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Profit curve is key to your Google Ads strategy Ft. Mike Rhodes of WebSavvy (Inbound Success, Ep. 182)

WebSavvy founder and Google ads expert Mike Rhodes talks about Google ads, the profit curve, and why CPAs aren't always the best indicator of success for your ad strategy.

Profit curve is key to your Google Ads strategy Ft. Mike Rhodes of WebSavvy (Inbound Success, Ep. 182) Blog Feature

February 15th, 2021 min read

How do the world's top Google ads experts develop their Google ads strategies and budgets?

Mike Rhodes - WebSavvy & AgencySavvy CEOThis week on The Inbound Success Podcast, WebSavvy founder Mike Rhodes breaks down his approach to helping his clients getting the most profit out of their Google ads strategies.

Mike says it's at the margins where you make the most money from Google ads, and that means understanding how to measure incremental profits and incremental CPAs.

He uses the concept of a profit curve to demonstrate this, and shares specific examples to illustrate his point that sometimes, higher CPAs are actually better for hitting your overall business goals. He also explains how to use Google Performance Planner to develop your plan.

Check out the full episode, or read the transcript below, for details.

Resources from this episode:

Mike Rhodes and Kathleen Booth
Mike and Kathleen recording this episode in matching red tops

Transcript

Kathleen (00:00): Welcome back to the Inbound Success Podcast. I'm your host Kathleen Booth. And this week, my guest is Mike Rhodes, who is the founder and CEO of WebSavvy. Welcome to the podcast, Mike.

Mike (00:41): Thank you, Kathleen. Lovely to be here.

Kathleen (00:43): I'm excited to have you, and you're coming all the way from Australia. So I am winding my day down getting ready for happy hour. And you are just waking up over there. It's awesome to have you. You are a Google expert. In fact, I think if I'm not wrong, your Twitter handle is @theGoogleguy. Is that right?

Mike (01:06): It is. Yeah. All my clients used to call me that back when I actually used Twitter back near for the last decade or the decade before that. Actually I think it probably was 2007ish. So yeah, just went with that and Google haven't asked for it back yet.

Kathleen (01:22): I love it. It's a great Twitter handle. So speaking of Google and, and things related to it, maybe you could tell my listeners a little bit about yourself and what you do and also what WebSavvy is.

Mike (01:35): Yeah. I've always loved the business of business. I've always loved growing businesses. I always knew I was never going to do the corporate thing. I guess, as kids we decide fairly early on we're either going to be just like our parents or the exact opposite of our parents. My dad did the corporate thing for 25 years and I think I worked out as an 11 year old, I ain't going to do that. I wanted to be a helicopter pilot, actually there's a whole tangent we could wander off down there. At six years old, I must have seen something on TV. Decided I wanted to fly helicopters. I actually went down that road. I learned to fly helicopters in Hawaii.

Kathleen (02:14): That's like Magnum PI.

Mike (02:16): Funnily enough, my boss was the pilot for Magnum PI.

Kathleen (02:22): Stop it! No!

Mike (02:22): So we would fly around Oahu and I learned to fly in the canyons of Kauai and flying around the volcanoes on Molokai. And when we would go around the Island one day, he took me to Higgins' ranch and we landed on the end of the pier. But it was in that thing where Higgins lived. I'm like, Oh my god!

Kathleen (02:40): That is so Epic. I love that story. I was a big Magnum PI fan.

Mike (02:46): Oh yes. For different reasons I'm guessing. I liked the helicopters. You liked the mustache. But it was, it was a good shot.

Kathleen (02:51): I mean, all of it. I watched it with my brother. It was one of the shows that appealed to both of us. So that is a really cool story.

Mike (03:00): I was still at uni at the time I went back to the UK. I grew up in the UK, if you haven't figured out the dodgy accent yet. And I ended up working for the most prestigious helicopter company in the UK. We had clients like, you know, the queen Bill Gates, Michael Schumacher, boy bands, all kinds of stuff. But I figured out right really quickly from talking to the guys and sadly, they were all men, all ex-military and they all could not wait to retire. And I thought, I do not want to spend the rest of my life in an industry, surrounded by people that can't wait to get out. So I left the UK, I headed for Australia. I went to New Zealand for three weeks. I stayed for three years and I started my first business there. A mate handed me two books as I was starting that business, the cashflow quadrant from Robert Kiyosaki and the E-Myth by Michael Gerber.

Mike (03:53): And those two books changed my life. I built that business up over 18 months. I worked in the business for 12 days of the 18 months, sold it for a chunk of change. I moved to Sydney thinking, well, I'm not sure doing the helicopter thing. I've got a chunk of change. I thought I was semi retired. I started playing lots of bad golf. And I went to a Tony Robbins seminar. Gosh, I won't give you the whole story. Cause I could really wander off on a huge tangent here. But I came out of Tony Robbins seminar hair on fire. I wrote a letter to Gerber saying, you know, your book changed my life, yada, yada yada. And I'm a bit stuck. I love helping businesses. I don't know what to do next. And I got a phone call from him six weeks later from actually from his PA saying Michael is just walking out of a meeting.

