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Beware the Zuckerbook money-doubling machine: spotting a bad ad spend

Promises of doubling your money with Facebook ads is actually a pretty bad bet: why the “breaking even” promise of an ad cost is garbage.

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A Not So Great Pitch

Not too long ago, I saw an ad for Facebook advertising. The ad featured a local small business. I forget the exact numbers and business name, although it was something along the lines of “Mary’s Cookies uses Facebook advertising. Recently she invested $2,200 in ads and received over $4,500 in sales!”

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When I play blackjack in Vegas, I am happy if I double my money. If a stock I own doubles in value in a year or two, again, nothing but smiles. But, if my business only returns two times what I put into marketing it, I will be crying in my beer. Perhaps a solopreneur with no other overhead can afford marketing expense approaching 50% of sales, but there aren’t a whole lot of other companies that can survive, let alone thrive, if burdened to that extent. How about your company?

Know Your Key Operating Metrics

A lot of companies that I consult for don’t initially know and understand their key metrics. I get it – they are busy doing stuff, and analyzing numbers falls in the category of things to do that are important but not urgent. However, it is one of the first things we straighten out, because it is not simply important for a business owner to know her key operating metrics, it is mission critical. Marketing as a percentage of sales is one of those key metrics.

Business owners must be vigilant in measuring all of their marketing initiatives so that their calculations are as accurate as possible. I can attest that it is easy to think things are going well, simply because the cash register is ringing, while not recognizing that you have a broken business model due to the cost of acquiring customers being far out of whack with their expected lifetime value.

It happens, so measure and manage.

Wildly Varying Marketing Expense

Marketing and advertising expense as a percentage of sales varies considerably by industry, and even among companies within the same industry. Some mature companies spend aggressively to maintain their brand, while others spend very little after they “arrive” and choose to just, in the words of Seth Godin, “milk the cow.”

Companies knocking the cover off the ball may spend liberally because the money is flowing, while one of the first things struggling companies cut is discretionary marketing spending (an executive decision so foolish and so common that I always think of lemmings rushing toward the cliff when the announcements start rolling out during tough economic times).

A 2014 survey published by the American Marketing Association and Duke University found that companies with less than $25 million in annual revenue (sales) spent an average of 11% of their revenue on marketing. Companies with greater than $25 million in annual revenue spent only 9%. The same study found that business to consumer (B2C) product companies spent on average 16.3% of their annual revenue on marketing, outpacing B2C service businesses, which came in at 10.9%. Business to business product and service businesses checked in at 10.6% and 10.1%, respectively.

The Occasional Outliers

9%, 10%, 11%, 16%, but not 50%! Granted, there are some high-flying technology companies that spend an enormous portion of their sales on marketing and advertising. Salesforce.com and Twitter are among them, spending 53% and 44%, respectively, in 2014.

Both companies are essentially still in land grab territory, spending aggressively to capture relatively new markets. Salesforce.com has a product that, once installed, carries significant switching costs. I suspect the average lifetime value of their customers is sky high.

We didn’t talk about that with Mary’s Cookies.

Perhaps the $4,500 in sales represents a lot of new customers that will stick with the company for a long time and generate plenty of additional sales. In that case, solely looking at the marketing spend relative to the immediate uplift in sales doesn’t do the advertising investment justice.

Twitter is presumably spending big to build out their network, which is understandable – more participants in a network equals greater network effects, i.e., an overall enhanced user experience. Although 44% still strikes me as high for Twitter, I’ll give them the benefit of the doubt.

Still, these are extreme outliers. 10% is a much safer percentage to apply to any business USA selected in a vacuum. And, no offense to Mary, but it’s hard to conceive of her cookie company carrying the high gross margins and high switching costs enjoyed by the software as a service industry.

Another Questionable Pitch

Over the years, I have bought a lot of advertising – radio, billboard, magazine, newspaper, banner ads, AdWords … you name it, I have probably tried it. Okay, that’s not true. I have yet to name a stadium, burn my message in the air with a sky writer, pay someone to tattoo my company name on her forehead… But, I have thrown a lot at the advertising wall over the years, just trying to see what works.

