TikTok Isn’t Profitable…And That’s the Point | EP. 227

TikTok isn’t profitable for most brands…and that’s not a problem.

In this 227th episode of the E-Comm Show, Andrew Maff breaks down what’s really happening on TikTok in e-commerce today. After speaking with hundreds of brands, the pattern is clear: very few are making money on the platform, but many are still scaling it aggressively.

Why? Because TikTok isn’t a profit channel, it’s a customer acquisition engine.

In this episode, you’ll learn how to think about CAC vs. LTV, why breaking even can be a winning strategy, and how TikTok fits into a smarter omnichannel approach alongside Amazon and DTC. If you’re trying to decide whether TikTok is worth the investment, or why your numbers don’t make sense, this episode will help you rethink how to measure success.

What You’ll Learn:

• Why profitability on TikTok is rare (and often the wrong goal)
• How TikTok actually drives customer acquisition
• The role of CAC vs. LTV in evaluating performance
• Why breaking even can unlock long-term growth

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Transcript

Andrew Maff: 0:00

Here's what I'm going to tell you. I did not speak to a single brand that is profitable on Tiktok.

Narrator: 0:10

Welcome to the Ecomm Show podcast. I am your host. Andrew Maff, owner and founder of BlueTusker, from groundbreaking industry updates to success stories and strategies, get to know the ins and outs of the E-Commerce Industry from top leaders in the space. Let's get into it!

