Paid Ads 101: The #1 Mistake You Can't Afford To Make

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Hey everyone.

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It's Regina from Starter PPC.

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Today I want to talk to you about the

number one, by far biggest mistake that

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our clients make when they hire us.

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this is the thing that we end up

communicating with clients about

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more often than anything else.

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Some clients follow our

recommendations and some clients don't.

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And so what I'm going to do is I'm going

to break it down with some numbers.

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I'm going to show you a scenario

where a client doesn't follow

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our advice and then a scenario

where they do follow our advice.

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the thing that I'm referring to, the

big mistake that clients make They

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don't know their numbers intimately.

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And I know this sounds cliche, you guys,

but I'm going to show you with math,

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how this can hurt you and keep you from

growing and keep you from making a profit.

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They don't know their numbers.

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And because of this, there's

spiraling consequences.

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For example, let's take a look at scenario

one and I'll show you what I mean.

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And then we'll look at stick scenario two.

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for example, here's a client.

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They've come in.

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Let's say they've said that

they need a 300 percent return.

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So you'll see here that I've

put return, meaning MER, which

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is media efficiency ratio.

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That's just a number where you

can kind of look at the overall

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return on your media spend, right?

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On your ad spend.

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Without actually honing in on one

platform and, relying on the ever

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decreasing tracking abilities

of Google Ads or whatever.

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You're kind of just looking

at the total business.

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Gross sales and dividing it

by the total media spend.

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So ad spend, flyers, radio ads,

whatever it is that you're paying for.

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Basically ROI, return on your media spend.

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Let's say their profit margin is 40%.

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So we've said to them,

well, what's your goal?

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And they've said, well, I want 300.

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I need a 300 percent return.

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So for every dollar I spend,

I want to make 3 in return.

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they start out with an

ad spend with a budget.

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Of 1, 000 and right off the bat, their

Google ads account is getting 290%.

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Now, when you're only spending 1, It's

actually easy to get a higher return

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sometimes when you're spending really

small amounts of money because what's

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happening is you're kind of just

scooping up the low hanging fruit, kind

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of just getting the ones at the bottom

of the barrel that are easy to get.

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And then when you start

to scale, it becomes.

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a little more competitive, right?

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You start to go up the sales funnel

and try to get people that are

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maybe slightly less ready to buy.

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Maybe they have to click two times instead

of one before they convert or three times.

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maybe you're bidding on the more

competitive products, right?

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Because those are the ones where you

make a higher profit margin, but they're

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also the same ones that your competitors

make a higher profit margin on.

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So you want to sell them, but they're

also more competitive, which means

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you're paying more for a click, right?

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So it gets a little bit more

competitive once you kind of

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get up off the very bottom of.

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The floor of the sales funnel.

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okay.

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So they're only spending a thousand.

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So it's pretty easy to

get it to hold 290%.

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And so this month, the way that this

math works is this is just taking

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the ad spend times the return.

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And it's telling you what

the gross sales are, right?

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You spend 1, you make 2.

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9, that's 2, 900.

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And so their profit is 160 once you

account for ad spend and profit margin,

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profit margin is basically like cost of

goods, cost of fulfillment for that sale.

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So you subtract 40%, you subtract the ad

spend and you're left with only 160 in.

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Profit and you have

that to pay your bills.

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it's very hard when you're a small

business to pay your bills because

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your profit is only 160, right?

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So you need scale because you need

enough money to pay your bills.

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This is why it's so difficult

for small businesses to compete.

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Okay.

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So because they're not at 300%, the

second month comes around and they don't,

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grow, They don't increase their spend.

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they're waiting for the

account to optimize itself and

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figure out how to get to 300%.

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And sometimes.

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I don't think they're ever gonna

get to what, 300%, which is why you

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can see here that for the entire

year, the account never gets to 300.

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Why?

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Because 300 is an unrealistic

goal for industry that has

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profit margin averages of 40%.

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If the competitors can operate their

business on a return that's lower

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than 300% and they're making a profit.

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Then you have to too, unfortunately.

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And so the way, the way that we

like to calculate this is you

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figure out how many times does 40.

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40 goes into 100 2.

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5 times.

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Okay, so that means that in order to

break even on a sale you need to make 2.

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5, right?

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250 percent return because

You're going to pay 60 percent

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in cost of goods and fulfillment.

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And, you're going to pay the

other 40 percent in ad spend

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with that scenario, right?

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So you're breaking even 250%.

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Now your competitors are going to go,

okay, all we really need is like 270.

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They know they don't need

300, they only need 270.

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And so they're kind of setting

the cost per click, right?

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It's a, it's an auction

system in Google ads.

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So whatever your competitors

are operating at that's the

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competitive goal that you also have

to be able to operate at or else.

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Unfortunately, you can't just

hit whatever goal you want.

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You have to hit a competitive return.

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What happens is the competitors go,

okay, we're getting this much on

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our conversion rate on the website.

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We're getting kind of this much

on our click through rate based

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on our ad copy and everything.

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And because we have a

profit margin of 40%.

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We can afford to pay

this much for a click.

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And so they're the ones that

are setting the cost per click.

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And that's what you have to

pay for cost per click as well.

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So assuming you're getting a similar

click through rate as them and a similar

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conversion rate as them, you're also

paying a similar cost per click as them.

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So it's kind of a closed system.

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You also have to operate at the same

return that they are operating at.

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300 percent all year, and because of

this, you're never growing because

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you're waiting for that return to happen.

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And I don't think it ever will happen

cause it's not a competitive goal.

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At the end of the year,

you've made 1, 920 that year.

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Okay.

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Let's look at scenario two, and this

is the scenario where some of our

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clients take our advice and they choose

a competitive, goal, a competitive mer

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goal, So in this case, we've said to

them, Hey, your profit margin is 40%.

