How to Scale Profitably in a Down Economy: Sugatan’s 5 Pillars
Written by Kris Sugatan
CEO & Founder
August 18, 2022
We’ve always scaled eCommerce businesses profitably, and that’s exactly what it’s going to take to make it through this down economy.
We actually do two things simultaneously: scaling and scaling profitably.
How do we do it? Let me tell you, it’s not easy. We now find ourselves in a new social media landscape with the advent of TikTok and a preference for video content.
But that doesn’t change who we are or what we set out to accomplish.
Sugatan is not an agency. It is an operational house for Sugatan’s “Scaling Machine”, designed to predictably turn an eCommerce business’s $1 ad spend into a $3 return.
This machine is a direct result of my passion to empower product entrepreneurs inside the beauty, lifestyle, and fashion categories to bootstrap their growth-stage eCommerce brands.
We will always focus on ROI-positive scaling and leveraging social media and ad tech innovation as primary ways to achieve eCommerce scale.
That being said, today, and every day moving forward, is like Day 1 for us.
And that’s because we’re uncertain how the eCommerce industry will react in a bear market with a down economy, with TikTok taking over, the rise of CMPs, and so on.
Sugatan is still focused on viral ads, converting creatives, and advanced ad buying, but we’re also honing in on the critical elements that we believe will drive ROI-positive growth.
Those critical elements are what we call Sugatan’s 5 pillars.
In this article, I will explain each of these 5 pillars. If you’d prefer to digest this information by watching a video, we’ve released one on YouTube where Matas, Maryna, and I will talk you through it.
Watch the video here.
Pillar 1 – Measuring Buying Intent That Defines Investment Timing
The big question we’re asking here is, “When do we push or hold ad spend when media buying?”
“Buying intent” means how willing people are to buy things at a certain point in time.
Our philosophy inside Sugatan is to understand how buying intent moves as a chart and then we adapt our investment proportions or ad spend to match this buying intent chart.
The goal is always to hold on to investments when buying intent is down, and to increase ad spend ahead of time when you know buying intent will be increasing again.
When ad buying, you’ll notice patterns in buying intent. For example, when it’s payday, people are always more willing to make impulse-based purchases.
Our methodology is designed to predict the future and prepare proactively. Timing is everything when it comes to scaling.
Some Founders that we’ve worked with have expected us to hit the same ROAS every day, but when taking the above into account, that’s just not a realistic expectation and it is not a true reflection of the success of your ad accounts.
“This type of mindset reduces your MER at the end of the day.” – Matas Kemzūra, Chief Growth Officer
For example, on Monday and Tuesday, on average, the buying intent is lower. On Wednesday, it starts climbing and reaches its peak from Friday to Sunday.
If we tried to hit the same revenues/same ROAS every single day, we would put ourselves at risk of losing the ROAS on Monday and Tuesday. We would lose the ROAS even if we maintained the daily average revenue.
So, on Wednesday/Thursday when the buying intent starts increasing, we wouldn’t be able to scale because we would first need to earn back what we lost on Monday and Tuesday.
Our approach–the best approach–is to be okay with being 2x down on daily revenues on Monday and Tuesday, but still managing to protect the daily ROAS that you need on those days when buying intent is lower.
Thus, when Wednesday comes, our competitors are still trying to earn back the money they lost and we’re already scaling.
This is literally how we outscale our competitors in a 7-day window!
One important thing to remember is that it’s not about evaluating how buying intent (or revenues) move on a daily/weekly/monthly basis in terms of dollar values.
Instead, it’s about understanding the averages of how revenues/buying intent moves as percentages.
Dollar values will differ, but the real patterns lie in the percentages of these fluctuations (i.e. how revenue changes over time).
These percentages/patterns transcend niches, products, and brands and will show you when it’s time to push and when it’s time to hold back in your ad budget allocations.
We’re determined to build a new methodology that takes all of these cycles and patterns into account to enable us to predict moves in buying intent months ahead of time.
Pillar 2 – Adapting Innovation to Quality of Traffic & Quality of Attention
This is such a big topic that I decided it deserved its own article. You can read it here.
