so the last one we talked about all the meaty stuff of how to make the ads the ad elements the call outs it's call to actions all those different things targeting et cetera et cetera it's like okay you got all that stuff in your brain well now how do we monetize them and so just to be clear there's still four things for the core four this is just part two of paid ads and I separated them because last parties probably saw it was a little bit heavy this one hopefully is a bit lighter all right so this is just the money stuff so we cover five things one is what matters most second how much to spend Third how to know how well you're doing fourth how to fix ads if you're not doing well and finally what I wish I knew then that I know now okay so let's start with what matters most so when it comes to advertising in general efficiency matters more than creativity all advertising works right so it's not about whether it works which is a binary question but how well does it work and that applies not just for paid ads but for any kind of advertising and so if I can shift your perspective with that one statement then for me that's already a win because if I can actually start like if zero people know about your stuff if you begin advertising more people will know about your stuff if more people know about your stuff the likely that you make money goes up and then the more you do that the higher the increase likely that you make money until eventually you do all right and that's the goal here so the only things that will differ between ads is how well they work and that is a matter of efficiency okay and so the thing is is with paid ads more than any others the return is clear as day you put X dollars in and you get y dollars out when they buy right and so in some of the other advertising methods like code Outreach or warm Outreach or making content sometimes the return is a little bit harder to see right like you can say okay well I have my team and my team cost this much and I got this many leads so you could calculate it that way but it's harder to see which one piece of content did really well or which one Outreach message which you copied 100 times was the one that mattered right with paid ads it's different you can get laser focused on the one ad that got all of the return and so if you want 100 million dollar lease machine the goal is not necessarily to have the best advertisement ever it's just to find the ads that are good enough to scale and scale the out of them so that is what matters most is to make sure that we're making more than it costs us to make it that's it and then from a benchmark perspective I may hit on this later but if I don't I'll tell you right now it's a three to one ratio in terms of what you make over the lifetime of the customer versus what it costs you to acquire them so if I make a hundred dollars in profit or say 300 in profit over the lifetime of a customer then I want to make sure that I'm getting that customer for less than a hundred dollars that's the goal now if I can do that sooner then even better and if I can break even in the first day or two days then I can spend my money machine that much faster and scale my ads on a one day cash conversion cycle rather than a 30 day or a six month cycle which makes much slower growth which enables a much slower growth cycle okay so number one what matters most that you make more than you spend all right student's like all right well how much do I spend on my ads it's one of the number one questions I get when we start talking about paid ads so let's dive into it so as I see it there are three stages to spending money on ads the first phase one is track money okay the second is lose money and I purposely put it that way because you have to fundamentally lose money before you make money when you run ads think about it like you have to spend money to get your your ads out there before you make money back and so you have to get used to losing in order to win and one of the crazy things about ads is that in general you will lose more times than you win but when you win you will win big and be able to make it all back and so if I make 300 ads for example maybe 295 of them will not be winners but there will be five that will be Roi positive and one of them will be a home run in that home run I can juice the hell out of and then make the return for all of the smaller ones that I tested and didn't work and that's why controlling the budgeting on how much I'm going to spend for these so that you can shift the return on your investment in your favor and so you have to get used to losing a lot in order to win big all right so phase one is you track money phase two is you lose money in phase three is you print money so let's break them down so from a tracking money perspective if you don't have tracking you don't have anything because it would be like going into the casino and placing bets without knowing what the odds are it's probably one of the fastest ways to get cleaned out right and so if you have no tracking on your platforms for how your ads are doing you're Flying Blind and as crazy as it sounds so many people run ads with no tracking and then wonder why they don't work when they can't even see what is working to begin with like a lot of times like I see multi-million dollar business owners are just like well I spend this much I make this much back but I don't know where it's coming from it is a it will unlock breathtaking scale if you can simply laser point down onto this ad works well let's make more of these so get the tracking right once