Mastering Performance Advertising with Hal Smith, Founder of H Street Digital

And he is on a mission to accelerate brand growth through profits, focused strategy, forging lasting brands. How welcome to the pod.

I grew up you have way more ad spend under management than in my experience in career. But the focus on profitability first. On performance marketing is probably not only is it, that's where you learn the hardest because it's, cutthroat, but I think once you find out what works, you can almost accelerate. I'm not going to say this for any business, but you can pretty much accelerate a five way and find ways to grow nearly any business.

ability to actually execute on more profitable campaigns. However I think it's, there's a couple of ways you can look at this. One is the kind of marketing funnel and how advertising relates to it. The typical funnel is you have awareness type campaigns, you have consideration campaigns, then you have the sales focused campaigns. So we're purely focused on lower funnel sales. that's strategy that goes into more upper, funnel self, like awareness is you just go to the client.

You're like, Hey, we're big brand messages. You want your prospective customers to understand about your brand, right? You put that into really good looking, creative. And then you're

really the game you're playing on digital advertising is, just where do we place these ads? Can we make sure we spend the budget? And then the metrics you're tracking are basically like impressions video completion rates, like very simple stuff like that But in terms of actually justifying that spend and the actual impact on the company and their revenue is it's pretty hard, right?

You can run You know, brand consideration studies and things like that to give you additional data, but it you're just getting the ads and just running them on the ad platforms and then you let it sit and then you make sure it spends his budget and you collect some very, directional data in terms of its impact that, that what we do is just extremely tough because You're really tracking on a per ad basis, per campaign, per audience, whatever it might be, like what is actually driving in terms of

real revenue. And then you actually have to dig and really understand the profitability of those product sales for the brand. And so there are two things going on there, but what you're trying to do is maximize profit per unit sold and then making sure that whatever that target customer acquisition costs is allowing you to do that. And then when you go run these ad campaigns, you're making sure like Literally for every single dollar we spend, how much revenue is it generating?

Is that revenue profitable? So it's, a lot more work on the kind of business analysis side the reporting analytics side, and then the testing and optimization side, because you have to do a lot of testing very frequently. And it's you have to be very aggressive about it. You can't let the campaign just run.

I think one of the key things that you mentioned here are analytics and tracking, which I think we should double click on just briefly, because this is a whole rabbit hole in itself. The second is that you mentioned top of funnel awareness and brand campaigns. I've actually had debates around other Brand marketers or agencies around display ads and all these things like, yeah, they might work, but if the brand is powerful enough, those are actually nominal in terms of its performance.

And you should be focusing primarily on middle of funnel, bottom of funnel approach. What's your take on that? I know it's really hard to say, Hey, this video view completion rate. And we've had a hundred thousand X impressions, uh, from there we build more brand affinity. That's something that I can't really. Currently get my fingers around. I can get more around middle of funnel than bottom funnel conversions and leads and opt ins and sales on the backend.

But what's your approach and philosophy around like the spread of the ecosystem?

So a lot of brand advertising, the intention should be to build up brand equity. It's to have more and more of your prospective customers really just recognize the brand, right? And understand a little bit about what you're all about. So I do think for like a go to market business, you do have to do a certain amount of brand building.

And I think a good example of that recently was, athletic greens, because, and I didn't know this too, but I think athletic greens is a brand that's been around for 15 or 20 years, maybe longer. And they did a rebrand and they launched with that rebrand and they did a ton of brand advertising and everyone knows athletic greens now, especially in their target customer, like demographics. So I think they did a really good job of building up brand equity through brand advertising.

So when they're ready to make that purchase, you're top of mind for them. So with that, you do have to have kind of this evergreen consistent advertising that goes On. and that's just, so you're top of mind, right? And so there's certain companies where it's really important to do that.

That's why I think like automaker basically car ads is really important too, because people don't shop new cars that frequently, but when they're ready to buy, you want to make sure that you're top of mind as well. And so there's that kind of piece to It. I would say I've ran some pretty big brand awareness campaigns and, campaigns where we ran. Different types of brand studies on it. So it's like brand capability, brand consideration.

And frankly, like it's just a massive money, a massive amount of money you spend. And then the data you get back on these brand study tests is really not that actionable.

The C suite or leadership who was running that campaign, wants to get promoted. I can, these

are just hypothesis, but I've just seen different examples and different avenues. But I really do appreciate and hone in on the performance side. Which platforms are you most comfortable with? Is it all of them or which ones are you primarily advertising on?