Mike (04:40): He'd love a chat. I'm like, Oh, this is the Michael Gerber, a hero of mine at the time. Long story short, he invited me to go to California and train with his team. That was Friday morning. He said, if you can be in California by Tuesday, we can get going. So I said, yes. And I jumped on a plane, flew to California. This is a month after nine 11. So fairly empty plane. America was a very interesting time, obviously back then. And ended up licensing the name E-Myth, being an E-Myth coach and consultant helping businesses grow. And I sucked at it. Because I would walk into these businesses. You know, here I am, this young guy. I've sold one business. I've had one business and I thought I was going to go in and systemize all of these businesses. And I'd get there and we'd start chatting.

Mike (05:37): And, and they'd say, mate I just need more customers. I just need more patients. I just need, you know, more covers in the restaurant. When do we get to more customers bit? Well, you're lucky. It's good. But it's a system, you know, there are seven modules and that's module five. Okay. When do we get the module? Is that like day five week five. I'm like, Oh, most businesses month 10. Get out, get out. Like, I just want to buy a module five. Well you can't, it's a system. I'm not allowed to sell you module five. We've got to go. Cause you had to go through a mindset and building a team and systems and all of that stuff, which in hindsight was actually genius. But it wasn't what all of these businesses wanted.

Kathleen (06:21): It's sort of like Maslow's hierarchy of needs, you know, like safety and things like that first. And that's why I think when people look at you, they're like, you just need to deliver more revenue. And then we can do the rest.

Mike (06:32): Most businesses. If you went into most businesses and doubled the number of leads tomorrow, they would break. Those businesses would break something. And those businesses would break. So you kind of had to prepare for that before the leads. But of course, every business thinks that's the magic solution. If you just had more leads coming in the door, the dog wouldn't have died. The wife wouldn't have left. Like they wouldn't have fallen over and failed. So I sucked at it. And then I saw this guy, Perry Marshall, speak about Google ads. This is really, really early days in Google ads, 2004, excuse me. Google had only been around a couple of years. And I was just blown away. Like, what? You mean you only show ads to people that are searching for the exact thing that you sell? And you only pay if they're interested enough to click on your little ad and come to your website? And back then, you know, all the clicks were about five or 10 cents.

Mike (07:29): It didn't really, you could do it quite badly and still make a lot of money. Oh my God, this is exactly what all of these businesses that I've been talking to. This is what they want and need. Sorry, Mr. Gilbert, not paying you any more money. I'm dropping all of that. And I pretty much started the agency then and there. I started trying to teach anybody. I came across about Google ads. I went back to my mastermind group hair on fire, like telling everybody about this thing. I would meet people at conferences and tell them about this new thing. And you know what, nine out of 10 people said mate, I don't care how it bloody works. Just do it for me, would you? Just do it for me. And so, yeah, that was really the genesis of WebSavvy. So that's what we do.

Mike (08:16): We do it for brands all around the world, mostly Australia and the US. We're pretty much half and half between the two. We started with Google ads and an all of those things around Google ads, like Google analytics, you know, the data that runs everything, Google shopping, YouTube ads, that's all part of the Google system. And we also do a fair amount of Facebook ads these days for our clients as well. But we've really stuck to our leader. You know, we, we don't do SEO. We don't build websites or apps. We don't create content. We've stuck to our, our lane, which is acquisition. We, solved that problem that everybody told me they had 20 years ago. I just need customers. That's what we deliver for our customers.

Kathleen (08:58): I love it. Mike, I got to say, you seem like the kind of person that I would really like to sit down and have a beer with because your stories are so good. What an interesting journey. Yeah, it's great. And I mean, I think I I'm so attracted to it because in some ways it's like mine, I've had an interesting career that's, it's almost like three careers in one where I started out working in international development consulting after college. And I did that for 10 years and I loved it and I was passionate about it. But then for various reasons, it didn't make sense anymore. And so I shifted gears and I opened my own marketing agency, which I had for 11 years. And then after 11 years, I sold that and now I'm working in-house as a marketer. Like they're just completely different paths and at every juncture, you know, you get excited about the next thing.

Mike (09:53): And isn't it amazing though, at the time, if you had had to draw the path forward, it would be impossible. But when you look back all the dots line up and it makes complete sense that you are where you are. It was obvious that that led to that led to that led to that, but you could never have picked it go back 20, 25 years. You could never pick where you be now and what you end up doing, but all of those things that you learn along the way, help that next jump and that next decision. And, Oh, what's this over here. That looks interesting. And it's wonderful.

Kathleen (10:27): Yep. You, and you have, you have to have done all those steps to wind up in this. It's so true. So true. So again, so let's talk about Google because this is, you know, anybody who's ever listened to this podcast knows that the question I ask at the end, which I will be asking you at the end is, you know, marketers are always saying that, that trying to keep up with the changing landscape of digital marketing is like drinking from a fire hose. And I always ask people how they do it. And I just think Google is a really interesting example of this because it is constantly changing. You know, you literally can make a full-time job out of just tracking algorithm updates and changes. And you know, and I, I'm a little obsessed with it. I, I, I heard a couple of sources that I follow for information on that.

Kathleen (11:24): But you know, it is, it is a very constantly changing landscape and yes, it's very easy to check the box and do Google ads and probably do them very poorly. But unlike when you first started, I feel like today you can be flushing a lot of money down the toilet. If you do that. Whereas if you know what you're doing there, isn't, there is an opportunity, but, but there's a lot of intricacy to it. It seems to me you know, when you and I first spoke, I know I told you, my audience is pretty sophisticated. So this conversation is not going to be Google ads, one Oh one. I'm going to assume that most people listening, know the basics about Google ads. What I want to understand is if you are somebody who is relatively proficient in Google ads, you know, what are some of the things that you're seeing that work well that really can help those people level up.