you know that you have tracking in place so that when you run the ads you can see where they're going then you can go to phase two which is losing money so you're like why do I want to lose money because you have to in order to make it so imagine I spend a hundred dollars on 10 ads so a thousand dollars in total none of them lose all hundred and then one of them makes 500 back for the hundred dollars I spent now if you look at that in the micro you think oh well paid ads don't work right or even this campaign didn't work well did it not work or did I get five to one on one and I got zero to one on nine okay well I'm down 500 but then this is where so many people stop then they're like well I can't do this anymore it's like well dude you found a winner and as crazy as it sounds like I see this happening all the time that's why I'm emphasizing this video this is where people stop but that's where you double down and even though you just lost money and it feels even more painful to take even more money out of your wallet and risk it again when you just lost 500 that's when you find that winning horse that one ad that's doing well and got you 500 back for 100 and you spend 10 grand and then you make 50. and then your 500 loss originally becomes irrelevant so the idea is that once you find the winner you scale it to such a degree that you shrink your loss into a relevance and once that happens you enter the print money phase right and so if you're making back more money than you spend the answer is simple spend as much as you possibly can and so after all if you had a money magic money machine that gave you ten dollars for one dollar you put into it what was your budget be as many dollars as you possibly can fit into that machine right of course and so the idea is more so to figure out how to find the winning ad and then as soon as you identify it because you've tracked it well scaling the hell out of that one and then you don't need to worry about the row as or your marketing budget so whenever someone's like oh we have a 10 000 a month marketing budget I already know they don't understand paid advertising think about that if they say I have this is my marketing budget then I already know they don't understand how the adword works or they don't know how to work it as well as they could because if we're doing it right in the ideal scene and uh I think I might hit on this next one I'm not sure but if you're doing it right the ideal way you should be able to make you put a dollar in you get a dollar back and then some and then you can take that extra money and buy more customers with it so you bought one customer and had some profit so then you can buy two customers have some profit buy four customers have some profit so quickly that it unlocks the skill that getting customers is no longer the bottleneck or the constraint in the business so every business I've ever owned getting customers has not been the constraint the constraint has always been other things which is like we need more sales guys or we need more delivery people or we need more touch-up artists or we need more whatever the thing is that comes after getting customers and I can promise you it's a much better way to live or at least a significantly less stressful way to live because fundamentally if you're not making money at that point then you have a wrong the business model is wrong and if you are making money at that point which you probably will be then you've got the cash flow to fix the problems and so once you have this skill like I said in the beginning of the book and begin the training it's a get out of jail free card that you can use for the rest of your life and paid advertising is more advanced simply because it has higher risk and you're competing with the big boys but there's nothing that scales faster than paid ads so once you know how much spend you have to figure out how well you're doing okay so this is going to look a little bit intimidating and I want you to freak out I use very simple numbers here but you got to understand this stuff so I'm going to break it down and just bear with me let's say that I have a product that is 15 all right that's the price you see the top Arrow there that's the price underneath of that you see the gross profit right which is the difference between the price and the cost which is five bucks so if I sell something for fifteen dollars that cost me five dollars then I make ten dollars in gross profit simple enough okay cool now if I know that the average customer buys this thing for me 10 times or buys for me once a month for 10 months doesn't really matter either way I know that my lifetime gross profit is a hundred dollars 10 units or 10 months times 10 bucks of gross profit equals 100. everyone following with me okay that's point one lifetime gross profit the reason I talk about gross profit rather than lifetime value or clv depending on where you look is because I think the nomenclature can be confusing and here's the example that I have so a buddy of mine on a very big or still owns a very big food distribution business uh ready prep meals and his marketing team was coming back to him really excited that they were spending a hundred dollars to acquire a customer that would pay them 500 okay so you think wow we should scale the out of this the problem was their gross profit margins were 10 percent and so when they made 500 in Revenue they only made 50 in gross profit so they were spending a hundred dollars to make 50. even though the revenue the total price there right all of those together would