How Profit Kills Revenue
Going for the highest possible profit will absolutely crush your business and your revenue and I’ll tell you why. Hey, what’s up everyone, welcome to the video. In this video, I want to just talk to you a little bit about a conversation I have all the time with business owners, with people on my team, with media buyers that I’m talking to anybody that I’ve consulted with, I have this conversation more times than you would think. And I want to talk to you about why aiming for the highest possible profit or outcome in your business is actually hurting your total revenue. Now, I hear a lot of times, I’ll say this, early in my career, I used to hear this a lot. I don’t hear it as much anymore. And maybe it’s because I’m attracting higher level business owners. But, early in my career hurt us a lot. You know, we’d get on the phone, we’re talking about running ads for somebody, managing their accounts, what kind of, you know, what are you looking for in terms of results? Oh, I just want the cheapest, I want sales for as low as possible. Or how many sales do you want? I want as many as I can possibly get. Or, you know, where do you want? What do you want your role as well, obviously, I want the highest possible role as and those you know, when I didn’t know what I was doing, I was always kind of like, yeah, I get it, you know what we’ll see what we can do. And now that I’ve done this for several years, and you know, mature to my view, I almost that is a conversation killer for me, because that tells me you don’t have the right attitude about paid media in general. Here’s how this works. It is possible in pretty much every platform to get super, super profitable sales and leads for sure. The problem is there’s only so many of them. And I’ve talked about this in another video, I think it was the logic of media buying that Facebook and Google could give you sales for cheaper for sure. Like they’re, they could give you sales for 30% less. I don’t think there’s anything preventing them from doing that, there’s enough people in the world. But if you’re selling a physical product, you only have 1000 units, 10,000 units, whatever it is, at some point you’re going to run out. And if you spent all your money on Facebook ads, and they gave you sales for $3 Each and you ran out of inventory, you’re super happy. But Facebook only made a fraction of what they could have made. Because all along you were willing to spend $30 to get a sale. And if they would have charged you 30 you still would have been happy, you still would have spent as much money to sell the 10,000 units. But they would have made 10x More money. So the platform’s are incentivized to be able to try to figure out where your KPI is and charge you right at that amount. I mean, that’s really the best thing they could do is figure out where you’re profitable. And just give you as many sales as possible that number because they make the maximum money, and you’re happy. But let’s think about how this works. So if you’re saying I want results for the highest row possible, I want to get 5, 8, 10 rows ads. Now let’s say you launch 50 ads, and 25% of them come in around, let’s say five, and you’re thinking, oh, that’s great. And the other ones come in at two, but they’re getting all the ad spend.This like 75% of the ad spend is going to the handful of ads that are getting two row ads, and no money is going down here to these ones that get five. So you kill the other ones, like, hey, let’s just stick with these 25% of these ads that are getting five rows as well, that’s great. Now you have a five row ads, but the problem if you’ve only got 10% or 20% of the sales volume. So you’re not actually making as much money. You’re making a higher profit, for every dollar you’re putting in, you’re getting out five, but you’re turning $100 into $500 instead of turning $10,000 into $20,000. Now, these particular numbers are not specific to any business, and I can hear people already in the comments saying, well, my business has different margins than that. It’s like yeah, that’s great. We’ll figure out the math for your business and then just apply that. It doesn’t have to be anything particular.So take your product sales, your cost of goods, your shipping.You can even amortize your business cost per sale if you want to, to kind of make sure everything is paid for and then just do the math on that. But the point is, paid advertising at scale isn’t about getting the highest profitability possible. It’s not about getting the cheapest leads possible. It’s about getting the highest volume of whatever action you want at the highest price you’re willing to pay for your business to still be profitable. So you have to do the math as a business owner. Say, I want to make 100 grand a month, I want to have two to one profit, three to one, four to one, five to one and we need to back that out to figure out. Okay,what do we need to be able to acquire customers for leads for in order for that math equation to make sense? But then once we have that number,we’re not striving to get below that. If we’re good with $25 sales and we’re comfortable spending $1,000 a day and getting there, the next step for us is really just how do we get to $2,000 a day at $25 sales? Not how do I get to $20 sales? Because, again, in most cases, whenever you try to get to that lower profitability, you’re going to end up sabotaging your volume. So you might have higher profitability but you’re going to have fewer sales, fewer Leads, and Your total Revenue Is Going to suffer as a result of it. So Again, you might have Higher Profitability, but based on the 100K Number you want it in your business, you’re going to have a hard time getting there because of a lot of the things we’ve mentioned here. So this is why Your profitability can kill Your Revenue, because I would Rather have $100,000 a month at 2x than $1,000 a month at 10x, and you can get 10x all day long if you only want to spend $100. But I would Rather Have The higher Revenue, because even after profit and Everything, my actual cash in my pocket is higher, even though the profitability level is lower. So I hope some of this is making sense. But this is a conversation again, I have all the time. And I know for some of you out there, you’re probably still trying to think your way through it. But generally speaking, I’m telling you that any professional agency or media buyer who’s worth their salt is going to ask you for specific KPIs that they can target. And most of them like genie’s, it’s almost magic will make it come true. But It needs to be something like, I’m trying to achieve 100,000 a month in Revenue with $25 Sales, and I want to move this many Units, or I need sales for 30, I need leads for $30 each, because that means I’m going to get this many calls booked and I’m going to get this many sales for this much Revenue, and I’ll be at a three to one ROI on my total business. That’s the kind of Math that you need for a good quality media buyer Agency, because that’s what we’re going to be able to use to know whether or not we’re winning or failing. Saying I want the cheapest possible leads is really kind of a non starter, because it doesn’t mean anything. We can bring you $3 leads all day long, but they could be complete shit. There’s a lot of nuance that goes into that, but that’s how profitability kills your revenue. It’s a short video. Hopefully, it made sense. Let me know if it didn’t. Happy to explain or clarify anything, but I hope you enjoyed this. I hope you take this and get value out of it and I hope you’re able to apply something to your own Ad accounts and get even better results.