I remember the first time I spent $10K in one day. The memory is so vivid, it seems like yesterday even though it’s been nearly 7 years ago.
I had been working with an ecommerce supplement brand 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 and now he wanted 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 nearly double our money. He was super happy but wanted more.
The problem began when we would try to spend over $2000 a day. What would happen at first is that we would only recoup about half the adspend the same day and within 30 days we would make another 30%. However, within 60 days we would easily hit a 200% ROAS (Return On Adspend). Most companies that are focused on growth would be ECSTATIC to get returns like that, not this guy.
Spoiled By ROI
This guy wanted to have 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, which would make it more valuable to potential buyers. He was more interested in lining his pockets while it lasted, which was a red flag I didn’t recognize at the time and I’ll explain later why.
So I had the daunting task of helping him figure out how to scale our ads without sacrificing much in terms of 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 to save 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 Most Powerful Metrics To Track
That was the day I really understood the importance of one of the most powerful metrics you can track when buying ads for ecommerce: 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. Whereas LCV (Lifetime Customer Value) tracks how much money the average customer you acquire will spend with you during their lifespan of them being your customer.
We’ve been using funnels for years in ecommerce (before it became the hot new thing) and it’s mainly because they are huge in terms of increasing AOV. So if you’re buying ads you should be tracking this metric as one of your main KPIs as it relates to your media buying campaigns. If you’re not using a funnel and you’re in the ecommerce space, it’s highly likely you’re not able to buy ads at scale.
The higher your AOV, the more you can pay to acquire a customer assuming 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 make sure when you’re tracking your AOV that you’re also looking at your margins and that they aren’t being impacted to the point that the increased profits from your AOV boost isn’t being eaten up somewhere else.
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 200% ROAS 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 ROAS wasn’t 200% 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 a 180% ROAS. Even though it wasn’t 200% ROAS, he was extremely happy because the increased volume actually meant more overall net profit.
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, but I should have picked up on the red flags early on but I didn’t have enough experience at the time.
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 $60M (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 work with amazing people over the years who trust 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?