The goal of paid marketing for any company is to bring in great quality customers that will stick around for life.
But too often, it can feel like you’re just shredding your cash.
That’s because when you’re not targeting the right paid marketing channels for your company, you can quickly rack up a lot of spend without any new customers to show for it.
This is incredibly discouraging.
What’s worse is that if you haven’t yet started with paid marketing, you might get intimidated by this prospect and feel too afraid of losing money to do anything.
But there is a way to do paid marketing correctly and keep your Benjamins intact.
If you can find the paid marketing channels that bring in your best, highest paying, longest lasting customers and then double down, you’ll know you’re spending your money efficiently and helping your business grow.
And the best way to find those channels is simply by testing out a lot of them and seeing what works.
This doesn’t mean taking random shots in the dark.
It means setting up a calculated, systematic way to experiment with limited budgets in different channels and compare your results.
Thanks to a presentation by David Hauser at SaaSFest 2017, I recently learned that this system can be really easy to set up and run and can have huge results in growing a business.
David has built multiple successful businesses, including growing Grasshopper to $30 million in annual recurring revenue without raising a single dollar of outside funding. He’s done this by scaling his paid marketing spend in a very particular way.
Here, I’ll break down what I learned from David’s presentation about some concrete ways a company can get started finding its all-star paid marketing channels while being smart about its spend.
Paid marketing tests show you where to find your best customers
When you’re just getting started in paid marketing, the choices are overwhelming.
There are so many different channels to consider—Facebook ads, content marketing, partnerships, email marketing, Google AdWords (paid search marketing), and the list goes on.
Without any prior experience, you can’t know for sure which channel will bring you the best customers and will be worth your money.
Even if you’ve been using one or two channels, you don’t have a complete understanding. You can’t say for sure that those are your best sources of great customers when you don’t know what customers might come from other channels.
That’s why running small but constant tests in many different channels is the best way to create a paid marketing strategy.
These tests—with limited budgets—mean you can start to understand what customers you can get from many different channels, without fully committing a lot of spend to any one of them.
This testing strategy has worked extremely well for David’s companies. At Grasshopper, a virtual phone management system, David’s only marketing goal was to help people learn about Grasshopper.
To drum up this top-level demand, his team tried out at least 10 new paid marketing channels each year to find out where their best customers were coming from. Then they doubled down on those best-performing channels.
The next year, David’s team would test out 10 more. They did this regardless of how successful the last channels had been. Even if the seventh channel was really effective, the seventeenth channel could bring an even greater return on their spend.
Testing helps you build a long-lasting business
From a business perspective, David’s method is a great way to establish a successful model of acquisition.
By testing different channels, he was able to find how to use his budget on acquiring customers that will end up spending a lot at his company.
Every company needs to spend less on acquiring customers than it makes from those customers—that’s the only way to set yourself up for long-term growth and success.
If David’s method of testing 10 new paid marketing channels each year sounds intimidating, don’t immediately write it off.
Even though there are a lot of channels out there to test and try, this doesn’t need to be an overwhelming or expensive process.
The key is to start small, experiment, and iterate.
How to find the best paid marketing channel for your business
Let’s look closer at some actionable ways to do this.
Start with bullets, not with cannonballs
To get started testing in a smart, efficient way, you’ll need to do these three things:
- Allocate 10% of your marketing budget to testing new channels.
- Choose a few paid marketing channels to test out.
- Set low budgets on the tests for these first few channels.
Setting up many small tests initially is David’s way of starting with bullets, not cannonballs. This is what he’s found to be most effective in his own experience growing companies.
For instance, at Grasshopper, David’s very first paid marketing campaign test had a budget of $500. Eventually, they worked their way up to their largest test ever with a $1 million budget. But would they ever start there? Definitely not.
Starting with small budgets for tests protects you if a channel you experiment with doesn’t turn out to be successful. But it also gives you more leeway to try new things.
If you allocate only a small piece of your budget to each test, you have room to spread your budget around to many paid marketing channels.
Measure and track your test results
These tests in different paid marketing channels will mean nothing if you don’t gain any takeaways.
You should be looking to see which paid marketing channels bring in the best return on your spend.
The way to do this is to track the CPA, or cost per acquisition. This is a ratio that shows you what you’re spending for each new customer that you bring in.
Calculate a different CPA for each channel that you test so that you know what customers “cost” in different channels.
You can calculate CPA by dividing your total spend in a certain marketing channel by the total conversions from that channel.
The channels with the lowest CPA are the ones where you’re bringing in the most new conversions for every dollar spent. These are your most efficient channels.
(If you want to start understanding how much the customers from each channel spend at your company, start here. It’s a little tricky, but it’s very helpful in learning about your best paid marketing channels!)
As you start measuring and tracking the results of your paid marketing tests, keep these tips in mind:
- Create a very simple attribution model. A simple dropdown menu on a signup page asking “How did you hear about us?” will get the job done.
- Set CPA targets for each channel and compare your results with your initial targets.
- Treat free channels like they’re paid. Allocate budgets to channels like content and SEO, because this gives your team the freedom to make great hires, use premium tools, and see the full potential of those channels.
Armed with this information, the only thing left for you to do is to choose the first channels for your paid marketing tests.
If you’re just getting started with paid marketing, it’s a good idea to start with a channel that many companies find to be really efficient. For this, Facebook is a great place to start.
Hit the ground running
An overwhelming number of marketers—96%—consider Facebook the most effective social media advertising platform.
For any company that sells directly to consumers, Facebook is an ideal platform to host some preliminary paid marketing experiments. Facebook’s user base is constantly growing and the platform has a ton of flexibility for running tests.
Wherever you begin your testing, it’s important to do research and understand best practices and potential for any channel. But most importantly, make a plan and get started.
You’ll collect the best information by seeing how your own customers come to your unique product.
The power to get the best information on how to grow your company is already in your hands.
Patrick Campbell is the co-founder and CEO of Price Intelligently, which is a SaaS pricing consulting firm that uses data and experience to advise SaaS companies on pricing, and ProfitWell, a tool that provides financial metrics for SaaS businesses.
What do you think? Have you gotten started testing out different paid marketing channels? What testing strategies have worked well for you? Share it in the comments below!