If you’ve also been foolish enough to buy a lot of traditional advertising (which I define as old, boring print advertising that rarely works any longer), no doubt you have heard a favorite closing line of their ad sales people. They ask for your company’s average sale price and then compare it to the cost of the ad buy. They love to be able to say, “You only have to make one sale to break even!”

No joke, I have heard this line no less than 50 times over the years. Breaking even is always pitched as a positive. And, that is one way to look at it – after all, it is better than losing money. Another way to look at the break even outcome is that if you consistently offset 100% of your sales with marketing expenses you are going to have a lot of free time soon ‘cause either your business ain’t gonna make it, or you won’t be in charge of its marketing and sales efforts. The goal is to do a tad better than “break even” with your marketing budget!

Okay, Maybe this Zuckerbook Money Machine Thing is Worth a Spin

Always anxious to play the optimistic fool role and throw more stuff at the advertising wall, I was not deterred by the unimpressive Mary’s Cookies case study.

One of my companies is experimenting with Facebook ads right now. Our target marketing expense in the company is, believe it or not, 10% of our sales. This is a new company and we aren’t certain exactly what our target ideally ought to be. So, we are defaulting to that safe moving target of 10%. We are not going to blow our budget Twitter-style.

At the same time, we want to be careful not to spend too little and find out when it is too late that we haven’t built the sales funnel we projected. Our early results are actually very encouraging. Who knows, if we hit our target with Facebook ads, you may soon see our company featured in a Facebook ads case study. Sorry, Mary’s Cookies. You had your undeserved run.

Try Stuff and Measure, Measure, Measure!

Or, this would be a good time for Mary to say good riddance to the Zuckerbook money-doubling machine. She should throw some other things at the advertising wall in an effort to find an approach that works, marketing initiatives that throttle her sales engine, along with an acceptable customer acquisition cost. AdWords, billboards, naming stadiums … The same advice applies to your business – don’t be afraid to try different marketing initiatives.

Be vigilant and measure the results. Learn and understand your metrics. Discover what works and press the pedal. If that happens to be the Zuckerbook money machine, have it. Just don’t ask to be the feature of their next case study. I called dibs. But, hey, I hear Subway is looking for a spokesperson.

#AdBudgeting

Brett is The Startup Shepherd – part startup consultant, part angel investor/financier, and part business lawyer. A six-time entrepreneur and recovering “left brainer,” Brett particularly enjoys helping startups and rapidly growing socially-conscious companies.

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1 Comment

1 Comment

  1. Justin Callaway

    September 18, 2015 at 4:53 pm

    I’m having a much different experience. With very minimal ad expense and very high return. I’m spending $3 per $50 sale. Once profit is driven, I gain about $30. So roughly 10% with no actual cost or work that I have to put into it. My worry is… I’m spending $100/day with this method. If I were to invest $200/day would my earnings double? Or would they tank? It’s a tricky shark.

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Business Marketing

Jack of all trades vs. specialized expert – which are you?

(BUSINESS MARKETING) It may feel tough to decide if you want to be a jack of all trades or have an area of expertise at work. There are reasons to decide either route.

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When mulling over your career trajectory, you might ask yourself if you should be a jack of all trades or a specific expert. Well, it’s important to think about where you started. When you were eight years old, what did you want to be when you grew up? Teacher? Doctor? Lawyer? Video Game Developer? Those are common answers when you are eight years old as they are based on professionals that you probably interact with regularly (ok, maybe not lawyers but you may have watched LA Law, Law & Order or Suits and maybe played some video games – nod to Atari, Nintendo and Sega).

We eventually chose what areas of work to gain skills in and/or what major to pursue in college. To shed some light on what has changed in the last couple of decades:

Business, Engineering, Healthcare and Technology job titles have grown immensely in the last 20 years. For example, here are 9 job titles that didn’t exist 20 years ago in Business:

  1. Online Community Manager
  2. Virtual Assistant
  3. Digital Marketing Expert
  4. SEO Specialist
  5. App Developer
  6. Web Analyst
  7. Blogger
  8. Social Media Manager
  9. UX Designer

We know that job opportunities have grown to include new technologies, Artificial Intelligence, Augmented Reality, consumer-generated content, instant gratification, gig economy and freelance, as well as many super-secret products and services that may be focused on the B2B market, government and/or military that we average consumers may not know about.

