Is your business ready for Digital Advertising and Who Should Manage Your Ads?

Digital advertising is a critical element in the growth and success of businesses in the modern marketplace. Platforms like Meta, Google, TikTok, and others offer various opportunities for reaching audiences, but understanding the best approach for your business can be challenging. In this article, we’ll explore key decision-making points to help you determine the most effective digital advertising strategy for your business.

Assessing Your Readiness for Digital Ads

Before diving into digital advertising, it’s crucial to evaluate if your business is truly ready for this step. Often, companies are lured into digital ads prematurely, influenced by offers like free credits from platforms or the misconception that online presence alone will boost business growth. However, effective digital advertising requires a deep understanding of various properties, technical details, and market knowledge.

Signs You Might Not Be Ready:

1. Lack of Product-Market Fit: If you’re unsure about your target audience or still defining your product’s value proposition, it’s premature to invest heavily in digital ads. For instance, a new clinic primarily serving friends and family might lack a defined customer base and digital funnel (like a well-optimized website and tracking setup), indicating a need for more foundational work before advertising.
2. B2B Business Complexities: For B2B companies, understanding the intricacies of your target audience is crucial. For example, a platform targeting in-house teams or agencies in digital advertising must recognize that B2B decision-making involves multiple stakeholders, making platforms like LinkedIn more suitable than Facebook or TikTok.

Evaluating Your Digital Funnel

1. Website and SEO: Ensure your website is optimized for search engines and has a user-friendly design.
2. Tracking and Analytics: Implement tracking tools to understand customer behavior and measure ad performance, such as Google Analytics, Google Tags, and Meta (TikTok, LinkedIn) Pixel. Think of building inConversion API, if you are heavy on Meta.
3. Customer Base Analysis: Identify and understand your core customer groups to tailor your messaging and targeting.

Understanding Unit Economics in Digital Ads

It’s important to analyze whether digital ads are financially viable for your business. This involves understanding the cost of acquiring a customer through ads and ensuring it aligns with your business’s profitability goals.

Key Metrics:

1. Customer Acquisition Cost (CAC): Calculate the cost to acquire a customer through digital ads.
2. Lifetime Value (LTV): Determine the long-term value of a customer to your business.
3. Conversion Rates: Compare organic and paid lead conversion rates, acknowledging that paid leads often have a lower conversion rate.

Example:

If the cost per lead is high and the conversion rate is low, leading to an unsustainable CAC, it may indicate that your current digital advertising strategy is not economically viable.

Imagine you’ve recently opened a clinic and are using Meta for your digital advertising. You find that the cost for each lead is $100. Your current organic conversion rate stands at 20%. However, since you haven’t generated enough leads on Meta to establish a precise conversion rate for this platform, you anticipate the need to reduce your organic conversion rate by 2 to 4 times due to the colder nature of the traffic. This adjustment reflects the reality of engaging with an audience less familiar with your clinic.

Now, let’s break down what this means financially. If generating a lead costs you $100, the real cost of acquiring a customer, factoring in the lower conversion rate from cold traffic, can be calculated as follows: $100 divided by (20% organic conversion rate divided by 4). This equates to $100 / (0.2 / 4), or $2,000 per customer acquisition.

Next, consider the initial cost of servicing a customer, which we’ll estimate at $100, and the average lifetime value (LTV) of a customer. Assuming a customer visits your clinic 3 to 5 times a year, spending about $300 per visit, you can calculate the Customer Acquisition Cost (CAC) to Customer Lifetime Value (CLV) ratio. With these figures, the CAC/CLV ratio is (2,000$ for acquisition + $100 x 5 for service costs) divided by ($300 x 5 for revenue from 5 visits), resulting in 2,500$ / 1,500$ = 1.66.

This ratio above 1 suggests that your advertising on Meta isn’t profitable. The customers would need to stay with your clinic for at least two and a half years just to break even on the costs incurred from generating sales through Meta. Such a scenario often leads to reconsidering the viability of using certain lead acquisition channels like Meta in this context.

Choosing Between an Agency and an In-House Team

Whether to work with an agency or develop an in-house team depends on your business’s capabilities and needs.

Agency Collaboration:

• Pros: Access to specialized skills, creative content production, and strategic guidance.
• Cons: It may not be cost-effective for smaller budgets; results can be less focused.

