I remember the first time I spent $10K in one day. The memory is so vivid, it seems like yesterday.
I had been working with this company for almost 2 months. And the problem we kept having when we hit $2000 or more per day in adspend was that our ROI would rapidly decline every time we tried to spend more than that.
The guy running the company that hired me was extremely sensitive to ROI swings because he didn’t have a long runway in terms of being able to float the capital we were spending daily. So it was very important to him to get a great ROI since we had invested in the data and found something that worked well enough to start spending at least 4 figures per day consistently.
So we would spend about $1500 per day and we would break even the same day, but within 30 days we would be at nearly 100% ROI. When we spent over $2000 a day, we would only recoup about half the adspend the same day and within 30 days we would be at around a 20% ROI. Most companies would be ECSTATIC to get returns like that, not this guy.
Spoiled By ROI
This guy wanted his cake and eat it too because he was spoiled by the ROI. He didn’t understand that we could use paid ads to really grow his business, he was more interested in lining his pockets while it lasted. This should have been a sign I’ll explain later.
So I had the daunting task of helping him figure out how to scale our ads without sacrificing the ROI. At this point in my media buying career, the most I had ever spent in a day on ads was $5000. So I knew I had my work cut out for me.
Spying On The Competition
The first thing I did was login to my favorite spy tool at the time (Spyfu) to look at the competition and what they were doing. I decided to buy everything they had through their entire funnel and record the process while also making screen captures for my own swipe file.
Going through that process that day was the biggest breakthrough I’d have for this particular project. What I learned through that entire experience was that our competition was out spending us because they had a much stronger funnel in terms of what they were offering and how much money they were likely making on the average customer (I was funnel hacking before it was a thing).
1 Of The Top Metrics To Track
That was the day I really understood the importance of one of the most important metrics you can track when buying ads: Average Order Value (AOV).
AOV is also called other terms, but in essence this metric tracks how much a new customer spends on average the same day they buy something from you for the first time.
If you have a funnel where you make multiple offers after a new customer buys your initial offer, then you should be tracking this metric as one of your main KPIs as it relates to your media buying campaigns.
The higher your AOV, the more you can pay to acquire a customer assuming you can optimize your funnel in such a way where you can maintain your margins as the order size increases. If your margins decrease and your average order size increases, you’re probably not much better off. So keep that in mind when thinking about tracking AOV.
Long story short, we were able to optimize the funnel based on the feedback I gathered from going through our competitor’s funnel and figuring out what was working well for them.
I’ll Never Forget This
Within the first week after that, we were spending $5K per day and breaking even on the same day with a 100% ROI within 30 days. What happened the following week was a day I’ll never forget.
Within 2 weeks of optimizing our funnel, we spent $10K in a day for the first time. The bad part was that our ROI wasn’t 100% in 30 days anymore and we were actually losing money the same day. We would recoup about $8000 of our adspend the same day after spending $10K. Then in the 30 days trailing, we would be at around 70% ROI. Even though it wasn’t 100%, we were extremely happy and we were off to the races!
Moral Of The Story
The moral of this story is that you should always study your competitors to get ideas to test. Then test those ideas like crazy and always try to increase your AOV. Usually when you’re scaling, your cost to acquire a new customer will increase because you need to broaden your targeting to reach more people. That increase in acquisition cost is what causes you to lose the ROI. Optimizing your AOV will help you overcome the increase in cost per acquisition.
When You Put Profits Over Customers
One thing about average order value is this: Don’t try to sell your customers stuff they don’t want to increase your average order size. Or force things on them they don’t even know about. If it doesn’t truly add value to theirs lives, then it doesn’t make sense. If you do any of that you will just alienate them and your business will crash and burn.
Spoiler Alert: The reason I can give you advice about not just trying to sell your customers stuff that isn’t truly a value add to their life is because the company I’m talking about above did just that. And guess what happened? You guessed it, they crashed and burned. Sad really because they had a good thing going and they got greedy.
Over the years, I’ve learned a ton of strategies to help overcome losing ROI while trying to scale ads. AOV is just one of dozens.
When you’ve spent well over $50M (might have to update that soon), you learn a TON and you get to see TONS of data. As a result, I’ve been extremely fortunate to have worked with some great people over the years who trusted me to spend lots of their dough.
Although I’m barely scratching the surface on this topic, I’ve addressed one of the biggest hurdles you’ll face with trying to scale your ads. If you take action you’ll be able to predictably grow your business because you’ll be able to buy customers at will.
What actions have you taken to increase your AOV?
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