Why I Run Ads With Negative ROAS

Sup ROEZANITES!

Today I want to talk about the proper way (at least the way I use) to make more money from ads...

And why I"m 100% OK launching and running ads that have a negative ROI off the rip.

The Backstory

I was recently looking at one of our clients ads… Their goal is to scale to $100K/Month and they’re currently around $40K/Month

And instantly I saw something that could help, since it’s difficult to see problems when you're too close in the weeds.

(Solomon Paradox at work: “One's ability to reason more sensibly about someone else's problems than one's own is .”)

He was focusing on being profitable with his front end offer, even though he had a backend that people are buying at a good rate.

Don't get me wrong, being profitable on day one is the “holy grail”...

But most big coaches, and almost all large companies are NOT profitable on day one.

In fact, it's almost the opposite:

The biggest companies know how FAR they can go into the red.

They try to actively increase their ability to go into the red, based on how much LTV they are going to get out of their customers... That way they can outspend all their competitors on marketing.

And if you want to be a big badass player and make millions of dollars in the coaching industry...

You might want to consider going negative on day one too.

So in today’s post, I’ll share with you how we determine whether or not an ad is good, and how we scale our ads even if they’re negative on the front end.

What You Need To Make This Work

Now before I get into how we judge the ads, I want to make it clear that you need a few things to make this work right.

If you're just slinging low ticket products and don't have a backend, I wouldn't recommend this.

You're going to need a value ladder of sorts, with a high ticket item (likely $5k+).

Additionally, you're going to need good systems to both follow-up with and nurture prospects over time.

But let me show you what WE do as an example:

Personally, I don’t sell anything under $997 as my front end offer.

So, at my other company Skup, our value ladder is super simple:

• $1750 Front End
• $97 Downsell
• $6,000 Upsell

Whether or not they buy front end or the downsell, we still have systems to ascend them to the $6,000 offer.

And those systems look like this

1. Lead is generated (they register for the webinar that sells the $1750 product)
2. They’re assigned to a setter in our CRM
3. They receive automated text messages (Roezan) to start a conversation
4. We call them
5. We qualify them
6. If they’re a good fit we book them with a closer
7. We close them
8. If they don’t close we follow up every 30 days until they’re ready

We’ll close quite a few people who had zero interest in the front end or downsell simply because we’ve been able to have or team talk 1-on-1 with them.

Our team builds rapport while also making sure they understand us, our product, our values & how we can help them.

This process can take days, a week or even months.... but that's OK, because we know that statisctially we'll be in the green EVEN if we're losing at first.

How Long Will It Take To Break Even?

Good question and the answer isn’t simple… It depends on how good your marketing is, your products, your systems + follow up.

But here's how I think about it:

When we launch campaigns we often are in the red on day one (especially if it's a brand new campaign).

But if you take a look at our ads in a 7 day window… We’re SUPER in the green:

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Our ROAs over 7+ days is almost always great, but if you look at any given day on its own or a one day window… A lot of the times most of our ads will be in the red.

For most people launching campaigns, this is where they turn them off because they aren't profitable right away.

BUT, if you just hold onto your britches for a little while longer, as long as you have your systems in place, that's where the scale will come from.

Because instead of focusing on day 1 ROAs, we look at a minimum of 7 day window, TYPICALLY we look at 14 days. In other businesses, we allow a 30 day window to break even.

By the way, if you’re using just the Facebook or Google ads manager to track your ROI you’re in for a bad time. You definitely want something like WickedReports or Hyros to properly track and scale your ads. Above you can see we’re using Hyros.

Alternative Metrics We Use To Judge Ads

Alright so money in vs money out is obviously a great way to track.

However, if you’re launching NEW ads and it can take weeks to see an ROI…

So how do you judge if something is going to be a winner or not?

We look at two simple pieces of data:

1) 30 day lead value: This is how much money we make on average PER lead over their first 30 days.

2) Cost Per Lead: How much we spend to acquire a lead

We just try to make sure that our CPL is less than the 30 day lead value, so that in all probability over the course of 30 days we'll be in the green.

If you’re not BRAND new or if your business has ever acquired customers you should have some sort of data around this.

And of course you can use tools like Hyros, Stripe, WickedReports to automatically track it for you.

I know that over 30 days each lead I get is worth $37.21 (just in their first 30 days alone)

Now, one thing I want you to notice from my image above is that on day 1 a lead is actually only worth $8.33 to me… 

And here’s the issue… We pay about $10 per lead

That means I’m actually NEGATIVE one day one and if I’m looking at cash in vs cash out on the Facebook ads manager with ONLY this time frame, I would have called this is a loser… I would kill the ad because "it's losing money"

Meanwhile, if I just waited 7 days...

...I would have almost tripled my money generated from this ad!

Now, you DONT HAVE TO GO NEGATIVE FOREVER WITH YOUR ADS...

But if you can afford to go negative for 30 days (which everyone can this is WHY business credit cards exist lol)

Then you can make a metric ass ton of money.

This is how you scale, you have to look at the big picture.

It can be scary to see a campaign go negative and keep it rolling, but the reality is that if you keep it going you might ACTUALLY be getting a 3.7x return in the first 30 days like in the example above.

And especially over a year… That number is even higher, because some clients take 30 days, 60 days, 90 days... or more to finally close!

Knowing your lead lifetime value IN MY OPINION is even more valuable than customer lifetime value, because it allows you to have confidence launching new campaigns.

This isn't perfect, but this is we get it done at Skup haha.

We’ve still got a lot to learn but hey we’ve made millions doing it this way.

If you have thoughts, concerns or questions holler at us and let us know!

And if you want help implementing a system like this in your business or want help scaling your business click here to book a call with our team.

Cheers,
Devin Zander

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