“We want you to 6X our revenue at the same ROAS, by next month. We have a lot of opportunity in our space!”
Have you ever heard this request by a client (or prospective client)?? It can be very common, especially in spaces where a smaller startup company sees opportunity to disrupt a major industry. You want to “disrupt” the shaving industry which impacts nearly every adult in the US? Then you’re correct in identifying opportunity, it’s simply the expectations that need to be re-analyzed.
The purpose of this post, is to detail out how I (and incidentally, ZATO, my agency) views PPC spend growth. If you’re tempted to blow past this post, and yet are simultaneously tempted by the growth belief system voiced at the beginning of this article, I would encourage you to read on as this is crucial to understand for long-term success.
The Ascending Seesaw of Scaling Awesomeness (or ASSA)
The following “ascending seesaw of scaling” metaphor is how I have historically described growth to clients, and I’d like to share it more broadly. To my knowledge, there is no better metaphor or word picture, though I would be delighted if you would share yours with me on LinkedIn or Twitter?(let’s connect while we’re at it)!
There are two key aspects occurring in PPC account growth, for which an “ascending seesaw” is the best mental image I can conjure.
Those two key aspects are:
- ROAS and Revenue are conflicting PPC goals in rapid growth (seesaw).
- Your business should grow in top-line revenue over time (ascension).
Let’s dig into each of these.
(1) ROAS and Revenue Growth are initially conflicting PPC goals in rapid growth.
First, let’s look at the ideal of overall PPC goal setting and how that impacts account optimizations.
When we ask a client what their goals are in an account, we try to frame it in a way that tells us whether they want to grow their revenue rapidly, or focus more on current market share ownership and maintaining profitability.
This is?crucial?to understand as a PPC account manager because it completely changes everything in the account.
What type of keywords and audiences are you going to target?
How aggressively are you going to bid?
How are you going to determine what devices, regions, and keywords to pull back bidding on?
All of those questions (and many more) come directly from the primary question of what your overall business goal is at this time for the PPC account. The reason ROAS and revenue growth are initially conflicting goals in an account is because one is focused on saving money, and one is focused on spending it (albeit, wisely).
Practically speaking, when we push harder for rapid growth, that typically means:
- bidding higher
- finding new keywords and audiences to target,
- shifting strategies to enter upper funnel auctions (which will tend to have lower tracked ROAS).
All of those have the practical result of surging spend and traffic from previously untapped auctions. Remember, Google and Microsoft Paid Search are auction based systems where you bid for position on every auction.
- When you bid higher, you are often entering new auctions.
- When you target new keywords or audiences (whether upper or lower funnel), you are entering new auctions.
This means, you need time + money to make optimizations to return profitability to desired numbers over time.
This is why it’s a seesaw.
As ROAS grows, revenue will shift lower.
As revenue grows ROAS will tend to shift lower.
Back and forth, back and forth…
(until your 4 year old jumps off at the bottom and plummets your 2 yr old to the ground screaming…but I digress).
Illustration: Let’s say you are a company selling high-end $70 razors who has seen a lot of success in bidding on tight, upper funnel keywords such as [luxury razors], [high end razors], [best razor under $100].
You are pretty darn excited about this, but have noticed your traffic is fairly limited. You own the tightly controlled terms but want MORE of the market. You enlist your PPC agency to begin targeting more upper funnel terms such as [best razors] and [razors for men] and [razors for women]. You tell them you want to spend DOUBLE, WOW WE ARE SERIOUS NOW and see what happens.
You’re stymied and shocked when you see ROAS drop hard next month, even though you’re now spending double.
You ask the PPC agency to fix the ROAS, and they tell you they are working hard on optimizing the new keywords, but need more time. You roll your eyes, TYPICAL PPC RESPONSE, and fire your agency.
The next 5 agencies can’t meet your expectations either, and you start to tell people PPC agencies are shady (though in your defense, there are a fair share of shady PPC agencies…).
Well, getting super practical for illustration purposes, you spent double on your spend by entering new auctions for these keywords, but in this instance two specific things happened:
- Your new keywords need more time to gather data to actually make the best bidding and optimization decisions.
- You entered more upper funnel targeting and need to adjust ROAS expectations to match (Biz 101: you won’t make the same profit on a person entering your sales funnel as you do on a person at the end of the funnel, but that’s because the person at the end of the funnel also spent more of your money elsewhere making their way through your danged funnel in the first place).
Your additional budget got sapped up on the new keywords, but when you actually go in to check out what is happening, your agency could see that they didn’t have enough spend on individual keywords after only three weeks of data to make a great decision about whether these terms were actually winning over time, or make ad text adjustments, or device adjustments…there’s just not enough individual data to make great decisions!
