← The Paid Search Podcast | A Weekly Podcast About Google Ads and Online Marketing
The Paid Search Podcast | A Weekly Podcast About Google Ads and Online Marketing
Why Businesses Don’t Grow from PPC (Episode 449)
00:34:09
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Hello and welcome to the Fade Search Podcast. My name is Chris and today I have a special, special episode for you. I am bringing on my friend and very wise PPC expert Joey Bidner. He is going to start off the show actually because such a a great topic and then I'm gonna follow up with some points at the end of the show. So be sure and stay tuned the whole episode here. It should be a packed episode full of great, great information that many things I've never talked about has not come up on the show much at all. So stay tuned. If you're not subscribed, be sure and subscribe. You'll hear stuff like this every week right here on the Paid Search podcast. And this podcast is brought to you by optio.com PSP that is the special URL that you can use to try the tool that I recommend for anyone who wants more out of their Google Ads campaigns. Whether you're a company who's generating sales leads, or an E commerce company who's just getting started, or one who spends a lot of money on Google Ads, this tool scales to what you need and it won't lead you astray. This tool helps you from bids to keywords to shopping to ad copy to negative keywords and everything in between. This tool is designed to help you get more done in Google Ads. That's what they focused on from the beginning and they still focus on it. They continue to grow this tool and they're still offering an amazing deal for you fellow listeners of this podcast to try the tool for free for 28 days. If you just go to their website and sign up, you'll only get 14 days. If you go to optio.com PSP you get it for 28 days. It's worth it. You'll be able to figure out why everyone loves it in 28 days for sure. And I'm sure you'll continue using it. Try for free O p t e o.com PSP okay, so as I mentioned at the top of the show, I have a guest today. Everyone loves Joey. He always brings a fresh perspective. And this week is no different. Joey is going to talk about perhaps a metric that I don't think I've ever said on this podcast. It's a metric that if you asked me on the spot, I probably wouldn't know what the abbreviation meant. INCAC N C A C NCAC stands for New Customer Acquisition Cost. So this is a metric that is not available in Google Ads. And that's what Joey's going to Talk about. He's going to talk about how, you know, some of the most important metrics to your business is not something you can see in Google Ads. There's not something that you can measure in Google Ads. It's something that goes beyond it and could be the life and death of your company. So without further ado, Joey, take it away.
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Hey, what's up, Chris? So today I want to talk about a principle of management and it's one that requires us to step out of Google Ads a little bit because we're going to be talking about some, some metrics that unfortunately are not visible in Google Ads. But it's, it's something that I can't stress with enough importance because we're going to be talking about specific metrics that directly relate to what should be our primary objective as Google Ads managers, which is growth for the businesses that we're managing ads for. Not necessarily just, you know, growth of our internal numbers in Google Ads, but growth of a business. Now, before I get into the, the metric that I want to talk about today and how to calculate it, we're going to be going over the math on how to benchmark it and everything. I first want to get into this principle which is keeping an eye on our new versus returning customer growth. Now, it's important for every business to get to have a pipeline of new customers. New customers are always worth more than repeat customers, obviously, because every new customer, usually what comes with it is repeat purchases after the fact. Right. So in order for a business to grow, it needs a pipeline of new customers. It's not to say that bidding on repeat customers is a bad thing. You know, we do remarketing. There is remarketing built into every campaign with smart bidding, for example. But we always need to monitor at what ratio or at what level of profitability am I bringing in new customers. And in order to measure this, we often need to look outside the platform because Google hides this number for us. And it's in Google's best interest. Unfortunately, when you're using return on ad spend bidding and you increase your return on ad spend target, most of the time what happens is the algorithm will lean into previous customers or previous users because the algorithm sees those users as low hanging fruit. They've already been to the site, they've already vetted you, they've already purchased from you. There's trust there. Oh, you want me to get a 400% ROAS instead of a 300? Okay, well, I'm just going to bid more on repeat purchasers and this is when our Google Ads numbers can sometimes, you know, misalign with the business numbers. We've all been in that position before where you know, we get on a client call and we say, hey, you know, our, our return ad spend has grown over the last six months and the business owner saying, well I haven't really felt that. How come my business hasn't really grown on the other end. And often the culprit in this is new customers. So this is tricky though because Google doesn't give us that ratio, doesn't give us that ability to see which campaigns are bringing in new versus new or returning customers. Now before I move forward, I do need to actually mention before anybody hops into the, you know, the comment section and says, oh Joey, what about that selection in my campaign settings that says bid more for new customers? I hate to break it to you, but that setting doesn't work because Google. So in order to use that setting you need to