have been 150 but we don't care about the total revenue because we have other costs associated with the thing we sell right and so we just want to look at how much margin we make over the lifetime of the customer and then compare that to what it cost us to make it it's a really important point and so right now if you don't know the gross margins of the thing you sell figure those out and if you don't know what those are you shouldn't start running paid ads learn those numbers first and then you can run these like a pro all right so we're going to keep with this simple example here so 10 months of purchases from a customer or 10 units doesn't matter ten dollars a gross profit per time 100 lifetime gross profit okay now if we want to improve how well we're doing between uh what it costs us so the CAC cost to acquire customer and ltgp what I just went over then we have these levers and so I have my little smiley face here so if ltgp is greater than CAC it means we're making money smiley face if ltgp is lower than CAC then it means we're losing money sad face I'm supposed to unsmiley Face um now if ltgp divided by CAC is greater than 3 then you have a home run you have something that you can scale to the moon and that's just again my experience on this okay so if you see that ratio between what it cost you to make money and the money they make then you can improve that ratio so if we want to decrease CAC or make CAC lower that means we get cheaper customers we do this with more efficient ads following the steps we outlined earlier all right that means making better ads getting better at targeting eliminating steps in the process getting better at taking sales improving split tests on the landing pages etc those are all things that will decrease the cost to a Car customer finding cheaper platforms finding media uh types that get distributed more widely all of these things like there's a hundred things a million things that can decrease the cost to a Car customer but fundamentally that's all you're going to do to decrease CAC and improve that ratio on the flip side you can make ltgp higher you can increase it we increase how much we make per customer and we do this with a better business model it's one of the biggest mistakes that people make is that they think they're advertising when it doesn't work when in reality their business model is broken and so in a lot of ways advertising can show you how you measure up compared to your competition and so one of the things that I will share with you um that was surprising to me is that when we had Alan which is a software that that helps agencies acquire customers for their their small businesses underneath of them we saw metrics across industries of how much it costs these agencies to acquire their small business owners now what you might be surprised about is that the cost to acquire customers within the same industry was almost always within one to three acts of one another so basically you have a 3X lever on being amazing at marketing right for the most part with paid ads without a brand without a brand big big shining big asterisk without a brand but if you're just running paid ads which is what I'm talking about for right now like the Costco car customer wasn't it wasn't that big but the big difference between the guys who are crushing and the guys who weren't were the guys who were crushing it were making 10 times more per customer and so I'll tell you a quick story so when I was uh early like years ago probably five years ago I um I had a guy reach out to me who was in the same space he was selling I we obviously worked with gym owners he worked with uh personal trainers Fitness professionals but similar airspace and so uh he showed me his numbers and believe it or not his sales velocity in terms of the number of sales per month he was making then the sales month we were making was about the same but here's the crazy part we made 56 times more profit than he did 56 times more profit with the exact same number of sales and so he came to me thinking that he had a sales and marketing problem but the real problem was that he wasn't making enough per customer and it was because he wasn't really that good for being real and so because he could not provide value sufficiently to his customers he couldn't charge a sufficient amount and so he could promise all this stuff and sell people at the same rate and same cost roughly that I was we just made 10 times more than he did but in gross profit or net profit at the end of the year it ended up being 50 plus times more money and that is ultimately will separate separate the best advertised from the worst isn't even the advertising itself you just need to be good enough to get people in and then let the business model take care of the rest and so fundamentally if you want to improve how well you were doing you can focus on decreasing the cost to acquire or you can focusing on increasingly lifetime gross profit per customer in my opinion I like doing both but where you get a lot of gains unless you have a massive brand which can drive the CAC to almost zero the business model itself is going to be the thing that will ultimately drive because you can go infinitely high like if somebody else is competing against you and they can only spend five thousand dollars and you can spend 50 you can crush them everywhere and in a weird way it's almost like making an ethical Monopoly if you can outspend everyone else to acquire a customer then you can literally price everyone else out of the market because most paid ads are based on an