The complete conversation, in order. 2,960 words.
Angel [00:00:11] Hey everyone. 2
[00:00:11] It's Regina from Starter PPC. 3
[00:00:13] Today I want to talk to you about the number one, by far biggest mistake that 4
[00:00:18] our clients make when they hire us. 5
[00:00:20] this is the thing that we end up communicating with clients about 6
[00:00:24] more often than anything else. 7
[00:00:26] Some clients follow our recommendations and some clients don't. 8
[00:00:30] And so what I'm going to do is I'm going to break it down with some numbers. 9
[00:00:34] I'm going to show you a scenario where a client doesn't follow 10
[00:00:37] our advice and then a scenario where they do follow our advice. 11
[00:00:40] the thing that I'm referring to, the big mistake that clients make They 12
[00:00:44] don't know their numbers intimately. 13
[00:00:47] And I know this sounds cliche, you guys, but I'm going to show you with math, 14
[00:00:50] how this can hurt you and keep you from growing and keep you from making a profit. 15
[00:00:55] They don't know their numbers. 16
[00:00:56] And because of this, there's spiraling consequences. 17
[00:01:00] For example, let's take a look at scenario one and I'll show you what I mean. 18
[00:01:04] And then we'll look at stick scenario two. 19
[00:01:05] for example, here's a client. 20
[00:01:07] They've come in. 21
[00:01:08] Let's say they've said that they need a 300 percent return. 22
[00:01:12] So you'll see here that I've put return, meaning MER, which 23
[00:01:16] is media efficiency ratio. 24
[00:01:18] That's just a number where you can kind of look at the overall 25
[00:01:21] return on your media spend, right? 26
[00:01:23] On your ad spend. 27
[00:01:24] Without actually honing in on one platform and, relying on the ever 28
[00:01:28] decreasing tracking abilities of Google Ads or whatever. 29
[00:01:31] You're kind of just looking at the total business. 30
[00:01:34] Gross sales and dividing it by the total media spend. 31
[00:01:37] So ad spend, flyers, radio ads, whatever it is that you're paying for. 32
[00:01:42] Basically ROI, return on your media spend. 33
[00:01:44] Let's say their profit margin is 40%. 34
[00:01:47] So we've said to them, well, what's your goal? 35
[00:01:49] And they've said, well, I want 300. 36
[00:01:51] I need a 300 percent return. 37
[00:01:52] So for every dollar I spend, I want to make 3 in return. 38
[00:01:57] they start out with an ad spend with a budget. 39
[00:01:59] Of 1, 000 and right off the bat, their Google ads account is getting 290%. 40
[00:02:06] Now, when you're only spending 1, It's actually easy to get a higher return 41
[00:02:11] sometimes when you're spending really small amounts of money because what's 42
[00:02:15] happening is you're kind of just scooping up the low hanging fruit, kind 43
[00:02:18] of just getting the ones at the bottom of the barrel that are easy to get. 44
[00:02:21] And then when you start to scale, it becomes. 45
[00:02:24] a little more competitive, right? 46
[00:02:25] You start to go up the sales funnel and try to get people that are 47
[00:02:30] maybe slightly less ready to buy. 48
[00:02:32] Maybe they have to click two times instead of one before they convert or three times. 49
[00:02:36] maybe you're bidding on the more competitive products, right? 50
[00:02:39] Because those are the ones where you make a higher profit margin, but they're 51
[00:02:42] also the same ones that your competitors make a higher profit margin on. 52
[00:02:45] So you want to sell them, but they're also more competitive, which means 53
[00:02:48] you're paying more for a click, right? 54
[00:02:49] So it gets a little bit more competitive once you kind of 55
[00:02:51] get up off the very bottom of. 56
[00:02:54] The floor of the sales funnel. 57
[00:02:56] okay. 58
[00:02:56] So they're only spending a thousand. 59
[00:02:58] So it's pretty easy to get it to hold 290%. 60
[00:03:00] And so this month, the way that this math works is this is just taking 61
[00:03:05] the ad spend times the return. 62
[00:03:07] And it's telling you what the gross sales are, right? 63
[00:03:09] You spend 1, you make 2. 64
