How Well Are My Ads Doing? The Only Metrics You Need to Focus On

How do I know my ads are doing well?

Good ads earn more than they cost. By starting with the basics of measuring the efficiency of paid advertisements through the Cost to Acquire a Customer (CAC) to Lifetime Gross Profit (LTGP) ratio, then exploring Self-Funding Marketing Strategies and enhancing Average Cart Value (ACV), we unlock a comprehensive strategy for growth.

The Basics: Cost to Get a Customer, How Much They Pay You, and Making Ads Work

When you're spending money on ads to get people to buy your stuff, two big numbers matter. First, how much you spend to get each customer. Second, how much that customer ends up paying you over time. If you do this right, you make more money than you spent on the ads.

What It Costs to Get a Customer (CAC)

This is all about how much money you have to spend on ads to get one person to buy something from you. For example, if you spend €500 on ads and get 10 people to buy, you spent €50 to get each customer.

How Much They Pay You Back (LTGP)

This is the money a customer gives you over time, minus what you spend to give them what they bought. Let's say a customer pays €200 every year for what you sell, and it costs you €80 to give it to them. You make €120 from them each year. After five years, you've made €600 from them.

Making Sure Ads Work (CAC to LTGP Ratio)

Your ads are doing their job if the money you make from a customer is a lot more than what you spent to get them. This means you have enough money to keep getting more customers and growing your business.

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Two Ways to Win: Lowering Your Costs or Making More Money

1. Cutting Down What It Costs to Get Customers (Lowering CAC)To make your ads really work, one trick is to spend less money on getting each customer. Imagine if instead of €50 to get a customer, you only spend €30. You’ve just saved €20 on every person who buys from you. This means you can afford to reach out to more people without spending extra money. How? By making your ads better so more people click on them or finding cheaper ways to advertise.
2. Making More from Each Customer (Boosting LTGP)The other side of the coin is making more money from each customer. If you can increase how much they pay you, from €600 over five years to, say, €800, that’s a big win. You could offer them more things to buy, raise your prices a bit, or find ways to sell them stuff that doesn’t cost you much to provide. The more money you make from each person, the more you can spend to get new customers and still make a profit.

By focusing on these two levers - reducing how much you spend to get a customer and increasing how much each customer pays you - you make your business stronger. You can afford to go after more customers because each one is worth more to your business. This is how you grow: spend a little less here, make a little more there, and suddenly, you're reaching new heights without breaking the bank.

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Smart Ad Spending: Getting Your Money Back Fast

What if your ads could pay for themselves quickly? This idea is about making sure the money you spend on ads comes back to you fast, so you can use it again to get more customers.

‍Example:
Imagine you sell something where you make a good profit, like a special subscription for €50 a month, and it costs you €20 to provide it. If getting a customer costs you €150, usually, it would take a while to see that money again. But if you offer something extra right when they buy, and they take it, you could get your ad money back in a month.

Making More Money Per Customer (Boosting ACV)

You can make more money from each customer by offering them more things they might want, like extra features or products. This means every customer ends up giving you more money.

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Putting It All Together

Start by understanding how much you spend to get customers and how much they give you back. Use smart strategies to make your ad money come back fast. Then, find ways to make more money from each customer. This guide helps you figure out how to make more money from your ads and grow your business.