That’s okay and natural, but it’s why you see a ROAS (profitability) hit when you surge spend, it’s natural because we are locked into the limitations of our auction environment.
The nature of rapid growth in PPC, is you have to be willing to spend money to grow your account, and then optimize back to ROAS.
HOWEVER, there is a crucial “ascension” aspect of this that needs to be brought out next.
(2) Your Business Should Grow in Top-Line Revenue Over Time.
Okay, so rapid revenue growth hits ROAS. Dos that mean we’re just stuck in this epic, plateaued good vs evil seesaw battle for the rest of our business lives?
This is where the “ascending” part of my definition of this metaphor comes in.
While there is a seesaw shifting back and forth between revenue and ROAS, it should be simultaneously and steadily ascending over time.
Think of it more like a ride at the county fair. You remember those right? We’d entrust our lives pre-covid to rusty deathtraps hauled all over the continental United States with probably little to no safety inspections (again, I digress).
In this fair ride, the “Ascending Seesaw of Scaling Awesomeness”, there is a hydraulic lift in the center of the seesaw that slowly lifts the entire seesaw up while it is tilting back and forth (it’s actually kind of a boring ride). That is, over time while you are optimizing traffic and revenue to pull back on low performing targets and getting back to your target ROAS, you’re also seeing that revenue is a little higher this month. A little higher the next month, and hey look at this, on month 3 we see our revenue grew and our ROAS is now stable, wow, it worked…let’s keep going!
It might look like something like this (WARNING: OVERLY SIMPLIFIED MODEL APPROACHING):
In the (admittedly overly simplified, I know…please don’t tweet me to say this isn’t exactly what happened in your account) above model, I want to call out a couple of things.
The first observation being: it is common and expected for the recurring revenue drop to happen along the initial spend increase, but with a measured and controlled spend increase invested wisely, you can minimize the time it takes to get back up to your target ROAS…and it will likely be higher. As long as that matched your goals of course, you may not care about getting back to your 300% ROAS in the above, and rather want to keep pushing and hitting lower goals. That’s fair. Just ensure your expectations match your strategy.
Another important observation that you will see between April and May in this example, that revenue actually dips.
WUT, UNACCEPTABLE, FIX THIS. Someone in the exec team (certainly not you) shouts. Revenue should be going higher and not lower, always and foreeevvvvvvveeeerrrrrrrrr. The only instance of reality that climbs ever higher, always are exploration rockets shot into space, never to return. Everything else in life has natural ebbs and flows and your PPC account is no different.
It’s good to expect when you surge into new data points (as explained above), that you could actually see decreased REVENUE as well as ROAS for a period. But here is where it is absolutely necessary to hire a solid PPC team/agency with a trustworthy strategy for growth. If your keywords, audiences, bidding on their part, and the offer, landing page, sales process on your part are all locked down, then trust the marketing strategy and look to long-term growth. If you literally can’t afford to spend more, then don’t surge spend and maintain profitability to save money, for a time when you are cash-rich and in a better place to take a risk in surging traffic in a market. Sometimes the best thing (pandemic anyone?) you can do is pull back and maintain profitability while growing savings rather than think you always need to be pushing. It’s worth bringing this out, because from the agency perspective, businesses who try to grow faster than they are actually able to manage with cash, are the most egregious for panicking at revenue downturns since they literally can’t afford any dip. And as we’ve seen above, revenue dips can (and likely will) often occur in a hard growth stage.
Business is hard.
The Power of Historical Data in PPC
If you’re paying attention, you’ll notice there is a crucial aspect of this that needs to be revealed as we close. The power of data. An account with 10 years of history is typically more valuable than an account just starting, and this is because you have 10 entire years of data to use for bidding decisions, ad test decisions, new keyword theme ideas, etc.
You can’t magically optimize a recently surged spend/traffic account to profitability, because you don’t have the data for the decision yet and need to spend more to get more data. It’s not necessarily because your PPC agency is lazy, or ignorant (though, they could be either or both), it’s because you literally don’t have the data yet.
Data is immensely valuable, but the only way to acquire data is with time and/or money, which generally stands in conflict with maintaining a hard profitability number. So, I will reference again the point I brought up above which was, ensure you have the cash to actually weather a rapid growth strategy.
Business is hard.
I hope this has been helpful in considering how to rapidly grow a PPC account. At ZATO, what we’re aiming for typically in an account (some accounts, admittedly are in unique places of growth or in a new vertical space and can grow profitability, rapidly as the exception) a steady ascension over time that shifts between growth and profitability, all the while utilizing the growing data of power to grow top-line revenue over time. This along with other marketing investments such as organic search, social strategies, and the all-important email marketing plan can help establish a brand powerfully over time.