Why the ad won't make you money, eTox:
Let's say that you have X product that has a $10 margin. The assumption is that the cherry picked passionate audience will love the product thus you are assuming that a) the product is right b) the audience is right.
Plan of attack: Launch a PPE ad @ $10/day for 3-4 days. During this time frame, you are going to reach approximately 4K people and spend $40 on ads. Assuming that your super targetted passionate audience size is 300K then you've reached 1.3% of the audience where the total ad spend would be $3K to burn through that audience size.
Now the outcomes:
1) 0 Sales. Swallow the cost and move on!
If the ad did not make you any money after 4 days of spending $40 on ad spend, then it won't make you profit going forward because you have sampled a decent sized audience of 4K people. Assuming that you will get 1 sale the next day, that would be $50 per 1 sale. That would assume that the audience will bring back 60 more sales giving you $600 on a $3,000 ad spend. The likelihood of it giving you money later on assuming you product is right and your audience is right is good, but not good enough to make any profit.
Why could that happen?
- It could be because the product that you've selected was simply sold to that audience before so many times that people just don't want it or don't care about it.
- It could be that the product is awesome, it's cool, but that's basically it. People like it, but it's not a life changer. Maybe they think it's a cool idea, but that only it.
- The assumption is that the targeting and product selection was right.
2) 1-3 Sales. Move on...
Even if it made you 1-3 sales, say 3 then you've made back $30/$40 ad spend. This is still not good enough. Even if you spend more money over the course of next 5 days and figure out that it's selling, you most likely will see that it's breaking you even or at best giving you a few dollars in profit. Now think of the headache you will get for yourself for $1-$3 dollars per sale. You will have to handle hundreds of customers to get only few hundred dollars. Swallow the cost and move on!
3) 4 Sales. Think about.
When your ad has brought you back as much as it has taken, then it's time to wait for a few more days and see how it's going. If you believe in the product and know that the engagement is high, people clearly love it and visit the landing page, it's just you need the conversion to be higher then it's time to scale.
4) 5+ Sales. Scale!
There is no need to explain this.
Therefore, don't be a pussy and spend money to make money. You have to lose in order to gain. You can never absolutely know whether one product will sell or not that's why WE TEST! Spend money to get data and if it's telling you to ignore the product and move on, then listen to data!
@IGP @Sanj Modha What are your thought's on this? Am I right, wrong?
That's pretty much it in a nutshell. Here's what I do:
1) Look for products with at least 60% gross margin. This gives you plenty of 'wiggle' room when running ads.
2) My 'magic number' is $5/sale. That's the sweet spot so before you run anything - ask yourself 'how much am I willing to pay to acquire a customer?' If you have plenty of margin then you can increase the max CPA and still make a healthy profit.
3) If I spend $1 on ads I should make back AT LEAST $3 in revenue - that's my golden formula but it's harder during Q4 when competition for ad space is brutal. So I'm happy with 2:1 at the moment. If you have healthy profit margins you'll do just fine at 2:1.
4) Profit pays my bills - focus on the bottom line not the top line.
5) Scale the winners and dump the losers. Rinse/repeat.
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