It just allows you to scale the DR side the best.

So the one we use most with most of our clients is called Elevar. But there are other ones called like Stape is another One. then Popsicle is another one we've used before. And then we have most of our clients have some type of third party attribution tool. So that's a triple whale or North beam. And then we also do our internal reporting. That's more of like an MBR perspective. So basically what we're doing there is just total spend by each channel, total revenue in Shopify.

So we look at it in a couple of different cuts and the reason for this is the reason for last click UTM tracking the Shopify is because that's. Actual data we can justify, we can say, Hey, this is our ad campaigns. We know for sure drove this amount of revenue. The biggest problem with last click UTM tracking is it actually doesn't reflect what's, happening in the account.

For example, someone sees a Facebook ad, they, hear about the product, they want to make a purchase, but they don't click on that ad and make the purchase, right? They might go to and Google it a couple of days later and go make that purchase. So what we're seeing in Shopify is. There's no data associated with, Meta. There's no UTMs for Meta, but there's UTMs for Google Ads. And so it would be, it would be inaccurate to assume that Google actually drove that purchase, right?

So that's why we had to bring in a third party attribution tool like TripleWhale, where it can tie together that attribution and show the, Meta and Google work together in driving that purchase. then on the MER side too, we can take that broader view and just basically look at total ad spend and total revenue and actually see if we're, have a good ratio there.

so we have to look at a couple of different cuts and I think the server to server tracking has helped us on the attribution side as well, because it doesn't necessarily improve our reporting, from an MER perspective or a UTM perspective, but it does basically. Aggregate better or data better for these pixels. And then also sends these events back faster to these pixels.

So we're able to give more data to these pixels faster and allow them to train better and then get out of their learning phases faster. So it's a couple of different things that we do, but we found this mix is the most effective.

So that's your return on revenue, any invested amount because working with CFOs and people at the, like at a higher level, just like forced to see like what's actually coming in and coming out, just looking at the ecosystem as a whole and seeing how can we continue to grow profitably that way again, working with bootstrap companies. That's the only thing I know. One of the things that you mentioned, and I think this is something to not gloss over is the offer.

Because obviously you can, the offer really accelerates if it's going to tank or scale. What do you look for in either a niche

or the offer itself or in terms of profitability for you to really be able to do, the work that you need to do to scale up a company?

And the key thing to look at or to understand here is contribution margin. And the most simple way of explaining that is like all costs going into actually getting that product to your customer. So that's like manufacturing costs, that's shipping, that's all this stuff that goes into logistics. That's a team that has to fulfill that, whatever it might be. Okay. And then how much margin you're making off of that and that's your contribution margin.

For us, we find that to be really important because within that contribution margin, we have to basically identify or target customer acquisition costs and how much we're willing to pay right for a new customer through digital ads. What we like is a ratio where it's basically like one to three. So your CAC is, let's say. 10 in your revenue is 30. Typically there's some margin that's good. And that margin is typically around like that pure net profit.

After you pay us, after you pay that contractor, the the CAC you're getting like a 20 to 30 percent net profit off of that. That's good for us. Now that's one thing typically because of how meta and Google ads works, just based on CPMs, estimated click through rates estimated landing page conversion rates. we have found that it's really good to have a CAC of, let's say around 30 bucks an AOV or revenue of around 120 bucks per product.

The other thing we look for is the addressable market size, because if your addressable market is relatively limited, you can't actually scale that much at all, because the other ideas within any addressable market you have about, Two to 3 percent of people who are ready to buy today. So you market size assume only two or 3 percent of those people are going to buy today on an ads campaign.

And it's typically going to be much less than that, but that's how much you can expect to be new customers every day. And so if it's too limited, we just know we can't scale spend to a certain point. And so it's just gonna be really difficult to scale into that your scale sales through digital ads. Now on the offer side a couple of things that are really important. So one is You have to have some type of urgency on the offer.

So it has to be either time sensitive or limited time only, or it has to be based on some kind of marketing event. So like right now it's like back to school. So you can like add in something and it's this is a limited time only back to school sale in September. And so you kind of stacking in this urgency, because what we see a lot of times with potential customers and how we do prospecting campaigns is it might actually be a good product for them.

They might actually be very interesting, interested, but they have to have something to push them over the ledge and actually get them to make that purchase now versus sitting around waiting for it. other things that we found are helpful for an offer is typically what we call like a hero product. Or a gateway product. And so really thinking about the one product that you can advertise for, that will at least get people in the door.

