Welcome to this video. Today we’re going to discuss growth versus ROI and why you could lose if you actually don’t choose one of these paths. Now I know on the surface this sounds like an extremely boring topic, but it’s really, really important that you intentionally choose a growth or ROI path. As usual, we’re going to use data, I’m going to visually show you so you can see how crucial it is, how important it is for you to actually select one or the other and how it can impact your business. Now in case you don’t know who I am, my name is Brandon Shelton. I’m the founder of Mechanical Marketing, a digital publishing and software company.
Now around five, six years ago, I was actually in a mastermind and I won’t name the marketer who actually was sharing his data because he might not want you guys to know what his name is and what his actual business is doing as far as sales and stuff, but he was basically going through his entire business, showing us all of his funnels. At the time he was doing $400,000 a month in profit. A friend of mine, whose name is Tommy Powers, he is probably the number one YouTube ads guy in the world when it comes to YouTube advertisement and he’s one of the top data guys as well. Tommy was commenting on how his funnel was set up and basically was telling him, asking him, “Why aren’t you acquiring customers more aggressively? Because your profit margin is so high, you’re making 400K in profit per month.” I believe his ROI was around 30% ROI and basically Tommy was asking him, “You could grow a lot faster if you actually spent more money and lowered your profit margin. You would scale infinitely faster than you are now.”
That made a lot of sense to me when he said that and what struck me is that the marketer who was actually sharing his funnel, the one who was actually making $400,000 of profit, responded back and basically said, “I like to make healthy margins. I like to have a healthy amount of cash coming in each month.” That got me to really thinking about the process of you really need to understand what you want out of your business, whether you’re trying to generate cash, whether you’re trying to grow and scale as fast as possible. Maybe you want to get acquired, or maybe you’re just looking to build assets quickly, or maybe you’re just running one of those breakeven type of funnels where you don’t really care as much about making profit on the front end of your funnel and you want to focus all your profit on the back end, so you’re focused on acquiring leads. But you need to intentionally understand and know where you’re going and why you’re doing what you’re doing.
So that sat with me for years to come and then a few years after that, I want to say around 2017, 2018, Tommy actually did a video. He talked specifically about growth versus ROI and I listened to his YouTube video about that and that also just kind of reignited the same thing of what, kind of the light bulb moment and epiphany that I had when we had the mastermind. So I want to share the data with you now, because one thing is that it’s a lot harder to see, it’s a lot harder to really understand the concept and see how it impacts a business without visually looking at the numbers. All right, let’s get right into the data.
Now if you look at the spreadsheet here on the left hand side, let’s just focus on this part here for now. I’m just going to highlight this so that you can … because there’s a lot going on. Let’s focus on this left side here. Here I have, this top part represents people who are more profit and cash driven and ROI driven, and the bottom, this represents people who are growth driven and care about scaling as fast as possible. Now you see here the numbers are exactly the same, so we want to compare apples to apples. What I did is that I chose a $20,000 per month ad budget. This is two different companies with the same metrics. Both companies are going to have a $20,000 per month ad budget. For those $20,000, let’s just say they both were getting $2 per click. Let’s say they were both selling a $1000 product or had an average order value of $1000. If you look at the landing page and the sales page conversion stats here, you can see they’re identical for both. 30% landing page conversions and 1% sales conversions for this $1000 profit.
So now if we just, I’m just going to scroll up here to show these 12 months. Now we’re going to look at the impact of both businesses starting off with the exact same ad budget, the exact same landing page conversion, the exact same sales page conversion, but we’re going to look at the differences of how it impacts the business over 12 months. Now if you’re profit driven, and we’re just going to … let’s just say that you’re going to keep the same ad budget for an entire 12 months, for a whole year. If you look here, every single month … obviously I understand in real life scenarios you’re not going to get the exact same numbers from month to month, but let’s just say on average you kind of keep a steady flow of these numbers throughout 12 months.
Over these 12 months you invest $20,000 in advertising budget. You made $30,000 because, remember, here you’re getting $2 per click, so you get 10,000 site visitors, 3000 leads because you have a 30% landing page conversion and then you convert 1% of those 3000 leads, which equals 30 sales. So 30 sales times $1000 of your average order value, that’s how you get this $30,000 sales number. You make $30,000 in sales that first month, so you get $10,000 in profit because you spent 20,000 in ad costs. Here we mark that down. $10,000 you made that first month, you got 3000 leads and then you got 30 customers out of that. You keep that pace and you do that for 12 months straight and you’re doing great. At the end of those 12 months you got $120,000 in profit, so $120,000 in cash. You acquired 36,000 leads and you acquired 360 customers. Now this is just assuming that every single month you take this $10,000 profit and you basically bank that, you put that in the bank, but you keep your same $20,000 a month budget for those 12 months and this is what you end up with.
Now let’s take the same exact starting numbers, but let’s focus on a company that might be caring about scaling more and growing faster. So in their case, let’s say that they’re running a breakeven funnel. So on the front end, they don’t care about making any profits on the front end, they’re only going to rely on the back end for profits. I understand in this scenario here, yes, you can make additional money on the back end, but we’re just going to exclude that for now. We’re only going to focus on the front end sales funnel. When I say the front end sales funnel, I don’t mean just the first product in your sales funnel, I mean your entire full sales funnel, your whole acquisition funnel for that whole first part. If you have up-sells, down-sells, all of that is included in your front end acquisition costs.
