Resource-constrained early-stage startups often default to content marketing since it is essentially free. However, there are instances when paying for customers makes a ton of sense. The principal challenge being that it’s very difficult to find a channel and tactic that is both effective and economical. In some cases, it might be next to impossible to measure the effectiveness of your marketing spend, forcing you to fly blind. In this article, we will discuss common paid advertising activities and channels as well as tactics for measuring and optimizing your campaigns.
Everyone’s favorite form of paid advertising is digital advertising because it is both easy to buy and easy to measure. However, since most of the companies in your space are probably employing digital advertising, they bid up the costs to the point where margins become razor-thin. It’s a simple matter of economics. Imagine that the average lifetime value for a customer in your space is $100. Everyone vying for your customers will bid up the advertising costs such that, taking into account conversion rates, the acquisition costs will tend to $100 as well. Your goal is to outdo the efficiency of your competition’s paid advertising campaigns.
The first point to understand is that the actual acquisition costs are not only a factor of how much you pay for advertising but also how well it converts. Let’s take the simple case of pay-per-click advertising, where you only pay if users click on your ad–the most popular provider being Google Ads. Imagine you run a campaign with an average pay-per-click cost of $1.20. Given that the average revenue you get from a customer is $100, you’re doing great, right?
Not necessarily, because those folks that click on your ad and come to your site still need to complete a purchase. Let’s say that only one in a hundred of those that click on your ad actually buy your product or sign up for your service. That means that the true average acquisition cost for each customer is $1.20 ÷ (1/100), which equals $120. You are losing $20 on each customer. Your job is to optimize your paid advertising campaigns as well as your purchase or acquisition funnel such that the average acquisition cost is less than the revenue you derive from your customer.
Some types of digital advertising do not charge per click but rather by impression. It gets significantly more difficult to optimize if the advertiser does not also provide clickthrough metrics. The trick is to figure out how many folks clicked on your display ads and calculate an effective acquisition cost. This might mean running serial campaigns in isolation.
For example, let’s say that you spend $5,000 on a display campaign that results in 20,000 ad impressions over two weeks and 60 new customers. In the two weeks previous to the ad campaign you also didn’t run any advertising to set a baseline for organic customer acquisition, which you found to be 10 customers in two weeks. Over the two weeks when you are running your digital campaign, you don’t run any other advertising, so you can approximate that whatever customers beyond your baseline are probably due to the campaign. That means that you have spent $5,000 and acquired 50 net customers for an acquisition cost of around $100. You are just at the break-even point given that the average lifetime value of your customers is $100.
Now that you know how to measure and calculate your acquisition costs, all that is left is figuring out how to optimize your campaign and acquisition funnel. It really doesn’t make much of a difference which to optimize first, but since you are paying for the traffic that you’re driving to your website or app, you might as well get those costs down first by starting with the campaign.
The efficiency of any advertising really comes down to two variables: message and channel. Once again, following the path of least resistance leads to experimenting with the messaging first since it’s usually harder to move an entire campaign to a new channel. Many advertising platforms such as Google Ads will allow you to test multiple ad versions at once or to perform A/B testing wherein two versions of an ad are displayed randomly to gauge which performs best.
If your platform does not provide testing tools such as these, you have two choices: either switch to one that does or experiment with message variations in serial. If you go with the latter, it’s generally a good idea to run each advertisement for a week since there can be a lot of variation in terms of clickthrough rate across days of the week. It should also be noted that temporal variations will also exist over longer periods, which make comparing campaigns difficult if you run them one-by-one. For example, you will likely get a much higher clickthrough rate for any merchandise-related ad right before Christmas. Having said that, even a rough comparison is better than a total guess.
Here are some popular channels for digital advertising that you should consider:
There is really no shortage of digital advertising platforms, and it’s worthwhile looking at those that are not as popular since they tend to be a much more economical option.
Optimizing your acquisition funnel
One of the most common mistakes that startups make is sending traffic to their homepage from their advertisements. If your product is web-based, it’s important to think of your site as having multiple doorways rather than just the front door through the home page. In fact, some of the other doors are more appropriate for different types of customers. The first variable to consider optimizing is where to send your customers. Let’s consider an example to illustrate this point.
