Quick Recap
In the last post, you learned the 3 Rules Of Paid Traffic every direct response advertiser needs to understand to consistently win at The Scaling Game.
But Rule #2 is the only one you have control over.
Your ability to consistently scale is directly tied to how good you are at lowering your CPA (cost to acquire a customer).
Based on that last sentence, you'd think this post would be aimed at teaching you HOW we do this.
But we've learned that's the wrong question to ask at this point.
The real question you need to be asking is WHERE should you focus your efforts.
And in the rest of this post, we'll explain why that is.
The Mathematical Misunderstanding Of CPA By Many Direct Response Advertisers
A few years back, our team was working with a business who had an accomplished media buyer running their ads and what he said stopped me in my tracks:
We only care about CPAs, we don't care about your "micro numbers"
I get this comment.
I know CPAs are all that matter to the profitability of campaigns...
But this comment showed me that even a media buyer who'd managed millions of dollars of ad spend didn't understand how CPAs are actually derived.
To help you avoid his same mistake, I want to start by covering how CPAs are mathematically derived.
The Basic Equation For CPA
CPA is your cost to acquire a new customer (also referred to by companies as CAC, CoA).
And the most simplified version of the equation you can use to derive CPA is this:
Your CPA is derived by taking your CPC (cost per click) and dividing it by your CVR (the overall conversion rate of your sales process).
So if you have a $2 CPC and a 2% CVR, your CPA is $100.
This equation is important because it shows you where your leverage is when trying to improve your CPAs.
You have three courses of action:
Now that you're armed with this information, you may find yourself wanting to set to work figuring out how to make these things happen.
DON'T.
First, let me explain where most companies go wrong with this information.
WHERE Most Companies Go Wrong
When introducing this equation to companies in the past, we've seen them instantly start searching for tactics, tools, and hacks to lower their CPCs and increase their CVR.
Here's an example of what ChatGPT tells you what you should do:
In addition to the above recommendations, we've seen companies:
None of these solutions themselves are wrong (all of them can work and do have value)...but this "try everything" approach is WHY most companies tend to fail in the scaling process.
We've worked with dozens of companies over the past decade and have seen that there is one key trait between those that succeed at the highest level and those that don't:
Prioritization.
Companies that fail at scaling with paid traffic often subscribe to the "try everything" methodology which is the belief that the key to success is just working harder to try more things.
But there are three reasons this approach fails:
On the other hand, the companies that consistently succeed at scaling with paid traffic (especially in the post-iOS14 world) do so because they subscribe to a "measure twice, cut once" methodology.
They dig deeper into their data to better understand where their leverage lies so they can prioritize the initiatives that REALLY matter.
There are three reasons this approach succeeds:
Now that you know WHY the clearer priority list wins, let's talk about HOW you make it.
The Expanded Equation For CPA That Shows All Of The "Levers" You Can Pull
To better prioritize your efforts, you need to expand the basic equation to showcase the lower level variables that make up CPC and CVR:
Let's take a quick walk through this equation to ensure you understand how it works:
That was lots of math, why shouldn't my eyes glaze over here?
Great question, simple answer.
You DON'T need to understand the math itself.
You DO need to understand your CPA is derived multiple variables being mathematically combined to arrive at the final number.
There are lots of levers to be pulled, you just need to figure out which ones will make the biggest difference RIGHT NOW.
Going back to the story at the beginning of this post, THIS is why the media buyer that needed to care about all of the "micro numbers" we measure
HOW We Prioritize Our Focus From This Expanded Equation
Once we are able to visualize all of the numbers that make up a client's "customer acquisition math equation," we run these numbers through our proprietary mathematical models that tell us three things:
This priority list provides our team with CLARITY in what we need to focus on and CONFIDENCE that we are spending our efforts on the right items that are most likely to improve the math.
Example Of This Process At Work
I've linked the video below to start at the timestamp where we discuss how our WHERE process told us where to focus for a recent client:
Key Takeaway:
The main lesson you should takeaway from this post is that lowering your CPA is the key to scaling consistently...but this is most effectively done by just "trying everything."
The real key to doing this well is reviewing the math inside your own sales process to figure out which improvements would provide the greatest mathematical "lift" so you can only focus on those.
Once you have a priority list, you're able to attack it more effectively because you are confident that making an improvement at that step will create "room in the math" that allows you to scale.
Phase 2: Figuring Out WHY Your Math Is Breaking Where It Is
Now that you've found WHERE your greatest points of "lift" are, it seems like it would make sense to start figuring out HOW to improve your performance at that step.
But once again, experience has taught us this isn't the right question to ask.
The higher priority is figuring out WHY the math is breaking where it is.
And that's what we'll discuss in the next post.
