How do you get your CFO to approve a bigger marketing budget for a DTC brand? Drew Fallon, former CFO of Mad Rabbit, says finance is watching one number, CAC, and that brand spend only gets funded once direct response is efficient enough to pay for it.
Drew is now CEO of Iris Finance, a finance platform for CPG and DTC brands, where he sees the books of 200 brands, most of them between $20 million and $300 million in revenue. He joins Eric Dyck and Claudia Lauture, VP of Client Services at Keen Decision Systems, to work through the argument between marketing and finance, including who should own the budget and when a brand can afford upper funnel. You walk away knowing what to bring into the budget meeting and how finance will score it.
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WHAT YOU WILL SOLVE
- You don't know what finance is judging your plan on. Drew's answer is CAC. If CAC, retention and LTV to CAC land where his model has them, he says he does not care how much you spend or what you spend it on.
- You need money for a bet that won't pay back this quarter. Drew wants one of two cases made: that it raises MER and contribution margin, or that the upside is big enough to be worth the risk.
- You want to start brand marketing and direct response is only just carrying the business. Drew says there is no room yet. Most companies he sees don't start brand work until somewhere past $30 million in revenue, and he would not do it at $10 million.
- You think you have topped out on Meta. Drew says Meta takes a brand farther than most operators expect, and that you can probably ride it to $100 million.
- You are looking for the next channel after Meta. Across the 200 brands on Iris, Drew has not seen one scale AppLovin spend and make more money. The pattern he describes is a brand that reaches $50 million on Meta, puts $200K a month into AppLovin and watches its margin go away.
- Your upper funnel keeps getting cut to hit the quarter. Claudia's team at Keen runs both plans out two and three years, so the cost of the cut is on the table next to the short-term number.
- Your cash position keeps surprising you. Drew builds a bear, a base and a bull case, then tests the base at 40% over and 40% under. Beating plan by 60% can still run a brand out of money, because of inventory.
- Nobody agrees who owns the marketing budget. Drew says it is usually the marketing lead and should be the CFO, on the condition that the CFO understands growth marketing, which he calls rare.
- Your agency bill is being questioned. At Mad Rabbit, Drew let go of an Amazon agency he liked because it cost roughly $60K a month and he could hire two full-time people for two thirds of that.
- You are planning Q4 the way you did last year. Drew is hearing more brands pull back on TikTok after losing money there last year, and supplement founders tell him they are waiting for January because Q4 brings higher returns, more churn and discount shoppers.
- You are reporting platform revenue to finance. Both guests named it as the number they stopped trusting. Drew: "It's all higher than what you get on your P&L."
ABOUT THE GUESTS
Drew Fallon is co-founder and CEO of Iris Finance and the former CFO of Mad Rabbit. https://irisfinance.co
Claudia Lauture is VP of Client Services at Keen Decision Systems, the marketing mix modeling, planning and forecasting platform. https://keends.com
HARNESS THE HALO
Harness the Halo is a six-part series from DTC and Keen about the spend that doesn't pay you back the same day, and the measurement that gives you room to make it. This is episode 5 of 6, and a new episode drops every other week.
SPONSOR
Harness the Halo is presented by Keen Decision Systems. Keen measures the incremental impact of every channel on sales, revenue and profit, and forecasts how a channel will perform before you spend in it. https://keends.com
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