To summarize, this pillar is about minimizing risks while maximizing innovation when it comes to ad buying, cross-channel distribution, platform placement experimentation, and budget allocation.
When you find good quality of traffic and quality of attention, based on CPM and high link CTR, you can start outscaling your competitors with simple innovation and a little experimentation.
The most important thing, beyond any hack and beyond the strategy, is that you need to innovate in your own unique account with your unique data and your unique patterns.
Pillar 3 – Viral Advertising
Viral ads are an important factor in ROI-positive scaling.
When speaking to Founders, marketers, and agency owners, we realize that their biggest problem is the creatives: putting together a team of creatives and then managing that team alongside the ad buyers.
By nature, creative strategists think differently from ad buyers. It’s imperative that you have both teams working together to achieve the desired results.
So, what is a viral ad?
Our definition of “viral” in terms of the primary metric that we look at is the amount of revenue it generates because if an ad goes viral, the revenue it generates increases.
An ad is generally deemed viral when it gets an abnormally high amount of engagement on social media. With engagement, I mean a healthy combination of likes, reactions, shares, and comments.
From a media buying perspective, a viral ad is recognized by the ability to scale incredibly fast with one ad or a set of ads under one Epic.
For example, if you’re able to build campaigns with just one ad, duplicate those campaigns, double/triple your ad budget every day, and still see revenue rolling in at a similar rate, you can be sure you’ve got a viral ad on your hands.
Facebook favors creators who put out content that people engage with because it means people are spending more time on the platform.
So, if your ad has a high engagement rate, Facebook’s algorithm will favor your ad and give you cheaper CPMs.
Pre-iOS 14 update, we used to define a viral ad as a single ad (single ad ID) that generates $1-3MM in revenue over a period of time.
Post-iOS 14 update, we still manage to create single ads that generate $1MM and above.
But we’ve noticed that the shelf life of a viral ad on Facebook is decreasing, and a trend has emerged that shows the revenue benchmark for a viral ad shifting towards a lower number. This continues to change over time.
In terms of the revenue benchmark, our current definition of a viral ad is closer to $1MM now.
Our definition of a viral ad has also changed to that of thinking about a group of similar ads/ad variations under the same Epic instead of just one ad.
What’s an Epic?
Our creative categorization inside Sugatan looks like this:
For example, if you’re selling a supplement for digestive health, the Theme could be bloating.
Under that bloating Theme, the team will then produce Epics. One such Epic could be a skinny girl showing her bloated belly. Another Epic could be talking about how painful bloating is.
Under each of those Epics, we will develop Stories in categories such as humor, pain point, UGC testimonial, etc.
Every Story will then be explored via different creative variations.
Therefore, inside Sugatan, we now define viral ads as “viral Epics” with 3-5+ similar ads under that Epic that all generate the same amount of revenue.
What makes an ad go viral?
Before eCommerce, normal marketing practices and real-world applications for creating advertisements were first and foremost to understand who you’re marketing to.
I.e. figuring out which demographics and generation (Millennials, Baby Boomers, etc.) you’re targeting.
But the definition of “viral” on social media transcends demographics and generations because it usually addresses a universal pain point or resonates strongly with ALL demographics.
Now, once you have a creative with viral potential, it’s not to say it will go viral all on its own. The media buying behind that creative needs to be of very high quality.
Inside Sugatan, we see the makings of a viral ad as the 90/10 being the creative/ad buying.
Making a viral ad is not easy and it doesn’t happen overnight, no matter how good the idea is. A viral ad stems from a vast series of sequences, tests, and optimizations.
On average, it takes us 3-5 months to create a viral ad with a conversion rate of 1-2%.
What principles do viral ads need to follow?
A viral ad still has to follow direct response principles. It has to be human-centric, offer-centric, and urgent-centric.
The human-centric aspect is the most important part to get right. For an ad to go viral, it has to be FOR the person viewing the ad.
The brand should not be your focal point. “Brand-centric” relates to brand awareness, and that’s not the type of content that goes viral.