Mike (12:15): Great. Great. I love that because the fundamentals, if you haven't got those by now, you're probably not the least bit interested in getting online.

Kathleen (12:26): You get them in a 40 minute podcast.

Mike (12:30): I've, I've got a three hour course that I'm more than happy to give it to the listeners. That's what they want, but I don't think that's what we want here,

Kathleen (12:38): Which by the way, we, I can include the link to that in the show notes. So if you want, yeah. Multitask.

Mike (12:44): Yeah. So I being a pilot, I liken it to Google ads back in the day was like the cockpit of a Cessna, which if you've never been in a Cessna is a bit like being in your car, but there's even less instruments. It's basically a car that goes up and down a bit. There's, there's maybe three or four things that you need to keep an eye on. Google ads these days is like the cockpit of a 747, which none of us have been in either, but we can picture how complicated that must be with dials on the ceiling and surrounding. There was a lot of stuff going on and it really is, as you say, that last 10%, that makes all the difference. Google ads is, is pretty easy to do the first 50, maybe even 80%, it's pretty easy to get going.

Mike (13:28): And as you say, tick the box, I'm doing Google ads, but are you squeezing the most profit out of it? And it's not really your fault if you're listening and that's where you're at, because Google are making it harder and harder for you to understand where your money's going, which bits are profitable, which bits aren't, they would love you to just to focus on the average, what's the average return I'm getting from this. And I have to say we may be forced into that world, right? With the cookie pocalypse that's coming and, and our tracking isn't going to be as perfect. Not that it ever was perfect, but it isn't going to be as, as granular and detailed as it has been over the past little while, we're going to have to be marketers again, which is fabulous for us marketers. It's a little scary for the, all the people that hide behind their spreadsheets and think they can optimize absolutely everything to the nth degree and somehow be successful.

Mike (14:31): So there's that what I think we can dive into is, is incremental profit, an incremental CPA, because it's at the, at the margins where you really make the most money. So I've been thinking a lot since we first chatted a week or two ago, about how best to explain this without a whiteboard, a flip chart. So you're going to keep the numbers really, really simple, but I think it does help to have some numbers to illustrate this as we go through. So luckily you've got a really sophisticated audience, so we don't have to start with the basics. We understand what a break even point is. We understand how hard maximizing profit really can be. But we also understand that the different types of business, right, there are some businesses that absolutely need to make a profit on that very first sale. They think of marketing as a cost and they, they want to maximize the profit from that initial sale, even if they have a recurring business.

Mike (15:33): So they're not selling one-off products like garage doors or coffins that's a one-off product. If you sell those, you need to make a profit on that first sale. But many of us are in businesses where some of our customers, not all, but some of our customers will come back and buy again. They'll refer us to other people. We need to think about lifetime value. And I know that's such a loaded phrase. And what do you mean by lifetime is that lifetime is that three years is that 90 days? Are we talking revenue? Are we talking profit? But the point is smart. Marketers like your audience listening, understand investing in marketing. It's not a cost. We're not spending, we are investing. We are acquiring leads because we know that if we build it, they won't come. You know, I'm sure you saw this a lot too.

Mike (16:25): People would spend all of their money on the letterhead and the office and making everything look perfect. And then this big shiny website, and they wouldn't leave any leftover for marketing. There wouldn't be an investment left. So we need to invest to get more customers. So the way I would explain it is to say, let's take two situations, right? You've got this agency that you went to and they got you leads for $70. And he thought that seems a bit expensive to me. I'll fire them. I'll go to this other agency and they can get me leads for 30 bucks, which is best. Well, obviously we don't have enough data. We don't have enough information to make the right call yet because we don't understand what the breakeven is yet. We don't know anything about the business. What are the businesses goals? Well, okay.

Mike (17:20): If we now say that the break even point is, let's say 150 bucks. So if you're getting me leads for 70, then you're making $80. Let's just, just for the sake of argument and let's say $80 profit on each lead. And if you're getting me leads for 30 bucks, there's 120 bucks left between 30 and one 50. So now it comes down to volume. How many leads were they getting at $70? The first agency, how many leads they get you, maybe they got you 200 leads a month. And then this other month, you moved to them and said, I need it to be cheaper. I have to get my cost per lead down because I'm thinking about this as a cost, but now they can only get you 50 leads a month. They could, they, they managed to get that $30 target, but there's a lot less leads.

Mike (18:09): Well, total profit, obviously, is a combination of the two, how much profit are we making per lead? And what's the volume of leads. So without throwing more numbers at you, which I know is very difficult when you're just listening to this driving and trying to picture all these numbers in your head or working out or walking the dog picture a curve, right? So that curve starts at zero, zero on our X and Y axis. We starting at zero zero. If we don't pay anything but lead, we're not going to get any leads. So there's no profit at zero. I said, our breakeven was 150 bucks. So you can picture a curve that goes up, comes down and crosses this X axis. The X axis here is the CPA that the cost we are paying for each lead. If our average CPA is the same as our breakeven, then we're not making any money.

Mike (18:59): So at a CPA of 150, we go from making a little bit to losing a little bit of money. Is that sort of clear so far?

