ROI Versus Ad Spend

I was asked today by a colleague a simple question:

“How do you know how much is reasonable to spend per click?”

The answer to that question is both simple and not…. here was my answer, more or less:

You want to spend as much as possible on your marketing, bearing in mind your end goal. If you expect to attract $10,000 customers with $1 clicks, you are probably looking in the wrong place.

So the question remains — how much is too much?

This depends entirely on what it is that you are selling, what it costs, and what your end goal is.

Say you have a $1,000 program, and you are selling it direct to consumers, but your end goal is a $10,000/year mastermind group.

You could spend up to $1,000/client to acquire and be well ahead of the game.

Let’s use this example:

$1,000 program

$10,000 VIP mastermind

If you attract ten $1,000 clients at a cost of $800 each, your net profit is only $2,000, but it’s a positive ROI, so we are good.

If you convert HALF of your $1,000 clients to $10,000 VIPs then you have $50,000 (VIP) + $10,000 (original program revenue) less $8,000 in marketing costs, ,for a net of $52,000 — this is a 650% ROI.

That’s what we would call a good investment.

What happens very often, however is that the entrepreneur will focus ONLY on the spend, not the return or end goal.

Also — when considering ROI, you have to consider lifetime value of a client. For instance — the above example, the average stay for your $10K VIP could be five years (just a guess).

If that’s the case, then you have $252,000 in revenue on an $8,000 investment… which is even better.

So — given you, and your customer’s lifetime value, what is a “smart” cost per click?

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