auction so the platforms will auction the eyeballs off to the highest bidder and so you can set your bids higher than anyone else can in your space and then drive up the cpms so that means you purposely increase your cost to acquire customer so that no one else can and that is how you can take over an entire Market that's fundamentally what we've done for years now on the gym launch side and I'm explaining this to you I'm showing you behind the curtain because like that's how you can Crush if you learn this stuff so it's funny because again like I don't talk much about paid ads but like this is how I've made the majority of my wealth so that's how you do how you know how well you're doing and how you know that you're you need to make sure you're doing at least three to one and just for context I've said this at the beginning but like my lifetime return is over 36 to one um and so there's you can go way higher than three and if I'm being candid which I will be I try and Target ten to one minimum for the portfolio companies that we own some of our best ones are 20 20 plus to one which is great now let's go into number four how to fix ads so okay you started running ads it's not working as well as you'd hoped so for many businesses ltgb is bigger than CAC but not after the first purchase boo right that sucks the profits from the customer's first purchase often less than the cost to get them that means that it can take many months to collect the full ltgp so you get your money later instead of now and this creates a cash flow problem and this cripples your ability to scale okay so let's take back to the earlier example I showed but if your customer spends more than it costs you to get and fulfill them in the first 30 days then you have to funds to scale now and forever and I call this client findings to acquisition so let's say that we have a 15 per month membership which we said earlier it cost us five dollars liver so it leaves us ten dollars in gross profit left over everyone's following and let's say our average number says 10 months that makes our lifetime gross profit a hundred dollars again just restating for for Simplicity if the cost to get a customer is thirty dollars then we have a three point three to one lgp to CAC ratio so we're over three good news our eyes make money hooray but there's a problem it's going to take us three months to break even so think about this so you spend 30 so you can see the cost line we've got plus 10 on gross profit it took us thirty dollars to get it and so we're negative 20. so we're still out 20 bucks was it a good ad yes but are we down money also yes and then next month that customer buys another ten dollars now it didn't cost us anything so now we're down 10. and then the next month they'd buy again for ten dollars didn't cost us anything and now we're down zero so break even on that third month or that third transaction right and so on that fourth transaction because I said zero at the top but on the fourth transaction we're plus 10 we're finally in we're finally in the black we're cash flow positive so that means that you have a long conversion cycle for your cash so you put cash out you got to wait three or four months before you get the cash back which means that you're limited by that amount of cash you can spend and then wait to recoup it right no bueno not as fun you can do it in many many businesses do it this way but the only way to do this game is that you take on debt you sell Equity meaning investors give you money and you basically use their savings or you use your own savings but you have to front the money in some way because it's not coming back and so the ways that I've scaled each of my companies without needing outside Capital to scale it or taking on debt in order to get where I wanted to go was a new way all right and so let's say in that same example I figure out a hundred dollar upsell that I get 20 of people to take okay so whatever the thing is 15 bucks a month and I have a hundred dollar one-time upsell uh that I offer to people and only one out of five people take it it's not a huge deal it's only for premium people who want some unique experience that's great awesome well if 20 of people take a hundred dollar gross profit thing then I make 20 bucks extra per person but here's the magic of what happens if I make that twenty dollars up front then I get my ten dollars I originally have for my membership and the twenty dollars because it's twenty percent of a hundred so one out of five twenty dollars and now my thirty dollars that I spent to acquire the customer is canceled out which means I can then take that money back and spend it again and get another customer and keep recycling the play and then compounding over and over and over again it's rather than waiting three months I confront the money on a credit card pay the card off and do it again I can do this entire thing without taking any outside money on and that's what we're going after which is client Finance acquisition and that's the term I use because your clients Finance the acquisition of other customers and that creates a cash flow positive business day one and so rather than think okay I'm over three to one that is like tier one of level of advertising what I would want you to get the next tier above that is client Finance acquisition where you're breaking even or better or better within the first 30 days because what happens is and I have this more in the money models uh training if you can get two to one in the first 30 days or three to one in the first 30 days then what