Kathleen (19:08): Yes. That makes sense.

Mike (19:09): Beautiful. So at some point then in between zero and 150, we must be making money. So we've got a curve. It could take any kind of shape, but let's just picture a hill in between those two points and anything higher than 150, we're losing money. It doesn't matter how many leads we get. It could be a huge volume of leads, but we're losing every money. Every time we run an ad. Now, so the game then becomes depending on what your business goals are, a smart business might choose to grow at break even because the more leads I can get through the business, the faster I can grow. You know, I get more volume of leads.

Mike (19:44): My website testing speeds up my email testing speeds up. I get more referrals. The value of my business increases. Assuming of course, that your business can handle that volume of leads. But let's back it up a bit for a second. Let's say, let's assume you do need to make a little bit of profit because most businesses do. Most businesses can't keep investing. Can't keep throwing money into their marketing with the hope that they're going to get a return on that a year down the track, or even six months down the track, they need to see that it's working. Quote, unquote. Note to self, don't drink fizzy kombucha just before jumping on podcasts.

Kathleen (20:23): That's so funny. Cause I'm a big kombucha drinker too.

Mike (20:31): It's lovely. And it's, it's cured my addiction to the other rubbish I used to drink. But.

Kathleen (20:36): Yeah.

Mike (20:38): So there's a point somewhere in between zero and 150 here where we're going to maximize our profit and the reality that, that trying to find the tippy top of that curve, that the absolute top of that Hill is actually really, really hard. And we live in a messy world. It's, it's not a nice smooth curve that we can draw and stick a pin in the map and go, yep. Okay, we'll go after that. So if we, if we chop the top of that Hill off, so if you can picture that a Hill and you chop the top off, so it's nice flat on the top. It's a plateau exactly. Tabletop mountain in Cape town. And you've now got this range and anywhere within that range. And I said, break even was 150. So let's just say for the sake of argument, $80 on the low side, $120 on the high side. They're the two edges of our plateau. Love that fact.

Mike (21:33): So anywhere in there, we're making a really good amount of profit. Maybe we didn't get right to the top of the Hill, but we got really, really close. Anywhere in there we're making money. Now, if you're still with me, well done, first of all. But if I now say to you, which would you rather, would you rather get leads for $80 or $120? Almost everybody, really smart marketers included, will say 80 bucks. And it's the wrong answer for two massive reasons. Now, remember this is the same total profit at 80 and 120. The first reason is your customer. Isn't your customer, your first customer, these days in the world we live in is not the human being on the other end of the screen. Your first customer is the Google algorithm or the Facebook algorithm. You need to make the algorithm like you and make the algorithm want to show more and more of your ads so that the human beings on the other side, even get a chance to see your ads.

Mike (22:39): Now, if you're offering 80 bucks and people in your market are offering 120, who does the machine want to give the traffic to the machine is going to take the 120 every single time. Remember it's the same total profit to your business, 80 or 120. So you must go the 120, otherwise you're just not going to get the leads. The second one is a little, so that's a bit more obvious once you, once you think about it, the second, one's a bit more counter-intuitive. And that is that if it's the same total profit, remember total profit is that, that gap, you know, the profit per lead, the gap between what we're paying 80 and the break even point, 150 multiplied by the total number of leads. So at $80, what's that gap, 70 bucks. And at 120, the gap is 30. I must be doing at least double the number, at least double the volume at 120 to end up with the same total profit, right? Ish. Yes.

Kathleen (23:46): That makes sense. I'm terrible at math, but I'm actually following. So you're doing a good job.

Mike (23:51): It sound like it would be because it just feels we've been taught that, you know, low numbers are good. High numbers are bad, it doesn't feel quite right. And yet if you draw the Hill and you chop the top off, you look at that plateau and that Hill represents profit. Then two points. There are the across the top of the plateau, it's all the same total profit. So I must be doing a lot more volume at one 20. And it's that volume. That's the kicker that speeds everything up. Assuming that your business can cope with that extra volume. All those things we've mentioned before, your website, your CRO testing, your email, split testing, the volume of referrals, the case studies and the testimonials that you're going to get the training opportunities for your team. Everything now proves your business value because you've got two, two and a half times the volume coming in. You've built the machine and that's what a lot of people buy when they buy your business. They're buying the machine that can drive more and more leads into your business like clockwork. So now everything is so much better now. Okay. Got it. Mike, maximize profit, not quite. Come down a little bit, find a plateau, find a range, pick the high end of the range.

Mike (25:05): Awesome. How the hell do I do that?

Mike (25:09): Back in the day, the only way to do that was testing. And you'd run some ads and you'd run some campaigns and you would test different CPA amounts and see what happened to volume. And yet all the time we'll hear from new prospects mate, you know, I'm getting leads for a hundred bucks, but I need them to be cheaper. To which our first answer is well, do you? Let's think about this? Let's really understand what the goal of your marketing is. Let's understand how you think about this cost or is it an investment? Let's think about what your break even point is and where you need to be. And now let's test around that. So that was the old way. Now Google has this wonderful, hidden, hardly used tool inside the Google ads machine. Now you do need to have a Google ads account running to use this, and the more data that you have, the more campaigns that you're actually running, the better. This will work, but I'm going to assume for a minute that your listener is running some Google ads, but like many agencies out there they've never heard of this tool.

