Breaking Through $10M in eCommerce Revenue with Paid Ads (Here's How)

Okay. I've consulted with a lot of e commerce companies throughout my career. I've seen many who get stuck in a 1 to $10 million per year range. They hit a ceiling right then I've seen what the 20, 30, 40, 50 million dollar plus E commerce businesses are doing. There is usually a difference in how the big players are operating their paid ads versus the company who's in that one to $2 million range and get stuck. This video has nothing to do with like some loophole I found or some secret crazy setting or some amazing unicorn copywriting that you can put in your ads to, you know, 10x your results. Nothing to do that with that. This has everything to do with how to look at your business, how to use those business metrics that create the strategy for you to break through the ceilings that you're at right now within your company, which more than likely for many of you is in that one $10 million range. So in this video I break all of that down. So hopefully you can bust through that ceiling in the near future. Let's dive in. Okay, so breaking through your growth ceiling, right? So the journey so far, you found a product market fit, you've built reliable revenue channels, you've achieved initial profitability and you have established the customer base I hope right now somewhere, usually from 1 to 10 million. Not everyone, but this seems to be the range you get stuck. So you've had initial growth to get into, you know, the nice seven figure range. But you hit this growth ceiling at a certain point and then you sit there. Warning signs when you're in this rising ad cost, declining roas, slowing of acquisition. So how do you break through this? What are the 20 million, what are the $50 million E commerce businesses doing where they're not stuck in this one to $10 million range? Well, what a lot of companies do when they're in this range is they then start to think, oh okay, well, well we can't spend more because Roas decreases. So we, we now need to increase our efficiency. We now need to increase roas within Google Ads or meta or whatever marketing channel they have and they actually end up hurting themselves. They never break through. They, they, they tend to then over optimize with short term thinking and actually you look at them two years down the road and they start declining. And I'm going to show you why. And I'm going to show you this is why. This is never the way to break through the ceiling. Because listen, traditional solutions fail over focusing on Roas, cutting acquisitions costs over marketing to existing customers. And again, the short term thinking piece of that. So you have to go beyond roas, which is where everyone gets stuck. And I'm okay with Roas. Right? We have many clients where ROAS is their goal and we're fine with that. That's just the metric of success right now. However, ROAS is not the metric of a $20 million E commerce business or a $50 million E commerce business. You go beyond that and you have to, in order to really get to those levels, you have to know your numbers. The way of breaking through ceilings with paid ads and getting beyond 10 million. It actually has everything to do with the back end of the business which then influences your strategy on the front end of new customer acquisition through Google Ads, through Meta, or whatever your marketing channel is. So why do you have to go beyond roas? Well, ROAS can be misleading. It doesn't show true profitability, it ignores customer lifetime value, it leads to short term decisions and, and it hides business problems. So you should be looking at the actual critical metrics. And here's the hierarchy. Number one, contribution margin, right below that you have then business metrics. Order revenue, ad spend, myrrh, which would be marketing efficiency ratio, AOV and my favorite which is ncac. So that's new customer acquisition costs. That's your CPA for, for new customers only. Not return customers, only new customers. Then your customer metrics, you've got new customers, cac, repeat rate, lifetime value. And then guess what's at the very bottom? It's channel metrics. It's roas, it's cpm, cpc, cpa. Right? So you have to have a balance between these metrics. Common mistake. Focusing only on the bottom, which is like so many companies I talk to who are stuck and it's just like they, they don't know these numbers very well, but they do know channel metrics very well. And it's like, okay, well this is why you're stuck. Got to know these numbers to influence your channel metrics. And so there's a balance there that you have to get more sophisticated on. Why is that? Because we end up with what I call and, and I didn't make this up. Maybe the balloon frame. I call it the balloon framework. But listen, this isn't like some revolutionary idea, right? But you've got your blue balloon which, which is active customers. So if you look at your monthly revenue last month, that is your active customers. Okay, and in what makes up active customers? Well, active customers is going to be new customers that you acquired through your New customer acquisition, ppc, whatever, right? Then you have lapsed customers. These are customers who purchased from you and haven't purchased from you again in a while. They're lapsed and you reactivate those and then you have an existing core base. Okay. This is what makes up your balloon. And the goal is to continue to grow the balloon. Well, how do you grow it? You're pumping air from new customers and you're pumping air from lapsed and reactivated customers. The 20 to $50 million customers are doing a really good job right here. Their existing customer base and the reactivation of lapsed customers is huge. The people who get stuck and don't break through their, their ceiling of growth, as I mentioned in the beginning, and they start then over focusing on roas, and then they try to again short term thinking, optimize more roas, they decrease new customer acquisition, which ends up hurting them in the future. They actually start to decline. And really ultimately, if you at this stage actually center your attention more on the back end, the existing customers, you have, the lapsed customers that you haven't reactivated. This could change your world and actually open up the floodgates to being able to acquire new customers. Okay. And so there's a balancing act here of building a healthy customer