happens is you actually compound at that multiple so it goes two times four times eight times sixteen times thirty two times and now we're only five months in by the end of the year you have four thousand times the amount of customers you did in the beginning if you continue to reinvest every single month and that is how you scale and realistically you would probably hit a different constraint but my whole point of this whole training is to remove getting leads as a bottleneck in the business and this accomplishes that okay and so that was the fix I just outlined I have 100 upsell 20 of the people take it 20 bucks on average increases it I break even and then we get free customers and then here's the cool part is that we still make the money every month after that that was coming in before but now it's just going straight into our pocket now we created a money printing machine and that's the goal so that's how you fix these things with client findings and acquisition and again that requires Innovation you just have to think what else do these people need and so just like you made a lead magnet that would lead naturally to your core offer where you can create another upsell that your core offer leads naturally to it can just be a never-ending cycle well there's also this other thing that you might want or might need and the easiest upsells in the world before I this will be a tiny tangent but you'll like it is that you can sell more of what you just offered them you can sell better of what you just offered them those are the easiest upsells that you can add in you can also sell new or different something that's complementary so you can sell fries with a Coke right you can sell a burger and then add in fries or add in a Coke and then each of those you can upsize you can super size them you can supersize your fries super size your Coke and so that's more it's better and then if you had the better version of coke you say well do you want organic Coke so each of those when you're thinking through how you can add something in more better new is a nice framework for adding stuff in now I'm not going to go more on that because that's a whole other book but if you need to add something there just get creative and think what else did this person want and one of the easiest things to do is just ask them if you don't know and you need to sell more stuff just ask them what else can I do to make this easier for you and then sell that so let's go over what I wish I knew number one is don't confuse sales problems with advertising problems so we actually had a company that was struggling with this for a really long time basically they uh they scaled their advertising and we fixed problem after problem and so it was like first the ads weren't working so we weren't getting clicks and then the the targeting wasn't working so we were getting the right people and then once we started getting the right people seeing the right ads we were getting them uh to schedule but then they weren't showing up so we fixed that problem and we got the right people on the phone so the right Avatar and they had all these people showing up and then they weren't closing they're like this advertising is working if you're getting the right people on the phone you don't have an advertising problem you have a sales problem and so you want to make sure and uh and the founder of the company was continually it's the ads it's like it wasn't the ads it was they didn't know how to close right and so we want to make sure that the problem we're solving is the correct problem of the business and so I just want to emphasize this and so we uh you know we spent 12 we spent 150 000 in ads um but they uh they actually threw in the towel so I'll just give you the real and they just want to continue doing what they were doing which was really frustrating for me but about six inches from gold uh they just they couldn't stomach the the loss of uh the 150 000 but here's what's crazy is that if they had continued as soon as they added the second huge stream of acquisition to their business they realistically would have added a 30 million dollar bonus to their price tag in terms of their Enterprise Value so think about the return on that so if you spent a hundred thousand dollars you spent 200 000 spend a million dollars in a year testing to finally figure out a new entire acquisition channel for your business and then that that separate acquisition Channel makes your business five times more valuable was it worth it I can't think of many things that are more valuable than doing that and so like the cost is still nothing it's a pittance compared to the return you get on it on a macro level not even including the money you make from the actual advertising number two is that your best free content can make the best ads I'm repeating this because I think it's really important and also user generated content so ugc if you've ever seen that if you can create a system where you encourage your customers to consistently make you testimonials and leave you videos or unpackaging videos of them using your product or services when you create a machine around that then you can basically plug that machine the output of all those customers directly into ads and then you create this cycle of lots of customers see customer ads they then make new videos which then get run as ads which then make more videos and you create this flywheel effect and the whole time you're stepped out of the entire process and just collecting your checks from pumping all of these videos and as an aside to to wrap