[00:03:12] 9, that's 2, 900. 65
[00:03:13] And so their profit is 160 once you account for ad spend and profit margin, 66
[00:03:19] profit margin is basically like cost of goods, cost of fulfillment for that sale. 67
[00:03:24] So you subtract 40%, you subtract the ad spend and you're left with only 160 in. 68
[00:03:30] Profit and you have that to pay your bills. 69
[00:03:32] it's very hard when you're a small business to pay your bills because 70
[00:03:35] your profit is only 160, right? 71
[00:03:37] So you need scale because you need enough money to pay your bills. 72
[00:03:40] This is why it's so difficult for small businesses to compete. 73
[00:03:43] Okay. 74
[00:03:44] So because they're not at 300%, the second month comes around and they don't, 75
[00:03:47] grow, They don't increase their spend. 76
[00:03:49] they're waiting for the account to optimize itself and 77
[00:03:52] figure out how to get to 300%. 78
[00:03:55] And sometimes. 79
[00:03:56] I don't think they're ever gonna get to what, 300%, which is why you 80
[00:03:59] can see here that for the entire year, the account never gets to 300. 81
[00:04:03] Why? 82
[00:04:04] Because 300 is an unrealistic goal for industry that has 83
[00:04:09] profit margin averages of 40%. 84
[00:04:12] If the competitors can operate their business on a return that's lower 85
[00:04:18] than 300% and they're making a profit. 86
[00:04:21] Then you have to too, unfortunately. 87
[00:04:24] And so the way, the way that we like to calculate this is you 88
[00:04:28] figure out how many times does 40. 89
[00:04:30] 40 goes into 100 2. 90
[00:04:33] 5 times. 91
[00:04:34] Okay, so that means that in order to break even on a sale you need to make 2. 92
[00:04:41] 5, right? 93
[00:04:41] 250 percent return because You're going to pay 60 percent 94
[00:04:45] in cost of goods and fulfillment. 95
[00:04:47] And, you're going to pay the other 40 percent in ad spend 96
[00:04:51] with that scenario, right? 97
[00:04:51] So you're breaking even 250%. 98
[00:04:53] Now your competitors are going to go, okay, all we really need is like 270. 99
[00:05:00] They know they don't need 300, they only need 270. 100
[00:05:05] And so they're kind of setting the cost per click, right? 101
[00:05:10] It's a, it's an auction system in Google ads. 102
[00:05:12] So whatever your competitors are operating at that's the 103
[00:05:15] competitive goal that you also have to be able to operate at or else. 104
[00:05:19] Unfortunately, you can't just hit whatever goal you want. 105
[00:05:21] You have to hit a competitive return. 106
[00:05:24] What happens is the competitors go, okay, we're getting this much on 107
[00:05:27] our conversion rate on the website. 108
[00:05:29] We're getting kind of this much on our click through rate based 109
[00:05:32] on our ad copy and everything. 110
[00:05:34] And because we have a profit margin of 40%. 111
[00:05:37] We can afford to pay this much for a click. 112
[00:05:39] And so they're the ones that are setting the cost per click. 113
[00:05:42] And that's what you have to pay for cost per click as well. 114
[00:05:44] So assuming you're getting a similar click through rate as them and a similar 115
[00:05:47] conversion rate as them, you're also paying a similar cost per click as them. 116
[00:05:51] So it's kind of a closed system. 117
[00:05:53] You also have to operate at the same return that they are operating at. 118
[00:05:58] 300 percent all year, and because of this, you're never growing because 119
[00:06:03] you're waiting for that return to happen. 120
[00:06:06] And I don't think it ever will happen cause it's not a competitive goal. 121
[00:06:09] At the end of the year, you've made 1, 920 that year. 122
[00:06:13] Okay. 123
[00:06:13] Let's look at scenario two, and this is the scenario where some of our 124
[00:06:17] clients take our advice and they choose a competitive, goal, a competitive mer 125
[00:06:23] goal, So in this case, we've said to them, Hey, your profit margin is 40%. 126
[00:06:28] Your mer goal is. 127
[00:06:29] should be around two 70. 128
[00:06:31] Okay. 129
[00:06:31] So for the first month, it's the same scenario, right? 130
