Pay to Play – No Paid Marketing, No Business.
Updated: Sep 8, 2023
The struggle is real. Businesses who have strived in the last decade, nurtured from massive organic growth have now reached a dead end and are facing a dramatic decline in overall growth.
Businesses who’ve based their entire business model on organic traffic and low margins are left in the dark wondering what the dictating advertising platforms will have next on the list.
The massive inflation of influencers who once provided the only alternative to traditional paid marketing, are suffering a decline in performance and driving more and more businesses back to the world of paid advertising.
The pay to play model is when major advertising platforms like Facebook, Google & Instagram, limit your free reach to customers, only to force you to have to pay to your reach your audience again. The idea is very simple. They give you something for free, only to be able to take it away later. While it’s free, you develop a whole business model which relies heavily on this traffic source, then, they start limiting your free traffic until they eventually stop it, forcing you to adapt and start paying for it.
It might sound deceiving, but it’s reasonable. Business is business. My philosophy is that your business model must include paid marketing in your model. If you want to generate traffic and sales from these platforms, it only makes sense to pay them and advertise on their platform. Facebook, Instagram & Google are the landlords and you are the renter. You can’t expect to live for free. Instead, think of ways that you can pay your rent and still make a good living.
INTEGRATING PAID ADS INTO YOUR BUSINESS…
Ok then, you get the point. Now what? The first thing you need to do is understand the most important metrics in your business. In order to know how much you can pay for a visitor or purchase, you need to know to the dollar amount: how much is the visitor or purchase worth to your business?
The first step would be to analyze your business’ KPI’s.
For example: What’s your average profit per order? What’s the average lifetime value per customer?
How much is one lead really worth to you in the long run?
These answers are vital to your strategy and long term success as they provide you with a road map to strategize your plan and to ensure it will make financial sense.
Here is an example. About a year ago I started working with a big baby fashion brand in the UK. Their goal was to drive prospecting and returning customers to their store. They have tried over the past few years to create profitable campaigns using paid advertising, but couldn’t find a way to make it work. The biggest challenge was to identify the actual value of their customer, their real worth. They work with small margins, but their customer loyalty is extreme because of their excellent quality and service. They made an average of $8 net profit per order, but the average customer made more than 8 orders in 24 months. This means that they profited more than $64 on average per customer. Before they realized how much the lifetime value per customers is, they wanted to target new customers with a target cost per purchase of $10. Obviously, considering the competitive market, they would face many challenges scaling with that target cost per purchase.
Once I analyzed their full funnel, I recommended that they adjust their target cost per purchase to $25. This would mean that it would take a customer 3 orders to cover their acquisition cost, but they end up pocketing around $40 lifetime on that customer. That’s without considering the added value the campaigns have with gaining more followers, getting more referrals from customers extra viral reach from shares and comments etc..
Obviously their budget would not be unlimited at start since it would take them several orders per customer to turn that into profit, but now that they have a strategy and structure in place, they are able to constantly grow their marketing spend and in return, grow their monthly revenue dramatically.
And that’s only one part of it. Paid ads is not only for new customers. It works even better on your existing customers. Not all customers are active in emails, and not all of them remember your brand. Targeting them on social networks where they spend most of their time, is not only cost effective, but can also be very cheap since it will be extremely relevant.
Your ads will be targeted from the start, and you won’t need as many impressions for conversions. Most advertisers like to think that they own their customers. Once they purchased on their site, they should only use free tools to interact and retarget them. Obviously, that type of thinking is screwed. If you would be able to spend on your existing customers an extra $1 to earn $4 you wouldn’t resist would you?
Businesses who have relied heavily on organic growth are facing challenges now because of limitations on free traffic. Pay to play model forces advertisers to adapt their business model and allocate major budgets towards paid marketing. In order for you to be able to create successful campaigns on the major marketing platforms, you need to be aware of your complete customer’s value. Knowing your customer value, will allow you to strategize and make educated marketing campaigns while maintaining profitability and pushing for revenue growth.
Paid marketing campaigns should not only be used for prospecting customers, but also for your existing client base.
At the end of the day, the only question you should ask yourself is how much return are you getting for each dollar spent on marketing.