Why Ads Stop Working as Acquisition Costs Rise — Transcript

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1. 0:00So, my name is uh Joris Smith. I sell
2. 0:02car loans to entrepreneurs.
3. 0:05Uh we do 6 million revenue.
4. 0:06>> Cool.
5. 0:07>> We'd like to be at 30 million revenue in
6. 0:102027.
7. 0:11>> Okay.
8. 0:11>> Um
9. 0:13What's stopping What's stopping me is
10. 0:14that the CPA is getting higher and
11. 0:16higher. When we started out, it was like
12. 0:19400 500 euros.
13. 0:20>> Mhm.
14. 0:21>> Uh now it's almost 900 euros, sometimes
15. 0:24even 1,000 euros. And I think we're
16. 0:26overcompensating the sales reps.
17. 0:29>> Okay.
18. 0:29>> Like 30% of revenue is for uh
19. 0:33uh wages for sales reps.
20. 0:35>> do you What's LTV to CAC? So, what do
21. 0:37you make on a loan?
22. 0:38>> Like 2.5.
23. 0:40>> So, you make $2,500 and it's costing you
24. 0:42It was costing you 600, now it's costing
25. 0:44you 900 for the same deal. Is that
26. 0:46correct?
27. 0:47>> Yeah.
28. 0:47>> Okay.
29. 0:47>> Something like that.
30. 0:49>> Okay. Um
31. 0:50actually just wrote an email about this
32. 0:51today, which will go out in like 6
33. 0:53weeks.
34. 0:54Um
35. 0:55So, uh fundamentally, if ad costs are
36. 0:58going up, and so you feel like there's
37. 1:00some sort of ceiling, like you want to
38. 1:01spend more, but you can't spend more
39. 1:02because the ad the cost goes up, there's
40. 1:04basically one of three potential
41. 1:06problems or solutions. So, problem
42. 1:08number one is that the LTV needs to get
43. 1:10fixed, and this is just a fact of life
44. 1:12as you go to colder and colder
45. 1:13audiences.
46. 1:14You You get out of your kind of
47. 1:16honeymoon phase of the easiest targeting
48. 1:18with the absolute highest interest, you
49. 1:20know, most
50. 1:24You know what I'm saying. That.
51. 1:25>> [laughter]
52. 1:26>> Very small amount of people who are
53. 1:27perfect fits, and then it just continues
54. 1:28go wider and broader. Right. And so, the
55. 1:31way to fix that is that we have to
56. 1:32increase LTV so that you can spend more.
57. 1:35The second um
58. 1:36reason that this would be limited is
59. 1:39based on the quality of the creative.
60. 1:41And so, um
61. 1:43uh I think a month ago, we had uh You
62. 1:45guys seen the um
63. 1:46Old Spice ad? The the you know the the
64. 1:49guy That whole was famous ad. Um so, the
65. 1:51guy who made the ad actually came here.
66. 1:54Uh kind of cool. Uh so, I we got to
67. 1:56chitchat about that. Um, but what's
68. 1:58interesting about that ad is that that
69. 2:00ad was so good
70. 2:02that they could show it to everyone.
71. 2:04And they went from like 20% of the
72. 2:05market to 70
73. 2:07with one ad campaign.
74. 2:09And so, to me, that is like the the
75. 2:11perfect example of what like complete
76. 2:13S-tier creative, like the maxed out
77. 2:15creative of just amazing advertising is.
78. 2:18And so, a lot of businesses will get
79. 2:19stuck at $1,000 a day, for example, and
80. 2:22say like,
81. 2:24"I think I've we've capped our market."
82. 2:26When in reality, it's you've capped your
83. 2:28creative.
