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Paid Ads 101: The #1 Mistake You Can't Afford To Make
13th October 2023 • The Google Ads Podcast • Solutions 8
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Are your paid ads falling flat? Are you watching money pour into a strategy that's not performing?

Regina Bellows, executive director of StarterPPC, is an expert in the field and has seen the same mistake made over and over again. You don't need to be another statistic. Find out what this one huge mistake is so you can avoid it, save money, and get back on track to unlocking maximum ROI from your paid advertising campaigns.


Listen to this episode now and learn how to harness the full potential of paid advertising for any business!


Mentioned article:

What Should My MER Goal Be & Why? https://tinyurl.com/4xcyankh


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0:00 The #1 Mistake Business Owners Make With Paid Ads

7:17 Choosing a competitive goal

7:58 Need help starting with Google Ads? Let StarterPPC help you!

13:13 How to change your MER goal in the middle of a campaign




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Transcripts

Angel:

Hey everyone.

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It's Regina from Starter PPC.

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Today I want to talk to you about the

number one, by far biggest mistake that

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our clients make when they hire us.

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this is the thing that we end up

communicating with clients about

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more often than anything else.

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Some clients follow our

recommendations and some clients don't.

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And so what I'm going to do is I'm going

to break it down with some numbers.

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I'm going to show you a scenario

where a client doesn't follow

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our advice and then a scenario

where they do follow our advice.

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the thing that I'm referring to, the

big mistake that clients make They

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don't know their numbers intimately.

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And I know this sounds cliche, you guys,

but I'm going to show you with math,

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how this can hurt you and keep you from

growing and keep you from making a profit.

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They don't know their numbers.

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And because of this, there's

spiraling consequences.

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For example, let's take a look at scenario

one and I'll show you what I mean.

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And then we'll look at stick scenario two.

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for example, here's a client.

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They've come in.

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Let's say they've said that

they need a 300 percent return.

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So you'll see here that I've

put return, meaning MER, which

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is media efficiency ratio.

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That's just a number where you

can kind of look at the overall

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return on your media spend, right?

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On your ad spend.

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Without actually honing in on one

platform and, relying on the ever

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decreasing tracking abilities

of Google Ads or whatever.

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You're kind of just looking

at the total business.

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Gross sales and dividing it

by the total media spend.

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So ad spend, flyers, radio ads,

whatever it is that you're paying for.

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Basically ROI, return on your media spend.

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Let's say their profit margin is 40%.

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So we've said to them,

well, what's your goal?

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And they've said, well, I want 300.

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I need a 300 percent return.

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So for every dollar I spend,

I want to make 3 in return.

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they start out with an

ad spend with a budget.

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Of 1, 000 and right off the bat, their

Google ads account is getting 290%.

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Now, when you're only spending 1, It's

actually easy to get a higher return

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sometimes when you're spending really

small amounts of money because what's

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happening is you're kind of just

scooping up the low hanging fruit, kind

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of just getting the ones at the bottom

of the barrel that are easy to get.

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And then when you start

to scale, it becomes.

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a little more competitive, right?

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You start to go up the sales funnel

and try to get people that are

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maybe slightly less ready to buy.

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Maybe they have to click two times instead

of one before they convert or three times.

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maybe you're bidding on the more

competitive products, right?

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Because those are the ones where you

make a higher profit margin, but they're

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also the same ones that your competitors

make a higher profit margin on.

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So you want to sell them, but they're

also more competitive, which means

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you're paying more for a click, right?

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So it gets a little bit more

competitive once you kind of

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get up off the very bottom of.

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The floor of the sales funnel.

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okay.

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So they're only spending a thousand.

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So it's pretty easy to

get it to hold 290%.

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And so this month, the way that this

math works is this is just taking

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the ad spend times the return.

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And it's telling you what

the gross sales are, right?

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You spend 1, you make 2.

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9, that's 2, 900.

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And so their profit is 160 once you

account for ad spend and profit margin,

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profit margin is basically like cost of

goods, cost of fulfillment for that sale.

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So you subtract 40%, you subtract the ad

spend and you're left with only 160 in.

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Profit and you have

that to pay your bills.

