Only 2 ways to run ads profitably

To run more profitable ads, there are only 2 ways:

  1. Increase the lifetime value of customers (LTV)
  2. Reduce cost per purchase

Many business owners only focus on number 2.

They look for marketing agencies and people like me to help them when they need more sales and customers.

However, increasing the lifetime value of customers is easier as there is no limit to it unlike reducing cost per purchase.

This means you earn more from each customer.

As a general rule of thumb I follow, the lifetime value of customers to ad spend should be at least 3:1.

Meaning for every $1 of ad spend, I will generate at least $3.

Depending on your profit margin, it might need to be higher if you have higher cost.

To increase LTV you have to: increase price, increase the frequency of purchase and increase the retention time of customers.

The method I have been using to grow my tennis academy is to offer trial class at a higher price than the package of 4.

(FYI I run a tennis academy called Sport Hitch: https://sporthitch.com/)

1 pax private class: $95/class (trial class)

4-class package: $360 for 4 classes ($90/class)

This way, most customers purchase my 4-class package as they are incentivised to do so.

It also aligns well with customers who are serious about learning the sport.

I will know which customers are here to only try out vs the committed ones.

This works well if you are in the coaching industry as it takes time to show results and better results mean happier customers.

Your end goal is to make a difference in the customers’ lives so they will likely stay longer.

This increased the frequency of purchase + retention time increased by x4.

With more cash collected, I can invest more into ad spend and grow my academy.

Therefore, you should always prioritize in increasing LTV of customers and this can be done without any help from marketing agencies.

Bundle your services as much as possible and include upsells that can add value to customers.

Based on my experience in calls, some of my clients and prospects do not have enough LTV to run ads profitably.

2 weeks ago, I was on a call with a small travel agency.

Even though the average price for the package they sell is $800, their margin is too low to even cover ad spend.

It doesn’t make sense for them to run Facebook ads with such low profitability and LTV for each customer.

My job is to reduce the cost per purchase by helping you to get quality leads at the lowest cost.

Even if I were to help them get customers via ads, they would still be at a loss.

However, most service-based business owners are most suitable to start running ads as their margin is at least 40-50% and most services have high LTV if you do a proper job.

E-commerce and other kind of businesses are more tricky but possible as well.

There is much to be said on this topic but I can’t put everything into one email.

At the end of the day, you run ads to earn money and increase profits.

Hence, the most important tip I like to share is to increase your LTV as much as possible.

Even if your ads might not be good, your ads will still be very profitable and print money for you.

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Who Is Gabriel Toh?

With 4 years of experience using Facebook ads to scale my own business, I help my clients create their lead gen machine for their businesses.

Here’s how I can help whenever you’re ready:

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