364: Digital Ad Spend, with Zach Johnson

Digital Ad Spend is a vital piece of the new marketing stack for local businesses—and therefore, a must-have service to offer as a marketing agency.

 Zach Johnson, Founder of FunnelDash, co-host of the Rich Ad Poor Ad Podcast, and author of the book Rich Ad Poor Ad, joins George Leith this week. Zach is here to talk about Digital Ad Spend. Zach sheds light on how to best prepare clients for the outcomes based on their budget. He wants to share the message of understanding the core messaging behind your product/service before you throw money behind it on an advertising channel.  Make sure the rest of your online presence ducks are in a row, and keep them in that row for your advertising leads to fall into that purchase funnel. No single tip will work for every business, as every business is unique. The best thing to do is test, track, rinse, and repeat to unlock that “secret advertising sauce” for you and your clients.

Zach Johnson is the Founder of FunnelDash. Under Zach’s leadership, FunnelDash has grown to over 5,350+ agency partners managing over $1 Billion in ad spend across 51,000 ad accounts. Zach’s private clients have included online influencers, SaaS, and e-commerce brands such as BigCommerce, Dr. Axe, Marie Forleo, Dan Kennedy, Dean Graziosi, to name a few. Zach is a noted keynote speaker co-author of the book Agency Growth w/ Ryan Deiss @ Digital Marketer.

Join the conversation in the Conquer Local Community, and keep learning in the Conquer Local Academy.

Transcript

 

Introduction

George: Welcome to another edition of the Conquer Local podcast. Today, on this week’s edition, we are going to speak to the founder and CEO of FunnelDash from Austin, Texas, Mr. Zach Johnson. FunnelDash has been in business for about 4 1/2 years, and in the past year and a half, they have come forward with a new product, their signature product called AdCard, the first charge card exclusively for your digital ad spend. With a long tenure in working in the ad business through ad agency work and with various large ad spends, Zach Johnson and the company at FunnelDash have been putting together a program which would allow you to finance and to put a capital component into your ad spend. We’re gonna learn more about that when we bring him onto the show in a moment. He also has his own podcast called Rich Ad Poor Ad. He authored the “Agency Growth Explosion” book in 2019, and his new book, “Rich Ad Poor Ad,” the same name as the podcast, will be released in 2021. So Mr. Zach Johnson will join us in a moment on this week’s edition of the Conquer Local podcast.

George: It’s Zach Johnson, the founder and CEO of FunnelDash joining us, and Zach, all the way from Austin, Texas, welcome to the show.

Zach: Thanks for having me. I appreciate it.

George: You’ve been around for a number of years. Tell us all about FunnelDash and your business. It’s a really interesting model.

Zach: Yeah, we recently, this year, we partnered with MasterCard to create the first co-brandable ad card for agencies and their clients that spend a lot on ads as well as Ad Capital, where we’re offering growth funding for businesses that wanna scale.

George: So, as an agency owner, I could be a part of FunnelDash, and you’ve got this great signature product called AdCard. Tell me how that works.

Zach: Yeah, so part of the opportunity for the ad agency is to monetize by offering financial products to their clients. You know, a typical, like let’s say, a paid media ad agency might charge between five and 10% of spend to manage the client spend. And when they co-brand AdCard with us, they get 1% of the interchange back from MasterCard. So a lot of times, it’s like the easiest thing an agency can do to double their profit. And it’s a pretty easy sell to get their clients on board. It’s stacked with a suite of benefits that are really designed to drive better advertising performance, not get you maybe a free flight every summer to Mexico or something like that.

Digital Ad Spend

George: Yeah, no, it’s very aligned with helping the customer. You’ve been quite successful with over 5,000 agency customers. You’re managing over $1 billion in ad spend. So that’s a significant, that’s a significant pipeline running through AdCard.

Zach: Yeah, I mean, and I think this is something we really aligned with Vendasta’s approach, is that the ad agency is the trusted advisor. 5,000 agencies get us reach to about 50,000 connected advertisers. That represents 1 billion dollars a year in ad spend.

George: So let’s talk a little bit more about your positioning in the market because you have your own podcast, Rich Ad Poor Ad. What’s the concept behind that?