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Your mer goal is.

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should be around two 70.

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Okay.

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So for the first month, it's

the same scenario, right?

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They're spending a thousand dollars.

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They make 160 because their

Mer is 290 that month.

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They go great.

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That's actually higher

than our goal of two 70.

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Let's add 20 percent to the budget.

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So they add 20 percent to grow

the business a little bit.

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Now, this is where it's very

tight for small businesses, right?

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You only made 160, but

I'm asking you to add 20%.

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Unfortunately, I know I say this

all the time, but there is a little

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bit of an upfront investment.

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You have to come up

with that extra 40 here.

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Because.

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Once you scale the business,

it does get easier and easier.

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As you can see the profit margin,

the profit goes up and up.

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And so it becomes easier

to come up with that money.

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But for now it's just very tight

and making ends meet means you

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need to scale a little bit first.

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All right.

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So they scale 20 percent and because

of this, the Mer goes down to 270.

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this happens, right?

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Like I said, sometimes when you're

kind of just scooping up the bottom of

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the barrel, it's easy to get a higher

return as you start to scale your.

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Account finds this it levels

out at a competitive mer.

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That just kind of happens.

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As you scale.

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So to 70 in this case, because

the profit margin is 40 percent

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40 percent goes into 102.

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5 times.

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That's 250 percent for the break even.

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tack on another 20 percent to that number

so you can pay your bills and you've

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got 270 as the goal for this industry.

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270 percent here is what we're seeing in

month two after we've scaled a little bit.

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Now the profit is actually less.

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That makes sense, right?

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Cause the return went down.

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But you did make more in

sales and the algorithm has a

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little bit more power, right?

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Because it's getting some frequency,

some conversion frequency.

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So it's learning a little bit more

about the target market, a little bit

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more about the placements that it can

utilize, a little bit more about the

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products that you're selling, or if

you're a lead gen account, the services.

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that you're selling, since we hit the goal

this month, we decide let's scale again.

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So we add 20 percent again, and

now the profit starts to go up.

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Now it's very tight

this first year, right?

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You're still a very, very small business.

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You're only spending this much

and you're only making this much.

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But by the end of the year,

you now are A bigger business.

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You're making 600 in profit every month.

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So you can now start to

pay some of those bills.

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You're making 20, 000 in sales and look

end of the year, You've made: 3000

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instead of 2000, a little over 3000.

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And now the algorithm has that power that

it needs to have to continue scaling, in

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fact, a more realistic picture is this.

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I think once you get to.

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A higher number, the algorithm sometimes

has more power to get a higher return.

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And that happens because of

what I'm talking about with the

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frequency of conversion data.

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some, sometimes when you're a larger

business, if you need to hit like a 280,

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you can find ways to do that, right?

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You can kind of be like, okay,

for this month, we're just going

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to lean into this one product.

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We don't want the algorithm

to do any learning this month.

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We're just going to force it to hit

goals because we need to pay some

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bigger bills this month and you can

make it hit like 280 that month if

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you need to, which is really handy

when you're a bigger business.

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But this type of thing is very

difficult when you're small.

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So that is the number one biggest

mistake that I see businesses making.

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Many of our clients follow this

scenario when I wish that they

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would follow this scenario.

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Every single, if you know your

numbers really well, every

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single time you're hitting them,

add 20 percent to your budget.

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Okay, couple of side notes

while I have you guys here.

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If you choose a MER goal that...

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you hit it for a month and you discover

that your business was actually

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like losing money that month and you

can't afford to do that for too long.

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Okay, incrementally add, add

to it just a little bit, right?

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Add 5 percent to your goal or add 10

percent to your goal for a while and

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see if that helps you hit your numbers.

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I know I mentioned that sometimes

you do have to operate at a slight

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loss for the first few months.

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There is a barrier to entry.

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This is bigger for some

industries and smaller for others.

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So it's very difficult to sum up

and it's even difficult to know.

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Because it just varies so greatly

from industry to industry, business

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to business, quarter to quarter.

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But you know, sometimes you might

find that you've chosen a murgle

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that's a little bit too competitive

for you to be able to handle.

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That's fine incrementally at it, but don't

just pick a number out of thin air, like

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300 and tell us that that's what you need.

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These numbers need to be known.

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They need to be based on reality.

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And I have an article for you

guys that I wrote called what

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should my mergold be and why?

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And it breaks down the math that I was

talking about, about what you're putting,

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how to calculate your profit margin.

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First of all, how to calculate your

mer based on your profit margin.

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and why the logic behind why that is.

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So it breaks the whole thing down for you.

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I will include the link

in the description.

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It's called What should

my Mergol be and why?

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So check that out.

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Okay.

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The other side note that I

want to mention is in reality,

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it's not this smooth, right?

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It's not two 70 month

over month over month.

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So sometimes it's going to be two 60 and

other months it's going to be two 80.

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And so it's a little bit of a rocky.

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path.

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And so sometimes if you hit 260 that

month, you might choose not to do

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the 20 percent increase that month.

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in reality you might grow a

little bit slower than this.

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But I would encourage you guys if at

all possible to add 20 percent to your

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budget every single month, unless your

business is hemorrhaging money and you

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can't afford it because it is going

to be easier for you in the long

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run than staying very, very small.

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Everything just gets a little bit

easier once you have more money

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coming through the door later on.

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It's just, it's just tough for

small businesses out there.

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Okay guys, we're doing

what we can to try to help.

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If you liked this video, don't

forget to like and subscribe.

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We're Starter PPC and we work with

businesses that operate on budgets

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between 1000 and 5000 per month.

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So if that sounds like you, we've

developed super affordable management fee

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because we want to help small businesses.

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Small businesses succeed.

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Check us out.

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It's starter ppc.

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