Most people fail at marketing campaigns because they don’t understand this strange effect in marketing.
In my experience, more ad spend increases results exponentially. It’s not worth it to run ads with a low budget. Here’s why.
The attached image demonstrates this- the blue line here represents people’s expectations of their results in marketing with an increased ad budget.
For example, you spend a certain amount, and you get a certain ROI. If you increase the daily budget from $10 per day to $20 per day, you should get double the results, right?
The red line represents reality in marketing. Understanding the red line also explains why most people fail miserably at running digital marketing ads, and cry to the world “it doesn’t work” (meanwhile large corporations are dropping millions like it’s nothing).
In the red line (reality) we see that a 2x increase in daily budget will dramatically improve results, such so that instead of getting 2x results you get x^2 results.
Why is that, and how can we use this graph to improve our marketing campaigns?
First, let’s break down WHY this effect takes place. There are a few reasons for it.
1. When you have a very low ad budget, you don’t have room for testing different ad copy, landing pages, images, videos, etc. With less testing, you are using less-than-ideal ads.
2. Low ad budgets require longer time frames to collect data and results. People are not patient and give up too soon.
A good example of this is that a decent lead can cost anywhere from $10 to $30 depending on the niche. With a low budget of $10 per day, that means you’re only getting one lead per day.
Even if 10% of the leads will convert to profitable sales, most people will give up because a whole week might go by (7 leads, $70 spent) without POSITIVE results.
The person getting 10 leads a day ($100 / day) remains more optimistic because at least they get one sale per day despite the 9 rejections, making it easier to focus on positive comings.
3. Finally, less ad-spend means less exposure to your ads. Not everyone will buy immediately- sometimes people need to see your ads 2, 3, 8 times before they convert!
I can’t make this clear enough: when you spend $x to reach 1,000 people, only so many people will convert. But spend another $x to reach the same 1,000 people and you’ll get MORE conversions than the first time!
In addition to #3, you’re also able to do fancy ad tricks like “custom audiences” and “lookalikes” quicker with a higher ad budget.
For those that don’t understand what those terms mean, it’s basically a high-level marketing tactic available online. It significantly reduces your ad costs.
There are a few more reasons why increased ad-spend gets you exponential results, but these are the primary reasons.
What can you take away from this?
WAIT to run ads until you have a proper budget! I’d say MINIMUM $30 per day, but $100 per day is ideal.
Remember: marketing is not about throwing money in the garbage. It’s about getting an ROI.
The ironic thing in marketing is that those that try to “save money” with very low ad budgets (ie. $5 or $10 per day) end up losing that money because they can’t collect enough data to formulate a reasonable hypothesis to improve their campaign, and they get so little exposure no one cares about them anyways.
The people that run campaigns with too low of a budget do not get any results, whereas those spending bucket loads of cash on ads perform better due to the reverse of the 3 points I mentioned above.
With higher budgets you can test variation and collect data fast, you get results quicker which keeps you inspired, and you get more exposure to people so your ads end up performing better in the end.
One quick caveat: this exponential curve DOES have a limit. From low budget to mid budget the results grow exponentially, but the exponential curve starts to die off when you reach high budgets (ie. going from $10k to $20k adspend)- but still the growth isn’t linear, just the exponential growth isn’t so extreme.
In short, if you don’t have a proper budget for running ads, find other ways to grow your business, or find a way to get the cash. If you have the cash, definitely get an expert to run your ads or learn them because there’s a goldmine waiting for you to get!
It took me a while to make this post, so if you have any feedback I’d appreciate your response. I just wanted to share my thoughts on observations I’ve made after a few years of working in digital marketing.