Imagine that your startup offers a business chat platform similar to Slack. Rather than taking customers to a general home page, you might be better served to take them straight to a signup page. Better yet, imagine that you run various campaigns targeting specific groups of customers. One campaign targets small startups of less than twenty employees. Another targets only engineers at a large tech company. Yet another campaign speaks specifically to marketers at large consumer good companies. Rather than sending all of them to a generic home page or sign-up page, wouldn’t it be more effective to create a signup page for each group of customers that can address their specific needs?
Beyond creating custom landing pages for each customer type or campaign, big improvements to the acquisition funnel can be gained by reducing usability issues and functional errors. This is where user testing becomes critical in helping your team identify problems. For example, perhaps the text describing benefits is clear to you but confusing to actual customers, or they are confounded by a label of a button. Maybe they also point out that the graphic design of the “buy” button is so subtle that they didn’t even notice it was there. These are the kinds of issues that you need to eliminate since each problem area shaves off a bit of your conversion rate, and all these speed bumps can add up to a difference between an average conversion rate of 2% and a great conversion rate of 5%, which is more than twice as good.
It seems that digital advertising really stole the spotlight from non-digital forms over the past few decades. However, traditional advertising can be surprisingly effective in some cases. The main variable to consider is whether a traditional channel like a magazine or radio advertisement will be able to target your ideal customer better than digital alternatives, and there are cases where this is certainly true.
For example, if your startup is selling patient management software for dental offices, you might be very well served to run an advertisement in a dentistry trade journal such as Dentistry Today. As another example, perhaps your startup is targeting college students. Wouldn’t it make sense to consider an advertisement in the student newspaper? The same is true for other non-digital channels. Here is a list of the most common ones:
- Newspaper of magazine
- Local TV
- Bus stop posters
The two biggest challenges with traditional advertising is that it usually costs a lot–magazine ads can easily run into the tens of thousands of dollars–and it is difficult to measure the effectiveness of traditional ad campaigns. To mitigate the cost, it’s important to make sure that whatever channel you are investing in efficiently reaches your target audience. You might also want to start with less popular options wherever possible.
Gauging effectiveness is a bit trickier, but there do exist tactics for measuring attribution. The most common way to tell if your advertisement is driving customer traffic is through a unique promo code, web address, or phone number. For example, let’s imagine that you are running a radio advertisement on a local station. Rather than telling listeners to visit betaboom.com you might drive them to betaboom.com/radio. Some folks that hear the radio ad might still go to the homepage, but you will get a fairly good reading on how many customers are finding you by way of the radio campaign. Likewise, you can employ a similar tactic with any other channel from flyers to magazine ads. In addition, you can survey customers at the time of purchase to see how they heard about your company.
Paid influencer advertising
Rumor has it that brands pay over half a million dollars for one Instagram post from Selena Gomez. That kind of money might be a seed round for some startups, but it’s an exception. Influencer advertising can be an effective and economical way to reach your ideal customer with brands paying between $500 and $1,000 for Instagram influencers with 50-100K followers, for example. It should be noted that your message will not reach all of the followers that a given influencer has since not all of them will notice the post mentioning your brand. However, what makes influencer advertising effective is that the endorsement of your product or company is coming from someone that the audience trusts–the influencer.
Even though this trust factor helps to increase conversion rates, this form of advertising is still not inexpensive given the impressions. Therefore, it’s imperative that you are very selective when choosing influencers to promote your startup making absolutely sure that their followers exactly match your ideal customer profile. For example, if your startup is selling powder skis directly to the consumer, be darn sure that the influencer’s followers are powder skiing fanatics.
Suitable channels for influencer advertising might include the following:
Once again, think carefully about who is your ideal customer and where do they hang out in the digital realm.
In the last article in the startup marketing series, I will discuss less common activities such as running contests. If you have any questions or comments, please be sure to leave them below!