Happy Wednesday. I hope you're having a great week. I was super sick over the weekend so wasn't able to get this out. It's also been one of those weeks, but hopefully, your week has been going well. It's always a funny time of year with Black Friday and all the other events going on, along with planning for next year. If you've launched your Black Friday offers already, I hope they are going well! Today I want to talk about one of my favorite subjects, which is how to cut costs to remain profitable.

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When planning for next year, there's always this tension between growth and profit. You need to understand your goals, profit expectations, and efficiency versus volume goals. Regardless of whether you're trying to maximize profit, (you probably should be) or optimize for growth, you should still have a practice of always looking at cutting unnecessary costs. Someone on your team, whether a founder or CFO, should be focused on controlling or limiting costs as an evergreen practice. But the end of the year is a great time to review your income statement year-to-date and identify areas for margin improvement, whether in the form of cogs or bloated opex.

I want to discuss a few areas I'm focusing on. First is understanding operating leverage as you grow and scale. There will be times when you gain operating leverage and times when you maintain or lose it. Over time, you want to gain it. For example, this year we lost a bit because we were behind on hiring last year, so we were very efficient but this year we caught up and lost a %. We still managed to keep payroll under a certain percentage of revenue and even beat that target though. But I'd like to get some operating leverage back for next year. So one of my goals for next year is to improve operating leverage, especially since payroll is one of our larger SG&A costs. The strength of a direct-to-consumer brand is the ability to scale revenue rapidly against a more fixed-cost basis, so your financial plan must include strategies for improving operating leverage.

To do this, be really disciplined with payroll as a percentage of company revenue. It's essential to be thoughtful about which roles to add, distinguishing between those that are incremental to revenue and those that are merely nice to have. Marketing, growth, or creative strategy roles are likely going to be the most incremental, while office support, accounting, or ops are likely not going to be but can often be needed to fulfill the revenue. You just want to be really thoughtful about which roles are nice to haves and which are need to haves.

Don't rush to hire full-timers once your team needs more support, or you need a function filled. Stay lean, and consider adding freelancers first whenever possible. Your team might be swamped, but you might not need an in-house, 40-hour-a-week hire with benefits and the whole package. Sometimes you can get away with starting with 10 hours a week of freelance work to bridge the gap.

One of my other biggest learnings here is to focus on hiring better, not more people. If you have a team, you probably have 1-2 people on your team who appear superhuman and can get as much done as some other teams can. I'd rather pay 20% more for these people, which in the long run will be cheaper and more effective than hiring a bunch of average employees.

Software expenses are another area where we need to be disciplined. I dislike how much we spend on software, even though many are essential. And we're super disciplined about it, so my hunch is most DTC brands are spending more on software as a % of revenue than they should be. Because I hate how much we spend on software a year, I'm very actively evaluating our vendors all the time and finding opportunities to cut costs without losing what we need. Look at anything that charges a % of sales and negotiate to a flat fee, or switch to a fixed vendor if possible. Also look at anything that you are getting charged per head, and cut users you don't need or consider just using one shared login if possible. We recently saved $10K a year by eliminating unnecessary Google accounts which was great, but also was stupid.

You can also negotiate and strike more favorable terms with agencies. For the most part, hate % of spend agencies. I only like it if there is true alpha there, but media buying is commoditized so I really hope you're not paying a % of spend for it these days. I don't hate it for creative, but it does get untenable at scale so if you know you are going to continue a relationship with a good creative agency, consider moving them to a fixed amount.

This was a bit all over the place, but I love this topic so hopefully this was helpful to get some ideas flowing.

One thing I'm planning for next year is some paid influencer marketing. We've never actually done any or much, so I think it it could be a nice solid growth lever. But I've always been a bit intimidated by it, partially because I didn't know where to start or how to really evaluate creators and measure that. We're gonna do a big test in Q1 of next year and will be using Agentio for it. Agentio is an ad platform that is automating the buying of creator integrations on Youtube. Integrations like this and this were done through Agentio. ​

This is a channel that gets overlooked because it's hard to break into and hard to measure, but Agentio fixes both of these. Performance marketing teams at brands like DoorDash, Warby Parker, Bombas, Mejury, Matsercla,, Geologie, Tecovas, and more use Agentio. Agentio has a lot of really cool ways to measure this channel, and they even got integrated with our MMM in record time which will be huge for us.

Typical view-through rates are 80-90% for a 60-second ad read, which is huge compared to paid social. You can measure through MMM, discount code usage, and tracking links.

When setting up campaigns, Agentio will recommend creators and show their stats, plus let you automatically submit a bid and a brief. It really makes this strategy of Youtube partnerships as easy as media buying on paid social.

Agentio had a lot of readers reach out to them last time I mentioned them here, so they actually sponsored this issue as their first ever marketing spend. If you want to get a demo to see for yourself, email the CEO and Co-Founder Artuhur at arthur@agentio.com and let him know you came from my newsletter so he can hook you up. I hghly reccomend a demo, even if this is an ad.

I'll see you next time!

-Cody

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