Andrew Maff: 0:25

Hello and welcome to another episode of the E comm show as usual. I'm your host, Andrew Maff, and today I'm going to talk to you about something very interesting. I'm going to talk to you about the reality of Tiktok in E commerce. So there's a reason I wanted to do this one, because I had a theory for a while, but could really only base it off of what I've, what we've done internally, and then obviously what I've, what I've heard and read. But then, then I got some more information. So as a recording of this, I'm fresh off of a ridiculous run of conferences, if you're familiar with them. I was at I left my house Wednesday to go to Brooklyn, New York for asgtg on a Thursday, got home on Friday, flew out on Sunday, to go to Las Vegas to be there for MDS' inspire event on Monday, followed by Prosper, which was Tuesday, Wednesday and Thursday, and then flew home from Vegas on Friday, and basically more or less just slept for the entire remaining weekend. It was exhausting, but it was it was a good time. I got, I got to speak at asgtg, a little bit at Inspire, and then at prosper. And between those three conferences, I think I know we spoke to over I think it was like five or 600 different people, I would say, good couple 100, at least two, 300 brands, and then obviously, a ton of other partners in the space, and during even inspire. So inspire was where this, this light bulb kind of, kind of hit me. We they had, like, this networking thing where you'd go, like, Table to Table, and you'd talk to everyone about stuff. And I ended up using it as an opportunity to basically just ask almost a very similar question in the short amount of time we had, because I was I was curious if I was understanding what I was understanding about Tiktok. And then it just became everyone I talked to I got curious about. So I'm going to flash forward to, obviously, the point to this, here's what I'm going to tell you. I did not speak to a single brand that is profitable on Tiktok. I also asked them if they knew anyone that was profitable on Tiktok, and they also did not know anyone that was profitable on Tiktok, and I'm going to throw you for a loop at I'm not going to say which event, because then it'll be a little bit more obvious. But at one of the events, an agency that is solely focused on Tiktok came up to us and was talking to us for a little while, and I asked them point blank, are any of your brands profitable on Tiktok? And they they responded with, define profitable, which, if I have to define profitability like I don't need, I don't need your answer. So, yeah, very interesting. However, that does not mean Tiktok is not a great channel. I still think Tiktok is an amazing channel. And I want to, I want to confirm and reiterate some of this. So here's the thing, Tiktok has a very similar, if not an even worse problem that Amazon has, which is there is a lot it's easy to get on the platform and sell a product and put it in an influencers or affiliates hands and let them pump it out. And so what that causes is a lot of shitty products, and even even if they're not shitty, a lot of stuff from overseas that is extremely inexpensive, right? So crazy, low cogs that you basically can't compete with. So what ends up happening is relatively different, same, same end problem of Amazon, but Amazon right? Their fees keep going up. CPCs keep going up. You've got competition coming in that keeps their product price point down so your margins just get crushed. You can't really increase your product price. I mean, you can, but it's going to bite you in the ass, and you're not going to see as much volume. So you kind of play this like pricing velocity game. On Tiktok, it's a relatively similar you can make your price whatever the hell you want, but the issue becomes the competition on there of other products as well, right? So Tiktok, while you know there's a lot of disagreement around age group, no one's going to tell you that there's no one over 25 on that app. Like that's not true. It's just it's not as frequently used from people of like millennials and older audiences, especially like the boomers, barely use it, and the audience is still not as big as the actual audience, right? Like most boomers and stuff, they're on Facebook, then you kind of get millennials that still heavily cater to Instagram, but also use Tiktok here and there, and then you have the new generation. That's just basically all on Tiktok, right? So when you break it down on a percentage basis and also base it on like time spent, it is still a younger audience. So because of that, you know, it's not the most affluent audience. So I've always found that products under like 30, $40 tends to do okay, but this is where it became very interesting. So I met with a ton of brands. Obviously, we work with a bunch of brands, and it's a very similar thing, and that's kind of what we're aiming for, of just like a break even on Tiktok. And I wanted to make sure that, because I'd had some conversations with a few of the brands that we work with, as well as a bunch of prospects that have just different ideas around how everyone thinks that there's just great profitability on Amazon, on Tiktok. So I even spoke to especially at MDs, because it's a much the Inspire event. It's a much higher caliber group. Everyone there is doing, you know, at least several million dollars a year at a minimum. Most are doing way more than that. And I met, I want to say, 10-12, ish brands that were doing well into six figures a month on Tiktok, like, not, not small numbers, not profitable, and they were okay with that, right? So here's, here's the reality, and here's what happens, right? So let's, let's take your average lower price point product. So we're going to, we're going to say it's, let's, I'm always bad at doing math on the fly, but we're gonna do $50 so it's already a little bit of a higher price, more. We're going to say it's 50 bucks. You have to to get a good influencer to act as an affiliate for you on Tiktok, to push that product, you pretty much have to give them a good percentage, otherwise, they're just going to go to other products that they can get a better percentage for, right? So usually you're going to have to be 20% or higher. The average is like 15% but you want someone good, you're going to have to get in that 20, 25% plus range. So let's call it 20% so we're already giving up $10 of our $50 products. So we're going to say cogs at 30% man, this is where my math always goes, horrible. What is that? We'll call it a little over $15 right? So now we're 25 plus dollars out. So 50% of our products are already gone, more or less, at least, then you got to factor in fulfillment, right? So a lot of if you're Amazon only, a lot of people think, Oh, the next best thing to do is just go to Tiktok, because they have a store and Amazon will fulfill it. So you're using MCF. So then the problem there is, MCF is not cheap. If your product's under like $30 I think then it's like almost not feasible. So now you're cutting into that. I cannot remember what their costs are. So obviously you're way more than 50% you know, you're probably in like the 60, 70% of your cause of your costs. And so then you got to factor in, once you find things that are actually doing well, you're going to have to run some ads. So then you're factoring your advertising spend. And then if you want to do it at scale and do Tiktok correctly, right, you are to do Tiktok correctly. It's not it's not hard, it's just a lot, right? So you have to be posting at on your own profile, at a minimum, a daily basis, like some do two, three times a day. And so that's a that's a shit ton of content. That's a ridiculous amount of content, right? Because we were used to like Instagram where, like, you know, if you did once a day, you were pretty much like you were good. So a ton of content. So then you got to factor in all of the content creators you got to work with, right? So different UGC creators, just you have your own content to post. Then you got to think about, obviously, your influencers, and you're sending them product. So you got to get them product. Then you got to think about about you're going to need to run ads. So you'll be running some ads because you probably want to stay on top, you at least want to retarget people. So now you and then, obviously, unless you have the large bandwidth to do that internally, which tends to be, you need someone who's good with influencers and UGC creators, because it's pretty much relationship building. You need someone who understands the algorithm. So that's usually a different social media social media person than you use social ads person to run the advertising side. Usually those are different people. For us, those are different people. They all have very different skill sets, and we try to specialize in certain things.

