"What Do You Do When Ads Stop Being Profitable?"

0:00So, my name is Yoran Smith. I sell car loans to entrepreneurs. We do 6 million revenue. >> Cool. >> We'd like to be at 30 million revenue in 2027. >> Okay. >> Um What's stopping What's stopping me is that the CPA is getting higher and higher. When we started out it was like 400 500 euros. >> Mhm. >> Uh now it's almost 900 euros, sometimes even 1,000 euros. And I think we're over compensating the sales reps.

0:29>> Okay. >> Like >> 30% of revenue is for uh uh wages for sales reps. >> do you What's LTV to CAC? So, what do you make on a loan? >> Like 2.5. >> So, you make $2,500 and it's costing you It was costing you 600, now it's costing you 900 for the same deal. Is that correct? >> Yeah. >> Okay. >> Something like that. >> Okay. Um Actually, just wrote an email about this today, which will go out in like 6 weeks.

0:54Um So, uh fundamentally, if ad costs are going up and so you feel like there's some sort of ceiling, like you want to spend more but you can't spend more cuz the ad the cost goes up, there's basically one of three potential problems or solutions. So, problem number one is that the LTV needs to get fixed and this is just a fact of life as you go to colder and colder audiences, you you get out of your kind of honeymoon phase of the easiest targeting with the absolute highest interest, you know, most You know what I'm saying. That.

1:26Very small amount of people who are perfect fits and then it just continues go wider and broader. Right? And so, the way to fix that is that we have to increase LTV so that you can spend more. The second um reason that this would be limited is based on the quality of the creative. And so, um uh I think a month ago we had uh You guys seen the um Old Spice ad? The the you know the the guy That whole was famous ad. Um so, the guy who made the ad actually came here.

1:54Uh kind of cool. Uh so, I we got to chit-chat about that. Um, but what's interesting about that ad is that that ad was so good that they could show it to everyone. And they went from like 20% of the market to 70 with one ad campaign. And so to me that is like the the perfect example of what like complete S-tier creative, like the maxed out creative of just amazing advertising is.

2:18And so a lot of businesses will get stuck at $1,000 a day for example and say like I think I've we've capped our market. When in reality it's you've capped your creative. And so in order to break through that, the quality of the creative needs to go up and the volume also needs to go up by consequence. And so in the companies that we spend like 100,000 a day in in terms of our uh, ad spend, we we create, you know, 50, 100 pieces a week that are going out in terms of ads. And then we do that at first and then we follow kind of Google's 70 20 10 kind of rule, which is 70% of the creative that goes on from that point going forward is the highest performing hooks from historic.

3:02Uh, 20% is kind of adjacent to that. Uh, so just kind of like remixes, remakes, slightly different versions of the originals. And then 10% is the wild ideas that you've been saving, but since it's only 10%, you're going to only pick the ones you're like, I think this one's going to work because you have 20 crazy ideas cuz you're an entrepreneur and you think that'll be awesome, but you just got to pick the one or two. Um, and so that's problem two that could um, be the reason that that that you are capped. So um, either you are not the creative sucks, your LTV's too low, um, and there was a third one which I forgot. Uh, but there were three in the email. And so uh, the question that that I would have for you is which one of those do you think is the issue?

3:46>> Um, I think the LTV is like is is too low. LTV to CAC. So we have to uh, make the LTV higher. Um but also we we have to get more creative. Um better hooks. I think that's the the key to uh better scaling. >> The back end becomes the arms race of every business that spends money to acquire customers, which is many businesses.

4:15Uh and so if you look between industries, the benchmarks for plumbing businesses in North Dakota, the cost to acquire customer is going to be more or less the same between businesses. So as much as we like to think that we have some like very special sauce about like our sales team somehow magically sells different, even though we recruit from the exact same pool and compensate the exact same way, like we think it's somehow different. But in reality, like we run similar ads, we're in similar promotions, we have similar sales team, similarly compensate, pull from the same talent pool. And so so CAC is typically very similar between businesses. But where you get the outsized returns are that some businesses can have 10 times the LTV. And that's how they ultimately win.

4:52So I think you're right. Um so when I when I buy a business, I I typically fix it back to front, and then I look at the creative and think, "Okay, how do we just do a ton more volume here?" Typically because we just don't even have enough data to figure out what the best ones are. So like let's do way more, then look at the top 10%, then do more of that. And that process just never ends. Does that help? >> Great. Thanks. >> Yeah, you bet. If you're a business owner and you are not growing as fast as you'd like, I'd like to give you a free gift. So my team and I put together the $100 scaling road map, which is basically 200 hours of us looking over all the portfolio companies we've had and what stages of growth they went through, and more importantly, where they got stuck and how they got past it. And so we broke it into these 10 stages, and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at, and the most important part for you, what to do for each of functions of the business across product, marketing, sales, customer success, recruiting, IT, human resources, and finance. And so no matter what you're struggling with, someone else has already struggled with it and solved it. And so, I'd like to give you this thing absolutely free. You can go to acquisition.com/roadmap, plug in your business information, and if you want us to actually help you deconstruct your business and you're trying to scale, we'd love to help you out. On the thank you page, you can book a call with my team and we will look at the business, see if we can help, and if we can, we'll invite you out to Vegas and we'll do this in person live.