If you’re feeling frustrated and overwhelmed by the lack of results from your advertising efforts, then you are not alone! Many online coaches and course creators find themselves confused about which ads to run and how to measure their success. They may be spending hours creating and launching campaigns, only to see minimal engagement and little return on investment. Instead of attracting their ideal clients and growing their business, they are left feeling discouraged and unsure of how to move forward. Stay tuned to discover the truth and how you can utilize data and metrics to make informed decisions about your ads.
- Uncover the secrets to making advertising a viable investment for your coaching business.
- Learn how to strategically calculate your CPA for effective client acquisition.
- Gain insights into the power of sales conversion rates and their influence on the cost-effectiveness of ads.
- Explore the art of utilizing metrics and data for informed decision-making in the world of advertising.
- Discover why crunching numbers and ROAS calculations are non-negotiable tools in achieving bigger profits.
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Podcast Transcript:
00:00:01 You are listening to the Scaling to Freedom podcast. And if you are an online coach or course creator, you are in the right place. I’m your host, Christina Bernhard. I’m an ads agency owner that gets an inside look every day on what’s working and what doesn’t in the online coaching space. I’m here to share with you what we see works in our agency as well as what we see happening and changing in the industry. Stay tuned to up level your coaching business to have the freedom you want. Let’s get started.
00:00:31
Welcome to episode 189. I cannot believe we are almost at 200 episodes with this podcast. It’s insane. But this episode we’re going to be talking about whether you can afford ads. So the reason I wanted to talk about this is that since way before I even started my business, I have seen a lot of messaging around running ads with the low budget. These are really hot topics, and if you do create content about that, it does really well. People want to know, can I run ads? They’re looking for some secret formula to making lots of sales, right? Especially if you’re in the beginning stages or you don’t have a lot of resources or a lot of budget, you might be wanting to know if you can have these crazy big results without putting in lots of budget. I wanted to cover this because I wanted to make sure that you understand the actual formulas.
00:01:30
So we’re going to get a little technical today. It’s going to be talking more about numbers and things like that. And I want to give you the formula for figuring out if you can actually afford ads and what you need to know to know if you can, like what kind of metrics do you need to know and how do we put all of these numbers together to figure out if ads are a good idea. So getting a return on ad spend is a balance of your cost per lead and your conversion metrics. So whatever your actual funnel looks like, you’re going to have these different points of conversion throughout your funnel. So we want, for example, your conversion from leads. How many people who are leads actually book a call? So if they’re registering for a webinar or if they are downloading a freebie of some sort, how many of those people actually book a call with you? If you do calls, I’m assuming you’re doing sales calls, and then out of the actual sales calls that you have, how many of those people are actually purchasing. So that’s another conversion point.
00:02:32
Or if you’re just doing leads to purchases, if you don’t do sales calls, that’s going to be your main conversion metric, right? So if your cost per lead is really high, then the conversion metrics have to also be high. So it has to be this balance between them. And this is going to really help you determine if you can afford ads. And by affording ads, I mean that are you in a place where your conversion metrics actually are in the right spot to where you will get a return on ad spend if you do put that budget in. So the first thing that we’re going to do, I’m going to walk you through the metrics that you need to know and how to determine this. So the first thing is you need to know what your CPA is, your cost per acquisition. So how much can you spend on getting a client. So this is really important to know this number. And honestly, there are a lot of different ways to calculate this.
00:03:27
There’s no one specific way because there’s conservative acquisition, there’s also aggressive acquisition. So some people might be willing to be really aggressive in their acquisition. And what I mean by that is they are willing to spend a lot of money to get a customer. And this is going to depend on the lifetime value of the customer. So let’s say if you have a membership, if you are willing to break even in the beginning because you know your membership is really good, the retention is really high. So the lifetime value of the person is going to be much higher than what they’re going to spend in that first month, in just a single month of the membership. Same thing with your different offers. Like, even if you don’t have a membership, if you do have an offer suite where people tend to graduate to the next step in your next offer in your offer suite and you know the lifetime value of your average customer is much higher than a single offer within your product suite. And people tend to cross over to other offers. And you know that people are going to probably invest with you again if they have in the past.
00:04:36
This is where it matters what that lifetime value is. So you might also, in that scenario, if you’d have offers that are more entry level, you might be willing to break even on those where you’re not getting this huge return because you know lifetime value, you will get a great return. So this also depends on your product suite, how good your retention is, and how often people will actually invest with you again and purchase from you after purchasing with you once. So you don’t want to just go off the initial money back. You want to look at that lifetime value. So with that, let’s say for an example, if you have a membership again, if your average retention is six months on average, then you would take that monthly payment and you would multiply it by six. That would be your lifetime value, your average lifetime value of each customer. So you want to look at what it costs to maintain the membership for six months, see how much you have left over and how much you can spend to get that client. And then if you do have a Mastermind, we don’t look at the specific monthly payments. We’re looking at the overall cost of the Mastermind.