And then you basically re engage them later on with upsells or cross sells to increase that cart value or AOV or lifetime value, if it's like additional promotions. But it's you have to think about what's some product that is really understandable to the customer, that there's a big need for it, that solves a real pain and then really use that for your focus on that first in terms of digital advertising, especially when you're prospecting for new customers.

another key thing with the offer is, being clear about, and I spoke to this earlier, but the pain you're solving is Or whatever type of aspirational goal you're trying to like sell. Sunglasses, they don't really solve a pain, right? That's like a commodity. It's a utility it's like basic sense. However, it makes you look cool. So it's like, What elements do we really want to advertise around that? That would be really good.

That really do speak to these aspirations of the customer and kind of formatting the offer around that. And so within that too, they're just different ways of thinking about the offer. And how you present it. So one is like how quickly they can get from their current state to the ideal state, right? Whether it's solving the pain or meeting that aspiration, you want to in the offer state, like the short amount of time it takes them to actually get there.

Another thing is, the amount of effort it takes. So if they buy your product, it's less effort. Another thing I would say, which is pretty Important. is you really want to try to as much like perceived value that the customer would have and stack that into the offer too. So it's like really making it seem like it's a steal, like there was a ton of value in making that purchase. So I think, yeah, those are the key points in the offer. And then there are like tactical things too.

Clients always ask us, it's what percent off should we do, or should we have a buy one, get one free? Those things do work and they're good, but it really depends with that on the the margins of your products and really trying to figure out the profitability of that. So I I am like cautious to recommend any specific tactic because it really depends on your actual products you're selling and how profitable they are. You can't just be like, Oh, 20 percent off. It works every time

This, kind of the same kind of conditioning people only to buy on sales. How do you balance that out?

And so like back to school, black Friday, cyber Monday, Memorial day, 4th of July, that's already there. And so it is good to always have some type of offer or sale around that, because that's when customers are more primed to do shopping. And so it's always good to have that. However, in terms of a, I would say a more like evergreen promotion strategy or sales strategy. The other stuff there is just like first time customer. Like you can have certain sales and deals for That.

would say too, it's not necessary to always have some type of sale or promotion. Like we have clients that don't have any. pretty much consistent throughout the year. They only do stuff around black Friday, Saturday, Monday, and like their products still sell pretty well. So it's just like the power of how you're framing that product in the first place too.

with, you're going to have a really tight with really good mindset and approach because performance base isn't for everyone. How did you build the culture or what did you build the culture around for your team to be able to withstand that level of I'm not sure, stress and approach to client results and Performance.

I think with seven people, it's a small enough team where you're just all working together and y'all have this kind of shared values anyway, but as soon as you start hiring people after that, then you need to have this kind of shared vision and shared values that you're passing down and people are following as well. The other thing I, realized is, values and culture is just a, Decision making framework. And this sounds bad, but it's like, everyone thinks about culture.

It's Oh, we have like happy hours and we go out to top golf every week or whatever it might be, but that's not culture like culture. It's effectively I have this very clear, perspective on how I should operate as a professional service provider, and start an agency. And so I need to make sure everyone else at the agency has the same perspective. And so the best way that perspective is defined is your decision making.

So if some client comes to me and they're they, they gave me a certain amount of budget. And they're like, how do you want to spend it? Now, like we have a value at H3 called radical transparency. And so it's my personal value. If a client gives me a budget and they ask me how to do it, I will go and try to figure out the best possible way to spend that budget.

And if they maybe give me a recommendation that I think is actually pretty bad for them, like I will tell them that because I'll be radically transparent. So you need to make sure that if you have an employee that has that same decision, They will follow the same decision making process that you will.

And I think that's what your culture really is making sure that you really define those things and what's important for how people, should act, and then you like really instill that in kind of decision making process. And so I think the key thing I figured out was. I need to have a clear mission in terms of what we're doing. I need to clearly define our values and really distribute it throughout the company and make sure people truly understand it.

And it's not just like it's posted in a couple of different Slack channels, right? It's people can repeat those values Constantly. in the same thing too, in the vision, it's mission is like what we do specifically. Vision is like where we're going, like where we see ourselves in the future and what impact we want to make from a broader perspective and the values is like how we operate every day. And so that was really important. And then I think. The kind of lessons around it.