Mike (26:18): It's called the performance planner. So if you go up to the there's a little wrench icon up in the top, right of Google ads. When you get back to your computer and you're going to click on tools and then under tools, you'll find a list of about 20 different things in there. One of them is called the performance planner. And this has been around for about a year for search campaigns, but they just made it available to shopping campaigns as well. It's not available for display and video yet just for search and shopping. And when you fire up this tool you'll say to the machine, basically predict what's going to happen next month for this campaign or this group of campaigns. And the machine will draw you a nice curve that goes up into the right, and it looks like the more money you spend, the better you're going to do, but what it doesn't do it doesn't talk about profit.

Mike (27:08): So we've built a little tool that will pull all of that data down out of Google, stick it into a spreadsheet for you. And now you can start playing with different scenarios and you can say what would happen if my breakeven was one 50? What if my breakeven was 200? What if my breakeven was a hundred and it will draw the profit curve for you? See Google are always going to give you that cumulative curve. It always goes up into the right. And it's very, very hard to tell from that what your incremental profits going to be, what the next bit you're going to gain is going to be. You can kind of do it. I'll give you the easy way first, which is it'll put a dot on that curve. And I'll say, here's where you are right now. But obviously we suggest you spend more money.

Mike (27:53): If you wiggle that little dot around, you'll be able to see what happens to your number. So it'll say, you know, right now you're spending 50 grand and you're making 5,000 sales. And if you roll that dot up to the next point on the curve, it will say, if you spend 60 grand, you'll make 5,003 sales or whatever those numbers are going to be. And if you're really good at mass, you can kind of do that quickly in your head. And you'll be amazed at what this thing shows you, because it will tell you your average CPA, your average cost per lead, or your average sale price is whatever it is. And when you move that little dot and you start spending more money, the average barely changes. I was looking at one the other day. And the average went from something like $72 to $73.

Mike (28:41): You go, well, that's okay. It doesn't seem like much. And yet when you do the math, you work out that those extra leads are costing you four or 500 bucks. And that probably isn't profitable. The business is aiming at 70, $80 a lead because that's profitable for the business. Maybe we can go up to a hundred, maybe 120, the four or 500 bucks a lead. You may use this tool and go, what the hell? Where are we spending all this money? And I think the reason that Google shows it this way is that if more advertisers knew about this tool and understood what it was really showing, they'd probably back off their spend a little bit. They're probably way past that, that plateau and heading down the other side of the Hill, sliding towards the big, nasty bit at the bottom, which is you are losing money.

Mike (29:33): Every time you run an ad. And Google obviously are not going to make that obvious. They don't talk about profit on this, on this tool. They don't ask you what your break even point. They just say, your average just went from 72 to 73. How bad can it be? But if you start looking at some of the points, okay, so picture a curve that sort of goes up and flattens off. Then obviously, you know, you're getting diminishing returns at this point. You're, you're getting to the point where yes, you could spend more money and the machine will happily take your money. Don't don't, you know, Google made, what was it? 135 billion last year, Meghan, to take your cash. Same as we talked about before to advertisers, one offers 120, one offers, 80 who's the machine gonna reward. But if some numpty offers the machine 250, Google's going to take their money too. And you probably have some competitors in your market like that.

Mike (30:30): Hopefully they won't be around too long. Hopefully they won't be able to run those ads all day, every day. And in a couple of months, they'll realize, Oh, we're going backwards quite quickly. We should probably stop that now. So you must, must must know your numbers, obviously all smart marketers. Do we understand lifetime value? We understand breakeven, but this, this tool makes it so easy. Now, if you know where to look to start to think about that incremental cost versus the incremental gain. And I think that's something that we all have to get better at as marketers. It used to be very, very complicated maths and very, very hard to do and a whole lot of testing. But now that this tool exists and I've spoken to the the product manager of the tool at Google, and they have absolutely no plans for this data to be available via the API.

Mike (31:23): Anytime soon, it is not on the roadmap for the next year, at least. So they're not going to make it easy. I want to make it easy to pull all of that data out of there, stick it in a Google sheet, visualize it in data studio, however you prefer to work, but at least understand if I spend an extra 10 grand, what do I get for that? And what's my incremental gain. Is it really worth that extra spend? Or could I find somewhere else to go spend that? Do I take that over to my Facebook ads? Do I Chuck it into the new shiny toy, whatever it is this month insert shiny object here, or do I save it and tip it into something else and tip it into a surprising and delighting by clients or, or training my teams or something else? Sorry, I've done a lot of talking

Kathleen (32:13): So interesting though, because I mean, you've, you're, I have a lot of thoughts that are kind of swimming around in my head right now, the first going back to the earlier part where you talked about like, if you could do it for 80 or 120 and both had the same thing, which would you do? And of course I would, I would have said 80. But then as you started talking about the, the value of volume, that was really interesting to me. And then it also got me thinking, what does, does that volume then become a springboard for growth in other channels, like referrals and word of mouth, you know, is it, is it like a snowball effect where you get more volume through your pay-per-click ads, campaigns, and that's just more customers. And as you said, assuming you're able to handle that volume and you're able to serve it well and delight your customers. Will they then not go and tell, you know, their friends and then you have the best kind of business, which is the word of mouth business, where your cost of acquisition is very, very low seeking you out. So that, that was interesting. And I've never thought about it that way before.