Zach: Yeah, it’s a playoff the book, obviously, but we’re really trying to bridge the world of advertising and financial products and financial education. Our kind of enemy in the podcast is what we call marketer math, where everyone wants to round up to the nearest million and kind of screenshot their latest and greatest stories. It’s really three fun segments in the show. The rich ad is what’s working now, and we highlight agencies, e-commerce brands, SaaS technology, fintech companies. And we’ve had people on there that spend 500K a day on ads when it goes to Black Friday. We’ve had people talk about how they put $1 million behind a single piece of creative on YouTube. And then we do something that isn’t really done enough in the space, is just poor ad. It’s really a humble roast of an epic failure of theirs that they thought was gonna win. And sometimes we learn more from our failures. And so that’s a poor ad. We then wrap it up with a financial principle on how people look at managing the cash in their business, how they look at funding their business, and from the agency’s perspective, what is the agency’s role in having these financial conversations. Like, should they have their hands on the books? If a client says I don’t have the money for this budget, should you actually help them, bringing some financial products to the table to solve for that? Or should you just kind of fold up shop and say, okay, you’re not gonna be a client anymore. We’ll see you later.

George: Well, and with the capital side of the business and AdCard, you’re really helping that discussion because it’s, I would run more ads if I had more access to capital, and can we prove that? I’m sure that it all comes down to the fact that we have this ability now to prove attribution.

Zach: Absolutely, and you know, I think there’s this really big assumption in the world of paid media agencies where they believe that there’s 100% correlation that if I give my client better numbers and better reporting and more accurate numbers, that that is going to then turn into changing my client’s behavior and spending more on ads. And what we found is that those were the early days of FunnelDash. That was essentially where we started on this path to help advertisers scale. We thought that we were gonna do that, right? We thought we were gonna build this automated reporting tool. And it turns out that it’s not 100% correlation, and at the end of that attribution, rainbow is ultimately a financial conversation. And you can kind of shortcut this as an agency and just say, hey, you’re pre-approved for $100,000 of additional marketing budget, and ad spend going into Q4. Based on your past performance, here’s what we think this could do in terms of revenue. And you just skipped the whole conversation of here’s my report to my manager that it’s gonna get laid up into the financial team, that it’s gonna go have to get approval for more budget. And the marketing manager is just gonna be like, oh, I gotta pass this over to the CFO. He’s gotta see this. It’s a shortcut to getting more budget.

Agency Growth Explosion

George: In the notes here, I wanted to talk about “Agency Growth Explosion,” which you co-authored in the summer of 2019. You know, this growth is happening with this phenomenon of digital marketing agencies. My background is in the media business, and if you wanted to go out and sell media, you had to be strapped to a tower in a field or have a printing press back in the good old days. We could now take that relationship that we have with our 20 or 30 advertisers and offer them everything. It’s amazing what technology has allowed us to do. Let’s talk about “Agency Growth Explosion,” the book.

Zach: Yeah, it was. I mean, it really came out of a selfish, very selfish marketing experiment where I had this 2 1/2 hour webinar presentation where I would just unload all my learnings about how to grow an agency, how to get high-value clients, right? These were clients that would pay $5,000 – $10,000 a month, and that would actually pay you more each and every single month ’cause you’re helping them grow. And I was like, man. This is painful for anybody to learn this information. It’s 2 1/2 hours. And so we turn it into a book. It had far more success as a book both on the ebook version and the physical book version in helping agencies learn from my mistakes of starting an agency and kind of my path to the first few months hitting $100,000 a month in revenue and agency and then getting Bell’s palsy. Literally, my face stopped working ’cause I built the agency the wrong way. And it all starts with building a systematic customer acquisition engine to consistently generate leads. And if you can systemize the front end, automating the back end is so much easier. My first ops person said, he’s like, “Hey Zach, put shit in, you’re gonna have shit come out.” So we gotta dial in and optimize and systemize your sales first. So that’s essentially what the book is about.