Opt for agency support if your business doesn’t have an in-house team equipped to handle basic digital marketing tasks such as website development, strategizing, and creating sales funnels. Lacking experience in these areas can make it difficult to establish an effective digital presence. While an agency can efficiently take your digital marketing efforts from a starting point of zero to a basic level of one, achieving more advanced goals, from levels two to ten, typically requires a more nuanced and in-depth approach. Agencies, despite their expertise, may not have the deep, intimate understanding of your business necessary to reach these higher levels of performance. For such advanced growth, a different strategy, potentially involving more specialized or in-house expertise, is often necessary.

In-House Team:

• Pros: Better control and alignment with business goals.
• Cons: Requires investment in hiring and training the right talent.

The reality is that there are only a few marketers who possess the depth of understanding in digital marketing and advertising that your business specifically requires. Moreover, as a busy business owner, it’s challenging to determine whether a candidate truly has the necessary expertise during an interview. Take, for instance, the critical topic of attribution in digital advertising. Many marketers default to standard settings without considering the unique needs of a campaign. However, the right attribution setting can significantly impact your ad performance.

For example, understanding the difference between post-click and post-view attribution is vital. Post-click attribution focuses on users who click on your ad and immediately convert, whereas post-view attribution targets those who might convert after some consideration of your product. If your product requires thoughtful consideration before purchase, but your in-house team or agency sets the attribution to post-click, it could lead to ineffective ad campaigns. You might never realize that this misalignment in settings is undermining your ad performance, and an agency might not proactively address this issue.

Only a highly experienced in-house team member, who has the expertise in content, strategy, and these technical nuances, would diligently test and identify such issues. Finding such a professional is exceedingly difficult, as this level of knowledge often isn’t taught in universities but is acquired through hands-on experience and learning from substantial advertising budget expenditures. This highlights the challenge of securing a team member who can balance strategic insight with technical know-how in the intricate world of digital advertising.

Hybrid Approach:

Utilizing a blend of in-house and agency support can be a strategic approach, combining the unique strengths of each. However, it’s crucial to be aware of the different motivations that drive agencies and in-house teams. Agencies typically earn commissions based on advertising budgets and retainers, as well as the number of creatives they produce. On the other hand, in-house teams are often motivated by results, as these are commonly linked to their bonuses and internal recognition within the company.

Maintaining a balance between the interests of your in-house team and your agency is key. If your in-house marketing team lacks expertise in a certain area, such as performance advertising, it can create a vulnerability. This gap can lead to a situation where you might be paying for an in-house team while having a false sense of progress, and simultaneously being swayed by an agency’s decisions that are more aligned with their revenue goals than your business’s best interests. It’s in these moments of imbalance that your business could incur greater expenses without achieving the desired outcomes, underscoring the importance of ensuring both in-house and agency teams are equipped and aligned with your business goals.

Leveraging Tools for Digital Advertising

Digital advertising tools can support decision-making and optimize campaigns. However, they only become useful when your team is capable of reading the tool outputs and judging the performance outcomes.

Types of Tools:

1. Creative Tools: For generating ad copy and visual content.
2. Targeting and Optimization Tools: To refine audience targeting and improve ad performance.
3. Content Publishing Tools: For managing and scheduling content across platforms.
4. Marketing Intelligence Tools: social listening suits, performance analytics tools, and others.
5. Data Tools: those tools, such as DMPs, help you to analyze your owned data for better marketing.

Agencies might claim to use sophisticated AI tools for optimization, but in reality, many tasks are still performed manually. This discrepancy often arises because agencies face the challenge of differentiating themselves in a crowded market, leading them to tout advanced technologies as a selling point to attract new clients. However, the primary focus of their business model is to optimize for profit margins. This typically involves minimizing time and costly human resources, especially when dealing with clients who may not have a deep understanding of digital marketing practices. Consequently, the actual deployment of advanced tools may not align with an agency’s goal of cost efficiency, as these tools often require significant investment and expertise that might not be readily available or economically feasible for every agency.

Whether you’re handling marketing on your own or have an in-house team, leveraging various digital tools can significantly enhance your marketing efforts. Tools like ChatGPT are excellent for brainstorming ad copy ideas, while SoMin.ai can be effective for long-tail targeting. HootSuite is a great option for managing cross-platform organic advertising. For competitor monitoring and social listening, tools like Social Bakers or SoMonitor offer valuable insights. The use of these tools does more than just improve your marketing skills; they also serve as an additional check on the performance metrics provided by third parties, offering a valuable second opinion and helping to ensure that your marketing strategies are on the right track.

Conclusion

Digital advertising requires a thoughtful approach, considering factors like readiness, unit economics, team capabilities, and the right mix of tools and partnerships. By carefully analyzing these aspects, businesses can develop a digital advertising strategy that is not only effective but also aligns with their unique goals and resources.