84. 2:29And so, in order to break through that,
85. 2:31the quality of the creative needs to go
86. 2:33up and the volume also needs to go up by
87. 2:35consequence. And so, in the companies
88. 2:37that we spend like 100,000 a day in in
89. 2:39terms of our uh
90. 2:41ad spend, we we create, you know, 50 100
91. 2:44pieces a week that are going out in
92. 2:45terms of ads. And then,
93. 2:48we do that at first, and then we follow
94. 2:50kind of Google's 70 20 10 kind of rule,
95. 2:54which is 70% of the creative that goes
96. 2:56on from that point going forward is the
97. 2:58highest performing hooks from historic,
98. 3:02uh 20% is kind of adjacent to that. Uh,
99. 3:05so, just kind of like remixes, remakes,
100. 3:08slightly different versions of the
101. 3:10originals. And then, 10% is the wild
102. 3:12ideas that you've been saving. But since
103. 3:13it's only 10%, you're going to only pick
104. 3:16the ones you're like, "I think this
105. 3:17one's going to work." Because you have
106. 3:1820 crazy ideas cuz you're an
107. 3:19entrepreneur and you think that'll be
108. 3:20awesome, but you just got to pick the
109. 3:21one or two.
110. 3:23Um, and so, that's problem two that
111. 3:26could um
112. 3:27be the reason that that that you are
113. 3:28capped. So, um either you are not
114. 3:32sp- the creative sucks,
115. 3:33your LTV's too low, um
116. 3:36and there was a third one, which I
117. 3:37forgot. Uh, but there were three in the
118. 3:39email. And so,
119. 3:40>> [laughter]
120. 3:41>> uh the question that that I would have
121. 3:42for you is which one of those do you
122. 3:44think is the issue?
123. 3:46>> Um
124. 3:47I think the LTV is like is is too low.
125. 3:50Mhm. LTV to CAC. So, we have to uh make
126. 3:53the LTV higher.
127. 3:55Um but also we we have to get more
128. 3:58creative.
129. 3:59Um better hooks.
130. 4:02I think that's the the key to
131. 4:04uh better scaling.
132. 4:07>> The back end becomes the arms race of
133. 4:10every business that spends money to
134. 4:12acquire customers, which is many
135. 4:14businesses.
136. 4:15Uh and so if you look between
137. 4:18industries, the benchmarks for plumbing
138. 4:19businesses in North Dakota, the cost to
139. 4:22acquire customer is going to be more or
140. 4:23less the same between businesses. So as
141. 4:25much as we like to think that we have
142. 4:26some like very special sauce about like
143. 4:28our sales team somehow magically sells
144. 4:30different even though we recruit from
145. 4:31the exact same pool and compensate the
146. 4:32exact same way,
147. 4:34like we think it's somehow different.
148. 4:35But in reality, like we run similar ads,
149. 4:37we run similar promotions, we have
150. 4:38similar sales team, similarly
151. 4:39compensated, pull from the same talent
152. 4:40pool. And so so CAC is typically very
153. 4:43similar between businesses. But where
154. 4:45you get the outsized returns are that
155. 4:47some businesses can have 10 times the
156. 4:49LTV. And that's how they ultimately win.
157. 4:52So I think you're right. Um so when I
158. 4:54when I buy business, I I typically fix
159. 4:56it back to front and then I look at the
160. 4:58creative and think, "Okay, how do we
161. 5:00just do a ton more volume here?"
162. 5:02Typically because we just don't even
163. 5:03have enough data to figure out what the
164. 5:04best ones are. So like let's do way
165. 5:05more, then look at the top 10%, then do
166. 5:08more of that. And that process just
167. 5:09never ends.
168. 5:11Does that help?
169. 5:13>> Great. Thank you.
170. 5:13>> Yeah, you bet. If you're not getting as
171. 5:15many leads as you want and your business
172. 5:16is demand-constrained, [music] meaning
173. 5:18you could service more customers than
174. 5:19you currently have, then this is for
175. 5:21you. So marketing is changing and I
176. 5:23think ACQ tends to be on the bleeding
177. 5:24[music] edge of the stuff. We certainly
178. 5:26spend the money
179. 5:27to do it, but we also build custom
180. 5:29software and we pay amazing vendors and
181. 5:31very expensive people to figure out the
182. 5:32system that we have right now and I want
183. 5:33to share it with you kind of open kimono
184. 5:35style. If you're not getting as many
185. 5:36leads as you want,
186. 5:37boy do I have the thing [music] for you.
187. 5:38Click below, book call and
188. 5:40hopefully I'll see you in Vegas.