Digital Ad Spend & Demand Generation

George: You know, one of the things we’ve been noticing over the last few years, and it might be the rise in SaaS software companies, everybody’s a software company now, but this idea of demand generation is one of the big challenges. If you think that a top sales leader that can build high performing sales organizations is in demand and confined, there’s opportunity if you’ve been there, done that in that space. I’m also finding that if you’ve been there and done that in demand-generation, and you’re able to keep on top of the trends, what do you see as far as you look in your crystal ball? And I love the fact you’re always looking back, and you can find those learnings in the past, maybe not failures, maybe learnings. But what are you seeing as we look at how demand gen is changing, and how are we going to feed this need for these top demand-gen performers to be able to run these parts? I just see this big missing piece right now.

Zach: Yeah, so I guess there’s a couple of parts there. So demand gen for the agency owner, right?

George: Sure, or their big customers even. It’s a double-layered thing. Like, how do I do demand gen for me? And then how do I sell that through to my client base?

Zach: Yeah, I think like, I think that demand gen on the agency side is starting the conversation with what your clients actually want. And believe it or not, they actually don’t want another agency. They don’t want another free audit or a website audit. Agencies are always surprised by how much demand there already is for growth capital. Growth capital is, or access to growth capital or lack of access to growth capital is one of the biggest reasons why businesses fail. And for agencies to be able to come in and insert themselves into that flow and solve that problem very quickly and then be able to help invest those funds and manage those funds is what I see as the next trend for the foreseeable years. It’s almost kind of like what the audit was, the Facebook ad or website audit was, like five 10 years ago for the agency. So that’s what I see as the big demand-gen opportunity for agencies. In terms of platforms and customers and advertisers, paid advertising is amazing. Before FunnelDash, I was a VP of marketing at a company called Leadpages. And I was also running paid media at big commerce here in Austin through our agency. And we could spend upwards of $500,000 a month acquiring customers, but it was never a question of ROAS because we always knew the CAC to LTV was there. The biggest question mark was, when? How long do we have to wait to,

George: We’re building this pipeline value. When the hell does it come true?

ROI on Digital Ad Spend

Zach: Yeah, it was more of an IRR conversation than it was an ROI conversation. And that was really kind of the big impetus and big idea behind Ad Capital, was the ROI is there. But if a brand or an e-commerce business or subscription business is spending $100,000 a month on ads, and they have a six-month payback period, that’s 600 grand of operating capital. If you want to grow by two or three X next year, you’re looking at a small seed round. And the next year, you’re gonna give away 20% – 30% of your company in a series A. And so there was a stat that came out that kind of summarized all this by this guy by the name of Chamath. He was the old CEO at Social Capital. He said that 40% of the $2 billion he invested was spent on paid advertising. And I was like, gosh, there’s gotta be a better financial instrument than paying Facebook and Google for ads.

George: Well, you seem to have solved an interesting challenge. What do you see happening as we move into 2021 with this new normal that we’re experiencing?

Zach: Yeah, I think that I see a lot of agencies that really suffered with COVID where their clients were heavily focused on retail and local businesses, and I know this whole podcast is Conquer Local. But a lot of these agencies are pivoting into e-commerce businesses, like, e-commerce agencies, how to help local become e-commerce and get online. And it’s just, I mean, we’ve seen, what, 10 years of e-commerce growth in less than six months? It’s absolutely wild.

George: No, it’s staggering, and I’m glad that you brought that up because I believe that for a successful digital marketing agency, they need to lead with e-commerce, for sure. I was in an interesting discussion the other day with my clothier. And I was saying, “You should be online with e-commerce. I could have still been buying stuff from you while COVID was going on,” because they’d completely shut down. And the answer that he had for me, and not a younger business gentlemen, like old like me, he said, “But then I’m gonna have to tie in my inventory system. And I don’t really know how I would go about doing that. And then I’m probably gonna need a different server.” So he has obviously thought about it, and he’s poked his nose around to know that there’s a whole bunch of other questions that are gonna be answered. But on your side of the balance sheet, you know that we need to be running ads to power that e-commerce store. I think I could get him, I’m not actually selling him, but he was selling me. And I was just trying to convince him that he should come out of the stone age. But it was interesting to listen to his perceived objections. And then I think that another objection might be the only really runs ads twice a year when he has the January sale and the summer sale, not a big traditional advertiser ever in the career of that business. And you’re over here on your side of the business going. You’re gonna have to run some ads to power the e-commerce store. It’s an interesting time. And some businesses, as you’ve mentioned, are all over it because they had that forcing function of COVID. So what would be some suggestions you have for the infant e-commerce business that is just dipping their toe in the water, and what are the best paths towards success?