So for this bottom company, company B, let’s say that they care more about scaling, so they’re doing breakeven funnels. They start off the same. They start off with the same 30,000 in sales, because remember they use a 20, same here, $20,000 ad budget, $2 per click. That gives them 10,000 site visitors, same opt-in rate of 30%, which gives them 3000 leads, same sales conversion of 1%, which gives them 30 sales. So this month one, here you get this $30,000 in sales, $10,000 in profit. I logged that here so that you can see. You started off with a $20,000 budget, you made $10,000 and you get that same 3000 leads, same 30 customers, but your actual profit is zero because, in this case, you decide that you want to reinvest that $10,000 profit into the next month.
So now we go to month two. When we look at month two, now your ad budget is $30,000, because you keep that same $20,000 budget that you had each month, but now you’re reinvesting the profits. You add that 10,000 to the 20,000 budget that you have and now you have $30,000 to spend. Now when you spend $30,000 instead this month, in month two, you’re going to acquire 4,500 leads and now you get 45 customers. The profit is still $0 because, again, you’re deciding to take that profit again and reinvest it again for the next month. So then we go to month three, now you have $35,000. The reason why you’ve got 35,000 is because month two you made 15,000, your regular ad budget is 20,000, so you’re reinvesting the profits. You take this $15,000 profit, you add it to your original $20,000 a month budget, now you have $35,000 in month three.
So now in month three you acquire 5,250 leads, you get 53 sales. So you notice here, see how the difference, look at the difference in month three so far between the two companies. Even though they have the same metrics, just because one is deciding to reinvest their profits, in month three already they’re already getting 2000 plus more leads, they’re acquiring 20 plus more customers, they just don’t have the same cash in the bank as far as just taking home to spend whatever as profit, because they’re deciding to reinvest their profits. So you notice their ad budget each month is going up and up and up. As you go through, you keep doing this process and over the course of these 12 months, you can see here, this company now has 66,000 leads and 661 customers. They basically have 30,000 plus more leads and they have 301 more paid customers than company A.
This is all with the exact same metrics, the only fundamental difference is that they decided that they wanted to grow, they’re reinvesting their profits. This company cared more about profits, so they’re taking those profits and they’re running to the bank with it and they’re pocketing it. At the end of the year, this company has $120,000 in profit that they can do whatever they want with, this company doesn’t have any. Again, I understand on the back end, yes, you can make additional money with the list, but we’re only talking just about the front end, we’re not going to include that back end because that just makes things more complex. As you look at it you can just see the difference, just visually by looking at this data. Look at how much more money company B has spent at the end of a year. They spent $440,000 on ads. $440,000.
This company, because they spent 20,000 each month, so if we just do some quick math here, we’ll just do $20,000 times 12 for 12 months. This company here would have spent $240,000 on ads at the end of the year. Company B spent 200,000 more dollars on ads. Now outside of the advantage of gaining more leads and also gaining more paid customers, if you’re spending $200,000 more than another company, you’re going to have a lot more ad data, you’re going to have a stronger pixel, so there’s also other advantages outside of just the pure customers here and the pure leads.
Now, again, I’m not saying you should choose one or the other, as far as I don’t have a preference for you. You need to know what you want in your business. So I’m not going to tell you you should do the growth, you should have a growth focused business, or you should have an ROI focused business, that’s for you to determine. This video is more to show you the differences between the two so you can understand that, by not choosing, you’re hurting what your end goal is. If your end goal was to build a huge customer list, but you’re reinvesting a ton of your profits, you’re actually not choosing the correct business strategy for what your end goal is. So things like that is just something that you really want to take into consideration.
Again, it’s not all or nothing as well. You don’t have to reinvest all of your profits. You could choose a specific profit margin that you want to hit. Maybe you want to only keep 20, 30% profit and then take the rest and reinvest. You can kind of mix and match these models. You don’t have to necessarily do one full 100% growth or 100% pure profit, but it’s just crucial that you choose something. Because if you choose nothing, then you’re never going to really be able to attain the specific goals that you’re looking for. Now I understand in the beginning of starting a business you might not have a full direction of, especially if you have a startup, even if you’re experienced, if you have a startup, sometimes the direction of your business changes based on just different events in life, or just the direction of your business. Different things happen when you start acquiring customers that you might pivot and switch directions, but you don’t want to go too long without having a clear mind in sight. It’s also better the earlier you choose.
Hopefully you found this video really helpful and next time you start a business, or just in your business now, just think. If you actually have not thought about this yet, you need to really sit down and think about what your goals are for your business and start jotting down, do you want to be a growth focused business? Do you want to be an ROI focused business? If you want to be an ROI focused business, do you care more about just pocketing a lot of cash so you can run to the bank and just have that to enjoy your life? Or do you care more about having some cash, but you still want to reinvest and grow at a decent pace? That way you want to choose a specific profit margin percentage that you can attain to and that way you can kind of use that as your North Star to continue to run your business.
Thanks for watching this video. If you have any questions, feel free to comment down below. I’d also love for you to give your opinions and thoughts on the content. If you like the content, we actually have a free newsletter called Lead Nuggets, where we release this type of content once every two weeks, 100% free. You can join Lead Nuggets by either clicking the link in the ad copy, or there should be a video link after this video that you can actually click, or you can visit GetLeadNuggets.com. All right. Thanks again for watching and see you in the next one.
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About The Author
Brandon Shelton is the Founder of Mechanical Marketing (a SAAS and digital information publishing company) who loves studying marketing and playing basketball.