How To Fight The Rising Cost Of Advertising

Hey guys, Sabri Subhi here from King Kong. And in today's video, I want to talk to you about the art and really the science of customer acquisition. Now, if you think about the business landscape and advertising and really marketing your business online, there's really two fundamental factors that are really going to be impacting your success and your ability to bring on new customers. And the first one is that if you look at kind of what does the competitive marketplace look like right now? What does that landscape look like, right? There's only one thing that's going to change with that. It's only going to become incredibly more competitive to market your business online, right? It just makes sense. There's more and more businesses flooding online. The inventory for both Facebook and Google is limited. Therefore, the competition is going to dramatically increase. And the second thing is really the second order consequences of what that is going to result. And that is really the cost of advertising is only going to go up, right? There's only going to be more competition and then there's going to be a higher price to reach the same amount of people that you're looking to reach right now. And if you start to think about, okay, well, how do I engineer a business where I have a mathematical advantage in order to be able to go out into a marketplace regardless of the sea of kind of the influx of new competitors coming in and flooding the market and that the cost of traffic going up infinitely more. And it really comes down to this whole theory of having a proper sound business with a front end and a back end. So what do I mean by that? So if you think about like how business is traditionally done, right? Let's look at two scenarios. On the first scenario, you've got like a business that's out there and is buying traffic and they're generating leads or they're trying to send traffic through to an E commerce site, actually make a sale, right? And typically the way that these businesses work is it's just purely based on the front end. So they're in the business of basically getting as much traffic as they possibly can for the cheapest price possible and then generating as many leads or as many sales for the cheapest price possible, right? And that's their whole focus is like whittling down and getting like the cheapest cost per lead that they possibly can because their business is optimized purely for making profit on the front end. And that is the thing that dictates how much that they're willing to spend in order to generate a lead. For instance, is like what their close rate is from their sales team to convert those leads into a customer or what their conversion rate is on their e commerce site to convert that traffic into a customer again, right? That's the only thing that they are focused on. And you look at them, for instance, you know that with their business model the only thing that's really going to take place with the rising cost per click and the rising cost of competition is they're going to basically end up getting less amount of traffic for the same amount of money, right? Or they're going to basically, yeah, basically I have to spend more to get that same level of traffic as what they are right now. Meaning that their cost per lead is going to go up and their cost of sale is also going to go up and the overall cost to acquire a customer is only going to go one way and that is up. And their profit margins are going to be just chomped away constantly, forever on their business. Because they're purely have a focus of just making as much profitability on the front end, right? They're over optimizing for profitability. And then you take scenario number two and this is like where you've got like a growth focused marketer, right? And someone that's really trying to grow their business in an aggressive function and understands the proper unit economics of a business. And they're going out there and they're not overly concerned about the amount of profit that they make on the front end, right? Because they know that they've got a very sophisticated backend to basically get that customer to repeat purchase over the course of their lifetime with them. And that's where they'll make all their money, right? So you know, typical businesses, they only have a front end that is they're out there generating traffic, generating leads and just trying to convert as much of that traffic and leads into customers. And it's just like a one, one time event. Just buying with their business is a one time event. And they live and die by how much profit that that front end generates for them. And then you've got a business that has a proper front end that is engineered in a way to convert as much traffic into leads and into customers as physically possible. And they don't care really about how much profit that they make off on the front end as long as they're kind of breaking even or they're willing to even go into the whole hole and go into the red and lose and burn some money over a certain short amount of time because they know that their back end is dialed in and they're going to be able to squeeze way more profit. So in a typical environment, who do you think is going to work? Who do you think is going to win long term with that business? The person that's only cared about the profit on the front end or the person that's got a very good back end dialed in willing to give up all the profit on the front end to acquire as many customers as possible. It's very, very easy to answ that question the second business, because the first business model, they have a mathematical disadvantage to how they're going to operate, right? They're only concerned with the profit on the front end. So if you think about it in marketing terms, you look at that first business and it might be, for instance, their marketing budget might be 5k a month that they can spend on generating traffic. And it costs them $1,000 to acquire a customer, right? So they get five customers coming in and they might make, you know, off each customer, three grand, right? So they're making $15,000 per month and they're investing five grand in order to generate that. And they're getting, you know, five customers as a result of doing that. Okay? Then if you look at that, that, you know, you can kind of see the limitations of, they're willing to spend, you know, $1,000 to kind of get a customer coming in. You know, then if you have a look at like a close rate of 20 to 30%, they're only can afford to on generating a lead to come into their business. And what happens when that number starts to climb up? Well, then you start turning off traffic sources because they're not going to make any profit and their business won't be able to survive. And then you take business number two, right? Same business, same price point, same everything, just a different mindset. And They've also got $5,000 to spend on marketing per month, right? And they also make $3,000 off customers, right? However, they also have a backend, right? So they know, for instance, that that first sale is worth $3,000 on the front end, but then they have another product that they sell to that customer that they generate another $3,000 from, right? So therefore the lifetime value of that client goes from being $3,000 per month to $6,000, right? And then so instead of being able to spend $1,000 to acquire a customer, they can spend $2,000. So then they can go out into that business and they can go and buy the best traffic. They can out muscle that person. They can outbid them in all the auction pools on Facebook and they can go and sustain a much higher cost per click and a much higher cost per lead and a much higher cost to acquire a customer, then what they can do is they can further invest that additional cash flow back into their growth engine and they can start to ratchet up their marketing spend from five grand a month to ten grand a month, to twenty grand a month, to thirty grand a month. And they just come into your market and they buy all the customers, they take them all from you, right? And then you don't have a business and then you pack up shop and you complain about how all of your competitors are racing to the bottom on price or you know, you just can't compete with them. And you start to come up with all these excuses, right? When the reality of it is that you are over optimizing for profitability and you didn't have a back end and you were at a mathematical disadvantage from this person that came in with a proper back end to their business, they're willing to absorb those customer acquisition costs on the front end, liquidate that traffic cost and then have a really good back end business model, right? And you know, people calling them tripwires and entry offers, this is just all the new shiny object shit, right? When this stuff has been around for centuries, like having a loss leader product on the front end and a proper back end on a business is a very sound business principle that it's been around for hundreds of years and it's really like merchants were doing it back in the day with selling bread rolls and then really wanting to send you wine and all this other different stuff, right? So all I'm saying is that if you know that the only certainties are the competition in your market is going to get more fierce and your traffic cost and your cost to advertise your business is only going to get increased if you spend all of your time and energy only focused on how to optimize for profitability and make more money and spend less money to get those customers. You are fighting a losing war, right? To somebody that comes in, it's got a proper business model with a sound backend. And that's really the thing that I really want to make this video and stress to you why all these marketers and business owners are running around panicking about the cost per click on Facebook and Google AdWords and all this competition and they're starting to complain. You know, that's what a loser looks at, right? A winner is going to look at solutions and what are things that you can do to really engineer your business so you have a mathematical advantage over everybody else and you can go out there and you can just win that market. So wherever you're at in your business journey, I really urge you to sit and just think about this thing and think about what other services that you could sell on the back end that you could sell that's going to make your business way more profitable so then you can fuel more of your budget into actually growing your business. Hey guys, if you enjoyed this video, make sure that you click the like button and subscribe. Subscribe. We're dropping a video on YouTube every other day and if you've got any questions about any of the content that I covered in this video, just basically leave a comment with heysubree in the comment section. And every week we're also trying to go through all those questions and get them answered. So go ahead, click subscribe and we'll see you in the next video. Sam.