Zach: Yeah, well, your typical main-street local business, and you might know this, the statures, to my understanding, they only spend about $15,000 – $20,000 a year in ads, like at the super main-street level business.

George: I think you’d be lucky if that were the budget.

Ecommerce and Digital Ad Spend

Zach: Yeah, yeah, yeah. And so I would say for somebody that’s just getting started and exploring, how do I make e-commerce work, it’s really thinking through what is something that somebody can make an immediate decision on potentially online and what is the fastest path to that first transaction. So coming back to this IRR conversation of how quickly can we get to breakeven or profitability, you want to be thinking about how can I invest a dollar and get that dollar back today so that you don’t need ad capital, so you don’t need to come to FunnelDash and get AdCard. And the way you do that is you have to keep your, what we call average order value, your front-end value, at about $100 or less. And this is gonna allow the consumer to be able to see your ad, make a decision on their first-page visit or within 24 hours, 48 hours, and make a buying decision and recoup that marketing dollar investment back. I think a lot of people that are just trying to figure out e-commerce in the early stages, maybe they were selling something more expensive. Maybe it was furniture, or maybe it was mattresses, something that’s maybe upwards of $1,000 of a price tag. Those price points, you really want to think through what is a bundle offer that’s gonna be more easily attainable to make a quick decision on, get your marketing dollars back, and then be able to land and expand that account.

George: So, build larger ad campaigns, more robust inventory, but let’s focus on some skews that we know we can move and start to show that that marketing dollar can pay back before you go for the big win.

Zach: Yeah, if you look at, let’s just say this $10,000 small business marketing budget a year, if you’re selling a $1,000 product, you have 10 at-bats, okay, to know if it works. If you’re selling a $10,000 product, you have one at-bat over 12 months. If you’re selling a $100 product, you have a lot more at-bats. For a $50 product, you have a lot more at-bats. You can iterate faster. You can learn faster. And you can turn over that marketing budget multiple times a year. So I would say start small.

Rich Ad Poor Ad

George: I understand that you have another book coming with the name of the podcast. It’s brilliant.

Zach: That’s right.

George: Tell us about that.

Zach: Yes, it’s called “Rich Ad Poor Ad.” You can go to richadpoorad.com. You can get the ebook version or the physical version. And it’s really all about the financial principles that rich advertisers are using to deploy to drive traffic to any website and any funnel at scale. And it kind of infuses how to think about investing in your marketing campaigns, funding ad campaigns, how do you maximize your float, and really thinking through what are some of the things you need to be thinking of, of like a red light, a green light, or a yellow light in terms of you’re an investor. What should you not invest in, and what should you invest in? I think it’s a really unique book, and I’m really excited to bring it to market.

George: The one thing I like in listening to you and the way that you’re telling these stories is that there is always a poor ad, and that’s just the expectation. So how do we get back to best practice? What is the iteration that we need to move on? And I think that it’s important for our audience to understand that, and I think some salespeople have a real hard time. They want to walk into the silver bullet that’s gonna solve every problem under the sun. And it’s not really that way. It’s more of you’re working with the customer. Crazy things happen. Competitors go after you. Whatever it might be, there are all these nuances. And understanding where we didn’t get it right or where others didn’t get it right can actually help us not navigate those waters we want to stay away from. There are crocodiles in there. Let’s stay away from that.

Zach: Yeah, and you want to be able to set expectations properly with clients to create long-term success. And the way that you do that is you look at it like a Wall Street fund manager. It’s about diversify. It’s about limiting your losses, really. At the end of the day, you aren’t gonna go tell a client to go throw down $50,000 or $100,000 on the XYZ campaign, and then you’re going to report back whether it worked or not. What you want to be able to do is if you’re gonna start small, and it’s a $100 product or a $50 product, you want to be able to spend $100, $200 on an ad, and you know if it’s profitable or not. And then you can really iterate. I think if you listen to some of the episodes on the podcast, we’ve had some of the best media buyers that manage anywhere between 10 million and 500 million a year in spending. And the one thing they all have in common when it comes to this poor ad segment is. First, they will identify, and they will admit that they do have poor ads, but, second, they will very quickly say that they didn’t lose that much on it. It only lost a couple hundred bucks, and they limited their losses. That’s a professional agency owner. That’s a professional media buyer that you want managing your ad budget, not somebody that’s throwing a Hail Mary your way and will report back in six months on whether it worked or not.