base. So you're balancing acquisition and retention. You need to have reactivation strategies in place. You, you need to be able to prevent customer loss and you need to have growth planning. Otherwise you end up like this, hey, Arthur, balloon, and it just starts decreasing, right? Or deflating. We don't want that. We want that balloon to keep growing. Okay? And so when we look at the revenue pyramid of E commerce business, the tippy top, the smallest part is your growth, that's new acquisition. The middle is your own channels, right? Growth components, it's email, sms, organic content, then the core existing customers. Now how many e commerce businesses have I talked to? And again, their sole focus is right up here. It's just new, new acquisition. And then you ask, okay, cool, you're spending all this money on new acquisition. What are you guys doing on email? What are you guys doing on sms? What are you guys doing on organic? What, What's. Do you have a loyalty program? Do you have a community you've built around your brand? Do you have content, yada yada, right? Yeah, we send an email blast out, not enough, right? Not enough. And so you start to peel back, then what's going on on the back end and it's just literally nothing. So they're just acquiring customers, hoping they come back to buy later. Right, but and then they might be doing some basic things like sending an email blast every once in a while. That's just not enough. It's not enough to break through. That's what not what $20 million e commerce businesses do. It's not what $50 million e commerce business does do. Also, I can immediately tell when I look at an e commerce business that's like 10 million or less what you see and not always. Right. This will vary but you see a high percent of their revenue is actually from paid ads. Listen, I make my living from paid ads, but I give them the warning. This is a very scary place to be. It's great that you have paid ads working, but if it's a large percent of your overall revenue and in some cases it's above 50% for those companies who are stuck, that is a very, very scary spot to be. I'm telling you, most 20, 30, 40, $50 million plus E commerce businesses, you don't see greater than 50% of their revenue coming from Google Ads or meta. It's generally going to be a lower percent of their overall revenue because they do an incredibly good job at acquiring new customers and keeping those customers coming back and buying from them and turning them into loyal customers, hopefully for life. Right. And so if your current revenue, let's say you're an 8, $75 million business, whatever and you're stuck and you're looking at it like wow, you're right, most of our revenue or a greater than 50% of our revenue is coming from paid ads. Then that's, that's a signal that how do we. It's because again they will over optimize that piece right when they get stuck they want to over optimize on that new customer acquisition side but they, they just looking at Google Ads as this like okay, we're at a 3x, let's get, look we need to get it to a 4 now. And then when you lower than the new customer that you're acquiring, well you're. If you don't have a lot of revenue coming from your existing customers or, or your owned channels, your growth components here, email, sms, organic content, et cetera, then you start the slow decline of your business by doing that. What are the those who are breaking through doing and how are they doing it? So customer value optimization. So here's a quick example. $100 first purchase, right? And then the goal by the end of that first year is how do we get a hundred percent increase on that first purchase. So now they're worth $200 to us, not $100. Right. So customer doubles their spend from first purchase to one year. That's the goal. Okay, now again, not every business will be able to pull that off. But like how do you get a hundred percent increase from your initial purchase of a customer in one year? Ideally, how do you get them to come back and make a purchase within three to six months after making that initial purchase? Well, you're going to need, you know, value drivers. It's like product mix optimization, cross sells and upsells, customer journey mapping. So you understand what categories create the highest LTVs for you and what those people are actually repurchasing or buying more of. And then how can you create your marketing strategies alongside that, having those engagement points and then implementation strategies first, first purchase optimization, follow up sequences, loyalty programs, retention tactics, etc. I'm going to give you an example right now. I just had this conversation with a company and most, you know, most e commerce businesses again that when they're stuck and they're just sitting there thinking of in app metrics like hey, I need a 3x right? And that's like you need a 3x right now because of the fact you don't really know your back end numbers. And so, and then I usually share with them. I'm like, I'll give you an example of customer. A lot of companies I've done some consultations with especially like in, in very competitive industries like supplements, cosmetics, etc. I go, I'll give you an example because in some cases I've talked to supplement companies, they'll come to me like we need a 3 to 5x on ROAS. And I literally just say good luck, you're not going to get it. I mean sure, I can get you a 3 to 5 on your brand name probably, but you're looking at this completely wrong. And so with them, I'm sharing them. Like let's take this example, okay, you've got two different companies. One who says I need a 3X. So on $100 purchase we'll call it, we'll just say this is a supplement business. On that $100 purchase, you know, I can afford to acquire a customer for 30 bucks. Then you've got a company who's like, you know what, we're willing to spend $100 for a $100 purchase. So they're at a $100 CPA or a 100% return on ad spend. So one company is a 300% ROAS. And on $100 AOVA, you're looking at $30 CPA. The other is triple that. And they're like, yeah, we'll get a 100% ROAS, we'll pay 100 bucks for that $100 purchase. Well, how can they do that, right? And it's because they know all the metrics on the back end. And the goal of Google Ads, the goal of Meta is new customer acquisition. And yes, there should be some, you know, retention strategies there and reactivation strategies there with your marketing as well. But I