I need some help understanding what’s going on with one of my clients. I’ve been trying to get them to raise their ad budget ever since I learned that they’ve been getting a great return on it. They recently hired a business manager consultant which has been very diligently looking at our conversion data for our ad campaign that we are running for them, and tracks which conversions are turning into actual customers (or patients, in their business).
This consultant told me that they made over $50,000 in new business with these campaigns and they only spent $3,600 an digital ads. They were incredibly happy about this (of course). That’s over 10x return on advertising spend but here’s the part I don’t understand… Instead of increasing their monthly spend on advertising they’re interested in going to different routes like more email marketing and direct mail marketing which we still do for them, but I just don’t understand. We live in a huge market and there’s so much untapped potential. Why wouldn’t they just up the spend that’s already giving him such a great return?
Btw, the consultant absolutely thinks they should be increasing their ad spend, but the end client is hung up on it. They are also small business. If you got these kinds of results, what would be a reason to keep you from doing more of what’s already working?
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They may be nervous to spend more money. Logically it makes sense to increase the budget, but you are dealing with people and people aren’t always logical. They may not be comfortable with a $5k or $10k spend, EVEN if the spend is justified with a good ROI.
Like the other comment, they may not want to grow that fast. You can only produce so much revenue over a given period. This may be their ceiling and they can afford to incrementally increase clients through other routes at a more controllable rate. Unless you could figure an exact amount they could increase ad spend by to get X clients (I wouldn’t try to do this though).
Another point could be that they are cautious of running through the total potential of new clients from digital ads and would rather have stable and forecastable revenue than a huge influx In a shorter period that wanes. Since it’s a business, it still has costs that need revenue to support even when business is slow.
There may be a law of diminishing returns here. Spending $7k doesn’t necessarily translate to $100k in revenue
Maybe their production or warehousing system needs to catch up. Maybe they met some internal goal and need to restructure or hire more people.
They nay be happy where theyre at. More business means more stress, more overhead etc. What is good for you might not be good for your client. Ive owned businesses for 20 years and I am constantly bombarded by my vendors thinking they know whats best for my company. And that usually has to do with them making more money.
It might also depend on their margins. If the $50k of revenue isn’t likely to lead to repeat customers and they only have 10% margins, then that advertising chewed up 2/3rds of their profit.
You did say they were “incredibly happy” so maybe it was profitable new revenue.
Some people don’t appreciate a money printing machine when they find one
I’ll take $50k for $3500 all day long. Wow. What a grand slam, I would just keep rinsing and repeating!
That revenue might not be net. Maybe low profit margin so he feels like it’s gambling. Can’t keep winning, ya know! 🤣
$3,500 for $50,000 in revenue might be good but not great. If they’re used to spending $500 for the same revenues, then they may be looking to lower their acquisition costs.
The issue may be deeper. If their profit margins are 15%, like many businesses,$3,500 burns nearly half of their profits on acquisition, which may not be sustainable.
Their overhead is too high and the $50k in sales you’re referencing is not actually their net revenue so with 20% margins on $50k you’re really only a 2.5x roi bc they’re only netting $10k in real $
Do they make money spending 7% on advertising?
My guess would be they’re working like hell to meet this demand, they probably can’t meet any other demand without increasing staff and other expenses. Also marketing is not for good as it changes. If I were them I’d be leery of spending when the end of the year is coming and start of a new year is coming.
Isn’t that what a 5 year business plan is supposed to protect you from? Growing way too fast.
I had a great external team drive sales perfectly on a platform. The problem was … margin dropped as we strapped on additional marketing costs and volume had to scale up to meet profit/risk expectations. Volume didn’t scale enough to justify risk and reward.
No volume scale meant it all got shut down.
Staring at the top line is great but tracking margin while scaling is key. Understanding you need cash flow and a safety cushion is important.