In our last discussion, we delved into the nitty-gritty of creating effective ads—covering ad elements, call-to-actions (CTAs), targeting, and more.

Now that you've got all that information, it's time to focus on monetizing those ads.

This post is the second part of our series on paid ads, specifically addressing the financial aspects.

While the first part was quite dense, this one aims to be lighter and more digestible, focusing purely on the money-making side of things.

We’ll cover five key areas:

  1. What Matters Most
  2. How Much to Spend
  3. How to Measure Performance
  4. How to Fix Underperforming Ads
  5. Lessons Learned

1. What Matters Most

When it comes to advertising, efficiency trumps creativity.

All advertising works to some extent—it's not about whether it works, but how well it works.

This applies to any form of advertising, not just paid ads.

If no one knows about your product, advertising ensures that more people are aware of it, increasing your chances of making money.

In paid advertising, the return is clear: you spend X dollars and get Y dollars back.

This clarity allows you to focus on the efficiency of each ad.

The goal is to make more money than you spend.

A good benchmark is a 3:1 ratio (LTGP:CAC), where for every dollar spent, you make three dollars in return.

Achieving this means you can reinvest quickly, fueling faster growth.

So we want to understand which of our ads work well, and then scale the hell out of them.

2. How Much to Spend

The question of ad spend is common.

There are three stages to consider:

  1. Track Money: Ensure you have proper tracking in place. Without tracking, you’re flying blind, akin to betting in a casino without knowing the odds.
  2. Lose Money: Understand that losing money is part of the process. Not every ad will be a winner. For example, out of 300 ads, only a handful might be successful, with one being a significant home run. The key is to control your budget and accept the losses as part of the learning curve.
  3. Print Money: Once you find a winning ad, scale it aggressively. If an ad is profitable, spend as much as you can on it to maximize returns.

3. How to Measure Performance

To measure how well your ads are doing, you need to understand a few key metrics.

Let’s break this down with an example:

  • Product Price: $15
  • Gross Profit per Unit: $10 (Price - Cost of $5)
  • Lifetime Gross Profit (LTGP): If a customer buys the product 10 times, the LTGP is $100.

The critical ratio here is LTGP to Customer Acquisition Cost (CAC).

A 3:1 ratio is ideal, meaning you want to make at least $3 for every $1 spent on acquiring a customer.

Improving this ratio can be achieved by:

  • Decreasing CAC: More efficient ads, better targeting, improved sales processes, etc.
  • Increasing LTGP: Offering upsells, improving product margins, and enhancing customer value.

4. How to Fix Underperforming Ads

If your ads aren’t performing as expected, identify whether the issue is with the ads themselves or your sales process.

Here’s a step-by-step approach:

  1. Evaluate the Ads: Are they getting clicks? If not, tweak your creatives, copy and CTAs.
  2. Assess Targeting: Ensure you’re reaching the right audience.
  3. Optimize the Sales Funnel: If leads are coming in but not converting, improve your landing pages and sales tactics.

Fixing cashflow issues:

For many businesses, LTGP is bigger than CAC, but not after the first purchase.

The profit from the customer's first purchase is often less than the cost to get them.

It can take many months to collect the full LTGP.

So you get your money later instead of now.

This cash flow problem cripples your ability to scale ads and get more customers.

For example, if your initial CAC is $30 and you make $10 in gross profit per sale, you’ll need three months to break even.

By introducing an upsell, say a $100 product that 20% of customers buy, you can break even much faster, allowing you to reinvest and scale more quickly.

This is called client-financed acquisition, and that's the position we want to be.

Otherwise, we need to front the money by raising capital or taking on debt––which is not a position we want to be in.

Client-financed acquisition is where we want to be, because that creates a cashflow positive business from day one.

So our ideal position is to be over 2:1, for each customer we acquire, in the first 30 days.

5. Lessons Learned

Here are a few crucial lessons from my experience:

  • Don’t Confuse Sales Problems with Ad Problems: Ensure you’re solving the right issue. Sometimes, the problem isn’t with the ads but with your sales process.
  • UGC as Ads: User-generated content (UGC) and high-quality content can make excellent ads. Encourage your customers to create testimonials and use these in your campaigns.
  • Mindset Matters: Avoid negative self-talk about technology or skills. Anyone can learn to run ads with enough effort and willingness.

Paid Ads Daily Checklist

  • Who: Yourself
  • What: Your Offer
  • Where: Any platform/relevant audience you can buy access to
  • To Whom: Target audience or lookalike audience
  • When: Everyday, 7 days per week
  • Why: Get engaged leads to sell
  • How: Call Out + 3Ws + CTA
  • How Much: Learning Budget, Then Reverse to Sales Goal
  • How Many: 30+ Call Outs (hooks) x 10 Ads = 300 variations
  • How Long: As long as it takes

Keep in mind - If you know how many customers you can handle each month, then you can reverse that into your budget, until you fix this constraint.

If you can only handle 20 new customers a month, and the average cost to acquire a customer is $100, then I know my budget is roughly $2000/month.

Conclusion

Monetizing ads effectively is about understanding what matters most, how much to spend, measuring performance accurately, fixing underperforming ads, and learning from experience.

By focusing on these areas, you can turn your advertising efforts into a money-making machine, continually reinvesting profits to fuel growth.

In the next part, we'll cover how to put all four advertising methods on steroids.