Mike (33:19): Well, you did right? The value of volume. I'm going to steal that phrase. Thank you. I like that. Well, it just, it sums the whole thing up. But yeah, this is just the cost of that initial lead. And when we haven't started talking about lifetime value yet, or, or 90 day return or anything like that, or even the benefit of just having all of those people on your site, I mean, the social proof of the reviews that they're going to leave, because you have a program in place to grab reviews, and whether that's on your Google, my business page, or Product Hunt, or wherever you're collecting those reviews, the testimonials, the case studies. Your remarketing lists. I mean, okay, remarketing is going to change with third party cookies going away and so on. But most businesses that we see at least a huge part of their Facebook advertising is some form of warm audience.

Mike (34:11): Whether that's an email list or a remarketing audience, if you've got two and a half, three times the volume of people coming through your website, think what that does to your remarketing. Think what that does to your Facebook traffic now, to the organic reach for your YouTube videos, because now you've got all of these people that are watching, which sends that algorithm a nice message to say, Hey, all of these people are watching this. They're finding value in it. Let's put this video in front of more people. Everything starts to, to grow. I think it was, it was Dan Kennedy that said the winner is not the business that can pay the list per customer. The winner is the business that can afford to pay the most. So if you can afford to pay one 20, if you can afford to pay one 50, you're going to win because you know, your numbers, you know, what that leads to, and you know, that ultimately you are going to be much better off for it. Now, if some businesses will, will be even a loss leader, right.

Kathleen (35:12): A lot of startups that are well-funded are like that.

Mike (35:15): Yes. Some, some somebody told me the other day that something like 40% of VC money goes into paid at 400%

Kathleen (35:22): And it was blowing my mind. I I was looking at the the SEC filings for Shopify which is, you know, a huge success story. And I think if I remember correctly, they were saying they didn't expect to be profitable anytime soon. And, and, you know its very common with startups because they're really just trying to grow as quickly as possible to, to build up a massive audience and create an ecosystem and this and that. But, you know, you do have to sort of think about at what point is trying to compete with that stop making sense.

Mike (35:57): I bet. And it feels like over the last 18 months or so, we've started to see a bit of a shift there away from, yeah, Shopify have done that. Amazon very famously didn't make a profit for a very, very long time. And when they finally did, everyone was a bit amazed. Tesla didn't make a profit for a very long time. Those story stocks though seem to be sort of padding it. People seem to be a little bit more, well, hang on a minute. Don't we need to make a profit at some point? Isn't that the sustainable business that we're trying to build here and not just burning someone else's money. So, yes, I think it's becoming more important. And I am very aware that at the same time, that we're sort of detailing out all of these numbers and drawing this curve, that, that marketing is going to get more fuzzy in the future.

Mike (36:43): We're not going to be able to measure things quite as perfectly as we've measured, but we can still think about the trend. We can still take those overall concepts of, as you said, 80 versus 120, I would've picked 80, but now that you pointed out, yeah, actually I'm much better off. And it's the same profit. That's the, you know, mindblowing bit is it's exactly the same profit. So I, I have to be making it up in volume. Oh, that volume is worth so much more. To me, I'd be crazy to go back to paying 80 bucks or what many businesses asked for is we're paying 80, but we need 50.

Kathleen (37:20): I think putting on my hat as an in-house marketer some of that is pressure from above, you know, where you're you're, if you are working for a CEO or a board that doesn't understand this concept they're looking to consistently lower CAC. And so they're going to be saying, you know, how come, how come that cost of acquisition is not coming down over time? You know, and so there's a, there's an educational element that I think is needed there from the marketer to, to the rest of leadership within the company, to understand kind of these concepts that you're talking about. But I also think what's interesting to me about this whole conversation. Is it points to kind of what you need to think about as a marketer when you enter into a relationship with an agency to do your paid ads, because so many, so many of the marketers that I know in my network don't have, full-time, in-house people that do this.

Kathleen (38:18): Cause it's, they're either at a stage of growth where they need to outsource it, or they've recognized that it's something that's pretty specialized. And so coming to that relationship with more than just, you know, I want to keep my CAC below X, or I want you to consistently bring CAC down and get me lots leads, but coming to it, understanding your pro like the overall profit margins of the business and, and understanding just those, those core financials that are maybe are not necessarily looked at as part of the paid ads strategy is super important. And then knowing to hold your outsourced team responsible for factoring that into the strategy.

Mike (38:59): Yes. Well, it comes back to it's the goal, what's the goal that you're giving your agency. And I think more and more the hybrid model is, is the right model. You know, like, as you say, it's changing so fast, do you really want, unless you're spending millions a month, do you really want somebody in house who's going to leave after 18 months running all that for you? You can't obviously outsource your marketing strategy to an agency that has to come from the CNO internally, but using those external skills in a fast changing environment. But what's the objective, what's the goal that you've given to your agency. If it's just keep reducing CAC, no matter what that isn't going to work, that's going to hit a point where, well, yes, we can get you a row as a 14, or we can get CAC down to 25, but at what cost, what does that do to volume? Because we can't triple volume and reduce CAC at the same time. We're good, but we're not magicians. What's the objective

Kathleen (39:55): Point about, you know, we were talking about startups and high-growth startups and, and you know, if you're a company that's looking to raise another round of venture capital funding, or if you're looking to get acquired, that volume is so important, they want to see, they want to see acquisition fast growth. They don't want to see, Oh, like at the end of the day, having a lower CAC is nice, but that is not as important as, you know, we tripled our customer base.

