Once you understand this about ads, you'll never be broke

I spend anywhere from four to $8,000 per day on Meta and YouTube ads to a VSL call funnel. If you don't know who I am, my name is Daniel Fazio. I have a software company called List Kit and a coaching and consulting company called Client Ascension. We sell done for you services info, coaching, software, all sorts of different stuff. We make about $1.4 million per month and all of our ad spend like pretty much 90 something percent of it goes to a VSL call funnel where we send people to a funnel with the VSL on it and then they can book in a sales call and then we have a sales team close them on the offer and then they pay and then they get onboarded as clients. So we probably book something, 40, 50 sales calls a day depending on the day. So like 200 something plus a week. And now I've always recommended that everyone who's below $10,000 per month in their business gets clients with outreach. And then once you've signed your first a couple of clients, you start using content and then once you reach about 20, 30k a month then you can start running ads. Why? Why do I tell them that they need to be making that much money before ads? Because you might be saying, well Daniel, if the ads make money, why not do it immediately? This video is going to explain why. And once you know the math, you' to understand how to be insanely wildly profitable. The math as to why this is the case is because your cost to acquire a customer. For 98% of you watching this, for 98% of your offers, pretty much every single one of you is going to be $3000 plus or minus 1500 regardless of what you're selling, whether it's B2C, whether it's B2B no matter how much it costs, what the close rates are, what the show up rates are, it's going to average out to $3,000 plus or minus 1500. So it's going to be 15,000 DOL, 1400 to $4,500. That's just what your CAC is going to be. That just is what it is. You can confirm this if you just go ask 20, 30, 50 random people running a VSL call funnel, people who actually have the stats and are able to track it with something like Hiros and they literally know the actual stats. I guarantee you 98% of them have a CAC that is between 1500 and 40 $500. 98% of the time it is in that range with zero exceptions. So I was Even just at a mastermind doing a talk about ads with guys who are seven figure business owners and then they run their own ads. And I asked them, I said, get started. Raise your hand if your cost to acquire a Customer is between 1500 and 40, $500. Every single person in the room raises their hand. Why? Because this is true. No matter what you're selling. It just is. That just is the cost to acquire a customer. That's what yours is going to be. Okay, so 90% of you are selling something that's between $2,000 a month to like $8,000 a month. If you're selling like a done for you offer like you're an agency. If you sell like info, you're probably selling something that's 5,000 to $12,000 for six month kind of things, kind of. The effective cost ends up being like relatively the same. That's what all of you are doing. This is how much you charge. Now what I'm going to do is walk you through actual numbers from different example offers. Because I work with a ton of people and I know what their numbers are because I have a mastermind called Olympia. I help a bunch of people scale with ads and I know what their numbers are and I do consulting with other people and I just see what the numbers are. So I want to walk you through different example situations of how your business and your stats might look running ads depending on what you're selling. So whenever you start running ads, what you think is going to happen is you're going to have not enough calls booked. That's what you think is going to happen. But what's going to actually happen is too many, but they're broke and unqualified. Anybody who's run ads before with zero filtering mechanism had the experience where somebody books in a call with you and only one out of seven of them even show up in the first place. And then the people who do show up are like, I don't remember why I booked this call. This is like a universal experience. That's what actually happens when you start running ads you think is that you're not going to get enough calls booked. What actually happens is it's too many. In order to deter against these like 12 IQ people who just like infest your business and like ruin all the metrics and make it completely miserable, you need to run active defense against these people. And normally with the first line of defenses, type form application. Now I'm not going to go too deep into this. I have other videos on that. But what I want to get into are kind of like the stats of what you'll generally see with this. When you have something like this, like a Typeform application, this filters out legitimately 90% of people. You could see someone online bragging about like five $50 calls or like $30 calls or like $80 calls. Yeah, we're booking $50 calls or something like that. It's very important you understand that it is more than likely that they have zero filtering mechanism and they are getting these broke and unqualified people with an IQ of 12 who aren't going to show up to the call and they're going to make absolutely zero return on the ad spend. It's a very disingenuous way of bragging about results. With ads, nothing matters besides cost