Hey everyone. It's Regina from Starter PPC. Today I want to talk to you about the number one, by far biggest mistake that our clients make when they hire us. this is the thing that we end up communicating with clients about more often than anything else. Some clients follow our recommendations and some clients don't. And so what I'm going to do is I'm going to break it down with some numbers. I'm going to show you a scenario where a client doesn't follow our advice and then a scenario where they do follow our advice. the thing that I'm referring to, the big mistake that clients make They don't know their numbers intimately. And I know this sounds cliche, you guys, but I'm going to show you with math, how this can hurt you and keep you from growing and keep you from making a profit. They don't know their numbers. And because of this, there's spiraling consequences. For example, let's take a look at scenario one and I'll show you what I mean. And then we'll look at stick scenario two. for example, here's a client. They've come in. Let's say they've said that they need a 300 percent return. So you'll see here that I've put return, meaning MER, which is media efficiency ratio. That's just a number where you can kind of look at the overall return on your media spend, right? On your ad spend. Without actually honing in on one platform and, relying on the ever decreasing tracking abilities of Google Ads or whatever. You're kind of just looking at the total business. Gross sales and dividing it by the total media spend. So ad spend, flyers, radio ads, whatever it is that you're paying for. Basically ROI, return on your media spend. Let's say their profit margin is 40%. So we've said to them, well, what's your goal? And they've said, well, I want 300. I need a 300 percent return. So for every dollar I spend, I want to make 3 in return. they start out with an ad spend with a budget. Of 1, 000 and right off the bat, their Google ads account is getting 290%. Now, when you're only spending 1, It's actually easy to get a higher return sometimes when you're spending really small amounts of money because what's happening is you're kind of just scooping up the low hanging fruit, kind of just getting the ones at the bottom of the barrel that are easy to get. And then when you start to scale, it becomes. a little more competitive, right? You start to go up the sales funnel and try to get people that are maybe slightly less ready to buy. Maybe they have to click two times instead of one before they convert or three times. maybe you're bidding on the more competitive products, right? Because those are the ones where you make a higher profit margin, but they're also the same ones that your competitors make a higher profit margin on. So you want to sell them, but they're also more competitive, which means you're paying more for a click, right? So it gets a little bit more competitive once you kind of get up off the very bottom of. The floor of the sales funnel. okay. So they're only spending a thousand. So it's pretty easy to get it to hold 290%. And so this month, the way that this math works is this is just taking the ad spend times the return. And it's telling you what the gross sales are, right? You spend 1, you make 2. 9, that's 2, 900. And so their profit is 160 once you account for ad spend and profit margin, profit margin is basically like cost of goods, cost of fulfillment for that sale. So you subtract 40%, you subtract the ad spend and you're left with only 160 in. Profit and you have that to pay your bills. it's very hard when you're a small business to pay your bills because your profit is only 160, right? So you need scale because you need enough money to pay your bills. This is why it's so difficult for small businesses to compete. Okay. So because they're not at 300%, the second month comes around and they don't, grow, They don't increase their spend. they're waiting for the account to optimize itself and figure out how to get to 300%. And sometimes. I don't think they're ever gonna get to what, 300%, which is why you can see here that for the entire year, the account never gets to 300. Why? Because 300 is an unrealistic goal for industry that has profit margin averages of 40%. If the competitors can operate their business on a return that's lower than 300% and they're making a profit. Then you have to too, unfortunately. And so the way, the way that we like to calculate this is you figure out how many times does 40. 40 goes into 100 2. 5 times. Okay, so that means that in order to break even on a sale you need to make 2. 5, right? 250 percent return because You're going to pay 60 percent in cost of goods and fulfillment. And, you're going to pay the other 40 percent in ad spend with that scenario, right? So you're breaking even 250%. Now your competitors are going to go, okay, all we really need is like 270. They know they don't need 300, they only need 270. And so they're kind of setting the cost per click, right? It's a, it's an auction system in Google ads. So whatever your competitors are operating at that's the competitive goal that you also have to be able to operate at or else. Unfortunately, you can't just hit whatever goal you want. You have to hit a competitive return. What happens is the competitors go, okay, we're getting this much on our conversion rate on the website. We're getting kind of this much on our click through rate based on our ad copy and everything. And because we have a profit margin of 40%. We can afford to pay this much for a click. And so they're the ones that are setting the cost per click. And that's what you have to pay for cost per click as well. So assuming you're getting a similar click through rate as them and a similar conversion rate as them, you're also paying a similar cost per click as them. So it's kind of a closed system. You also have to operate at the same return that they are operating at. 300 percent all year, and because of this, you're never growing because you're waiting for that return to happen. And I don't think it ever will happen cause it's not a competitive goal. At the end of the year, you've made 1, 920 that year. Okay. Let's look at scenario two, and this is the scenario where some of our clients take our advice and they choose a competitive, goal, a competitive mer goal, So in this case, we've said to them, Hey, your profit margin is 40%. Your mer goal is. should be around two 70. Okay. So for the