How to Scale Your Startup With Paid Acquisition

Compound wins across your funnel

💰 I've overseen $100M+ in paid acquisition spend.

It's one of the most powerful tools available for growth today.

What you'll learn in the next 4 minutes:

  1. Pros & cons of paid acquisition

  2. Does paid marketing make sense for you?

  3. How to understand paid acquisition as a system

  4. Scale by compounding gains across your funnel

  5. Context is key

What Is Paid Acquisition?

Paid acquisition is buying ads to generate new customers or users.

Paid acquisition has a bad rap in some circles (we'll look at why in a moment).

The reality is it's simply another form of advertising, with results that are usually measurable and scalable.

Most high growth startups rely on some form of paid acquisition.

But it's also a great way to lose a lot of money, fast.

Pros of Paid Acquisition Marketing

✅ Quick feedback loops

When used properly, paid acquisition allows you to find new customers, improve your marketing funnel and scale your business quickly.

Launching a new marketing funnel? Paying for traffic allows you to dial up visits to give you statistically significant data fast on whether your funnel is effective.

✅ Scalable

The internet is a big place. If you can monetize traffic competitively, you can spend a lot of money quickly and reach millions of people overnight.

Once you have a profitable campaign, growing revenue is straightforward.

✅ Advanced targeting

Targeting high value customers has never been easier. Use search intent to find people literally seeking what you offer. Or use lookalike audiences of your best customers to benefit from complex psychographic profiles that ad platforms have.

✅ Easy to optimize

Since each step of an online funnel is measurable, it's easy to identify weak points in your user journey. Similarly, online platforms offer granularity around device, placement, ad format, etc. to help you separate winners from losers. The best platforms do this work for you, with complex bidding algorithms that will find your next customer better than you could.

Cons of Paid Acquisition Marketing

❌ Costs money (be prepared to lose $$ while testing)

Paid marketing can be expensive. It's a great choice for venture-backed startups that can afford to invest in learnings. You may lose thousands of dollars before finding a profitable approach.

It's nerve-wracking to lose a lot of money, which can lead to premature pauses on ad campaigns, short-circuiting the learning process and leaving you without statistical significance.

❌ Can hide lack of product-market fit

Throwing money at paid ads is an easy way to juice user growth. But if you have a bad product, paid marketing won't fix it. You'll constantly be chasing more users to replace inactive users or former customers. Paid acquisition is a great way to validate product market fit, but a bad substitute for it.

❌ Volatility

Depending on where you're advertising, you may see large fluctuations in ad costs and consumer behavior. Ecommerce advertisers, for example, will typically dump ad budgets into Facebook during Q4. Macroeconomic events can also impact how your ads play with your audience, or how competitive your value prop is in the broader context.

❌ Effectiveness can diminish over time

Depending on your niche and scale, ad fatigue may set in. Platforms become saturated with competitors. Once you reach a certain size, you may be fighting against the "law of shitty clickthroughs", which states that the effectiveness of a given tactic declines over time.

❌ Direct response vs. brand building

Paid acquisition is typically used to generate a positive return on ad spend. Meaning, the customers you acquire will generate more revenue than they cost you to acquire them. This can work best with "direct response" marketing tactics, which are effective at inciting customer action, but may seem heavy-handed (and therefore turn users off from your brand's "personality").

Direct response ads may also lack elements of storytelling and humor that result in strong brand affinity or recall.

Does paid acquisition make sense for your startup?

It's a good option if you:

💰 Have money in the bank

🧍 Know who your target customer is

🤑 Have a non-negligible LTV (could be $20, $200, etc. but can't be $0)

💻 Sell a product / service people are comfortable buying online

In reality, there is no substitute for the scale and responsiveness of paid advertising.

Here's the secret to making the most of it:

Treat Paid Acquisition As a System of Inputs & Outputs

Understand that paid acquisition is a set of variables.

Your ability to influence each variable compounds the effectiveness of the entire system.

These are the primary variables within your control:

Click-through Rate (CTR) - the rate at which consumers click your ads

Conversion Rate (CVR) - the rate at which consumers complete a purchase or sign-up action

Lifetime Value (LTV) - the revenue your business generates from each customer

Retention - the rate at which customers buy again

Combined, these variables determine the cost you'll pay to acquire a customer and the value you'll get from a customer.

🦄 True Scale Comes From Compounding Wins Across Your Funnel

This is the most important part of this email:

🖱️ If you double the rate at which consumers click your ads (by showing them better ads), you cut your cost per click in half.*

✨ If you double the rate at which consumers complete a purchase, you've halved the cost of obtaining a customer.

💵 If you double the revenue you generate per customer, you can now spend twice as much to acquire new customers.

🔁 If you double the amount of repeat purchases, you have again doubled your acquisition ceiling to remain profitable.

An effective paid acquisition machine addresses each of these points of leverage in parallel. The beautiful thing is that these points of leverage are largely within your control. The limits are your budget for testing new ideas and your creativity for finding new ways to win.

*Caveat: increasing CTR can be inversely correlated with CVR. But we'll leave that nuance for another time.

Where To Start?

Your approach should depend on how well you understand your target audience.

🦄 Validate Demand: Start on search (Google) and target people actively searching for your product / service. Paid search is a mature space and markets are often quite efficient (read: expensive).

Even if it's unprofitable, spend enough money to get statistically significant data on how high-intent prospects respond to your funnel. With a baseline you can then model out how much you need to improve to become profitable. From there you can attack each of the points of leverage described above to power up your marketing engine.

🦄 Scale: Your next stop should be Facebook (unless your audience is <25, in which case you may want to test Tiktok first). Facebook has a mature conversion-based bidding algorithm and sophisticated means of finding new customers. You can upload a list of your best customers and Facebook will model out new audiences based on how closely they resemble your customers.

Note: Different Channels Require Different Funnels

It's a lot easier to convert a user who's looking for your product (google) vs. someone whose newsfeed you just interrupted (facebook).

Someone looking for a solution usually requires less selling.

Someone not yet looking requires more selling (arousal of interest).

Consider the context of your ad when designing your funnel experience.

We'll go into this in-depth in a future post.

That's it for now.

Thank you for reading. 🙏

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