to acquire a customer. Nothing matters. The cost per call doesn't even matter up to a point. Don't like be tricked by these people who say stuff like, oh, we're clicks or we're getting $2 leads. Doesn't matter, they're garbage leads. They're garbage clicks. They're unqualified people, they're broke, they have no money. Got to understand, like the CAC is $3000 plus or minus 1500. That's what it's going to be. Don't be tricked by these people showing these stats that are irrelevant. For instance, someone might be bragging about a $50 call. However, 90% no show. So like the actual cost per showed up call is $500. That's not impressive anymore. It's just complete nonsense. If it was a B2C offer, you need to do like a bunch where you call and message the person before they even show up at all. And be like, just making sure that this is a relevant thing. Because a tremendous amount of people just book a call for no reason and consume 0 of the information on the page. And then you actually talk to them in a triage before the call turns out like the offer is completely irrelevant to them. You get rid of another 20% of people just through that. These stats that people market and like brag about, it's all nonsense. It's all garbage. Another factor is market competition. Right now at List Kit, for instance, we're selling our done for you offer. We're able to get about 100, 170 to $200 qualified booked calls. It used to be higher, but we actually started getting way better results after Meta Andromeda. But that's generally what we have right now at many thousands per day of spend and then some People in my mastermind, they might run Ecom email agency in which case they're getting 350 per qualified book call. That's booked call, it's not showed up. And then we have people who run high end content offers where it's like they only work with people above 2mil a year or something like that. And then they're getting like 500 qualified book call. So it depends in this instance like E Comm email agency, that's just high competition. Over here, this one, high end content offers where the clients have to be making 2 million year plus, that's just low TAM. There's just not a lot of people that fit that parameter in existence at all. Like a personal brand type something who makes 2 million plus a year. There's not a lot of them in existence. That's why that's 500 a call. But the Ecom guys, 350 a call compared to list gets 170 to 200. Because there's like 30 times more competitors for this than there is this selling like a done for you cold email thing. So List gets able to get these numbers, but these guys are only able to get these numbers just because of market competition. So it's different just depending on the offer and depending on the exact market dynamic and depending how large the TAM is and how attractive your offer is. And then you might have something else. Let's say it's a B2C biz op where you're teaching B2C people how to start a business. So that would be like our thing AI assisted agency. So you might get $80 qualified book calls. So that's them going through a type form qualified. That's possible. The differentiator between these, you might say like well Daniel, this one's definitely better than this one. It's definitely better than this one. It's definitely better than this one. Like why do anything else but this one, Daniel? And the answer is because the show up rates are different, the for pricing is different, the experience with the clients is different. How much you can charge is different. Like the way you charge is different. All the metrics change based off what you're selling. And all of them. It doesn't matter whether the qualified book call is $80, $500, 350, 170. It doesn't matter 100% of the time, pretty much always the CAC is going to be $3000 plus or minus $1500. Your cost to acquire a customer, no matter what it is you're selling on ad is going to be 1500-4500 dollars pretty much every single time no matter what it is. That's just how the world works. We're going to talk about section two here of this video is show rates, close rates and offer pricing. We're going to go through some actual math here and like walk through how profitable each one of these businesses and like what the stats seem to work out with depending on the offer you're selling. Let's take an E comm email agency and we're going to walk through like some average stats I see based off of these guys businesses. So this is based off like real like stuff I observe from these actual companies. That's what this means. Cost per qualified booked call not showed up call is about 350. Now we have show rate, it's about 70%. That's what it seems to be. Cost per showed qualified call, that would mean that's 500. If the cost per booked qualified call is 350 and the show up rate is 70% that would mean that the cost per showed qualified call is 500. That's the math. Close rate 17% on the showed up qualified calls. Pricing for the offer 30$500 a month. That's about what these guys are chargin kind of like around there. Okay, so what all this math above would mean if these are the cost per calls, these are the show up rates and these are the close rates on the people who show up. That would mean that the CAC is $2,941. That's about what I see with my clients for this offer it's about $3,000 for e comm email agency. That's what it seems to be. That means that you have a good funnel and you've constructed