first month, it's the same scenario, right? They're spending a thousand dollars. They make 160 because their Mer is 290 that month. They go great. That's actually higher than our goal of two 70. Let's add 20 percent to the budget. So they add 20 percent to grow the business a little bit. Now, this is where it's very tight for small businesses, right? You only made 160, but I'm asking you to add 20%. Unfortunately, I know I say this all the time, but there is a little bit of an upfront investment. You have to come up with that extra 40 here. Because. Once you scale the business, it does get easier and easier. As you can see the profit margin, the profit goes up and up. And so it becomes easier to come up with that money. But for now it's just very tight and making ends meet means you need to scale a little bit first. All right. So they scale 20 percent and because of this, the Mer goes down to 270. this happens, right? Like I said, sometimes when you're kind of just scooping up the bottom of the barrel, it's easy to get a higher return as you start to scale your. Account finds this it levels out at a competitive mer. That just kind of happens. As you scale. So to 70 in this case, because the profit margin is 40 percent 40 percent goes into 102. 5 times. That's 250 percent for the break even. tack on another 20 percent to that number so you can pay your bills and you've got 270 as the goal for this industry. 270 percent here is what we're seeing in month two after we've scaled a little bit. Now the profit is actually less. That makes sense, right? Cause the return went down. But you did make more in sales and the algorithm has a little bit more power, right? Because it's getting some frequency, some conversion frequency. So it's learning a little bit more about the target market, a little bit more about the placements that it can utilize, a little bit more about the products that you're selling, or if you're a lead gen account, the services. that you're selling, since we hit the goal this month, we decide let's scale again. So we add 20 percent again, and now the profit starts to go up. Now it's very tight this first year, right? You're still a very, very small business. You're only spending this much and you're only making this much. But by the end of the year, you now are A bigger business. You're making 600 in profit every month. So you can now start to pay some of those bills. You're making 20, 000 in sales and look at the end of the year, You've made 3000 instead of 2000, a little over 3000. And now the algorithm has that power that it needs to have to continue scaling, in fact, a more realistic picture is this. I think once you get to. A higher number, the algorithm sometimes has more power to get a higher return. And that happens because of what I'm talking about with the frequency of conversion data. some, sometimes when you're a larger business, if you need to hit like a 280, you can find ways to do that, right? You can kind of be like, okay, for this month, we're just going to lean into this one product. We don't want the algorithm to do any learning this month. We're just going to force it to hit goals because we need to pay some bigger bills this month and you can make it hit like 280 that month if you need to, which is really handy when you're a bigger business. But this type of thing is very difficult when you're small. So that is the number one biggest mistake that I see businesses making. Many of our clients follow this scenario when I wish that they would follow this scenario. Every single, if you know your numbers really well, every single time you're hitting them, add 20 percent to your budget. Okay, couple of side notes while I have you guys here. If you choose a MER goal that... you hit it for a month and you discover that your business was actually like losing money that month and you can't afford to do that for too long. Okay, incrementally add, add to it just a little bit, right? Add 5 percent to your goal or add 10 percent to your goal for a while and see if that helps you hit your numbers. I know I mentioned that sometimes you do have to operate at a slight loss for the first few months. There is a barrier to entry. This is bigger for some industries and smaller for others. So it's very difficult to sum up and it's even difficult to know. Because it just varies so greatly from industry to industry, business to business, quarter to quarter. But you know, sometimes you might find that you've chosen a murgle that's a little bit too competitive for you to be able to handle. That's fine incrementally at it, but don't just pick a number out of thin air, like 300 and tell us that that's what you need. These numbers need to be known. They need to be based on reality. And I have an article for you guys that I wrote called what should my mergold be and why? And it breaks down the math that I was talking about, about what you're putting, how to calculate your profit margin. First of all, how to calculate your mer based on your profit margin. and why the logic behind why that is. So it breaks the whole thing down for you. I will include the link in the description. It's called What should my Mergol be and why? So check that out. Okay. The other side note that I want to mention is in reality, it's not this smooth, right? It's not two 70 month over month over month. So sometimes it's going to be two 60 and other months it's going to be two 80. And so it's a little bit of a rocky. path. And so sometimes if you hit 260 that month, you might choose not to do the 20 percent increase that month. in reality you might grow a little bit slower than this. But I would encourage you guys if at all possible to add 20 percent to your budget every single month, unless your business is hemorrhaging money and you can't afford it because it is going to be easier for you in the long run than staying very, very small. Everything just gets a little bit easier once you have more money coming through the door later on. It's just, it's just tough for small businesses out there. Okay guys, we're doing what we can to try to help. If you liked this video, don't forget to like and subscribe. We're Starter PPC and we work with businesses that operate on budgets between 1000 and 5000 per month. So if that sounds like you, we've developed super affordable management fee because we want to help small businesses. Small businesses succeed. Check us out. It's starter ppc. com.