The creative itself also has to follow platform-first principles. This means the brand takes a backseat so the ad can be created in a way that is native to the platform.
For example, TikTok is a platform that is purely for the people. If your ad doesn’t look and feel like a real TikTok, it will have no chance of going viral.
You need to pay attention to music, pacing, the copy format, and the copy treatment style to make sure it is native to the platform.
A vital part of figuring out what kind of creatives have viral potential is to experiment with new formats, especially with video ads. We call this “creative mix innovation.”
TikTok and Instagram Reels have transcended their platforms and you see that same style of videos on YouTube Shorts and Reddit now.
One creative mix innovation which we’re currently experimenting with is short-form content of about 3-second-long videos/GIFs.
Another creative mix innovation that we’ve been implementing more frequently is advertorials.
Advertorials have proven to be scalable inside Sugatan, so it’s definitely something worth testing if you haven’t done so yet.
What is an advertorial?
It’s a long-read, copy-based advertisement with photos or graphics that takes the form of an article on a website’s landing page.
Advertorials are a mix between advertisements and editorials.
They are education- and value-forward with the copy/message being the most important factor.
Usually, the topic will address a big common pain point and make a shocking/controversial statement that piques the reader’s interest and keeps them reading to find the solution to their pain point.
Get your message right!
Whether we’re talking about advertorials, video ads, or graphic ads… the messaging is always super important.
Inside Sugatan, we have an extremely specific messaging research methodology.
Copymining is one of those methodologies, and Competitive Intel Analysis is another one.
You can read all about these two methodologies and the steps involved in this article.
Combining our research methodologies with keen intuition is what gets us the best results in terms of messaging that grabs attention and generates engagement.
Pillar 4 – The Operational Framework
This pillar is about the operational framework that ties all of the above pillars together cohesively and efficiently to achieve high-quality execution.
Operational and strategic execution is just as important as the strategy itself.
I believe one of the most difficult aspects of operational execution is people management.
You may know by now that we’ve adopted the Agile and Scrum frameworks inside Sugatan. You can read more about the value we’ve found in Scrum in this article.
Why did we implement Agile inside Sugatan?
One of the core philosophies of Agile is that no Agile framework can be applied without leadership being Agile too.
Within the Agile system, you’re usually trying to solve some sort of problem.
If you’re in a leadership position, Agile prescribes that you should not try to dictate or control but instead trust your team to bring solutions to the table.
Don’t take on all problem-solving responsibilities yourself and deny your own shortcomings or possible ignorance.
Instead, set a clear ambition (the what and why) and metrics for success, but delegate only the how to the team.
Following this Agile principle results in better and quicker solutions, better interpersonal relationships between co-workers and management, and fosters an innovative culture throughout an organization.
Another aspect of Agile that really resonates with Sugatan and the way we operate is that Agile also values testing and data over opinions and conventions.
I’ve always said that we’re data-driven and that won’t ever change.
“A hypothesis is proven if you can run multiple tests and get the same results.” – Maryna Taiberman, COO
Agile favors running many small experiments against a few large bets. This ties into Sugatan’s goal of mitigating risks while staying curious and innovative.
These are some of the facets of Agile that led to us adopting the framework inside Sugatan–not just from an infrastructure standpoint but because of Agile’s core values and the Agile mindset.
The Agile Mindset
How we master speedy execution with a remote international team
One of the reasons why I chose to structure Sugatan as a remote and autonomous team is to afford people the freedom and control to structure their day in a way that is optimal for them. To me, that directly affects a person’s quality of work-life.
You get remote teams who all live in the same country but choose to work from home or have a hybrid remote/office schedule.
And then you get remote international teams where people from different countries, in different time zones, need to collaborate on a daily basis. Sugatan is the latter.
With “collaboration” being the key word here; it’s not just about collaboration within the team, but collaboration with clients as well.
To facilitate healthy and regular collaboration, we need to consider everyone’s time. So, scheduling becomes a key factor.
We have regular (Zoom) calls that accommodate everyone’s time preferences and we’ve created operational systems to ensure our teams can co-plan and co-evaluate results together but then execute in a desynchronized manner.
