3 Key Indexes That Will Make Your Advertising Budget Unlimited
Whether you are an e-commerce entrepreneur, an affiliate or an advertiser, I am sure you had some trouble with the budget of a campaign while doing advertising. When you try to scale up without a proper budget, your campaigns can be stopped and this can be really frustrating.
Been there, done that! After reading this article, though, you won’t have to worry anymore about your advertising budget. You will discover how to have unlimited budget and win your competitors.
This is the same keynote speech I gave on March 30th, 2019 at the Affiliate Expo 2019.
I am the co-founder at uDroppy, the most complete e-commerce platform present on the market. We created it to help dropshippers, affiliates, advertisers, networks and digital entrepreneurs with their job.
But before that, I started my experience in the affiliate marketing world. Together with my business partner, and co-founder of uDroppy, Nicolò Manica, I started to launch online campaigns. At that time we used to create about 200 ad sets per day, and make them completely profitable within one our, with an average ROI of 350%.
Impressing, isn’t it?
It’s true, we were in the golden age of affiliate marketing. At that time our secrets were two: a deeper knowledge about marketing than most of our competitors and higher payouts from networks and direct advertisers. This second point (higher payouts than other affiliates) is the most crucial.
A couple years after we started with affiliate marketing we decided to switch sides, becoming (for a while), direct advertisers. Along with two other business partners we managed in just over two months to turn a 10.000 € euros budget into 1.500.000 € revenues.
To reach this result in an industry with thousands of competitors, we decided to leverage what made as different as affiliates. In an industry where direct advertisers were paying affiliates between 18 € and 24 € per conversions, we raised the payout of our affiliates above the industry average.
As you see in the image, we raised that payout to 32 € per conversion. Considering the affiliate’s payout and the generic costs we had to sustain, our net margin was around 1 euro.
Reality is we were really good at one thing: dramatically increase the AOV (Average Order Value).
By raising the average order value we could be way more profitable than we should have been on the above scenario.
The AOV is a relevant metric for your business. If you raise the average order value you raise the margin and, in this way, your potential advertising budget.
You can calculate your AOV buy multiplying the total value of orders and then dividing that number by the total number of orders you received.
The AOV is important in a market where the advertising costs keep rising and the conversion rate keeps getting lower. The business that can spend the more in acquisition is the winner.
Let’s see how you can raise the AOV of your users.
A company that knows how to get an higher AOV from its clients is McDonald’s:
They start with their flagship product: the Big Mac. Then they suggest two kinds of up sells. Either the gourmet version of sandwiches and the menu version that includes french fries and drink (you can also apply the menu to the gourmet version to have a double upsell).
Of course McDonald’s offers also a set of down sells, like cheaper sandwiches and cross sells (e.g. coffee, ice cream, nuggets, etc.).
To this they add some free services like: wifi, tablet to surf the net and interactive games for families and friends.
Do you remember the last time you went to McDonald’s? There is a short and simple question they ask you every single time, regardless of where you are in the world.
Would you like fries with that?
Just this little sentence is responsible for tens of millions in increased revenues per year for McDonald’s.
If you are selling online, just think about something like this:
Raising the average order value is a winning strategy that will raise your revenues and budget, but it’s not the only one.
In 2017 we met some advertisers that used a powerful strategy set into two phases. Their strategy was as simple as profitable and opened our eyes.
First, they were gifting a trial product telling people to cover just the shipping price, entering a subscription on the product.
The shipping cost was $ 4.99 while the affiliate payout was around $45. As you can see these people had a loss of $39.99 on every new customer (not counting also production costs and other overheads).
In the second phase, 15 days after, the subscription started for $89.99 per month. After two weeks they were profiting $ 49.99.
By postponing of 15 days the cashflow they raised their income thanks to the subscription model. Of course affiliates were paid only on the first $ 4.99 payment.
But this is the base model of their strategy. In fact they also sold had an upsell to double their revenues. The upsell was another complimentary product shown to people straight after their $ 4.99 purchase. Of course the logic was the same.
As you can see in the image they paid $ 90 to the affiliates for every new customers brought into the funnel, losing around $ 80 each time. Within just two weeks they were actually super-profiting these customers.
Did you know that acquire a new customer costs 5 to 25 times more than retaining one?
And that increasing customer retention rates by just a little 5% increases profits by 25% to 95% at the end of the year?
It’s not me telling you this, but The Harvard Business Review (source link here).
For these reasons, today businesses need to focus on the Customer Lifetime Value or CLTV, which is the value of the client during the lifetime span.
Let’s see how to calculate the index with a case study: Starbucks. According to Kissmetrics and Hubspot this is their CLTV for US customers.
As you can see in the previous image, CLTV is the product of frequency (the number of times a client make a purchase), average order value and lifetime span (how many years the client purchase).
I guess that now the question is: but how can I raise the lifetime span of my customer?
There are many strategies you can implement to reach this goal:
- You can create a set of follow up emails and send them to your clients and prospects to share value;
- You can do retention ads (an underrated, but powerful strategy). This means you do ads for people that already purchased your products with complementary cross selling options;
- You can ask for feedback in exchange for discounts. Feedbacks can be shared on dedicated websites, your online profiles and channels, and they can be video, written, ...;
- PAAS (product as service). You can sell product or services in a subscription pack;
- You can use social media;
- You can set up blog and newsletter to establish trust relationship with your clients;
- You can use bots both for follow up and broadcasting;
- You can set up a call centre.
Unleash your marketer creativity and find innovative, out of the box, solutions to raise the lifetime span of your clients.
AOV and CLTV are important indexes for your business and performance. But there is an even more relevant index that you have to consider. It helps you understand if you have a long-lasting business or not.
It’s the NPS (Net Promoter Score) and it tells you if your product or service satisfies your clients enough as to prompt them to promote it (for free).
This index take the place of client satisfaction surveys.
It needs only a question and a set of values from zero to ten.
How likely would you be to recommend our product or service to a friend or colleague?
According to the vote of people you have different options.
From 0 to 6 you have detractors, people that are not satisfied with your products and are not likely to recommend you. They are the signal that you are doing something wrong and you have to change your path.
From 7 to 8 you have passive clients. They are neutral and you cannot be sure they will promote your product nor that they wouldn’t.
Finally, from 9 to 10 you have promoters. They are satisfied with you and your products and are more than happy to share their positive experience with the world.
The best condition for your activity is to receive only nines and tens. To reach this goal you have to offer quality, a satisfying customer experience and a first class service.
To win your competitors and traffic sources bans you have to create value, a proper funnel, satisfying your clients and turning at least 60% of them into promoters.
If you will also be able to raise the AOV and keep your customers for a longer time than your competitors, you will reach success.
By matching and mixing the three metrics I told you about, you will have the unlimited budget for your advertising.
Because having higher margins means having more budget, buying more ads and sending more traffic to generate higher sales. And once again this will bring you to get higher revenues. It’s a never ending circle.
Remember: implementing everyday the best marketing strategies is the real key to success.
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