Establishing a new business is already challenging. Doing so while also launching your first paid marketing campaign is often the point at which many founders give up their ambitions – as well as their money. The issue typically isn’t the product itself, but rather spreading the funding too thin across multiple channels so that none of them can gain the necessary traction.
Start With The Math, Not The Vision
First, you need two numbers before you go anywhere near an ad platform: what a customer is worth to you over their lifetime, and what you can afford to pay to acquire one. Your Customer Acquisition Cost has to be below your margin or you’re in the unhappy position of funding a business that can’t survive.
As a rough starting point: the U.S. Small Business Administration recommends that small businesses under $5 million in revenue spend roughly 7% to 8% of gross revenue on marketing, assuming good profit margins. That doesn’t tell you _how_ to spend it, but it gives you a ceiling.
Then apply the 70-20-10 rule. Spend 70% on channels you’ve got some evidence for – even borrowed evidence from competitors that you can compete with. Allocate 20% to formats that seem promising but you haven’t put money behind yet. Allocating 10% to experiments gives you permission to fail, but at the same time, stops you from betting the farm on an untested hunch – and leaves room to find your next best channel.
The Test Budget Is More Important Than The Total Budget
Many new advertisers test one campaign, don’t notice immediate results, and walk away. The truth is that they likely didn’t invest enough capital to acquire valuable insights.
You must achieve statistical significance to determine effectiveness of a channel. In most cases, that will be at least 2-3 times your target Cost Per Acquisition per test variable. For instance, if you are testing 2 ads against each other and your goal CPA is $40, you should spend between $80 and $120 on each version. If you don’t hit that threshold, you’re prematurely turning things off.
Keep your tests confined. One variable only: headline, image, landing page, or offer. After you’ve found a winning difference, then you dedicate the budget. Not before.
Go Bottom-Of-Funnel First
Marketing your brand is great. But you can’t use it to pay office bills.
And when you’re an unknown, cash flow is all too real. So significant ad spending should be performance-based. Use intent signals: Search ads, comparison sites, retargeting. They target people who have self-identified as being in your category, as looking for what you sell. Display and social spin, content, and brand ads are important. But they require high spend and multiple exposures to create awareness and response. You can’t yet do either. So you can’t yet afford those.
Fix your landing page before you spend a dollar on traffic. A page that takes four seconds to load can double your acquisition costs, because you’re paying for clicks that bounce before anyone sees your offer. Conversion rate problems on the landing page will wreck even a well-targeted campaign.
And never count your creative costs in your spending. Make the “ad create” a separate line item. Cheap is expensive. Cheesy is costly. Your prospects are repelled by your worst ad.
Choosing Where To Spend Across Channels
Once you’ve got your main channel running to the point where you can reliably project revenue, and you’ve got maybe a bit more margin than you expected, it’s time to think about a second channel.
The biggest single danger is going to one of the major social platforms with high minimums or the “Free Money!” early credits they give to new advertisers. It’s so tempting. But it’s also a black hole. You will never pay less for ads on those platforms than you do when you are a new advertiser and are still making silly mistakes about targeting and creative, because they will always be working to drive up costs by making the auction process an unfriendly one.
So ease in. Exploring ad networks for advertisers that specialize in formats like push notifications or pop-under traffic can give you access to volume the big platforms don’t offer.
If they can move volume they haven’t yet been co-opted by the big platforms and you will often find the CPM to be a fraction of what you’re paying on Facebook or Twitter for the same kind of impression. Add up to 20% to your budget and give them a try. They won’t be a good fit if you are trying to hit a particular demographic or life context, are selling a complex product, or have a long sales cycle. They are a good fit if you need volume and can find pockets of interest cheap.
Depth Beats Breadth Every Time
The campaigns that make it through the first six months aren’t the campaigns with the most content. They’re the campaigns where a founder chose a place or two, spent enough to really know what’s working, and let the data make the decisions instead of their gut.
Marketing in the early days of a new business is a series of intelligent tests. You’re not trying to make everything successful. You’re trying to find something that gives you incremental customers, and then you’re trying to fund that. If you get that right, the other ones come a lot easier.