George: Yeah, or not watching the optimization of the ad spend, having cracked open the spreadsheet to look at the lines in three months. You’re probably dealing with a rookie who told you that they were a veteran. It’s really interesting. And for all of the sales reps out there that are wondering why the customer didn’t get back to them, having that regular conversation around the performance of the campaigns is where the competitor’s going to eat your lunch. If you’re not having that, And sometimes it’s not gonna be comfortable. Sometimes there are a couple hundred dollars that we just lit on fire that didn’t provide value. But having that constant look at that budget is important. When I saw your title on LinkedIn, I was trying to put two and two together to get to the idea of maximizing your float. And now I get it. You’re saying we’re gonna have X number of dollars. We’re gonna put it into this machine. And we’re going to get a return on investment on the other side, and the float is the middle piece. And that’s where AdCard comes in, which can help you finance that float the same way that you finance other investments that you made. So Zach, thank you for giving us all of those insights around FunnelDash and your journey. And congratulations on the great product in AdCard. And really looking forward to learning more on the podcast, Rich Ad Poor Ad, and the upcoming book of the same name. You are a content-producing machine. Congratulations.

Zach: Thank you so much, George. I really appreciate it.

George: Thanks for joining us on the podcast.

Closing

George: I enjoyed talking to Zach in this edition of the Conquer Local podcast. Three takeaways. The first one, you really want to create long-term success. If we were to add up all the guests that we’ve had on the show talking about, it’s way easier to grow an existing customer, build a raving fan than it is to find a new one. We have this recurring theme of going to work every day, take really bloody good care of your customers, and be focused on their success, and you will be successful as an organization. And Zach validated that. The other thing that it’s great to hear is there may be this ability to finance some of that float or your ad spend while you’re waiting for the payback from driving that message and finding those new leads and bringing them into your organization. There’s always a bit of a trough there. You know, there is that saying around the J curve where you have to invest. You’re gonna go below the line. You’re not gonna make any money for a while. And then come out the other side, and you’re going to see that growth. Finally, the ability to prove attribution and the ability to admit that there’s going to be rich ads and there’s going to be poor ads, I have to make another point of that. That shows leadership, and it shows strength. And it shows the fact that you give a shit about your customer, where you’re saying we’re gonna run the campaign based on everything that we know today. We’re going to watch it like a hawk. We’re going to adapt. And we’re going to make sure that we are getting the results you, Mr., Mrs., Ms. Customer desire. When you hear somebody speak like that, you can tell that they’ve been there, done that, and read the book. And they know what it’s like to take care of a customer and set those proper expectations. Well, always a pleasure speaking to Zach. I’ve had a couple of opportunities, once when he was here on this podcast and when I will appear on the Rich Ad Poor Ad podcast with Mr. Johnson. If you’d like to continue the conversation with Zach Johnson or any of our guests in the Conquer Local world, come join us at the Conquer Local community. It’s a chance to continue the conversation, to ask questions, to offer advice on what we might want to look at moving into 2021. We’re planning season four right now. And your suggestions are what we use to put that roadmap together. And producer Colleen has been digging deep to figure out what would be some great guests that we could come up with on season four. What would be some great master-sales series training components? And recently, we had one of our partners, Tim Pringle, come all the way to our offices. And we were able to sit down with him for a while and get some of that insight. And I’m appealing to you. The conquerors out there listen to the podcast on a regular basis to reach out to us in the community. They offer those insights, advice, suggestions, complaints, debate, yelling, whatever you would like to do. We’re watching it like a hawk, and that’s how we’re crafting what’s going to build season four of the Conquer Local podcast. My name is George Leith. I’ll see you when I see you.