MBA1621 Is Paid Advertising Bad For Your Business?

Let me tell you about Intuit QuickBooks. When I was starting out my business, I remember sitting at my desk late at night not working on my business but cleaning up numbers, tracking and reconciling payments and wondering how this became my life. But once I automated the admin side of things, of my finances, those nights had disappeared and I felt a whole lot better. Outdo it with intuit QuickBooks QuickBooks is the trusted end to end solution that businesses rely on for getting paid, managing finances, paying employees, finding new customers and more. QuickBooks provides a team of AI agents and trusted experts, so doing it yourself no longer means doing it alone. Their payment agent gets you paid faster, their customer agent finds leads, follows up and secures more sales, and the accounting agent automates and categorizes transactions. Get your critical business jobs done with QuickBooks on the Intuit platform.

Ready to save on New Tech? It's time for Dell Tech Day's annual sales event celebrating our customers with fantastic deals and benefits. Product perks include Dell Rewards, free shipping, premium Support and more. PCs like the Dell 14 with Intel Core Ultra processors will help you do more faster and with a premium suite of monitors and accessories, you can upgrade your whole setup with amazing savings. Visit Dell.com deals.

Hey oh welcome to the 100 Arm. Your business gets better every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar is at home. I'm also the co founder of the $100 MBA, a complete business training and community online. And in today's lesson you will learn Is paid advertising bad for your business? Many people believe that you just can't go wrong with Facebook advertising, with Instagram, Google Ads, you name it. That paying for exposure, paying for leads is the way to go to scale your business. But I'm here to tell you that that is not necessarily true. Some businesses lose with paid advertising and in today's lesson I'm going to explain how you can find out if your business really doesn't need to pay for advertising and actually needs to take a different route. Anytime you pay for marketing, you need to look at the return on investment. How much money do you make in exchange for how much you pay to acquire that customer? We get into all the details so you can figure out if you're wasting your money on paid ads. So let's get into it. Let's get down to business. Paid advertising can definitely help a lot of businesses to reach new audiences, to get new customers. But you have to take a look at your business model, how much money are you actually earning per customer? Before you jump into paid ads, let me give you a quick example to get started. Let's say, for example, I have a group coaching program that costs $500 a month. And I know on average most of my customers stay for at least 12 months. So my revenue per customer in terms of the lifetime value of the customer is $6,000. Let's say, for example, I'm running an ad to a webinar to sell this coaching program and I spend $1,000 on this ad and I get 30 signups, 30 people are on my webinar and three people buy. So I spent $1,000 and I earned $18,000. That's a good return on investment. But more Importantly, I got three customers for the cost of $1,000. That means my cost per customer or cost to acquire customer is around $333 for a lifetime value of $6,000. That makes sense. So this is what I'm comparing, how much it costs me to acquire a customer. So on average, $333. And each customer on average pays me $6,000 over the course of the year. So it's a huge return on investment. Let's keep advertising. This works and that's what you're looking for. How much does it cost me to acquire a customer and then how much do I earn from that customer? Now you need to make sure that your margins are not so thin because remember, this is your revenue, not your profit. You make $6,000 of revenue per customer, not profit. So you want to make sure that at least doubling your cost per acquisition to cover any loss of, you know, profit from the type of expenses that you have to incur to deliver that product or service. So that's an example where paid advertising is really a good idea because you have a high price point and a high lifetime value for the customer. But let's say, for example, you sell an ebook and that ebook costs $10. It's a one time purchase. So that product, that customer buys only that. Let's say I run a webinar, I advertise for that webinar. Let's say I get 100 attendees for $1,000 and I convert at 10%, which is a pretty good conversion for sales conversions. So 10 people buy a $10 book, that's $100. So I spent $1,000 to make $100. Okay, let's look at the cost per acquisition. So the cost per acquisition because only 10 people bought was $100 per customer cost me $100 to earn a customer because I spent $1,000 on ads to get 100 people to the webinar. 10 people bought. 10 people bought means 10 people cost me a thousand dollars to buy or for them to buy, right? So it cost me $100 per customer to acquire that customer. And I only was able to get them to buy something for $10 because that's the price of my product. This is upside down. As you can see, I'm spending way too much money to acquire a customer. Why? Because my product price is so low. Because the lifetime value of that customer is so low. Now, of course, if you can upsell them later on, if you can sell them other products, that's great, but that's not a guarantee. And for most cases, you're gonna have to come up with some sort of aggregate number because not all customers spend as much money as the other. This is why it's super important for you to do the math before you start paying for for advertising. You got to find out what is the most you can pay to acquire a customer in order for you to make it worth your while, so at least doubling your investment. So if you spend, let's say $100 to acquire a customer, then you should at least be earning $200 on that product so that you are actually making a profit. You're actually making money here with your paid advertising. It is shocking how many entrepreneurs that don't do this simple math to find out what's my cost to acquire a customer per customer and how much are they actually paying me when they become a customer. So in general, if you are selling low priced products, products with low lifetime value, meaning that customers are not continually to give you money month over month, then you need to take a very close look at your CAC or cost per acquisition or cost for acquiring a customer every single time you run any kind of paid ads. Whether it's Google Ads, Facebook ads, Instagram ads, it doesn't matter. This also includes any kind of sponsorships of events, banner ads, anything. If your CAC is not half of what your customer pays you, you're asking.

For trouble for delicious meals. You could go out to eat or you could just make a Marie Callender's meal. Marie Callender's classic Chicken Parmigiano bowl is so good. It has marinara sauce that's made from scratch and creamy mozzarella cheese over. It's delicious with no artificial flavors, colors or preservatives and 30 grams of protein you can Find it in the frozen aisle. Marie what? Having it all tastes like flowers die in three days.

Matching underwear from Meundies. That's a gift that lasts. Meundies creates matching prints for couples and friends. Same adorable designs and different cuts for each of you. All made from their signature ultramodal fabric that feels impossibly soft. With 90,000 five star reviews, MeUndies matching prints are the perfect gift. Valentine's Day is February 14th, so don't wait. Get exclusive deals up to 50% off@meundies.com sxm code sxm that's meundies.com sxm codesxm.

To wrap up today's lesson, make sure that paid advertising works for you before you actually heavily invest. So one of the best ways to do this is to start with a small amount of money. When you go with paid advertising, 100, 200, $300, make sure you actually know your cost per acquisition for each customer so you can know if that number is at least half of what they pay you. Of course, you want multiples on your CAC. So of course, if you spend $100 to acquire a customer and you charge them a thousand, that's 10x. That's great. Play that play over again all day long, every day. Thank you so much for listening to the $100 MBA show. Don't forget to hit subscribe on whatever you use to listen to podcasts. Whether it's Spotify or Stitcher Radio or Himalaya or Apple Podcasts or we're on every single platform. Hit that subscribe button right now and you get access to over 1600 episodes in our archives. It's the only way to get access. It's absolutely free, so hit subscribe right now. Before I go, I want to leave you with this. A lot of us as entrepreneurs, as big thinkers, as big idea people, we don't want to do the nitty gritty math. But it's going to save you and allow you to grow and expand and come up with new products and new ideas. It's essential do the math to make sure you're doing the right decisions or you're making the right decisions with your advertising. Thank you so much for listening and I'll check you in Tomorrow's episode Freeride Friday. I'll see you then. Take care.

Of.

At Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think With Capella University. Learn more at Capella Eduardo.