According to the 2019 Bureau of Labor Statistics after doing a survey of baby boomers, the average number of jobs in a lifetime is 12. That number is likely on the rise with generations after the Baby Boomers. Many people are moving away from hometowns and cousins they have grown up with.

The Balance Careers suggests that our careers and number of jobs we hold also vary throughout our lifetimes and our race is even a factor. “A worker’s age impacted the number of jobs that they held in any period. Workers held an average of 5.7 jobs during the six-year period when they were 18 to 24 years old. However, the number of jobs held declined with age. Workers had an average of 4.5 jobs when they were 25 to 34 years old, and 2.9 jobs when they were 35 to 44 years old. During the most established phase of many workers’ careers, ages 45 to 52, they held only an average of 1.9 jobs.”

In order to decide what you want to be, may we suggest asking yourself these questions:

  • Should you work to be an expert or a jack of all trades?
  • Where are you are at in your career and how have your skills progressed?
  • Are you happy focusing in on one area or do you find yourself bored easily?
  • What are your largest priorities today (Work? Family? Health? Caring for an aging parent or young children?)

If you take the Gallup CliftonStrengths test and are able to read the details about your top five strengths, Gallup suggests that it’s better to double down and grown your strengths versus trying to overcompensate on your weaknesses.

The thing is, usually if you work at a startup, small business or new division, you are often wearing many hats and it can force you to be a jack of all trades. If you are at a larger organization which equals more resources, there may be clearer lines of your job roles and responsibilities versus “the other departments”. This is where it seems there are skills that none of us can avoid. According to LinkedIn Learning, the top five soft skills in demand in 2020 are:

  1. Creativity
  2. Persuasion
  3. Collaboration
  4. Adaptability
  5. Emotional Intelligence

The top 10 hard skills are:

  1. Blockchain
  2. Cloud Computing
  3. Analytical Reasoning
  4. Artificial Intelligence
  5. UX Design
  6. Business Analysis
  7. Affiliate Marketing
  8. Sales
  9. Scientific Computing
  10. Video Production

There will be some folks that dive deep into certain areas that are super fascinating to them and they want to know everything about – as well as the excitement of becoming an “expert”. There are some folks that like to constantly evolve and try new things but not dig too deep and have a brief awareness of more areas. It looks safe to say that we all need to be flexible and adaptable.

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Business Marketing

Video is necessary for your marketing strategy

(BUSINESS MARKETING) As technology and social media move forward, so do marketing opportunities. Now is the time for video content social media marketing!

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As an entrepreneur, you’ve surely heard the phrase “pivot to video” countless times over the last few years. It’s the path a lot of media companies are on, but even brands that aren’t directly talking about this pivot have increased their video production. This shift stems in part from studies showing users spend more time on pages featuring video content. Social media has also played a significant role, and recently, new social platforms have made the pivot to video even more important.

Snapchat and TikTok are leading the social video sector as emerging social media platforms, but the audiences for these platforms skew especially young. The content on these platforms also tends toward the meme-worthy and entertaining, raising the question: are these platforms a good use of your time and resources? The answer depends on your industry, but whatever your field, you can certainly learn from the pros dominating these new platforms.

The promotional angle

One of the primary ways that businesses use video content across platforms is by creating promotional content, which range widely in style, cost, and content, but there are a few strategies that can really help a promotional video succeed.

First, a great promotional video hooks the viewer within the first few seconds. Social media has shrunk everyone’s attention span, so even if your video is on a longer form platform, the beginning has to be powerful. Having a strong start also means that your video will be more flexible, allowing it to gain traction across different platforms.

Audience matters

What you’re promoting – what your business does and who it serves – plays a critical role in what kinds of video content you make and what platforms you use. TikTok is a lot of fun, and it’s playing a growing role in business, but if your entire audience is age 30 and up, there’s not much point in trying to master the form and build a viewership there. You need a sufficient youth-heavy market to make TikTok a worthwhile investment, but Snapchat, which also serves a youth-heavy market, might be a different story.