Narrator: 10:33

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Andrew Maff: 11:06

Your overhead of people, or if you're paying an agency now, you're factoring in a management fee. So think of all those fees, right? Agency management fee, or internal team management fee, or contractors, whichever route you go add advertising, paying UGC creators so that you have your own, your own content. If some if you go the influencer route, where they're not really affiliates, you're paying them too, but I didn't even factor out that in but then you've got to factor in fulfillment fees, cogs, good chunk of paying affiliates. And on top of it, affiliates usually find that they tend to do better when you have it on a discount. So a lot of affiliates will get a 15-20 25% cut, and they want you to put it on Tiktok shop for like 15-20 25% off. So you're basically, you have to do an obscene amount of volume to break even, and if you're doing low numbers, it doesn't make any sense. And it's really difficult. It's not impossible, but it's pretty difficult. Like, dip your toe in Tiktok, because you can't, like people, do their due diligence. 2020 is when I know big for the world in terms of pandemic, but I think it was massive for E-commerce. Obviously, e-commerce took off. And, you know, everyone did great and blah, blah. But there was one thing that a lot of people don't talk about. 2020 brought out a lot of scammers. It was a lot of crap. There was people pushing, you know, antibacterial stuff, masks. They were pushing all this stuff. Things would like, they some people got really good. They'd publish, like, great websites, and then you'd find out it was a scam. Like, people were getting screwed left and right. And so the average consumer, in my eyes, jumped forward in terms of online shopping by like, I don't know, 5-10, years, like, they started doing their own due diligence. So if they came across an ad for something, they would go to if, especially with social media, they would go to the profile to see, like, Who is this? Are they posting? Are they? Are people liking them? Do they have enough followers where it shows that they've been around? Then they're going to Google you, then they might go to Amazon, so or they'll try to find your website, or both, right? So they're they got used to doing their own due diligence, and so that's how they shop now, which is why we tend to lean in more heavily in these omni channel strategies. So with Tiktok, it's no different. So if you're doing all of this influencer stuff. You're doing affiliate, pushing them in Tiktok shop, whatever, they're still going to check out your Tiktok profile. So you can't not do your Tiktok profile. You don't have to do multiple posts a day. You also don't necessarily have to do them every day. And again, I'm talking about if you want to half ass this thing and just dip your toe in and you could send it out to a handful of affiliates and just kind of see what happens. But it's definitely not justifiable to pay an agency or anyone internally to do that at the rate that you needed to do and need to do it for you to just kind of test that market. So nine times out of 10, when someone comes to us, I usually tell them, if you haven't tried Tiktok yet, it's usually not best for an agency to get involved, because the value that they can bring it at a low scale when a brand just wants to, like, try it out and not, like, really commit to it, most of the time, it doesn't work. So that's, that's where that becomes kind of interesting, right? And that's, that's that's also why, like, I'm going to toot our own horn for a little for a quick second here, because my podcast, so I'm gonna! One of the things that I love about us being full service is we are not biased to any individual marketing strategy. So if you ask a Tiktok agency what they think about Tiktok do you think they can be successful in the cost and is it justifiable, and blah blah, you bet your ass. They're going to say, yes, it is. You ask an Amazon ads agency if you should be running Amazon ads when you have a wildly differentiated product that no one knows exists, and really all they're doing is benefiting off your brand search. Are they going to tell you to run Amazon ads? Of course. So we get to look at it in a little bit of a non biased perspective, and go, like, look, we don't have to work with you in this route or in this route. We've got 500 other things we could look at. So with Tiktok, that's one of my favorite things to talk about. Is like, you're, of course, a Tiktok agency is going to tell you that. I think a Tiktok only agency is sometimes absolutely ridiculous because they're not factoring in other things. But again, I So that's where it'd be. It becomes kind of interesting. But here's, uh, here's something I want to make sure I clarify. I don't think Tiktok is bad channel. I think it's a great digress. channel. I think that a lot