this point up the best some of the best ads ever made were actually videos that weren't intended to be ads they were just videos that I had made that were high quality content that got shared all over the place and I was like oh maybe I should make this an ad and the thing is when you make an ad out of a video that the platform already likes because a lot of people are sharing it guess what they do they show it to even more people so you actually get a double win number three if you say you suck at something you will probably suck at it don't say I am not techy or I hate Tech stuff it just keeps you poorer than you should be and I said it for weight four years all right and then one day I snapped out of it because I hated my website designer more than I hated Tech itself I was like if I have to talk to this guy again I was like if this idiot can do it so can I and so four years wasting time and lost money reversed with four hours of concentrated effort so please just like get over it and if you're older especially like the tools they have nowadays are so easy people who don't speak English can do it all right anyone can figure it out all right so it's your turn so this is a paid ass checklist so number one this is again who this is the last of the core four of the ways you can advertise to let strangers know about the stuff you sell so this is you or your advertising is your offer or your lead magnet where any platform that your audience that you can buy access to your audience on uh to whom is the target audience or lookalike audience that you can sift through and add filters and interests when every day seven days a week why get engaged leads to sell how is you're gonna do your call out the three W's which is the value call to action how much you have your learning budget which is track lose money then print money and as an aside there if you know how many sales you can handle then you can reverse that into your budget until you fix your constraint so if I know that I can only handle 20 new customers a month and I know my average cost to a Car customer is a hundred dollars then I know that my budget is going to be two thousand dollars a month and so I can divide that out per day and say okay 30 days so 70 bucks a day roughly is going to be my budget per day now the budget that I'm putting there is not a constraint because of my advertising but because of my delivery but then I can focus on my folk all my effort on my delivery to deconstrain that and then I can crank this up again so you can reverse engineer to a sales goal which is how I do it if I have other constraints um how many I recommend doing 30 hooks for 10 pieces of valuable content and that'll give you 300 different variations that you can spend very small budgets on to test and quickly win and then scale the ones that that are doing well which you can only do if you track and then finally how long do you do this for as long as it takes because if you decide that you like if someone else can run paid ads in your industry you can run paid ads in your industry it's just a skill and guess how they learned it trial and error like I'm telling you like I lose so many times when I run paid ads and it's frustrating for me because I've been doing this a long time and it still sometimes takes three months six months to get it to really crank all the way through from The Click all the way to the close because each time you have to fix some little element of it to make it work and I really think it's the expectation that it's going to happen overnight that kills way more people who would otherwise be exceptional advertisers so if you can if you can just accept the fact that this is your learning budget I think you will you will do a lot better and so I had that little learning budget when it says how much um and it was referencing a longer story they had in the book and I'll give you the the smaller version of it now which is if you're doing the other advertising methods you're posting content you're doing Outreach warmer code of any kind you should be making a little bit of extra money you should also know a little bit more about your avatar a little bit more about your customers should know how they talk how they identify with themselves and that gives you data so that you can be more likely to be successful earlier on with the paid ads which is why I recommend doing it last you also should have enough cash flow from those sales to be able to spend knowing that you're not going to immediately make the money back to learn and so you can take that excess cash flow and put it in there you can give yourself a learning budget which is a reverse way of doing it which is I expect to lose a thousand dollars a month until all of a sudden it will click and then it will Skyrocket and that's usually how it is so you basically like lose money lose money lose money lose money and then it crushes and then you figure it out and so that money that you spend on Advertising oftentimes will be some of the highest return money you do it's just you have to look over a longer Horizon like that business owner who spent 150 Grand and decided not to keep going citizens from gold when he had a 30 million dollar Enterprise Value boost that he would have unlocked like you have an Enterprise Value boost that you unlock you just got to be willing to pay the price tag and so that's what I wish I knew when I started running paid ads and so that concludes the fourth of the core four for advertising which is paid ads now we're going to talk about how to put all four of those on steroids