One is hiring based off of it is really important, especially your values. And this, I read this one book called who by a guy, I think his name's Jeff smart. That was really impactful for me in figuring out a good hiring process. And, with that comes to the tool, it's called the top grading interview process. And so we make sure all of our candidates go through that. And that's a really good way of really sussing out if somebody actually matches their values.

And really try to, it does a good job, more deeply understanding how that person's operated throughout their entire professional career, so you can pick up on trends and how that, how they operate. and what else? I think. In terms of how we've implemented this to, we the other process we use is we use the EOS framework, so that's employee operating system that is also very focused on how you implement mission, vision, values, and culture within the company.

So there are a lot of good tools within that, that we basically applied to the business. And then I also read this book called, oh, shoot, I'm going to, I'm blanking on it right now. I'll have to, I'll have to go back to it, but it was a really good book on culture that really just opened my eyes to the different types of cultures your, company can have. And just quick explanation on that. They're four tiers of culture. So one tier is it's a lowest tier. It's my, it's a life sucks.

Second tier is my life sucks. is I'm great and you're not. Fourth tier is we're great. And then fifth one is life is wonderful. So there are five tiers. And so what was interesting about that is I realized I worked at a couple of different agencies prior to starting my own, I could recognize. The, this kind of tiers of culture that those agencies have. And it's really, is it it's any type of company, it's different types of sports teams.

And I think, Chicago Bulls under Phil Jackson, that's the fifth year where it's like, life is wonderful, like everything was flowing after a point. Whereas I think he came into the organization and he's trying to manage like all the different players. That was like a tier three where it's I'm great. You're not like

And in terms of building out the team.

It's been very difficult and we grew, I think relatively fast. We went from. it's a two and a half years old,

Yeah. I did want to ask seem like you're very driven and have high standards and expect a lot of the people that work with you. And I think I, I do the same. There's something that you mentioned about someone that you worked with in the past that helped you see and change your perspective around high standards and hard work. And as you answer what does that view look like? But how do you apply that

with the team now and making sure that you can be set high expectations, but also not make them feel like you're breathing down their neck. Because I think there's a fine line between that personality style and leadership.

And then they were really bad at managing people. And then I therefore thought they weren't good, but it turns out they were actually just good at doing the one thing. So really understanding that kind of dynamic. I think another thing is good expectations and at the front end. So what we have now with our team is we have a job scorecard and we have smart goals.

Job scorecard is basically we work on with the individual to identify what are the three key things that they do for their job and then how to measure it. And then on a weekly basis, we go back on our one on ones and we basically go check on these, this data here in terms of how they're doing against these key three items that they do for their job. goals is basically it's really three to five goals they have for the next 90 days.

and then it's these kind of like more task based goals where they're trying to make either, they're trying to contribute to the company or make their job like easier or better, or basically improve themselves. And so what I found is set the expectation with the job scorecard and the SMART goals, and then trust that they can get it done and just work with them to identify these and then check in with them.

But I think if you give them too much direction, if you give them like very detailed to do lists to do every day, if you're constantly checking in with them and chasing people, one is it creates that micromanagement atmosphere. But then two, it creates a problem where that person then is dependent on you to tell them what to do.

So it's a shared insight on what they actually should be doing. I think another thing is there's a lot we do in terms of how we communicate and how we prioritize projects. This is also taken from EOS, but we have something called like an L10 meeting that we use with their leadership team. The L10 is also then used for individual teams. So we have a L10 for creative, we have an L10 for media buying.

within the L10 structure, I'm constantly driving home the importance of just prior prioritizing the right things. Just making sure that there's a good culture within the agency around really identifying the highest impact things that can be working on.

And prioritizing those things and letting other things frankly drop if they're just not as big of impact that kind of like constant, I'd say, reiteration of that process for working throughout the agency has allowed for people to more, independently just understanding how to prioritize. And so I don't have to go back and back. This is a big agenda for the week. Instead, the teams and their kind of isolated breakout L10s are understanding what they need to prioritize.

And and it's still, I would say a work in progress, but the idea is it bubbles up from below. So whatever the leadership team is executing on is, has been bubbled up from like respective team L10s and things like That. so I think that's where, but look, I'll be honest with you. I'd still really struggle with my expectations versus how the team executes.

May not always happen, but I think it's part of the process and just ensuring that they're performing above standard from what the client can see, because there's a level of the client just can't see the difference in performance of what you would do versus what the team would do as long as it's above that performance level. And you're always tracking to get Up. you should be in a steady pace.

There's always stuff that can be improved.