How Does The Book Cover My Ad Costs?

Jay Topp, founder of Real Growth, answers on video. Transcript:

So the book covers the cost of your advertising, but how exactly? In the business, there's essentially a great ratio called the CAC to LTV ratio, which sounds more technical than it is, but it's essentially what it costs you in advertising spend in order to get a new customer into your business. And then there's the LTV, which is on average, how much that client spends on a lifetime with you.

And so typically the way that most businesses run is that you spend money on advertising and you wait and wait and wait. And then eventually two months later, somebody will buy hopefully and kind of justify the investment into advertising. And so advertising can feel quite risky traditionally because there's no guarantee of return. The beauty of the book funnel is instead of that process being over two to three months, we bring it to one day.

So how we cover our advertising cost is instead of waiting for the backend premium offer sale to help pay for ads, we cover it day one. So the way it works is somebody, I'll start when I launch a new book, it'll be like I'll spend $30 a day on ads. Generally, I'll sell two books and say those books are $15, $20 each, which is what we're selling them at the moment, $20 a book for most of our new books going out.

Then we'll put $30 into advertising and we've got $40 back. So we have covered our cost to acquire those new customers. We now have two new customers that will then book in sales calls and have a call with the sales team. And so this scales. So then it can be like, okay, I'm spending $30 a day and I'm getting back more than I'm putting in. Okay, well, let's go to $50 a day, et cetera.

And then we can generally go to $100, $200, $300 a day, depends how ambitious you are while covering our day one ad spend. And so everything on the backend then becomes green. And so this works really well. And it scales. We've got businesses. I've got another business, this business and one other business, and they can spend $10,000 a day on ads while we're covering most of that spend upfront.

And so everything on the backend is green. So it's quite an incredible way to completely change the economics of a business. There's a great old saying in the direct marketing space that whoever can afford to spend the most to acquire a customer wins. Because essentially if you look at media buying or ads in general, it's essentially an auction for attention. And whoever is willing to spend more will get higher quality and higher volume of new customers.

And so when you're competing in the marketplace or in this auction, if you have to wait three months for your sales cycle, your bid is going to be much, much lower. But if you're profitable day one, your bid is going to be able to be higher, meaning you're going to win the auction, win more customers, and ultimately grow a much better business.