How To Fight Rising CPMs

Nick Kozmin

Transcript

Alrighty guys. So in this video, I am going to be talking about the rising CPMs in the, on the advertising platforms and how it affects your business and what to do about it, because there's a ton of new advertisers that are coming into these advertising platforms like Facebook and LinkedIn and YouTube, pretty much everyone is a internet business right now. So what do you do about this? CPM is the cost of a thousand impressions, the cost of a thousand eyeballs. And that keeps going up. It keeps increasing with new competitors. The inventory on the ad inventory on the platforms is growing less than the amount of new advertisers entering the platforms. So it's driving up price. So what do you do? Okay. So I am going to build a quick model here and, uh, and show you how this, you know, how this, uh, CPM affects your business and, uh, what we can do about it.

Okay. So rising CPMs and I'm using the sales process IO, uh, modeling tool here. Okay. So I'm going to have an offer. Let's say the offer is $10,000 per year. Uh, we're collecting it over a year. There's a call it a 50% churn rate and the cost to sell the renewal is 5%. Okay. The cost to fulfill is we'll call this 10%, okay. Cost to fulfill the initial offers 10%. We're going to be selling it over the phone. So we're going to be using a 15% commission rate, the sales cycle length we'll set that equal to 14 days. And then we are going to be using inbound, um, as our marketing source. So this is paid advertising and we'll spend $50,000 a month. And the initial CPM will be call it 10, Oh, call it $15 cost per thousand eyeballs. So this is how much does it cost to get a thousand eyeballs?

The click through rate, we'll set it to 1% the funnel conversion rate, which is the rate at which the viewers turn into leads. We'll set that equal to 2%, which is pretty standard for a, um, for a good funnel. Okay. And then the lead to customer conversion rate, we'll set that equal to 8%. So if you have a good sales process, that would be about 8%. There'll be no, uh, viral component here. And we'll set the fixed costs equal to let's say, $20,000 per month with like rent and stuff like that. There'll be no debt. And yeah, this will just be a simple base model. Okay. So as we can see at this CPM, and we're going to start from zero customers. Okay. Um, this works okay. So $50,000 we can see here at ad spend the cost to bring on a customer is about $2,000, $2,200.

So that's the cost per acquisition. And, uh, this works. So the, it costs us $2,000 to get a customer. Uh, folks are, uh, paying $10,000 and the gross contribution is 90%. So we're making money, right? However, that's at $10, if that's $15, uh, per thousand impressions, what happens when this number jumps up to 50? Okay. Now this happened in the last year on Facebook, uh, for example, a lot of new advertisers entered the Facebook platform. Facebook is probably trying to optimize their profits and, uh, what's happening is that it's getting more expensive to advertise. Okay. So this, as you can see here from 15 to 50, you can see here that the cashflow is affected. Okay. Pretty significantly. And if you're just starting from scratch, like it's going to take you a little bit longer to get profitable. Now, over the last year, I've seen the CPMs jump, especially in the, uh, like the us and, and some of the big five countries or top five countries.

I've seen it jump to like 110. Okay. And things are getting more saturated. Okay. So it depends what, what type of business you're in, but I've seen this, the cost per thousand impressions jump. And sometimes that click through rate falls because the click through rate is the rate at which a customers or prospects click on your ads. If they're getting hit with a ton of ads from similar businesses or similar claims that click through rate could fall. Okay. So that could, uh, it could be around 0.6. Okay. Especially at this type of scale. Okay. Now let's see what happens. Okay. Okay. With this rising CPM and more competition in the market, the cost per acquisition shoots up like crazy, right? It's the cost per acquisition is $12,000. Okay. So this is a common thing. You might be able to see that people who are running ads before are not running ads anymore, um, and or their, the, the budgets have dropped pretty significantly.

