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Issue #8 • August 2017

The Top 5 Reasons to Get Started with Paid Advertising

Advertising Digital Marketing Strategic Planning Strategy & Operations

I had officially been a Facebook (FB) Ad freelancer for seven months when my best client referred me a hot lead.

It was a husband and wife team that was extremely excited to run Facebook ads and said they were ready to spend $15,000 per month in ad spend.

This was going to be my biggest client yet!

Spoilers: Not only did they not become a client, but it was my worst prospect call ever. But we’ll get to that…

Arriving 10 minutes early to our skype call, I reviewed the notes I had taken about the couple from my client that referred them and did my best to rehearse how to confidently state my prices (always nerve wracking when starting out as a freelancer).

When the couple joined the video call, we did the five minute intro dance and then dove right into the meat of my FB ad questioning:

  • How much are you currently spending on Facebook ads?
  • What are you looking to spend on Facebook ads?
  • What do you want to promote via ads?
  • What are your sales goals?

Their enthusiasm was infectious. I loved their product, and it seemed like money was no object. They were all in and seemed like they were ready to move forward with me. But then it all started to go sideways.

ME: “How well does your product or service currently sell organically?”

THEM: “It doesn’t. That’s why we want to try Facebook ads.”

ME: …GULP

I won’t tell you that advertising your product or services never solves conversion issues.

Sometimes you just don’t have the traffic or have attracted the wrong traffic to really see organic results and need to pay for traffic in order to find your correct audience.

But in most cases, if you can’t hustle enough organic sales on your own, advertising won’t save you.  Paid advertising only works with organic sales

So back to that hot lead that was evaporating before my eyes…

I explained to them that without conversion data, we would have no idea how cold paid traffic would convert to their offer. They had no idea what I was talking about.

I said I could only advise them to pursue this strategy if they went in with eyes wide open and understood that this would be a test. Ultimately, they couldn’t rely on it’s success. In fact, they said that was unacceptable.

They knew paid traffic would work– they just knew it. It had to work, as the $15k budget was the remainder of their business capital.

DOUBLE GULP.

A paid marketing campaign should never be make or break, especially if you have no idea how people will convert from your sales offer. I explained as clearly as I could why they should reconsider their position and I politely declined to move forward as their FB ad contractor.

At the time, this was a big loss. I had built up a lot of excitement before the call about what landing this big client could do for my business. In hindsight though, I dodged a bullet. And they hopefully did too if they followed my advice. They weren’t ready to start running paid traffic.

Paying for traffic is like playing with fire. It can produce some spectacular results: fireworks, bonfires, fire jugglers, s’mores…

But only when done correctly, cautiously, and with intention. Otherwise, it can do real damage. So that begs the question…

How do you know when you’re ready to advertise?

Two types of people that are ready to start advertising

There are really only two types of people that are ready to start advertising. These are people that:

  1. Have enough cash flow to spend money testing sales offers over many months without it negatively affecting their business
  2. Know their conversion numbers from organic sales at every part of their sales funnel

For our purposes, we’re not going to worry ourselves with people that fall into the first camp. If you’ve got the budget to test for months on end without worry, go for it.

But what we care about today is that second group.

You might not have the biggest ad budget, but if you know your conversion numbers, you will be able to quickly determine if your ads are a success or not.

We’ll cover the exact numbers you need to know in your sales funnel in a bit, but just know this for now: If you’re not in camp 1, you need to be in camp 2.

Why advertising is so confusing

I read once that sharing an embarrassing confession is a great way to humanize yourself to an audience that doesn’t know you. It makes you seem more relatable. So here I go…

At our company, Intentional Spark, we manage hundreds of thousands of dollars in ad spend every month for our clients.

We advise and build their sales funnels. We manage their organic social media marketing efforts. And yet with all of the experience and success we have had with clients, we have never had a profitable ad campaign of our own.

If you have a service business, maybe you can relate? Or maybe you just think I’m a fool.

We’re so busy with client work that we never prioritize ourselves and so we launch half-baked ideas and give them little attention. I don’t share this to shame us (although maybe some light public humiliation will help us get our act together). I share it because I understand how hard advertising for yourself can be. Even harder sometimes when you are looking to hire someone else to run ads for you and don’t know what questions to ask or if you’re really ready.

There is so much jargon in online advertising that it almost seems designed to alienate everyone but the experts–CTR,Link CTR, CPM, CPC, Pixels, Frequency, Reach, etc..