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it's very hard when you're a small

business to pay your bills because

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your profit is only 160, right?

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So you need scale because you need

enough money to pay your bills.

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This is why it's so difficult

for small businesses to compete.

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Okay.

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So because they're not at 300%, the

second month comes around and they don't,

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grow, They don't increase their spend.

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they're waiting for the

account to optimize itself and

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figure out how to get to 300%.

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And sometimes.

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I don't think they're ever gonna

get to what, 300%, which is why you

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can see here that for the entire

year, the account never gets to 300.

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Why?

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Because 300 is an unrealistic

goal for industry that has

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profit margin averages of 40%.

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If the competitors can operate their

business on a return that's lower

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than 300% and they're making a profit.

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Then you have to too, unfortunately.

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And so the way, the way that we

like to calculate this is you

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figure out how many times does 40.

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40 goes into 100 2.

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5 times.

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Okay, so that means that in order to

break even on a sale you need to make 2.

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5, right?

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250 percent return because

You're going to pay 60 percent

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in cost of goods and fulfillment.

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And, you're going to pay the

other 40 percent in ad spend

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with that scenario, right?

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So you're breaking even 250%.

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Now your competitors are going to go,

okay, all we really need is like 270.

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They know they don't need

300, they only need 270.

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And so they're kind of setting

the cost per click, right?

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It's a, it's an auction

system in Google ads.

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So whatever your competitors

are operating at that's the

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competitive goal that you also have

to be able to operate at or else.

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Unfortunately, you can't just

hit whatever goal you want.

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You have to hit a competitive return.

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What happens is the competitors go,

okay, we're getting this much on

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our conversion rate on the website.

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We're getting kind of this much

on our click through rate based

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on our ad copy and everything.

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And because we have a

profit margin of 40%.

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We can afford to pay

this much for a click.

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And so they're the ones that

are setting the cost per click.

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And that's what you have to

pay for cost per click as well.

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So assuming you're getting a similar

click through rate as them and a similar

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conversion rate as them, you're also

paying a similar cost per click as them.

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So it's kind of a closed system.

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You also have to operate at the same

return that they are operating at.

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300 percent all year, and because of

this, you're never growing because

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you're waiting for that return to happen.

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And I don't think it ever will happen

cause it's not a competitive goal.

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At the end of the year,

you've made 1, 920 that year.

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Okay.

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Let's look at scenario two, and this

is the scenario where some of our

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clients take our advice and they choose

a competitive, goal, a competitive mer

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goal, So in this case, we've said to

them, Hey, your profit margin is 40%.

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Your mer goal is.

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should be around two 70.

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Okay.

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So for the first month, it's

the same scenario, right?

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They're spending a thousand dollars.

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They make 160 because their

Mer is 290 that month.

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They go great.

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That's actually higher

than our goal of two 70.

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Let's add 20 percent to the budget.

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So they add 20 percent to grow

the business a little bit.

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Now, this is where it's very

tight for small businesses, right?

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You only made 160, but

I'm asking you to add 20%.

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Unfortunately, I know I say this

all the time, but there is a little

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bit of an upfront investment.

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You have to come up

with that extra 40 here.

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Because.

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Once you scale the business,

it does get easier and easier.

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As you can see the profit margin,

the profit goes up and up.

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And so it becomes easier

to come up with that money.

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But for now it's just very tight

and making ends meet means you

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need to scale a little bit first.

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All right.

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So they scale 20 percent and because

of this, the Mer goes down to 270.

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this happens, right?

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Like I said, sometimes when you're

kind of just scooping up the bottom of

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the barrel, it's easy to get a higher

return as you start to scale your.

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Account finds this it levels

out at a competitive mer.

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That just kind of happens.

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As you scale.

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So to 70 in this case, because

the profit margin is 40 percent

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40 percent goes into 102.

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5 times.

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That's 250 percent for the break even.

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tack on another 20 percent to that number

so you can pay your bills and you've

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got 270 as the goal for this industry.

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270 percent here is what we're seeing in

month two after we've scaled a little bit.

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Now the profit is actually less.

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That makes sense, right?

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Cause the return went down.

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But you did make more in

sales and the algorithm has a

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little bit more power, right?

