Losing Money Versus Buying Data
I’ve been buying ads online for over 17 years and in the post I want to share with you one of the single biggest concepts I’ve adapted into my process for developing media buying strategies that scale. I call it: ‘Let the data dictate your decisions.”
If you want to create consistent winning campaigns digital advertising, this is really a mindset shift that you have to come to terms with in order to achieve great success.
What Is The First Thing I Should Do?
The number one question I get about how to buy ads at scale is: “What is the first thing I should do?”
And the #1 response I always give is: “Look at the data you have or buy some data to test your assumptions.”
I’ll explain more later to clarify what I mean about testing assumptions.
The problem with trying to get most people to trust the process of buying data is that everyone thinks they are “blowing” money. That couldn’t be further from the truth in my opinion.
So if that’s how you feel then you’re probably not ready to scale with ads. The chances of you buying ads and it working the first time out the gate is like expecting to win the lottery the first time you buy a ticket.
It can definitely happen, but the odds are not even close to being in your favor. And even if you get a winner out the gate, there’s a very low probability you’ll be able to scale your advertising with just one winning ad.
“Numbers Never Lie”
You may have heard the phrase: “Numbers never lie.” In the case of buying ads, I somewhat agree with that.
But I like to think of it this way: “Numbers never lie, but they tell many truths. It just depends on which truths matter most to you.”
The point I’m making is that you need to be focused on the numbers that matter most to your business and your unique situation. There are a ton of numbers and if you’re focusing on the wrong ones, you’re going to fail.
How I Got Here
Before we go further, I want to tell you a quick story that I think is relevant.
It was 2011 and I was running ads for a client who sold health supplements. We were trying to figure out our next steps and having problems getting to scale. When we were spending $200 per day, we were running at 100% ROAS (Return On Ad Spend).
But as soon as we would increase that to $500 per day, we would barely breakeven. Then if we spent more $500 per day, we would fall below breakeven.
Since it was early in my career, I was racking my brain trying to figure out what I was doing wrong. That frustration led me to a really big breakthrough.
One day I decided to spend the entire day looking at analytics reports to see if I could find some positive patterns in the data I could use in our campaigns. And about 2 hours in, I saw it staring me in the face!
What I realized that day was that all I had to do was exclude anyone under the age of 35 and BOOM! Within a week we were spending $1000 per day while getting an immediate 80% ROAS.
Long story short, the impact that day had on me was immense. And that was the day that I wrote down this phrase in my notebook o nuggets: “Let the data dictate the decisions you make from here on out.”
Measure What Matter The Most
Now that we got that story out of the way, let’s circle back to this: “Numbers never lie, but they tell many truths. It just depends on which truth matters the most to you.”
As I stated earlier, the truth is revealed in the numbers that matter most to YOU. Every situation is different and for each unique business, the numbers that you focus on could vary greatly.
However, there are a few numbers that I always want to track on some level when I’m working with ecommerce businesses. At the end of the day, we want to create positive and meaningful results so the numbers that matter most are usually the ones that identify whether your campaigns are being successful or not.
Here’s are 3 of those numbers that I look at in almost every situation…
1. CAC (Customer Acquisition Cost)
This number tracks the cost of getting a customer for the very first time.
2. AOV(Average Order Value)
This number tracks the average dollar amount of each order you generate. For example one person can come in and buy 3 items in all and another person can come in and buy just one item. Your average order value will be determined the total amount of money you collected divided by the total number of unique orders.
One of the reasons I like this number is because I can use it to determine how much of my ad costs I’m recouping over a given time period. Because I’m clear on the cost to fulfill an order, I know how much margin is available on a per order basis and I can then compare that against how much I actually spent. There are certainly many other reasons, but this should give you a good idea on why it matters when buying data.
3. LTV( Lifetime Value)
This number represents how much a customer is worth to you for the life of your relationship. This is a metric most young companies struggle with, but if you’ve been in business for more than 2 years you should know this number.
When you know this number AND you know how much it costs you to fulfill your obligations to your customer, this will give you a really good idea of how much each customer is worth over time and the net profit available for you to spend on acquiring them.
And I know what you’re thinking if you have more than 3 months of experience in marketing online: “He didn’t mention click through rate, conversion rate, cost per click, etc.”
Wanna know why? Because they don’t matter as much as people think they do. I’m not saying we never look at those metrics, but they aren’t the ones that matter most in my opinion. Someone else you listen to may think differently and that’s ok with me.
But I would pose this question: Would you rather have a cost per click of $100 that generates $120 or would you rather have a cost per click of $1 that generates $1?
If you said you’d rather have a cost per click of $100 that generates $120, then we’re on the same page and that alone is all the evidence you need to know that most metrics don’t matter as much if you can truly measure their impact how they are moving the needle in your business.
Testing Your Assumptions
At this point I want to circle back to earlier when I said I would clarify what I mean by testing your assumptions. This part is really key when it comes to mindset around buying data vs losing money.
You must have an assumption and then you must test that assumption. If you’re not operating from this perspective then it’s very likely that you are burning money because you moving without a strategy.
Let me give you an example:
Let’s say that you expect your average order value to be $100 from a new customer and you have 50% margin available to spend on acquisition. Which means your CAC needs to be $50 for you to breakeven.
Now before you bash me about the fact that if you spent $50, collected $100, and you have $50 in fulfillment costs mean you won’t make any money.
Here’s the reality, if you can sell those customer more stuff later then you have some serious problems with your business right now and you certainly shouldn’t be buying ads. In the scenario above you’d breakeven, but every purchase that new customer makes in the future is profit once you back out your costs. The money is in the backend, but that’s an entirely different conversation.
So back to our example, we’re making the assumption that we have $50 we can spend each time we convert a new customer.
Now what happens when you test this assumption, you have a clear set of metrics to compare your actual data against after you run your test. And based on that actual data, you can determine if you want to keep going or not. And if you decide to continue, you can decide on what areas you can focus on to optimize by testing new assumptions.
Buying ads is the fastest way to get this data. Without any data it’s all theory and until you get some data you’ll just be stuck in limbo wondering what could be. You can buy the data or lose time scaling your business. And if you use ads as a learning experience to improve your business, that can never be considered wasting or losing money to me.
Buying data is not “blowing money” if you trust the process. If you can wrap your head around this concept, you will greatly improve your chances to scale your revenue with ads.
I know there’s a ton of information being pushed at you, just make sure whoever is trying to teach you about ads has data to back up any claims they are making. Because you can also learn from people who have already bought data if they are sharing it with you.
But If your mindset continues be thing that you might “blow money” running ads, you’re definitely going to lose to your competitors who understand the value of “buying” data.
Deepen your knowledge.
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