00:05:49
Because once they begin, even if they’re on a monthly plan, and initially, you might break even or maybe even lose some money by obtaining them through Ads. Over time, you’re going to get the money back because they’re going to eventually complete all of their payments, and you’re going to get the full cost of the Mastermind or Group program. So that’s the first thing is knowing what your acquisition cost is going to be, what you want it to be. Again, some people might not be willing to break even. And if you don’t want to break even in the beginning, then either the price point has to be right or your conversion metrics have to be really good, right? So we have to figure out what this balance is for you and what you’re willing to do, what you’re willing to invest to obtain a client, and what you’re willing to do to try and retain them and make sure that you do get that lifetime value as high as you can. So the first thing we’re going to do is that and then you want to work backwards. So what is your sales conversion rate? So turning a lead into a purchaser, regardless of the funnel or the method that you’re using, whether it’s calls, no calls, emails, only if you’re using webinars, it doesn’t matter what is the overall conversion lead to purchaser? Doesn’t matter what’s in the beginning.
00:07:01
So you can start with that and with that conversion and your target CPA, what would your cost per lead need to be? So the formula is that in order to even calculate this, you need to have your cost per acquisition, you need to have your lifetime value, and you need to have your sales conversion rate. So I’m going to go over this slowly because I know we’re doing this Audibly, and I want you to be able to get this right. I also have a tool for you if it’s easier to do that as well. But you can also just do these calculations on paper or in a spreadsheet or something like that.
00:07:35
So what you’re going to do is you’re going to take the sales conversion rate and see how many leads you need to have for one purchaser. So you would take one divided by the conversion rate. So one divided by your conversion rate. And that conversion rate is going to be in decimal. So if your conversion rate, your sales conversion rate from lead to purchaser is 3%, then you’re going to take one divided by 3%. That’s going to be 33. That means that you need 33 leads to get one purchaser. So you’re going to take your cost per acquisition now and you’re going to divide that number by you’re going to divide the cost per acquisition by number of leads that you need to get a purchaser. So if your cost per acquisition is $300, you’re going to divide that by 33 leads. That’s going to be $9.
00:08:26
So this means that your target cost per lead needs to be $9 in order to hit your cost per acquisition goal. So that’s doable. And so you might need a little bit more room. So ideally you can afford a little bit of a higher cost per lead than that or lower conversions during certain seasons because a lot of businesses do have seasons where those conversion rates are going to be more difficult. I would say a common one is like summer for a lot of people because people are just a little bit checked out. So in the coaching world, summer can be a little bit rough. So you do want more room for that, but that is actually doable. So if your sales conversion rate is 3% and your cost per acquisition goal is $300, then you need 33 leads for that one purchaser. So you would need those at $9 a lead. So hopefully that is clear and you’re not confused by that.
00:09:22
But once you’ve done that formula, then you can figure out, can you afford Ads? So if you needed a target cost per lead that is only a few dollars, then I would say the conversion or the lifetime value needs work. So one of those two things, you’re either increasing the lifetime value with upsells or a larger product suite or retention. If you have a membership or some sort of ongoing retainer, then that retention is going to be what increases your lifetime value as well. Or you’re going to increase your conversion rate.
00:09:54
Ideally both, right? So we always want to be kind of working for working on both of those. But yeah, you do want the cost per lead only being like if you need it to be like $3, you definitely need to figure out the back end of everything. So this is going to be a really great way to figure out if you can afford Ads and really put your expectations in check as well. Because once you start investing in Ads, if these other components are not where they need to be, you will likely not get a return or you’re going to keep breaking even.
00:10:24
So using the same example with a higher conversion rate, I’m going to show you an example so that you can see what kind of difference it makes whenever you change your conversion rate or your lifetime value. So let’s say your sales conversion rate is 6% instead of three. So remember, with the other example, we need leads to be at $9 per lead. That’s what we can afford. If it goes higher than that, we’re going to go higher than our cost per acquisition. We might be either breaking even at that point or might be losing money. So we need that $9 per lead at the 3% conversion rates with the lifetime value that we had. So with that, if we doubled it to 6%, then one divided by the conversion rate, that’s going to be if it’s 6%, it would be 17. So before we needed 33 leads for one purchaser. Now on average, we will only need 17 because that conversion rate is higher.