of brands should absolutely do it. So I think that here's the biggest problem, and because most of a lot of people that I end up having conversations with are in the Amazon space, right? They're either solely a brand on Amazon or they have, like, a little bit of a DTC presence. And the biggest mistake that I see Amazon sellers make is they have this tendency to look at either an ACOs or a tacos, right? That's all Amazon sellers care about. And what it is is, how much did I spend and how much did I get? In the D to C world that depending on your product, that is usually not what you want to look at. What you actually want to look at is your customer acquisition cost and your LTV. So you want your your CAC to LTV ratio to be pretty damn nice, right? Because in Amazon, the problem is you don't own the customer, so you have to pay for that, pay for that damn customer every single time, right? So they buy something from you on Amazon, and you want them to come back, and they didn't subscribe, they're going to have to search for you again. And your competition that, even if they know your brand, they your competition is going to be bidding on your brand name. So you got to pay to make sure they click on your brand. And so you got to pay for them again. So you are always factoring in cost per click in terms of your actual single purchase, even if you have a consumable. That's the reality. D to C that's not the case, right? You have you own the customer, so you can stay in front of them through social media and just kind of keep brand awareness so they don't forget who you are, or obviously the main thing is your retention marketing, so ideally, your email SMS is in a good spot, so that you don't have to pay for that customer again. So when you start looking at CAC versus LTV, you actually evaluate how much did I the real number you want to know is, how much is it costing me to acquire a new customer, and then how much does that cost that customer spend with me over the course of the lifetime of them shopping with me? And you have to define lifetime. Typically, I look at a year, because that's just how I run our business is like after if I'm I don't do a ton investment into stuff that I won't see the benefit from for over a year, a little bit, but not a lot, just because that's how I operate. So you'd have to evaluate what your LTV is, but let's say, let's say, say you're a supplement company, right? So you're a supplement company, and you know, if I acquire a new customer, they're going to come back and they're going to stay on this supplement on average for six months, right? So if you can get them on a subscription, obviously that's fantastic, and plus, your margins are better D to C or or if you can have them continuously repurchase, because you're staying on top of them. From an email perspective, who cares if you lose money on that first purchase? It's completely irrelevant, because you're getting five more after that. If they order every month, you're getting five more after that that you paid nothing for. So you're looking at, okay, I spent, you know, $5 to sell this$20 bottle of supplements. Who cares? Because the reality is, you're actually going to get, what, $120 for that $5 purchase. It's just going to be amortized over six months. So that's the big difference that most brands don't look at when they come directly from Amazon, because they're Amazon, because they're not used to owning customer data, and that's fine, but that's what you have to do from a DTC perspective if you want to scale at a fast enough rate to actually start to see the fruits of your labor, of everything that you're doing. So where Tiktok comes in. And the thing that I love about this channel is I really like to look at Amazon as a customer acquisition channel. What can I do to acquire a customer who didn't know that I existed? Because it's basically a large search engine, so they search for my product that they didn't commit to a brand on. They found my brand, they purchased the product. What can I do to get them back to my website? And what I'm doing is that's a very middle of funnel platform. They knew what they were looking for, and so they look they were searching for it. It's just right place, right time, and as long as everything's aligned with my marketing on Amazon, I will acquire that customer. Then I have to do what I can to get them to come back to my website. Tiktok is different. It's a lot more top of funnel, but it's still a fantastic customer acquisition channel, because you can educate a lot better. The biggest problem with Amazon, the thing that drives me crazy is if you have a wildly differentiated product, or if you have elements of your product that are clearly differentiated from your competition, right? So if it's something that people already know exists. There's search volume for it, so they're going to search for it, and they're going to come across