Mike (40:25): I, I, I know very little about say something like Y Combinator, but my understanding is it's, it's all down of that growth number, you know, are you growing at 10% month on month or whatever that, that number is for your business and have you sustain that? Are you improving that growth? Yeah, I'm conflicted by that. I get it. I understand why, because you've got to make a dent. You've got to get in there. You got to become something in the market. You've got to build that awareness, but at the same time, how much are you going to burn getting to that point, right. That's a different world for us.

Kathleen (40:59): I guess if you have deep VC pockets behind you, you can burn a lot. No, that's so fascinating. So, so, you know, what would your advice be to marketers if they're looking at entering into a new relationship with somebody to do their paid ads, or if they're in a relationship, but they're thinking I need to take a fresh look at this. Like, what are, what's the information that they need to gather to come into this conversation in an informed way?

Mike (41:27): That's a great question. I think at a minimum asking your agency, Hey, what happen if you know, what would happen If we allowed CAC to go up 10 bucks or 20 bucks, what would happen if we doubled our budget? What would happen if we reduced CAC? What would happen, but what would happen to what, what would happen to overall profit or first 90 day revenue? And let's be really, really clear about how we're measuring what works and defining how, what, what, what works is, sorry, I butchered that sentence, but you know what I mean? What's the definition of did this work and being really clear about that and being open to sharing all of those numbers from both sides. This is what we understand about our lifetime value. This is what we understand about our referral process. Yes, we're trying to fix this, but right now each person brings in 1.2 additional people like being really clear and transparent and sharing all of that.

Mike (42:25): And back to your point about education, I think that's really cool. So maybe it's I will put some pictures up on our, some pictures, some images on a, on a blog post around this concept on our blog so that your listener can, can come and steal those images, download them, stick them in the PowerPoint for the CEO, for the board and say, zero, that's this point down here. Break even. That's this point over here, this is the Hill that we're going to die on. Actually, we're not, we're going to die on this plateau up here. Which one do you want to pay? And basically do the 30 second version of what we've been talking about and get your board to say, is it 80 or 120? And then when they say 80 go, I knew you'd say that, which is why you don't get a lollipop. And here's why we're going to go after one 20.

Kathleen (43:11): I love that. I love that. Well, if you do this blog, I will definitely link to it in the show notes. And it's like the convince your boss letter that, you know, conferences give out, here's the letter you should give to your boss to convince them why you should go to the conference. This is the convince your boss letter for taking a different approach to your paid ads. Yeah, that's great. Well we are now at that point in the conversation where I get to ask you my two questions and I've already previewed that a little bit. So I'll ask you the first one which is, you know, the podcast is all about inbound marketing. Is there a particular company or an individual that you think is really knocking it out of the park with inbound marketing these days?

Mike (43:54): You know, I was thinking about this a little this morning and I, yeah, I'm going to have to say a client name, but I am I'm conflicted because I'm not meant to mention client names, but look, if you're still listening at this point, you kind of go and look and tell me who is doing it really well here. I think ButcherBox who are, have grown and grown and grown in the States over the past three, four years. They just, they care so much about their customer, but also about the farmers that they support. And that story has just resonated. We're lucky enough to help them along their journey. I know they've got a happiness, really, really smart in-house team. And then they've got, you know, external SEO agency that we chat to a bit. And we look after paid ads. So we do Facebook. I don't think we even do Facebook for them. We just did the Google side for them. And so there's lots and lots and lots of people involved, but at the core of it two guys that really, really, really care about what it is that they're doing and what it is that, that, how they're making the world a better place. And I think people are just drawn to that. I think their content is absolutely fabulous who doesn't love candied bacon, I'm Australian. I have no idea what candied bacon is, but it sounds amazing.

Kathleen (45:08): It's a uniquely American thing to, to put sugar on cured meats.

Mike (45:14): Pancakes and bacon doesn't even make sense to people outside of America.

Kathleen (45:19): It's funny that you say that. So, little story. I lived in Barcelona for a year after college. That's the thing I missed the most was pancakes. And I remember trying to explain what pancakes were to the people that I lived with. I lived with a family. And they were like crepes? And I'm like, no, that is not the same thing. There are pancakes. It's a foreign thing. All right. So butcher box, I'm now intrigued and we'll have to check them out. Second question is the one I mentioned earlier, which is how do you personally keep up to date, stay educated and stay on top of, you know, all these things that are constantly changing?

Mike (46:01): In a word, curiosity, I guess. I mean, I love the business of business. So I read all the time. I get to go to a lot of conferences. I guess I figured out really, really, really early on that that was an investment in, in me, in my education, in my team, we have a role here. So we have a learning fund. Everybody has a learning fund of five grand per head, and it's frowned upon if you don't spend that. So we also have an unlimited Amazon policy. If you want a book, then buy it. Don't ask anyone for permission to go get it. So we've got a wonderful library out here, but the deal is, if you go off to a conference, if you go into a course and learn something, you have to come back and do a lunch and learn on what you got out of it. So it's an investment and, and everybody gets better because of it. I follow some, some smart guys like Avinash Kaushik. I think he thinks about data so wonderfully. He's such a wonderful presenter too. I had the absolute privilege of sharing the stage with him in Moscow a couple of years ago, and managed to sneak back to his green room. We all had our own green room and we all had our own personal assistant.

