Jani KahukiwaWe have an amazing success story to share with you. StarterPPC has a captain at the helm who is willing to share her team’s insights into how to get your small business up and running when it’s a slump period. Curious? So are we!
Table Of Contents
13% Profit Increase In The Off-Season
The Challenge Of A Small Business
13% Profit Increase In The Off-Season
The success story of a small felting company is a feel-good, uplifting tale of marketing glory for which we take full responsibility. Its unexpected profit turn in the off-season, the summer months in this case, was all thanks to our relentless insistence on adding to the budget.
The profit rose in the summer when no one was felting. Everyone is usually at the beach during this period. So what happened? To give you some context, our client joined us just under a year ago.
Getting cash-in-pocket profit, almost 13,5% in this case, is a satisfying breakthrough for any ad agency to claim. The fact that we did it in the off-season is an even greater feat.
At the beginning of our collaboration, we were only spending about $500 a month to advertise the business. StarterPPC usually works with clients who have a budget of between $1,000 to $5,000 per month, but we will collaborate with clients with smaller budgets.
As you can imagine, it’s difficult to make a profit with so little.
Analyzing ROAS And MER
This felting supplies company has a very high return on ad spend (ROAS) in the fall and winter months when people are felting and crafting. There’s a high demand for a business like this one in this period of the year. And in the summer months, that demand dies down.
As we can see in the image, the blue line shows us the ROAS for our felting company and it’s a whopping 17X or 1,700%. The media efficiency ratio (MER) is almost always higher than ROAS, and it’s a more accurate way to measure performance.
Please allow us to give you a quick lesson to help you understand the difference between ROAS and MER.
ROAS relies on Google tracking to come up with a return on how much ad spend has been spent, which is often inaccurate since it only tracks people who have interacted with an ad.
MER, on the other hand, calculates the same thing but on a business level, which means you take your total revenue and divide it by your total media spend.
By analyzing this image above, we can see how the ROAS takes a dive in May. People are not felting as the weather gets warmer. February and March saw high results and then in April, it started to go down. In June, the lowest month, ROAS is still at a healthy 3X.
During this entire period, we had regular contact with our client with the aim of getting the company to increase its advertising budget. The answer was always no seeing as there was no way to make ends meet till the end of the month.
Despite the incredible 20X return the client was making, there simply wasn’t enough money to pay the bills.
The Challenge Of A Small Business
This is the main problem of having a small business. Let’s look at the actual numbers of our client.
From January to September, the money coming in compared to what was being spent was impressive. There is an extra five hundred dollars in ad spend per month going to an alternative outlet. The total business return is as much as 28X for just a thousand dollars on ad spend.
July, August, and September are the winning months that we want to talk about since this is where we slowly got the client to increase their Google ad spend, albeit incrementally. For the month of July, we increased the ad spend by 13%, in August by 23%, and in September, we increased the budget by 10%.
So, what happened as a result of these small changes? As you can see, the profit made a slow and steady increase for those summer months when one would expect to see a decrease.
All we did was increase the budget.
Increasing The Ad Budget Little By Little
If you have a high ROAS or a high MER, you should increase your budget. We don’t advise you to double the budget overnight. That’s not necessary and could even be detrimental to your business. Don’t do more than 20% at a time.
Haven’t got the cash to increase your budget by 20%? Then aim for ten percent. If your MER is high, raise your budget for ad spend! It’s the only way you can get out of the negative spiral of not being able to pay the bills with profit earned.
We have two scenarios on display. The first scenario sees the ad budget kept at the same amount as the previous budget. The second scenario is our pie-in-the-sky hope for our client’s increased ad spend.
Remember this: We can never forecast MER. However, you will always find that if you don’t increase the budget, MER will be higher than if you do increase the budget.
Why is that? Every time you give the algorithm more money to work with, it has to go out and find new people, new placements, new combinations of ad copy, new images to use, new products to show, and it has to figure out what’s working.
You are also up against bigger competitors who usually have more money to work with and therefore can bid more aggressively. You are now playing in that same pool.
That’s why your MER tends to shrink as you grow your budget until it levels out at an industry average MER.
A lower MER is not necessarily a bad thing. Profit is always the target. Lower MER can result in higher profit as can be seen in the image above.
Don’t be afraid of a shrinking MER. Be afraid of a very fast-shrinking MER. If you’re not making a profit, you’re growing too quickly.
Future Predictions For MER
We can only presume our MER will continue shrinking as the client continues to grow. Competitors will doubtfully be able to match this MER, and whatever your competitors are making is what your MER should level out at as you grow.
Our forecast for MER for January 2024 is well below that of 2023, and yet, the revenue has doubled and the profit is twice that of last January.
And that is simply because we have more budget. We are spending three times as much.
Don’t be afraid of growth. Sometimes it’s the way out of financial difficulty.
This is our success story and we would be happy to turn your business into a success story, too. Get in touch with us!
