You Gotta know your KPIS
The speaker explains how to optimize ad spend by setting multiple KPI thresholds before reaching the breakeven point. They advocate for aggressive creative cutting based on CPC, cost per add-to-cart, and cost per initiate checkout as leading indicators.
Summary
The speaker emphasizes the importance of understanding your financial metrics, specifically knowing your breakeven point for customer acquisition. Using a $50 breakeven example, they explain that any ad spending over this amount without generating a sale should be immediately cut. However, the speaker goes further by implementing what they call 'leading indicators' - KPIs that allow for even earlier decision-making before reaching the breakeven threshold. The first leading indicator is Cost Per Click (CPC). While acknowledging that low CPC doesn't guarantee conversions, the speaker argues that ads starting with high CPC within the first $15-20 of spend are unlikely to become profitable and should be cut early. The second set of leading indicators involves funnel metrics: cost per add-to-cart and cost per initiate checkout. Using an example with a $60 breakeven point, if historical data shows it typically takes three add-to-carts to generate a purchase, then an ad without any add-to-carts after $30 spend could be cut. The speaker emphasizes that this approach requires sufficient historical data to understand funnel economics accurately, warning against premature optimization without adequate data sets to inform these ratios.
About this episode
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Key Insights
- The speaker cuts creatives very aggressively using KPIs that trigger before reaching the actual breakeven point
- The speaker believes that ads starting with high CPC within $15-20 of spend are unlikely to decrease enough to become profitable
- The speaker uses funnel conversion ratios to predict performance, such as cutting ads that don't generate add-to-carts within half the breakeven spend when historical data shows three add-to-carts typically lead to one purchase
Topics
Transcript
You got to know your numbers. So what I mean by that is you should be able to spend up until your breakeven point to acquire a customer. So let's say your breakeven point is $50. That means that you can have an ad, spend up to $50, get a sale, and it would still be breakeven. Do you want it to spend more than that? No, if it spends over 50 without a sale, cut it. I cut my creatives very aggressively. So I actually have KPIs before it even spends a breakeven point off of two other metrics. The first is just going to be off CPC. I know CPC is something that it's not always representative of…
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