What do you do? Do you fight it with, like, do you fight it by going to, or trying to lower your cost per acquisition? A lot of our customers try to do that. Well, we're not going to like all those being the same. We have to get the cost acquisition down. How do we do that? Do we do more organic? Do we do more? Should we try YouTube ads? Should we try Twitter ads? Should we do outbound prospecting? What, what do we do to get that cost per acquisition down? Now that's a, that's a common question. The answer is you can't really do that. Okay. The cost of an eyeball is the cost of an eyeball. Okay. In any market, across any platform, the cost of an eyeball on Facebook is similar to the cost of an eyeball on LinkedIn is similar to Acosta, eyeball on YouTube, on Twitter, on, on outbound, like the cost of an eyeball it's, it's a market, right?

So it's, there's not much, um, like it's a pretty efficient market, so there's not much difference between the platforms. So what do we do? How do we actually make the business work when the cost per impression or cost of an eyeball shoots up? And this happens, like this happened over the last six months, the cost to market pretty much doubled on some of these platforms. Okay. So what do we do? Well, the answer is we have to up the ticket price. Okay. That's the only solution it's like, if you're trying to, um, get the, the model working with a smaller, uh, cost per acquisition, it's kind of like fighting a fire with a squirt gun. You're trying, you're, you're trying to put out this fire with a squirt gun. It's not really working. You need something like, you know, you need a, like a river to put up that fire. Okay. So really the only thing that you can do is up the ticket price. So let's see if it works at $15,000 a year. Okay. Similar economics. Okay. Let this load. Okay. It kind of works. Okay. But if the cost per acquisition doubles or, uh, the cost per impression doubles, we might need to make a more drastic change. We might need to start swimming upstream and start targeting these higher ticket customers. Okay. So let's go from 10,000 to 30,000. Okay. Let's see how that works.

There we go. We're back in the green. Okay. So this is like, what exactly that price needs to be? Well, it depends on the market. Depends what the CPMs are. And, um, it also, it depends on the, uh, the location, right? So the CPM in America is going to be a lot different than the CPM in Brazil. So it really depends on where you're marketing and in general, the way to fight this is to up the price. Okay. So that's the point of this video is to show you that we don't want to be fighting a fire with little squirt, squirt gun. We want to provide more value, upstream, get the engineering hats on and start building and creating more, more and more value. And this can actually be considered a good thing because it's makes this, this really high CPM makes it very difficult for new people to enter the market without a ton of money.

Okay. So when CPMs are really, really low, like back a couple of years ago, even when, um, in March of 2020, everyone pulled back on their advertising and CPMs were super, super low, right. We didn't know about what's going to happen. There's a lot of uncertainty, um, CPMs were super, super low. And all of a sudden, if you, if you were smart, you would be, you, you could dump money on advertising, make a crazy return. Right. So, um, however people have kind of woken up and the CPMs are rising. So really what we got to do is up that ticket price and, uh, and make the model work. Okay. And so that, that involves a whole nother round of customer development. You might have to take that a segment of your customers, who you might have a few segments of your customers. Some are decent customers, some are fantastic customers who pay a lot more.

You might have to start focusing on that segment to make the business profitable. Okay. So hopefully this helps, this is a tool that we developed inside sales process IO. It maps out a lot of these granular inputs to the outputs and the value of the business, et cetera. Okay. Hopefully you found this useful and if you need help, uh, determining exactly what the price needs to be and what that, uh, um, to sustain a profitable business model at the CPM, or if you need help determining the CPM, you don't know how to determine that value. You don't know how to run the test properly. You don't, you don't know if you're getting false negatives or, or, or whatnot, then you might need some help. Okay. So, and if you need some help, you can visit sales process IO. Uh, we have programs, we have consulting that will help you through some of these, uh, uh, uh, some of these steps to make the business profitable. And, uh, yeah, hopefully you liked this video. We will see you in the next video, leave a, like, leave a comment, subscribe to the channel if you like this type of content. And we will see you later.

 

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