Adam Sand shows how $4M in sales from a $100K ad budget can net only $100K profit. Nineteen hidden cost drivers erode margins, making a 2.5% ad spend ratio look good while profitability tanks. You need to track everything, not just sales.
So if you're saying, oh, I want to do $2 million in sales, it's a foregone conclusion that you're going to spend $100,000 on ads, which means you're going to spend $8,000-something on ad spend every single month. Right. And then in theory, by hiring a marketing agency instead of doing it yourself, you should get a better output from that $8,000 than if you were to do it yourself because you're paying for expertise and management. There's so many things that can impact net profit. You might get a false positive or false negative. In terms of how you're determining the return on your ad spend, because you might say, oh, my marketing agency sucks because I spent $100,000 on ads and I only got $100,000 in net profit. But maybe you sold $4 million worth of roofs for that $100,000 in ad spend. And the reason your net profit was only $100,000 is because of 19 other things that are bad and has nothing to do with your ad spend. So then you would be getting a false negative in terms of the effectiveness of your ad spend because your ad spend was 2.5% of revenue.