00:11:21
So this means that you need 16 leads instead of the 33. And if you take your CPA and divided it by the number of leads that you need to get a purchaser. So if CPA is $300, still you would divide it by 17 leads and that equals $18. So this means now by doubling your conversion rate, you are also doubling the target cost per lead. So now you can afford to pay $18 per lead. So this is very likely. You’re much more likely to hit this year round, much more likely to make a profit and then over time, you can just keep improving these numbers, right? And then obviously with your ads, we want to constantly be looking at ways that we can lower that cost per lead so that we can increase those profit margins. And we want to also be still working on the conversion rate, lifetime value so that you can get the cost per acquisition higher if you need it. But still, this is how you’re going to be able to get a return on your ads.
00:12:20
And this is also a way that you can see with your current numbers if you can afford ads. And by affording ads, I’m talking about if you can get a return based on your current numbers. Now, so if you’re in a situation where you don’t have these numbers, where you haven’t been in business long enough to even have these numbers, I would really focus on getting them. Now you can run ads. There are some ways to do that. I wouldn’t necessarily recommend hiring like an agency because the overhead is going to be too high. It’s going to be a really big investment to be gathering data. There are ways that you can kind of gather this data just to get enough people going through the funnel where you can start gathering this data. So in the agency, we do offer intensives. Most agencies, a lot of them do offer some sort of intensive if they’re a smaller agency, so you can shop around.
00:13:06
But we do offer them at the agency and with the intensive, it’s much cheaper way to get your ads done. We do a hybrid, so we build your first campaign. And then if there are other agencies that do intensives, they might not build it for you, but they’ll show you how to. And so you can get started that way and have a lower budget to get people in. But just note that if you go that route, if you don’t have these other numbers, these other variables, then you are just purchasing data, which there’s nothing wrong with that, but just understand what you’re doing and what you’re going to get out of that ad spend.
00:13:41
So once you have these numbers and you have that conversion rate, you know your lifetime value, you know what your cost per acquisition needs to be. Then what you’ll be able to do is figure out if you can get a return on Ads, if all of it lines up, where you can afford a pretty decent higher cost per lead, if that’s necessary, then you can be really confident whenever you’re going into Ads. If you’re hiring a professional, obviously that knows what they’re doing with ads, then you can feel confident about getting a return. And it’s probably a good time to start ads so that you can start amplifying your business, you can start amplifying the impact and scaling in the way that you want to. So to help you with this, I do have the ROAS Calculator.
00:14:20
I’ve had this for a couple of years now. It’s still really popular and it’s so simple and easy to use. So I’ll put a link in the Show Notes for that. It’s free. It’s a spreadsheet where you will plug in these numbers and it will calculate it for you.
00:14:33
And you can also put in different scenarios and see if my conversion rate was this, what would the cost per lead need to be, and all of those different components. So it’s a basic calculator that can help you figure out what your return on ad spend would be if you did plug in your current conversion numbers. So go ahead and go to the link in the show notes, check that out and download that to help you. But otherwise you can also just follow along with the formulas that I went over today to figure out what those numbers need to be. So I know that we got super technical today, but it’s such an important message. It’s so important to understand the numbers and actually run the numbers. So this is also to say that sometimes we have these gut feelings or we have these ideas of like, oh, well, this doesn’t work. I tried that, it didn’t really work, or different things like that. This is just another reminder to always be checking the numbers. Like run the numbers, open the spreadsheet, actually look at them, do the calculations and figure out what the reality is.
00:15:35
Because sometimes our gut feelings can be off. And also, when we’re talking about investing in ads, we definitely want to know our numbers. So go ahead and check out the ROAS Calculator. Go through the formula that I went over today and figure out where you’re at if you’re not sure if you’re ready for ads, and even if you are already running ads, see if you are in a good place to be doing that, if you should be continuing that, or if you are getting a return on. That super important to understand that and also just to understand what dial do we need to ramp up in order to get the highest return that we need? Where is the break? Which variable is too low? Do we need to increase the conversion rate? Sometimes the conversion rate is as good as it’s going to get. We need to increase the lifetime value.
00:16:23
That’s either going to come down to raising prices or adding more offers that people can graduate to or maybe like cross sell. There’s lots of different ways to do that or even adding on add ons and Upsells can do that. There’s lots of content out there on ways to do that, so go ahead. And then also if you have a membership, definitely look at retention and see how you can increase that as well. Get lots of feedback and increase that. That’s going to increase your lifetime value. So hopefully you found this helpful. Hopefully I did not lose you in all of the different equations I went over. But it’s a fairly straightforward formula that you can follow, and hopefully you found it helpful to determine if you are in a good place. To invest in ads and what you can do to improve, to get a higher return on your current ads or to be in a good place to run them.
00:17:14
So hope you found this helpful and you have a wonderful week. Thank you for listening to the scaling to Freedom Podcast. If you are a seven figure coach looking for ads management with an agency that partners with you to get your work out into the world and amplify your impact, see if we are a good fit by applying for a spot in our agency at christinabernhard.com/apply. Find the link in our show notes.