Mike (47:13): So I asked my little personal assistant, like, could you get me into his green room? And we had the most wonderful chat about data, about parenting, about all sorts of stuff for half an hour. He was so gracious. This is before he went on stage when I'm usually a bit of a mess and I don't want to talk to anybody. And he's like, come in, have some of my free snacks. Let's chat about life. And the world is just such an entertaining, brilliant thinker. So Avinash I just saw an interview with Seth Godin the other day and just bought his new book. I haven't read it yet the practice, but I was chatting to my wife last night. She, she saw it on the counter. I mean, is he still going? I'm like, Oh yeah, she used to be in marketing. And, you know, she remembers purple cow and permission marketing. That was what, 20 years ago. And he's still wonderful.

Kathleen (47:59): Yeah. He, and every day he comes up with something new seven and a half thousand blog posts. Yeah. It's pretty invincible.

Mike (48:06): But most of all you learn by doing, I think so I learned from the team we learned from our clients where we're always trying new things. I try and invent a big new thing around Google ads every year. So that sort of forms the bulk of my, my talks back in the day where we went to conferences and gave talks. So I'm always thinking about how businesses can, can benefit, not just from Google ads, but you know, from, from marketing in general, from what's going to happen with no cookies, how are we going to track things? How does this play with this? How does paid ads play with SEO play with Facebook? How can we make it all better? My my latest little thing has been Google data studio and getting really deep into data studio and thinking of different ways to visualize the data.

Mike (48:53): So it tells a better story. So, Oh, it's, it's, it's really quite bloody annoying and fiddly in some ways, but an incredible tool and Google are tipping a lot of resources in, you know, that team is growing fast and they are pushing out improvements to that all the time. So yeah, really, it's, it's, it's by doing and just continuing to get educated every day. I probably still spend at least an hour a day on my education. And I, I love it. I love learning. And I love teaching, I guess I've discovered I'm a teacher at heart. And that for me is that the reason that you learn is so that you can teach so that you can help other people with the stuff that you learned. So it's it's fun. It's not a choice.

Kathleen (49:37): I heard a quote once and I don't know who said it, and I'm going to probably get the quote wrong, but it's something along the lines of you haven't truly learned something until you have successfully taught it. And I so believe that because the act of teaching forces you to really synthesize the information that you've taken in and, and to be able to then process it and help somebody else to understand it. That's so powerful.

Mike (50:00): Yeah. To process it, to sort it out in the, in the right order and to, to know which pieces come, where and the, the relative importance of those pieces, if you, if you can explain it. Yeah.

Kathleen (50:13): Yeah. Well, Mike, I feel like I could talk to you forever. I have to know, do you still ever fly helicopters?

Mike (50:20): You know, I have not flown in over 10 years, so I, I definitely, I'm not legal to fly anymore.

Kathleen (50:28): You probably don't have those, those hours that you need to come up.

Mike (50:30): I don't. And you probably wouldn't really want to sit next to me while I, while I read that I would definitely have to go back to school to learn that one, but I will I will fly again when my daughters are old enough after I do lots of training, I would love to to fly them around actually thinking about it. It would be lovely to go back to Hawaii and and fly around Molokai and Maui. Again, it was such a beautiful part of the world. Yeah. Yeah. I'll take that. Excuse me.

Kathleen (50:57): Awesome. Well, I love your story. I could talk to you forever. And this was a really interesting conversation. I definitely it's, I'm thinking differently about Google ads now than I was before we started, which I love, I love talking to anybody who gets me to challenge, you know, the way I think about things. So thank you. And I suspect there are going to be people listening who are going to have questions and want to dig a little deeper on this. So I will be putting some links into the show notes, but for those who are listening what's the best way for them to find you online and to learn more about WebSavvy.

Mike (51:32): The best way is probably to head to WebSavvy. So WebSavvy.com.au, because we're down here in Australia. I do have that good Twitter handle. I'm not on Twitter much, so don't try and get me there, but just send me an email. I love this stuff. I love answering questions. So, or being challenged, if you, if you think half of what I said today was garbage and you disagree. I would love to hear that too, but if you have a question, if you would like us to take a second pair of eyes over an existing Google ads account, we can do that for you too. That's Mike M I K e@websavvy.com that I, you send me an email, ask me a question would love that.

Kathleen (52:09): Fantastic. Okay. That email address is going to go in the show notes.

Mike (52:12): I will write the blog and I will send you the link in the show notes too.

Kathleen (52:16): Love it. And you're going to give me the link to your course for those who are potentially interested in learning some of the basics. So lots and lots and lots of resources from this episode. Thank you, Mike for that. And if you're listening and you enjoyed this as much as I did I would love it. If you would head to Apple podcasts or the platform of your choice and leave the podcast a review, let us know what you thought. That's how others find us. And of course, if you know somebody else, who's doing amazing inbound marketing work, tweet me at @workmommywork, because I would love to make them my next guest. That is it for this week. Thank you so much for joining me, Mike.

Mike (52:52): Thank you, Kathleen. It was an absolute pleasure. I've had a lot of fun.

Kathleen (52:55): Thanks. Me as well.

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