Before scheduling these calls, we clearly define what people must show up to and then allow them the autonomy to manage their own work schedule in between.
Our meetings/calls are supported by a very clear infrastructure in terms of how they are facilitated, what the agenda is, what ideas need to be prioritized, and how we report on our KPIs.
This is where the Scrum framework comes into the picture with Sprint Backlogs, Sprint Planning, setting long- and short-term goals, etc. These sessions are always facilitated by our brilliant Scrum Master, Nicolas Perez.
This very transparent structure allows our team members to be held accountable in a comfortable way.
Maryna always says Sugatan is a place where you can be yourself as long as you like to challenge yourself.
It is beneficial to any business to understand what personalities the team encompasses.
Why do personalities matter?
Not every person’s personality is compatible with Agile. Some people prefer to operate in a more linear (waterfall-style) way.
Usually, these types of people do well in administrative or support positions, but they may not be the best creatives who need to make fast decisions, adapt to change on the fly, and iterate rapidly.
Maryna has coined the term “ambiguity tolerance” to describe a must-have personality trait inside Sugatan.
We’re in a volatile and ambiguous time right now, and some environments are naturally volatile and ambiguous. For example, startups or small businesses in their rapid growth phase.
They are volatile because the future is unpredictable and they operate on a high-risk, high-reward basis.
Our way of proactively bringing people on board who are ambiguity tolerant is via a tool called the Predictive Index.
The Predictive Index is a test that we give to all our potential new hires to complete before they get onboarded and assigned a specific role.
It allows us to see what qualities they possess and how people score from the perspective of how they operate in a more flexible work style versus a structured work style.
By analyzing a person’s preferred work style we can assign them to the most fitting positions and manage our expectations for our unique method of desynchronized collaboration.
Can they handle flexibility and ambiguity, and can they solve problems proactively?
These are some of the questions we need to ask, especially in moving into this uncertain economic period.
We also need to ensure that people who value structure above all else don’t “over-structure” their own work schedules, essentially rendering them unavailable to team members even during working hours.
Your ability to be available to other people stems from two factors:
- Self-leadership (being proactive, asking questions as needed, and executing without much need for assistance)
- Empathy (having an understanding and respect for your colleagues)
Now that we’re entering an ambiguous period (based on external factors such as buying intent, platform changes, and the down economy), we need to design our relationships from the standpoint of a TEAM dynamic… made up of A-players.
And from an infrastructure standpoint, we need it to be transparent, Agile, and dynamic.
The goal is to minimize internal stress factors down to the bare minimum because there are enough external stresses to deal with.
What is an A-player?
Firstly, I must reiterate that this is not a generalization of all people in all realms of business. This is simply how we define our top team members, AKA our Performance Advertising Engineers, and the mindset we value inside Sugatan.
A-players can be defined differently based on their positions, but an overall A-player has the following qualities.
You’re not necessarily born an A-player, and B- or C-players can become A-players granted they are open to change, willing to learn, and have a growth mindset.
C-players are those who have a fixed mindset, aren’t open to learning, don’t communicate transparently, don’t ask questions, and make excuses like “I wasn’t told.”
These types of people can also be described as “users” who use others and their circumstances as excuses for their own mistakes or shortcomings.
They might also misuse their flexible work schedule or autonymous vacation calendar.
A B-player is hard to describe because they’re somewhere in the middle, but usually closer to A-player level than C-player status.
B-players can be great for non-promotable administrative or supportive functions, and it is absolutely acceptable to have some B-players on your team.
However, inside Sugatan we want to give everybody the opportunity to evolve into an A-player if that’s what they desire, and this philosophy has resulted in many of our team members growing into whomever they want to be or whatever role they want to fulfill with us.
I believe all B-players have the potential to become A-players and it will depend solely on their mindset and actions whether they evolve or not.
Even with our team of carefully selected A-players and B-players, we still have hurdles to cross. Communication is one of them, especially being a remote international team.