Even if you don’t intend to make heavy use of Snapchat, the platform recently made a big splash in the video sector by opening up its story tools to other platforms. That means businesses will be able to use Snapchat’s tools on platforms like Facebook and Instagram, where they may already have an audience. It will also make crossover content easier, allowing you to maintain consistent branding across all platforms. You may never download Snapchat proper, but you may soon be using their tools.

It’s all about strategy

However you choose to approach video content, the fact is that today video is a necessary part of your content marketing strategy. In part this is because, while blogs aren’t going anywhere, and short-form social media is definitely ascendant, both make use of video, but that’s not the only reason. Video is so powerful because it’s deeply personal. It makes your audience feel that much more closely connected with you and your brand, and that alone is enough to change buying patterns.

Another key advantage of video is that, consumers genuinely enjoy well-made videos. Unlike blogs, which most users will typically only seek out if they need information, there are brands out there who are known for their video content. They’ve found a way to hook viewers and make them feel like they have two products: entertainment and whatever it is they actually sell. You, too, can do this with enough creativity and today’s social media tools.

It’s critical that you don’t let your brand fall behind on video right now, because if you even stop for breath, you will be left behind. As TikTok and Snapchat have made clear, video doesn’t stop for anyone. At this point, video isn’t the future of social media or ecommerce – it’s the present.

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Business Marketing

How a Facebook boycott ended up benefitting Snapchat and Pinterest

(MARKETING) Businesses are pulling ad spends from Facebook following “Stop Hate for Profit” social media campaign, and Snapchat and Pinterest are profiting from it.

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Phone in hand open to social media, coffee held in other hand.

In June, the “Stop Hate for Profit” campaign demanded social media companies be held accountable for hate speech on their platforms and prioritize people over profit. As part of the campaign, advertisers were called to boycott Facebook in July. More than 1,000 businesses, nonprofits, and other consumers supported the movement.

But, did this movement actually do any damage to Facebook, and who, if any, benefited from their missing revenue profits?

According to The Information, “what was likely crumbs falling from the table for Facebook appears to have been a feast for its smaller rivals, Snap and Pinterest.” They reported that data from Mediaocean, an ad-tech firm, showed Snap reaped the biggest benefit of the 2 social media platforms during the ad pause. Snapchat’s app saw advertisers spending more than double from July through September compared to the same time last year. And, although not as drastic, Pinterest also saw an increase of 40% in ad sales.

As a result, Facebook said its year-over-year ad revenue growth was only up 10 percent during the first 3 weeks of July. But, the company expects its ad revenue to continue that growth rate in Q3. And, some people think that Facebook is benefitting from the boycott. Claudia Page, senior vice president, product and operations at Vivendi-owned video platform Dailymotion said, “All the boycott did was open the marketplace so SMBs could spend more heavily. It freed-up inventory.”

Even CNBC reported that Wedbush analysts said in a note that Facebook will see “minimal financial impact from the boycotts.” They said about $100 million of “near term revenue is at risk.” And for Facebook, this represents less than 1% of the growth in Q3. However, despite what analysts say, there is still a chance for both Snapchat and Pinterest to hold their ground.

Yesterday, Snap reported their surprising Q3 results. Compared to the prior year, Snap’s revenue increased to $679 million, up 52% from 2019. Its net loss decreased from $227 million to $200 million compared to last year. Daily active users increased 18% year-over-year to 249 million. Also, Snap’s stock price soared more than 22% in after-hours trading. Take that Facebook!

In a prepared statement, Chief Business Officer Jeremi Gorman said, “As brands and other organizations used this period of uncertainty as an opportunity to evaluate their advertising spend, we saw many brands look to align their marketing efforts with platforms who share their corporate values.” As in, hint, hint, Facebook’s summer boycott did positively affect their amazing Q3 results.

So, Snapchat and Pinterest have benefited from the #StopHateForProfit campaign. Snapchat’s results show promising optimism that maybe Pinterest might fare as well. But, of course, Facebook doesn’t think they will benefit much longer. Back in July, CEO Mark Zuckerberg told his employees, “[his] guess is that all these advertisers will be back on the platform soon enough.”

Facebook isn’t worried, but I guess we will see soon enough. Pinterest is set to report its Q3 results on October 28th and Facebook on the 29th.

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