your offer correctly, you have good sales processes. It's totally possible that you have a CAC of like 6,000, 7,000, $8,000. If you have a terrible offer, you have terrible ads, you don't have a good funnel. All of these numbers I'm talking about, assuming you have an actually good constructed funnel that will work on cold traffic. Gross margin that these guys tend to operate on. So gross margin is the direct cost to fulfill for the client, not the net cost. It's the direct cost to individually fulfill for one incremental client seems to be about 60%. For these guys around there, retention seems to be about six months. I think it's important to not delude yourself when talking about retention because if you ask an average person what their client retention is, they'll Say we have clients who stay for a year or we have clients who stay for two years. And it's like, I understand you. You have some clients who stay for a year or two years. But you need to also count the clients you sign who churn after one month. Those count in the average. Therefore, your average is six months. So that would mean that the lifetime value of a client is six months times 3500, which is $21,000. Now, the lifetime gross profit, because the gross profit margin is 60%, that would mean it's 21,000 times 0.6, which is 12,600. That's how much gross profit you'll make from each client over six months. Okay, month one cash flow is $500 collecting from the client minus the CAC of $2,941 on the ad spend, minus the cost to fulfill, which is 3500 times 0.4. So 40% of 3500. This comes out to be negative $841. So you lose $841 of cash flow in month one running this business month six cash flow. So all the cash flow that occurs over six months from your retention window is 21,000 that you collect. Collect from the client minus the CAC of 2,941, minus the cost to fulfill for the client, which is the 21,000 times 0.4. That would mean $9,659 of total cash flow from this client over six months. That's what the numbers tend to look like for this business. Look at this in the video real quick. Just like understand these numbers. You can pause the video and look at it. We're going to walk through another example. We're going to do a B2C biz op, like a coaching or course business or some shit like that. Cost per qualified, but call about $80. I see that at that's like generally what that tends to be. Show rate on cold traffic, 20%. Actually. Now it's important to not confuse this. Some people will say, well, Daniel, I run a BTC biz up. My show rate is 70%. Well, my warm traffic from YouTube shows that like 90% and closes at like 60%. It just does. If it's dead ice cold, freezing Antarctic traffic, who has never heard of you before ever at all the show rates 20%. That's just is what it is. So that would mean cost per showed qualified call based off These numbers means $400 cost per show qualified call, $400 close rate, 17% offer pricing let's just say $2,000 a month. I understand that something's like collect cash up differently and like fuckery like that. But we're assumed it's like an effective 2000amonth. Like we'll just assume that that would mean with these numbers CAC is2353 based off of everybody I know who runs a B2C business opportunity coaching program or course business. That's what your CAC will be. Do different people have different metrics based off if they run a different type of funnel? Yeah, of course. But that's generally what stack is going to be for that kind of business. It's about $2300. This falls in the $3000 plus or minus 1500. Let's keep going. So gross margin, these tend to be higher margin businesses. So you're going to get about 70%. However in exchange for that the retention is lower. We're going to say about four months. If you have a garbage info business, maybe like two months or like one month or something like that. We probably run like one of the like highest retention info businesses ever conceived in planet earth ever. Not to toot my own horn but like we actually run an info business very well like everyone else. Stuff is generally shit. All right, so this would mean that LTV would equ to around $8,000 LTGP. So lifetime gross profit. So that's $8,000 minus the cost to fulfill. With these numbers that's 5,600. That would mean that month one cash flow is the amount that you collect from the client minus the CAC 2353 minus the cost to fulfill which is 2000 times 0.3. That would mean that your month one cash flow is negative $600 months one through four cash flow because that's your retention window is four months. That would be collected $8,000. Again you subtract the CAC of 23. Then you subtract cost to fulfill which is the amount collected times 0.3, which is 3247. So you have four month positive cash flow of $3247. That's how that works. Let's walk through one more. We're going to say high end content agency where you only work with clients who are at like 2 mil a year. Just high end stuff. Or it's like more expensive. So we'll walk through some numbers. What you might typically see with something like this, I'm not saying that all content agencies need to be high end like this. You could sell to lower level people. But then that influences the show up rate, it influences the retention windows, it influences all this stuff. And it's going to work out that the CAC is between 1500 and 40, $500 98% of the time. This is what it is. So cost per book qualified call about 