[00:06:34] They're spending a thousand dollars. 131
[00:06:35] They make 160 because their Mer is 290 that month. 132
[00:06:40] They go great. 133
[00:06:41] That's actually higher than our goal of two 70. 134
[00:06:44] Let's add 20 percent to the budget. 135
[00:06:46] So they add 20 percent to grow the business a little bit. 136
[00:06:49] Now, this is where it's very tight for small businesses, right? 137
[00:06:52] You only made 160, but I'm asking you to add 20%. 138
[00:06:57] Unfortunately, I know I say this all the time, but there is a little 139
[00:07:00] bit of an upfront investment. 140
[00:07:02] You have to come up with that extra 40 here. 141
[00:07:05] Because. 142
[00:07:06] Once you scale the business, it does get easier and easier. 143
[00:07:09] As you can see the profit margin, the profit goes up and up. 144
[00:07:11] And so it becomes easier to come up with that money. 145
[00:07:15] But for now it's just very tight and making ends meet means you 146
[00:07:19] need to scale a little bit first. 147
[00:07:20] All right. 148
[00:07:21] So they scale 20 percent and because of this, the Mer goes down to 270. 149
[00:07:25] this happens, right? 150
[00:07:26] Like I said, sometimes when you're kind of just scooping up the bottom of 151
[00:07:29] the barrel, it's easy to get a higher return as you start to scale your. 152
[00:07:33] Account finds this it levels out at a competitive mer. 153
[00:07:38] That just kind of happens. 154
[00:07:39] As you scale. 155
[00:07:40] So to 70 in this case, because the profit margin is 40 percent 156
[00:07:44] 40 percent goes into 102. 157
[00:07:45] 5 times. 158
[00:07:47] That's 250 percent for the break even. 159
[00:07:50] tack on another 20 percent to that number so you can pay your bills and you've 160
[00:07:54] got 270 as the goal for this industry. 161
[00:07:57] 270 percent here is what we're seeing in month two after we've scaled a little bit. 162
[00:08:03] Now the profit is actually less. 163
[00:08:05] That makes sense, right? 164
[00:08:06] Cause the return went down. 165
[00:08:08] But you did make more in sales and the algorithm has a 166
[00:08:11] little bit more power, right? 167
[00:08:13] Because it's getting some frequency, some conversion frequency. 168
[00:08:17] So it's learning a little bit more about the target market, a little bit 169
[00:08:20] more about the placements that it can utilize, a little bit more about the 170
[00:08:23] products that you're selling, or if you're a lead gen account, the services. 171
[00:08:27] that you're selling, since we hit the goal this month, we decide let's scale again. 172
[00:08:30] So we add 20 percent again, and now the profit starts to go up. 173
[00:08:35] Now it's very tight this first year, right? 174
[00:08:37] You're still a very, very small business. 175
[00:08:39] You're only spending this much and you're only making this much. 176
[00:08:43] But by the end of the year, you now are A bigger business. 177
[00:08:47] You're making 600 in profit every month. 178
[00:08:49] So you can now start to pay some of those bills. 179
[00:08:52] You're making 20, 000 in sales and look end of the year, You've made: [3000] 180
[00:08:56] instead of 2000, a little over 3000. 181
[00:08:58] And now the algorithm has that power that it needs to have to continue scaling, in 182
[00:09:03] fact, a more realistic picture is this. 183
[00:09:05] I think once you get to. 184
[00:09:07] A higher number, the algorithm sometimes has more power to get a higher return. 185
[00:09:12] And that happens because of what I'm talking about with the 186
[00:09:15] frequency of conversion data. 187
[00:09:17] some, sometimes when you're a larger business, if you need to hit like a 280, 188
[00:09:22] you can find ways to do that, right? 189
[00:09:24] You can kind of be like, okay, for this month, we're just going 190
[00:09:26] to lean into this one product. 191
[00:09:28] We don't want the algorithm to do any learning this month. 192
[00:09:30] We're just going to force it to hit goals because we need to pay some 193
[00:09:33] bigger bills this month and you can make it hit like 280 that month if 194
