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People who have awesome products and services approach us all the time to help them scale their marketing and their business.
However, we end up turning a lot of people away, because we don’t believe in taking people’s money unless we’re REALLY confident that we can make their investment well worth it.
So how do you know if you’re ready to hire a performance marketing team?
Here are the three biggest areas we consider before taking people on as clients:
1. Your Lifetime Value (LTV) needs to be high enough
In order to really benefit from a performance team, they need to actually be able to acquire customers for you.
This means that the more room they have with regards to the Cost Per Acquisition (CPA), the more they can spend on bidding for ad space against other companies in order to display your ad in front of your ideal customers.
So how can you justify a higher CPA? It boils down to whether the CPA can bring about a favorable return for you in the long run – also known as Lifetime Value (LTV) of each customer.
For example, some of our beauty and skincare clients have a CPA of around $20 and their LTV is around $100.
Since they’ll get back 5x the amount they spend on acquiring a customer and still make a profit even after including other costs such as manufacturing and shipping, this CPA is sustainable for their business.
However, if the performance team has to work with a really low CPA, the only way to make advertising profitable is for your product or service to have a very high purchase rate – which isn’t feasible for most companies we come across.
Which leads us to the next point…
2. Your price point needs to be high enough
At first, the performance team has to test enough audiences, creative and product versions until they find the right mix to scale (for you to enjoy the efficiencies of scale) – so you need a high enough price point to stomach a higher CPA until then.
For instance, if your product has a price point of $15, even at 50% CPA you need to acquire purchases at $7.50 – which means that even in the best case scenario, you need to convert 1 in every 7 users to become a buyer (which may not be realistic).
To counteract this, you can increase the price point or get money in the door ASAP by either charging users upfront with a value add or even giving them a discount…
… Plus you can improve your checkout process to increase the conversion of users to buyers, which we’ll explore in the next point.
3. Your checkout process or sales funnel needs to have as little friction as possible
Ever gave up on buying something you wanted just because the process was too cumbersome?
Similarly, you need to ask yourself if your checkout process or sales funnel is making it difficult or troublesome for your customers to give you money.
If there’s significant user friction, you’d benefit much more from a performance team only AFTER you optimize your funnel and improve the checkout process.
A smoother checkout process can also lead to a higher conversion rate of users to buyers – thereby lowering your CPA.
And here are 3 more areas that you should look into as well:
4. You need to have enough budget to make hiring a performance team worthwhile
Taking your LTV, CPA and other costs into account, would hiring an entire performance team actually cause you to lose money instead?
Sometimes, you’d be better off working on your marketing by yourself or keeping it in-house while you’re still figuring out or optimizing your revenue model and cashflow model.
Only when you have the above 3 points in place and a substantial budget should you think about hiring an entire performance team to help scale your business.
In addition, if you’re in the business of selling physical products, the next point is definitely something you must take note…
5. You need to have enough stock before you scale your marketing
That’s because when the performance team goes into scaling mode, your marketing could do so well that your products will sell out (this has happened to our clients before).
While that may be good news at first, you now have a new problem to deal with – a deliverability issue which could lead to unsatisfied customers.
This is why it’s important to make sure that you have enough stock to withstand the scale of marketing that you’re going to embark on… or at least a reliable way to restock as soon as possible when needed.
6. You need to be at the right stage of your growth process
Now, take an honest look at your business: Do you already have at least a basic functioning model in place?
Usually, this means you have the following:
a. A product that has proven market demand
b. An easy way for people to purchase the product
c. An easy way to deliver the product to buyers
d. The funds necessary to scale your marketing and operations
Remember: Without getting your revenue model and cashflow model right, your attempts to scale the business with performance marketing is very likely doomed for failure from the start.
So focus on that first using this checklist as a guide… then once you’re ready, contact us to see if a performance marketing team can take you to the next level!