550. That's what you'll see with this. Because again, if you're trying to sign like people who run a personal brand and also make more than 2 million a year, that's a very low TAM. Not many of those people exist. Therefore the TAM is lower than your cost per result is higher. That's $550 about there. These guys will generally have a good show rate because the clients are good and not fucking retarded. So the show rate is 70% Cost per showed qualified call, will there be $786 close rates about 17%. Offer pricing $6,000 a month. Generally what these guys seem to be charging, that would mean that your cost to acquire customer, your CAC would be $4624 right at the window of the 3000 plus or minus 1500. All right, let's keep walking through this. So gross margin for these guys, they are in fact able to pull off about 60%. Sometimes it's lower retention. Get about six months here as well, which would mean that the LTV is $36,000. Mean that the LTG lifetime gross profit is 21,600, which would mean that month one cash flow is the amount you collected from the client. So $6,000 minus the CAC, which is 4,624, minus the cost to fulfill, which is 6,000 times 0.4, that equals negative $1,024. So that's the worst cash flow in month one of all these businesses so far. But if we go through and look at the six month cash flow, 36,000 collected, minus the CAC of 4,624, minus the cost to fulfill, which is 36,000 0.4, there's $16,976 of total cash flow for that. Now just look at the comparison between all these different kinds of businesses. So this B2C bizop over here, where it's like, yeah, you make way less cash flow compared to this one over here. But also the responsibility of servicing clients is significantly less and the profit margin is way higher on the B2C bizop. But it also means that like the sales is more of a pain to the ass because there's like a Bunch of no shows and you have to do like a bunch of more triaging and stuff. And then you compare the high end content agency over here to the E. Comm email agency. The upfron cash flow is much better over here. It's much worse over on the high end content agency but you end up making way more. So this is like more of a higher volume business but you're still talking to like qualified people over here. Every business is different, they change about all the different stuff and it's like you just have to understand about just the economics of operating these companies is that the CAC is $3000 plus or minus 1500 98% of the time. So what does that tell us? It tells us that if you want to scale your business on ads you have to do it just under the assumption that your CAC is $3000 plus or minus 1500 and that's just what it is. And normally you'll find what yours is and like you'll just range in there. What would influence somebody's CAC to be able to drop 40% or 50%? The answer is brand. Like if you were to look at like Alex Hermosi for instance. Alex Hermosi sells a coaching program, they call it an advisory but like the offer fundamentally is info, it's info business. I guarantee Alex or Moses like CAC to acquire somebody to come to his $5,000 workshop in Vegas. It's probably like $1,000 probably. But why? Because Alex Hermosi also has an absolute mega brand and spends hundreds of thousands of dollars per month and hundreds of hours a month on production of content to build his brand. That's why his CAC is $1000. But if Alexamozi didn't have that brand, his CAC would be $3000 plus or minus 1500. And it just would be that. That just is what it is. That's what it would be. If you're trying to compare yourself to somebody in your market who sells a very best to find out what their CAC is, that's also what your CAC is going to be. That just is what it is. And then you just need to backfill the economics of your business to fit within that parameter. Because you could sit here with this high end content agency and you could say I'm only going to charge $4,000 a month and undercut this guy charging 6,000amonth. The only thing that's going to do is just make it way less profitable for you because all of these metrics are going to stay the same. Your cost per qualified book call is going to stay at 550. Your show rate is going to stay at 70%. Your cost for showed qualified call is going to stay at 786. Your close rate is going to hang down 17%. You're just getting 2,000 less dollars a month. Completely useless to charge less money. Literally doesn't make any sense. Take these two numbers, 6,000amonth and 17%. There's many situations where you could take your $6,000 a month and increase it to $8,000 a month and the close rate goes from 17% to 16.2%. What does that do to these numbers? It makes the CAC go up by like $150, but it increases the LTV by like 8,000. You might as well do that. Then it's all arbitrage where it's away with the best possible economics that you can design for your individual business. Because your CAC is going to be $3000 plus or minus 1500. It just is like legitimately, regardless of what you charge, unless you're charging some completely wildly egregious price that is so outlandishly like far away from what your level of authority would allow, then your CAC is going to be $3000 plus or minus 1500. It just is going to be that. There's pretty much zero exceptions to this whatsoever in any situation. Let's talk about cash real quick just to close this video out and then I'll explain offers that can potentially help