it. But the problem is, you do not get that sale until you pay for that click. So they click, then they come to your listing, and as long as your listing is completely optimized and they're educated, then maybe they'll convert. Tiktok you're paying nothing comparatively, right? So you don't actually pay until they well, you do a little bit, so you pay for, like, a view through ish, but they don't actually, you don't actually pay until they click, for the most part, right? The cost for view, like, even on Facebook, like you can when you do Meta ads. I mean, you could get view through costs down to like, like less than a penny. So who cares? Tiktok is very similar. So you can educate them for wildly inexpensive before they click, and then So once they've clicked, they're now educated. The problem is, is that it's it's not profitable. So you can actually get in front of people that may not know your product exists, or you can get in front of in front of people that you need to further explain why you're better than your competition. So tick tocks, an amazing top of funnel customer acquisition channel. Amazon's an amazing middle of funnel customer acquisition channel. But if you want to, I don't suggest breaking even on Amazon, because it's it's a bit of more of a slog. But on Tiktok, if you can break even, the best part about Tiktok, hands down, is you get to keep the data. Amazon doesn't let you do that. So with Tiktok, if you can break even to acquire a new customer, and you have a product that either you can cross sell, upsell or get them to repeat purchase, then all of a sudden, your customer acquisition cost is effectively flat, so you give up the first product and you know that they're going to come back and purchase three, four or five more times. Who cares if you break even on Tiktok? I would do that at a ridiculous volume too. So for the brands that I spoke to that were doing six figures a month and just absolutely crushing it on Tiktok and breaking even. Most people looked at them like they were crazy. I looked at them like they're fucking geniuses, because I immediately went like, that's that's so smart for a product that you can get repeat purchases on because you can get ahead of getting really good affiliates. You can offer every like the best one, some good cash, and they can make some decent money off of it. They can do a ton of volume, and you can acquire new customers who you needed to educate in that type of way. When they go to Amazon, they've already been educated on the product line in one way or way, one way or another. But if you're like, kind of different from your competition, they're not going to know until they click on the listing. If you're a completely different product where it's like a new category, you're you're screwed because there's no search volume for that type of stuff, so you have to educate more top of funnel, and that's where Tiktok. Thank you. That was my rant, and I, as you can tell, I always get super heated on some of these things. But yeah, look, I'm not here. Here's the other thing. I'm going to get comments, I'm going to get emails. I'm going to get people messaging me on LinkedIn. It's going to be so many. They're like, I'm profitable on Tiktok. But I'm not saying it's physically impossible. I'm sure there's someone out there that's doing it. But what I will say business owners, especially e-commerce owners, have a the shiny object syndrome, right where you you want to do the next thing, because you heard so and so is doing really well. Well, they're going to tell you about their revenue, because it's a very fancy vanity metric. But the reality is, what are they actually profiting from that? And sometimes you have to dig into that, because they may tell you what they're profiting, factoring in their CAC versus LTV ratio, not on that first purchase. That's where those things get kind of interesting. But the reality is, most brands, not all, but most brands, are using Tiktok as a customer acquisition channel, but they are breaking even, and they are not profitable on that channel, and that's okay. Thank you for coming to my weekly rant. As usual. I appreciate you all joining me. Please do the whole normal thing, rate review, subscribe all that fun stuff on whichever podcast platform you prefer, or head over to the Ecommshow.com to check out all of our previous episodes. But as usual, thank you all for joining me, and I'll see you all next time. Have a good one!

Narrator: 24:33

Thank you for tuning in to the E comm show. Head over to Ecommshow.com to subscribe on your favorite podcast platform or on the BlueTuskr YouTube channel. The E comm show is brought to you by BlueTuskr, a full service digital marketing company specifically for E commerce sellers looking to accelerate their growth. Go to bluetuskr.com now for more information, make sure to tune in next week for another amazing episode of the E comm show!