think people forget the ultimate goal of your marketing channels with like Google Ads and Meta is to acquire new customers. Right? The whole strategy should be built around bringing more new customers in. And then it's on you on the back end to make sure you retain those customers and you get those customers to come back over and over and buy more from you. So in this supplement business case, the guy who spends a hundred bucks on paper, you're like, they're bleeding money. And guess what? He is losing money because he's got expenses there, right? So $100 purchase, he's not. He's got cost of delivery. So, you know, just actually the cost of the product, then the cost of packing that product or in a package and shipping it off to the customer's door, there's cost involved there. But the reason that company can do that is because they know, hey, if I can get someone to buy this product, I know that they're going to come back and and order again and again. And by the end of the year, I'm going to get, you know, x more in ltv out of them. So supplements is an easy one. If I can get them to buy the protein powder, I know that they're going to buy protein powder from me six, seven, eight more times throughout the year. And now guess what? X percent of my protein powder buyers also I can upsell to creatine throughout their lifetime with me. So now I'm getting creatine purchases from them. And guess what? They're now repurchasing creatine from me multiple times through the year. And if they're doing the protein and creatine, I also know then I can probably get them to buy the multivitamin stack that we have. And so X percent of those buyers are going to. That is how they're able to do that. And guess what? They come back and back and back. And every time they're coming back, there's no more customer acquisition costs there. So they paid $100 to get someone who Literally is going to spend money, hundreds of dollars throughout their life in the first year. Now if all you do is run ads, get purchases and then that's it. This is why you can't break through your ceiling. The companies who break through are doing all of this. They are getting the value optimization of their customers and that's all on the back end. And that's then why they can beat you. You're like, how does my, how can my competitor spend more money than me? Probably because they know their numbers better than you do and they're able to operate. We'll say they're not like investor backed or something. Right? Because obviously you run in those cases where it's like they just have infinite money from, from VCs or something to just go basically saturate a market. But if we're going to say that's not the case, then it's hey, they know their, they probably know their back end numbers really well. They, they know CAC to ltv. And I take it further. I go, what's in cac? The new, what did you pay to acquire a new customer and what's the LTV of that new customer? Usually got to break that down by product category, but that is how you should be looking at it. And I go, that is how they're able to acquire a customer at, you know, 3x times what you can and that's why you don't grow. And then guess what, when you stop growing, you try to actually over optimize the metric that's going to kill you in a couple years because now you're like, hey, I was at a 3x roas. We can't seem to grow any further because I spend more money, my ROAS drops. Let's you know what, let's get four roas. I need more money right now from Google. And then guess what happens to your new customer. Acquisition starts dropping while your competitor knows their backend metrics and they're doing customer value optimization because they have sophisticated strategies on the back end to make that happen. They're getting that customer to come back and buy again and again and again and again. And they know those numbers and that's why they can gobble up more new customers than you and they actually make more money in the long run and grow faster and they don't get stuck in 1 to 10 million. Okay, so how does this relate back to ads? Well, this is where if you do and know these metrics and you do the things I just talked about, this is where you can now actually increase ad spend confidently. I can do this. But in order to do that, you need a strong customer base, a growing active customer base. You need predictable revenue from existing customers. You have to have your owned channels performing well. Okay, those are those growth components. It's email, sms, organic. You need to be able to increase LTV within months of the first purchase if possible, but have an ultimate goal of 100% increase within the first year. Remember, that's not possible for everyone. I understand. And you need accurate forecasting and targets in place. You have to go beyond just looking at what Meta tells you and looking at what Google tells you or your GA4 account, which is hot garbage at this point in time. You have to be looking at the overall business metrics and tying that back into how you're strategically then able to acquire new customers through your marketing channels like Google and Meta. When you're able to do that, you get to increase your ad spend and that is how you become the player in the marketplace that your competitors are wondering, how the heck are they able to spend more than me? Because I know if I'm getting a 3x and they have 3x more impression share than me in the auction insight report, how are they able to do that? Because that means they must not be operating at a 3x. This is how they're able to do that. They know these metrics. They now can acquire customers because they know, they know in CAC to LTV on those customers and they have the strategies in place to make that happen. So in order to break your e commerce growth ceiling, it actually does not start with any sort of campaign tactics or you know, some loophole within Google or Meta. It starts with you knowing your numbers on the back end, you knowing your customers, the customer journey journey and you having strategies in place to continue to grow the LTV of the new customers you're acquiring and laps customers you're getting reactivated and coming back and buying from you and you have clarity of those numbers and then that's tying back into how you're able to acquire new customers on the front end with your marketing channels and now you can actually spend more to acquire those new customers.