you to a level of ad spend you didn’t achieve on your own and they did it profitably (why else would you allow them to scale…), there is no issue at all with rewarding them for the enterprise value they built for your brand. In fact, as agencies scale and get rewarded to do so, they will ensure their A team is on the account and will be more inclined to provide other value add services and resources to help hit your next leg of scale.

    Show your agency (or your in-house team) the incentive and they’ll be more inclined to show you results! This is simply human nature. If your agency “gets too expensive,” it simply means they’ve done their job well enough to get you to that point. If anything, it’s a good problem to have. Don’t view agencies as a cost center if they’re profit and revenue generators. Deciding to take things in-house because your agency scaled your business can backfire and destroy the momentum and progress you’ve made. This is risky.

OVERALL:

There is no blanket statement that can be made for whether a brand should go agency or in-house. It depends on where the brand is in its lifecycle, what financial resources/runway it has, and what the founding team’s expertise entails.

The one generalization I will make is that all DTC founders SHOULD be proficient in performance marketing or else their business will suffer at some point along the way. Performance marketing drives DTC businesses. Learning performance marketing is not rocket science. This means learning all the key metrics, jargon, and KPIs required to manage and influence a P&L.

I do believe that all founders, in the very beginning, should run their own paid social campaigns. This will give them the foundation required to understand creative, media buying, and how performance marketing metrics all interplay. They should also try to learn the Shopify app ecosystem in order to be able to think critically about their tech stack. This is a foundational requirement for success and will help you manage an agency or an in-house team at any point in the most important area of your business.

Before investing in building ANY team in-house, run the math for how much it would cost to build in-house vs outsource and take into account if the role you’re hiring for is even full-time work. If the answer is no, you will gain efficiencies through an agency or even a contractor.

What I’m Listening to 🎧

Beats of the Week: Curol @ Zamna Tulum, Opening for Keinemusik (Jan 2024)

Did I just find one of my new favorite DJs? Curol is yet another Brazilian afro house DJ that is on the rise. Melodic, tribal, and incredible vocals and style in her sets. She usually sticks around in Brazil but will be breaking out soon. She just opened for world-renowned Keinemusik in January in Tulum, MX. Go listen to all her Soundcloud sets after watching the above set.

I welcome all feedback. Good, bad, everything in between.

Hit reply, and let’s hear it! 👂

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Yours truly,

Jonathan Snow

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