How we foster good communication in a remote team
Healthy communication in our team is so much more than relaying information to get jobs done.
It’s super important that we respect and understand each other’s cultures and modes of communication too.
Of course, the answer to regular and clear communication isn’t in forcing regular communication onto people, because nobody likes having ten Zoom calls in a day.
Maryna says, “I’ve noticed one of the things that de-energize people the most is not meetings, but meetings that lack purpose. We shouldn’t be deciding perpetually, we should be doing.”
Meetings must have purpose and actionable conclusions. This is why the Agile and Scrum frameworks aid us so aptly in communication.
Pillar 5 – Business Design
Our fifth pillar is all about how you, as a Founder, structure your business levers in the form of COGS, SG&A, EBIT/EBITDA, and marketing spend.
Once again, we need to look at these levers as percentages instead of numerical values.
At Sugatan, we scale with a Total ROAS KPI. Our ROI-positive scaling framework is built to protect our clients’ EBIT margins while scaling simultaneously, with the sole purpose of driving up the value of the business upon exit.
While we’re entering into a bearish economy right now, we have to acknowledge the fact that the investment pool that has gone into eCommerce businesses in the past few years has grown enormously.
We’ve seen more and more funded companies emerge, and they will most likely survive the down economy due to their savings/reserves.
They won’t feel the pain of paying higher acquisition costs nearly as much as the non-funded companies will.
Non-funded companies are increasingly facing the risk of finding themselves in a place where buying intent decreases dramatically.
At the same time, costs keep increasing because funded companies will still be able to afford to push the auction cap up.
The whole purpose of optimizing your COGS, SG&A, and cutting down on EBITDA is so you can afford to operate on a lower Total ROAS KPI than your competitors.
This means if two companies are selling the same product but one is funded and one is non-funded, the funded company will only need, for example, 2x Total ROAS but the non-funded company will need 3x Total ROAS.
It will become increasingly difficult for non-funded companies to outbid funded companies or those who have optimized their COGS, SG&A and EBITDA.
So, the only way for you to be able to operate at a lower Total ROAS KPI than your competition is to trim down on EBITDA.
As a Founder, you need to ask yourself whether you want to have lower profitability but scale faster, or do you need higher profitability but then you’ll scale slower?
In times like these, the smart choice is to trim your EBITDA from its usual 10-20% to 10% at the most so you can save as much as possible for your marketing investments.
We believe that a well-optimized business model should not see EBITDA, COGS, and SG&A adding up to more than 50% of your total revenue.
If you can afford to allocate 50% of your total revenue to marketing, you will have a much higher chance of outbidding your competitors and scaling faster.
You also have to prepare for the fact that marketing costs are more likely to increase over time than decrease, even in a down economy.
So, by allocating enough of your budget to marketing, you’re proactively setting your business up for scaling success.
In the end, it’s all about reducing your risks and maximizing your rewards.
I see the current economic climate as an opportunity to innovate, question traditional business models, challenge the status quo, and really focus on ROI-positive scaling with a fresh outlook.
We’re continuously learning and adapting to our circumstances but with these 5 pillars as our guide, the Sugatan Scaling Machine will continue to scale eCommerce businesses profitably.
Does your business need our help?
If you’re an eCommerce Founder, growth marketer, or start-up entrepreneur and you’d like to pick the brains of our Performance Advertising Engineers to get your business ready for growth (even in this down economy), we are here to help!
We are now offering Consultations, particularly for those who have immediate challenges but are not yet ready to become a scaling partner.
We will help you navigate critical decisions with more confidence by extracting $150MM+ worth of knowledge and experience in scaling multiple beauty, lifestyle, and fashion eCommerce brands from our team.
Our consultations are offered by Sugatan’s most experienced strategists, including me (CEO), our Chief Growth Officer, Chief Operations Officer, and Creative Leaders.
We can guide your team on the following:
- Media buying audit and custom solutions
- Creative strategy and storyboards
- Back-end business design geared for EBIT-positive cash flow
- Operational design, Agile processes and systems
- Any other advisory services you require
Book a consultation with us and let’s build something great together!