[00:09:36] you need to, which is really handy when you're a bigger business. 195
[00:09:39] But this type of thing is very difficult when you're small. 196
[00:09:43] So that is the number one biggest mistake that I see businesses making. 197
[00:09:47] Many of our clients follow this scenario when I wish that they 198
[00:09:52] would follow this scenario. 199
[00:09:53] Every single, if you know your numbers really well, every 200
[00:09:56] single time you're hitting them, add 20 percent to your budget. 201
[00:09:59] Okay, couple of side notes while I have you guys here. 202
[00:10:01] If you choose a MER goal that... 203
[00:10:04] you hit it for a month and you discover that your business was actually 204
[00:10:08] like losing money that month and you can't afford to do that for too long. 205
[00:10:12] Okay, incrementally add, add to it just a little bit, right? 206
[00:10:15] Add 5 percent to your goal or add 10 percent to your goal for a while and 207
[00:10:19] see if that helps you hit your numbers. 208
[00:10:21] I know I mentioned that sometimes you do have to operate at a slight 209
[00:10:24] loss for the first few months. 210
[00:10:25] There is a barrier to entry. 211
[00:10:27] This is bigger for some industries and smaller for others. 212
[00:10:30] So it's very difficult to sum up and it's even difficult to know. 213
[00:10:33] Because it just varies so greatly from industry to industry, business 214
[00:10:37] to business, quarter to quarter. 215
[00:10:38] But you know, sometimes you might find that you've chosen a murgle 216
[00:10:42] that's a little bit too competitive for you to be able to handle. 217
[00:10:46] That's fine incrementally at it, but don't just pick a number out of thin air, like 218
[00:10:50] 300 and tell us that that's what you need. 219
[00:10:52] These numbers need to be known. 220
[00:10:54] They need to be based on reality. 221
[00:10:56] And I have an article for you guys that I wrote called what 222
[00:10:59] should my mergold be and why? 223
[00:11:02] And it breaks down the math that I was talking about, about what you're putting, 224
[00:11:06] how to calculate your profit margin. 225
[00:11:07] First of all, how to calculate your mer based on your profit margin. 226
[00:11:10] and why the logic behind why that is. 227
[00:11:13] So it breaks the whole thing down for you. 228
[00:11:15] I will include the link in the description. 229
[00:11:16] It's called What should my Mergol be and why? 230
[00:11:18] So check that out. 231
[00:11:19] Okay. 232
[00:11:19] The other side note that I want to mention is in reality, 233
[00:11:22] it's not this smooth, right? 234
[00:11:24] It's not two 70 month over month over month. 235
[00:11:26] So sometimes it's going to be two 60 and other months it's going to be two 80. 236
[00:11:31] And so it's a little bit of a rocky. 237
[00:11:33] path. 238
[00:11:33] And so sometimes if you hit 260 that month, you might choose not to do 239
[00:11:37] the 20 percent increase that month. 240
[00:11:39] in reality you might grow a little bit slower than this. 241
[00:11:42] But I would encourage you guys if at all possible to add 20 percent to your 242
[00:11:46] budget every single month, unless your business is hemorrhaging money and you 243
[00:11:50] can't afford it because it is going to be easier for you in the long 244
[00:11:53] run than staying very, very small. 245
[00:11:56] Everything just gets a little bit easier once you have more money 246
[00:11:59] coming through the door later on. 247
[00:12:01] It's just, it's just tough for small businesses out there. 248
[00:12:04] Okay guys, we're doing what we can to try to help. 249
[00:12:06] If you liked this video, don't forget to like and subscribe. 250
[00:12:09] We're Starter PPC and we work with businesses that operate on budgets 251
[00:12:13] between 1000 and 5000 per month. 252
[00:12:15] So if that sounds like you, we've developed super affordable management fee 253
[00:12:21] because we want to help small businesses. 254
[00:12:22] Small businesses succeed. 255
[00:12:24] Check us out. 256
[00:12:25] It's starter ppc. 257
[00:12:26] com