you grow this business where you can work with me directly. So cash flow. I made a video a couple weeks ago. It's on my channel. It's called the pricing switch that changed everything my agency or something like that you can go find on the channel. Okay. And what I talked about is that we went from charging monthly to quarterly. Why is this important? Because if you look up here, I'll just compare us over here to the E Comm email agency. This negative 851 month long cash flow. That's a problem because if you're acquiring customers at a negative cash flow, you're operating like a venture capital based business where you have money to burn. You don't have money to burn. That's not what you want to do. This goes back again to why I tell people, don't start with ads until you're making about $15,000 a month of profit because you're going to burn money in the beginning. You just are. This is how it's going to work, okay? Real Quick, if you're a beginner, you're not going to be able to charge quarterly because you have zero case studies and zero authority. And you need to just like suck the shit up and get clients via outreach and expend your time and not money so you're not negative cash flow. So what I'm saying here, when I'm saying charge quarterly, I'm talking to the people who have case studies and have a level of authority because only you are able to do. A beginner cannot do that yet. So immediately upon doing this, a couple of things happened like immediately upon us doing this. So one, the average upfront cash we collected almost tripled to front end roas. So return on ad spend more than doubled immediately, straight up more than doubled. Three, churn went down about 20% which means LTV up about 20%. Also. Four, quality of client went substantially up. Like considerably less pain in the ass people. Five, customer service plus complaints down 50%. So like that, every person listening to this who sells an offer understands that when you sign a client, it takes about three months to get a client a result. If you get a client on a monthly package and you tell the client it's going to take three months to get results, they're going to completely forget about this conversation. Approximately four or five days before the second billing date because the results haven't occurred yet and they have to pay again. Even if they signed a three month contract with a three month lock in, it doesn't work. You need to collect the money of the entire quarter upfront. So therefore there is no billing date 30 days from start or 60 days from start. The next billing date is 90 days from start. Therefore the entire project can elapse without more money outlayed by the client. Get him saying you don't sign a three month contract, you collect three months of money upfront. It's completely different if you don't collect the money up front. All of these benefits are completely annihilated. The only way these benefits are realized is if all of the money is collected upfront. If the average monthly price before was $1500 in the CAC was $2200, that meant month one cash flow is negative $700. Okay, so when we switch to quarterly, if the effective monthly rate stays the same, that means you are collecting $4,500 upfront. CAC is still 2200. That means month one cash flow. It's not negative 700, it's actually positive 2,300. It's way different than negative 700 from a financial analysis perspective is just doubling your money. Like you have to understand what happened here is you put in 2,200 for the CAC, got back the full 2200 plus another 2,300. So you turned $2,200 into, you got your principal back plus 2,300 extra dollars immediately day one. That's how you scaled a profitable, stable, good, clean, easy, enjoyable business. That's how you do that. Okay, so if you want my help, I have two things for you. One is our mastermind, Olympia. This is the first link in the description. Join Olympia.com, we teach you how to make a front end cold traffic, offer a front end cold traffic via cell funnel, make it, launch your ads, a sales team to close for you and help you build a fulfillment team to fulfill clients for you. And this includes one on one calls with me directly, not a customer success manager with me and my co founders. Also four events a year in person so you can come hang out with us. So Olympia, you have to be 30k a month or more to qualify. Your business has to be making above $30,000 per month to join that. Okay, number two is AI Assisted Agency. This is for people who are below 30k a month and are just starting and you want to make an AI marketing agency. We show you what to sell, who to sell it to, how to get clients and how to fulf for those clients with AI. Give you all the tools and everything you need to start the business and be successful with it. If you got any value from this like subscribe to the video, leave a comment, what you want to see next and then click one of the two links below in the description either Olympia or AI Assisted Agency. Go watch the video on that page and then you can schedule in a call with us for either one of them in order to see if it's a right fit for you. If you want to see case studies from my other students for both Olympia and AI Assisted Agency, I'm going to leave that in the link in the description somewhere else as well so you can see case studies of people actually getting results with us. All right, that's it for this video. Love you.