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Because it's getting some frequency,

some conversion frequency.

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So it's learning a little bit more

about the target market, a little bit

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more about the placements that it can

utilize, a little bit more about the

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products that you're selling, or if

you're a lead gen account, the services.

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that you're selling, since we hit the goal

this month, we decide let's scale again.

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So we add 20 percent again, and

now the profit starts to go up.

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Now it's very tight

this first year, right?

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You're still a very, very small business.

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You're only spending this much

and you're only making this much.

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But by the end of the year,

you now are A bigger business.

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You're making 600 in profit every month.

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So you can now start to

pay some of those bills.

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You're making 20, 000 in sales and look

end of the year, You've made:

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instead of 2000, a little over 3000.

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And now the algorithm has that power that

it needs to have to continue scaling, in

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fact, a more realistic picture is this.

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I think once you get to.

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A higher number, the algorithm sometimes

has more power to get a higher return.

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And that happens because of

what I'm talking about with the

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frequency of conversion data.

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some, sometimes when you're a larger

business, if you need to hit like a 280,

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you can find ways to do that, right?

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You can kind of be like, okay,

for this month, we're just going

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to lean into this one product.

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We don't want the algorithm

to do any learning this month.

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We're just going to force it to hit

goals because we need to pay some

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bigger bills this month and you can

make it hit like 280 that month if

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you need to, which is really handy

when you're a bigger business.

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But this type of thing is very

difficult when you're small.

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So that is the number one biggest

mistake that I see businesses making.

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Many of our clients follow this

scenario when I wish that they

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would follow this scenario.

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Every single, if you know your

numbers really well, every

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single time you're hitting them,

add 20 percent to your budget.

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Okay, couple of side notes

while I have you guys here.

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If you choose a MER goal that...

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you hit it for a month and you discover

that your business was actually

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like losing money that month and you

can't afford to do that for too long.

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Okay, incrementally add, add

to it just a little bit, right?

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Add 5 percent to your goal or add 10

percent to your goal for a while and

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see if that helps you hit your numbers.

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I know I mentioned that sometimes

you do have to operate at a slight

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loss for the first few months.

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There is a barrier to entry.

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This is bigger for some

industries and smaller for others.

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So it's very difficult to sum up

and it's even difficult to know.

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Because it just varies so greatly

from industry to industry, business

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to business, quarter to quarter.

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But you know, sometimes you might

find that you've chosen a murgle

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that's a little bit too competitive

for you to be able to handle.

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That's fine incrementally at it, but don't

just pick a number out of thin air, like

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300 and tell us that that's what you need.

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These numbers need to be known.

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They need to be based on reality.

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And I have an article for you

guys that I wrote called what

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should my mergold be and why?

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And it breaks down the math that I was

talking about, about what you're putting,

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how to calculate your profit margin.

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First of all, how to calculate your

mer based on your profit margin.

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and why the logic behind why that is.

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So it breaks the whole thing down for you.

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I will include the link

in the description.

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It's called What should

my Mergol be and why?

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So check that out.

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Okay.

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The other side note that I

want to mention is in reality,

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it's not this smooth, right?

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It's not two 70 month

over month over month.

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So sometimes it's going to be two 60 and

other months it's going to be two 80.

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And so it's a little bit of a rocky.

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path.

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And so sometimes if you hit 260 that

month, you might choose not to do

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the 20 percent increase that month.

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in reality you might grow a

little bit slower than this.

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But I would encourage you guys if at

all possible to add 20 percent to your

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budget every single month, unless your

business is hemorrhaging money and you

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can't afford it because it is going

to be easier for you in the long

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run than staying very, very small.

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Everything just gets a little bit

easier once you have more money

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coming through the door later on.

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It's just, it's just tough for

small businesses out there.

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Okay guys, we're doing

what we can to try to help.

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If you liked this video, don't

forget to like and subscribe.

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We're Starter PPC and we work with

businesses that operate on budgets

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:

between 1000 and 5000 per month.

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So if that sounds like you, we've

developed super affordable management fee

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because we want to help small businesses.

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Small businesses succeed.

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Check us out.

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It's starter ppc.

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com.

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