Forget the jargon. Let the experts worry about that for now. Here’s what you need to know:

How much is a lead worth to your business and how frequently does a lead turn into a sale?

That’s it. Know these numbers before you start advertising and you will be better off then 90% of all advertisers.

The numbers you need to know for advertising

So why are these numbers so important? Because the value of a lead and how often a lead turns into a sale determines what you are willing to pay for that lead.

Let’s back up for a second and look at an example.

You sell an online guide for $19 that teaches people how to knit fashionable dog sweaters (there is a niche for everything). You also have a free email opt-in offer called “Nine sweater templates to make your dog the belle of the ball.”

Here is your conversion math:

  • 40% of people that land on the “nine sweater templates” page opt-in to your email list
  • 10% of people that opt-in for the templates go on to buy your $19 book
  • That means that 4% of people that visit your opt-in page become buyers

From this very high level sales funnel math, we can determine the following:

  • If you spent $1.90 per new email opt-in, you would break even (10% * $19)
  • OR if you spent $0.76 per page visit, you would break even (4% * $19)

If your product is a membership, SaaS, or other monthly payment product, then you'd think in terms of Payback Period = Cost to Acquire a Customer / Average Monthly Revenue Per User, with a three to six month payback period being good so long as you have the cashflow to support your ad spend.

Conversion metrics formulasConversion Metrics for Customer Aquisition Cost on Ads

One-time payment product:

Cost to Acquire a Customer (CAC) = Cost Per Ad Click / Percentage of site visitors that buy your product

ROI = (Product cost-CAC) / CAC

Monthly payment product:

Payback period = CAC / Average monthly revenue per user

Study that math for a second so you really understand how it applies to your business.

Now let’s tie it all together.

You have an opt-in offer and a sales offer where you know the conversion metrics. You know how organic traffic performs in this sales funnel and now know what your maximum cost per lead is when running paid traffic.

For your ads to be profitable, your CAC needs to be lower than the revenue you make from your product or else you'll lose money on every new customer you get.

An exception is if you have a monthly product (as mentioned in the comment above), or if you are intentionally losing money on your ads so that you can later sell those same people a higher priced product to improve your ROI.

Sidenote: Paid traffic will often convert at lower rates than organic traffic, so you will also want to build in some cushion to your numbers.

But armed with full conversion details for your sales funnel, you now know what success looks like when you start running ads.

How much should you spend on advertising?

Here’s the bad news– there is no single number I can recommend.

But now that you know your sales funnel conversion metrics (go crunch those numbers right now if you haven’t yet!), you can tell me what you can afford to spend.

Can you afford $2 per lead based on your conversion metrics? Then spend $400-$500 to see if you can generate opt-ins at that price.

So then what? Do your ads actually generate $1 per lead?

Spend, spend, spend!!! If you can spend $1 to make $2, you should advertise all day long.

Are your ads not generating the $2 per lead that you need? Turn off what ads aren’t working and launch some new ads and audiences to test.

Because you have your conversion numbers, you are able to make faster decisions and spend less money on testing.

Are you ready to start spending on your advertising?

Here are next steps:

  1. Do the funnel math and write down your conversion numbers from organic traffic.
  2. Don’t have enough organic traffic and sales? Hustle to get enough data to feel comfortable before starting ads.
  3. Start your ads and have a clear idea of the target cost per lead you need to be successful.

Back to that paid traffic and fire analogy– advertising is like gasoline. If you pour it onto an unlit match, you just get a soggy match. But if you pour it onto a lit match, even one with a tiny flame, then you can create an inferno. But you must know what you’re doing or you could burn your house down instead.

Now armed with this knowledge, go make some s’mores 🙂

Tony Rulli

As co-founder of Intentional Spark, a digital marketing agency for online business owners, Tony loves talking ads, funnels, and generally nerding out about all things business. He lives in Portland, Oregon with his wife (and business partner) Meg where they balance their love of craft beer and food with long, calorie-burning hikes in the woods.

Experience this issue your way

Download this issue of Tradecraft as a PDF to read and reference at your own pace.

  • Great post, Tony. As you mentioned, there’s quite a bit of thought that needs to go into deciding whether or not to use paid media. Good job on laying out some simple metrics to help people understand if they should test the waters.

    Also enjoyed the story of the couple who was willing to spend $15k to make their product work. I’ve dealt with a similar client but ultimately turned them down. It’s very difficult to come up with compelling ad copy that can connect with potential customers if you don’t have any underlying data about your current customers.

    Thanks for sharing your insights!

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