New DTC toolkit   //   December 24, 2019

‘Costs just became unsustainable’: The year Facebook fell out of favor with DTC brands

For years, direct-to-consumer brands have relied on Facebook and Instagram advertising to acquire new customers rapidly. This year, they tried to wean themselves off, to varying degrees of success. 

Companies such as Eight Sleep and Bombas have reported spending 60% and 85% of their marketing budget respectively on Facebook. Spending the majority of your marketing budget on a single channel as risky — but for a while, it paid off, as brands were able to acquire new customers for as low as $10 or $15. But as more brands advertised on Facebook, the costs to acquire customers went up, in some cases doubling or tripling.

In 2019, DTC brands were desperate to spend their money elsewhere. Some brands experimented with other digital platforms, like Pinterest and Snapchat, but failed to find the scale they did on Facebook. Others threw more money at traditional marketing channels like direct mail and TV.

Founders and marketing executives say that no one channel has been able to replicate the success they initially found on Facebook. They’ve lessened their dependency on Facebook — but many of them say it’s still the channel through which they acquire the most new customers.

“There is no good alternative [to Facebook],” said Chris Toy, CEO of freelance marketer platform MarketerHire.

Talk of moving away from Facebook advertising picked up this year in particular for a few reasons. Pinterest and Snapchat started to more aggressively court DTC brands after reaching critical milestones respectively, like going public and building out a self-serving advertising platform to make it easier for brands to start advertising.

Ad buyers have become frustrated as they feel like Facebook ads manager has reported more outages this year. As DTC brands raise more venture capital money, they have more money to spend on channels like TV that are more expensive upfront. And, investors increasingly want to see a more diversified customer acquisition strategy once DTC brands get beyond their Series A round.

“I think that later stage investors have gotten much more concerned about unit economics,” said Andrea Hippeau, principal at seed and early-stage venture fund Lerer Hippeau. “It’s about how can you get to profitability, and making sure your [lifetime value to customer acquisition costs] ratio is strong.”

Drastic measures
Zak Normandin, CEO of DTC beverage company Iris Nova, said that its first beverage line Dirty Lemon saw about a 3x increase in cost per action (CPA) on Facebook between 2017 and 2018. At its peak, Dirty Lemon was spending about $20,000 to $30,000 a day on Facebook and Instagram.

“We were acquiring customers acquiring profitably through that process, which was extremely exciting,” Normandin said. “I think it was probably the beginning of 2018 when the marketplace became really cluttered. Those costs just became unsustainable. We were trying out every new tool that Facebook released…even though there is incremental change, the costs of acquiring customers though those channels just continued to go up.”

So at the end of 2018, Normandin decided to stop advertising on Facebook and Instagram altogether. Normandin said the company hasn’t spent any money on Facebook and Instagram advertising since. Instead, Dirty Lemon decided to spend more on efforts that they felt would improve customer retention, like events and perks for its highest spending customers, as well as expanding the brand’s physical reach. Iris Nova now has a standalone store for Dirty Lemon and its other beverages called the Drug Store, and also sells its products in Equinox.

“I think the best way to acquire and obtain customers long term is to actually acquire them outside of the digital space,” Normandin said.

New tactics
Iris Nova is an exception. It’s hard for brands that are just starting out, and don’t yet have a war chest of VC funding, to completely swear off Facebook and Instagram, where they can spend less than $10,000 a month to reach tens of millions of users.

Facebook has also taken more steps to encourage in-app commerce, particularly with the launch of Instagram checkout. The hope is that if more people turn to Facebook and Instagram to buy and search for products, DTC brands will remain convinced that it’s the place where they need to spend most of their advertising dollars.

But perhaps the biggest selling point is that Facebook and Instagram still allow DTC brands to reach tens of millions of more potential new customers than even Pinterest or Snapchat. So instead of completely shutting off Facebook and Instagram advertising, other companies are experimenting with new types of ads on these platforms that they think will convert more loyal customers.

Martha Kuzzy, director of performance marketing for Andie Swim, said that in September the company started running ads that drove users to take its fit quiz within Facebook Messenger. Then, once users completed the quiz and received a size, Andie encourages them to visit the website and buy.

Kuzzy said these types of ads have been successful in driving a more engaged user to Andie’s website, as well as a higher conversion rate, but declined to give specifics. Andie Swim also ran its first out-of-home advertising campaign this year, but Kuzzy said that for now Andie only plans to run these more expensive brand marketing campaigns during swim season.

“We are trying to be as efficient as possible, and [those campaigns] are more difficult to tie back to direct performance metrics,” Kuzzy said. She added that Facebook still takes up “a large percentage” of the company’s media budget.

Andie’s not alone. Eight Sleep and Bombas, while they’ve reduced their dependency on Facebook, still report spending about a third of their marketing budget on it. Toy said that rather than experimenting with a bunch of different marketing channels with the hopes of finding a single one that can replace Facebook, a DTC brand’s resources can be better spent elsewhere.

“The one way you can make Facebook look better —  and really the main way you can make any channel work better — is to work on the consistent variable, which is your own product,” he said.