One of the things I’m trying to do with Informly is work out a scalable way to grow and ideally build some early revenue. I see content marketing as the best way I can grow my business long term but it takes a long time to build up momentum.
So as part of marketing for the agency version of Informly I have tested a number of paid traffic strategies and made a bunch of estimates to work out which ones might be suitable ways to grow. First let’s start with everything you need in place before you start messing around with paid traffic.
Note 1 – I should preface this by saying I’m not a paid traffic expert so a lot of aspects of this can obviously be improved and take what you want away from my results.
Note 2 – If you want to be spared all of the gory details skip to the end and check out the takeaway section.
Basic analytics tracking
Because most of these strategies enable me to use trackable links I used the Google URL Builder to create trackable links for each campaign. An example might be as follows.
The right for example would be placed on a site like clientsfromhell.net and I would create a URL with the Google URL Builder that enables me to track traffic just from that ad.
In some cases I’d use more than one ad from each traffic source and have different trackable links for each campaign.
You can learn the specific steps to this in my guide on The practical guide to actionable Google Analytics.
Estimates of Lifetime Value (LTV) and Cost Per Acquisition (CPA)
Unless you have a bucket of money to throw at advertising then you probably want some idea of whether the advertising is bringing in customers for less than they are worth long term. If you want something that scales ideally you want to acquire customers for significantly less than they are worth to you long term. Some say up to 3x is a good result. In my case I was aiming at least to have CPA lower than LTV and I felt if I could achieve that then I would be able to further optimize down the track to improve it over time.
There are a few things you are going to have to estimate to work this out.
Lifetime Value of a Customer (LTV)
To know whether the advertising is worth investing in you need an estimate of customer lifetime value. In my case my plans range from $19 – $75 / month but I can assume that people will stick around for more than one month. Because I haven’t been around long enough to know how long they will stick around I have to make some estimates. Here are the calculations I used:
- Average plan value – $49 / month
- Fixed costs per customer – $9 / month
- ROI period – 24 months
- 2 yearly churn – 20%
I constantly review these estimates as I get more and more real data to estimate my lifetime value which based on the numbers above is:
(Average plan value – Fixed cost per customer)* ROI Period*(1-Churn)
or with real values
($49-$9)*24*(.8) = $768
Again I can’t stress enough that this is an estimate but it’s important to have some idea of this value before you start spending money to acquire customers.
Cost Per Acquisition (CPA or CAC)
Analytics and the paid traffic provider will tell you how much each click costs you (even if you pay CPM you can still look at how much traffic you got and divide it by the total cost to work out CPC). However there are a few steps between someone visiting your site and becoming a customer.
And in addition to that issue you may not have enough signups from a particular source to use real data for the calculations so you might have to make some estimates.
I use our free CPA calculator to work out how much a customer costs based on how much I’m paying per click.
I’ve embedded our calculator below but you can visit the CPA calculator here and even embed it on your own site if you want.
Let’s use Facebook traffic as an example. In the calculator below enter $1.81 for the CPC, 1.7% for the conversion of visit to free trial (Step 2) and 3% for the 3rd step which is my estimate of trial to paid. It will come out at $3,549!
Here are the results you should expect (bar a few dollars for decimal place differences).
The calculation going on above is as follows:
Cost per trial = (Cost per visit * visits) / Trial signups)
CPA – Cost per trial * trial to paid conversion estimate (3%)
I had a rough idea that 3% of people who sign up for a trial would convert to paid (a combination of assumptions and real data). So if I didn’t have enough signups from a particular source (i.e. above 5 signups is not enough people to get real data) then I could just estimate that 3% of them would become paid.
You can do the same thing if you don’t have enough traffic from a source. For example if I only had say 50 visits from Facebook that may not be enough to test the visitor to trial signup conversion rate so I could estimate that to get the value for ‘Sign ups’. I would be very careful with this estimate though since the conversion rate will vary considerably from source to source. The best case would be to make sure you have just enough traffic that you can draw some conclusions.
So the example above shows you how quickly spending $1.80 can turn into a traffic strategy that will bankrupt your business. I can’t acquire customers for over $3,500 when they are only worth $768 to me.
If you have any questions about these calculations please feel free to post them in the comments below.
Sources tested and results
So with the tracking set up I tested a bunch of different paid traffic strategies (over the last few months). Here are the high level results with the explanation of key points addressed in the notes below.
- The twitter auto follow is by far the best cost wise. For this one I’ve estimated the costs to be $150 which is basically my time to set it up. This strategy isn’t scalable however so it just runs at a small scale in the background. I have written a detailed guide on this strategy if you want to learn more see our Twitter auto follow guide.
- Our cold email strategy involves my team building lists of web design companies to email and ask them if they want to check out our app. So far this seems like the only scalable paid way of generating traffic I have been able to uncover so we are continuing to experiment with this.
- Adroll retargeting is very effective but it can’t be scaled without getting significantly more traffic to my site to start with. We only deploy the Adroll code on our agency pages which is only a small amount of the traffic on the site. You can learn ore about this strategy in our Retargeting guide.
- Most of the paid traffic was set up using BuySellAds.com, some of it was banner ads and others was paying for ads in email newsletters, paying for tweets etc.
- Outbrain.com shows related stories on large blogs like Mashable. It’s cheap traffic but converts very low since they are more interested in reading articles than buying product. However it could work well in conjunction with Adroll which I will test further.
- In some cases you can see there are no conversions to trials like with the Designer Depot item (which is a tweet by the way). In cases like that I took my average visitor to sign up conversion rate of 8% and applied it. This obviously gives you a much higher number of conversions than actually occurred but in any case the CPA is too high to act on. If you didn’t want to take this approach you could simply change the 0 conversions to 1 just to see how bad the CPA would be had you had one person sign up!
Since this stuff can ge a bit complicated I thought I’d list out the things I think you can take away from this post. Again I stress I’m not a paid traffic expert but if you are a founder like me and you wanted to look at paid traffic then hopefully the points below will give you some guidance.
- Don’t ever do paid traffic if you don’t have estimates for your key metrics. $1.80 can very easily turn into $3,500 to acquire a customer without you realizing it.
- Banner ads in general didn’t perform well enough in my case. There could be a lot of reasons for this but I think I’ve tested enough to not want to pursue the strategy in general until I’m more established and I am certain about my metrics and the funnel is well oiled. 1 or 2% shifts here and there could change negative ROI into positive ROI very quickly. I as hoping to find a few easy sources of cheap leads that I could easily scale but that was not as easy as I hoped.
- ‘Paid for tweets’ generally performed far worse than other paid strategies. I will be avoiding those in future.
- Retargeting is very effective. Check out our retargeting guide for more on this.
- Cold emails are surprisingly effective. I will continue to test and refine this strategy.
If you have any questions please feel free to leave them below.