one, upload your customer lists, right? And then Google theoretically cross references that customer list to the people that are, that are it's bidding on. But I believe it's because of Google's privacy laws. I'm not sure but Google has a set time window that it's allowed to look at. So it might be, I think it's like, I believe it's actually as low as 14 days, but it might be up to a month. So we'll only look at new customers within a one month window which in many businesses your repeat customers come six months a year down the road. So you know, to be honest, I don't use that setting at all. There's a lot of data out there that shows that it doesn't work. So just going back to Google does not tell you your new versus returning visitor ratio at the account or campaign level. So it's important to often like cross reference this number. Cross reference your return on ad spend to your. And I'm going to say this is the metric your cost to acquire a new customer. It's often called ncac. And if you're a business owner, you know, you already know this metric. This metric, it's, it's a very common, it's a very common KPI for businesses. But for Google Ads managers, you know, we've never might have never heard that term because again, there's no column for NCAC or no column for cac. And it's different than cost to acquire or cost per conversion. Because cost per conversion doesn't consider new customers. It's just your overall cost Per conversion. So anyways, we're going to get into the math of how, how to calculate that. But I first just wanted to really speak to the importance of not just relying on roas all the time. It's not always just about having a high roas but having a profitable cost to acquire a customer. Now how do we calculate that? So it's actually pretty simple. First we're going to talk about how to calculate it and then we're going to talk about how to benchmark it and how to look at your customers data to see if you're in the healthy scope. Right. So in order to calculate what your business's break even cost to acquire a new customer is, we need a few pieces of data. Okay, so if you're on Shopify, this is much, it's rather easy. So we're first going to, we need to start with our customer lifetime value. You know, over the course of let's say two years, a year, six months, whatever, you know, typically whatever rate at which customers will repeat purchases from you and, and you know, stick around with you for. We want to take that look back window and calculate our cost to acquire or sorry, our customer lifetime value. And the way to calculate that, it's pretty simple. You can take your average order value and you multiply it by your purchase frequency. So purchase frequency is something that, so it's basically the rate at which people repurchase from you. Is it 20%, is it 30%? There's a number of ways you can calculate that. Now average order value is easy because you just log into Shopify and it's right there. Purchase frequency can be a little bit trickier because it's not on the native dashboard. What you can do is get an app called Buy the numbers. There's a seven day free trial and it will just plop out its purchase frequency for you and then you can delete the app though the app is fantastic and I'd say, you know, there's a lot that, that by the numbers can do but if you just want your purchase frequency really quickly you can do that. Another option is you just use ChatGPT. You download your, let's say your, your one year customer list and you ask ChatGPT, hey, can you assess the emails on this customer list and let me know the repeat rate of them? It's a pretty simple way where when it sees duplicate emails it can identify it as okay, that's a repeat purchase. And it'll say okay, yeah, your Repeat rate is 20%, let's say so Going back to calculating our customer lifetime value. So we take average order value which was, I'm going to use this case where average order value is $650. Okay. Then we take our purchase frequency of, I'm going to use the case of 20% and we're going to multiply that so you do 650 times 1.2, which is 20%. And that would give us a customer lifetime value of $780. Now then you need to multiply that by your profit margin. That's the important part obviously. So let's say your profit margin is 65%. You would take $780 customer lifetime value, multiply it by 0.65, that gives you $507. 507 becomes your NCAC benchmark. Anything below that, you're profitable if your cost to acquire a customer is above $507. In that case, you are no longer profitable. Now, what do we do with this? Right, so the rabbit hole is pretty deep when it comes to what we can, how we can compare our NCAC to our performance. If you want to go down the, the rabbit hole of, of truly seeing it at the campaign level, the account level, you would need a third party platform, right? So, and I recommend third party platforms for, I recommend this, this level of, of analysis to accounts that are larger but also looking to really scale. If you are looking to scale your business, your client has said okay, I want to double my revenue next year, right? Those are the ones where you really need a third party platform that can tell you your ncac, your new visit versus return visit ratio per at the campaign level. At the ad group level, you need to see that. And you know you can use platforms like Wicked Reports, though they're not cheap. You know, they, they start at around I think five to $800 a month and they go up depending on the size of your business. But for accounts that are looking to scale, you need to have it because again, you can't really scale a campaign that is just, that is just sitting on relying on repeat traffic. So again that is like the, the, the nerdier level. Using a third party attribution software like Wicked Reports and looking at that granular data so you can see how, how it fluctuates when you make changes. And that's the big thing. When you make changes, how does your new visitor count and, or your new visit purchase rate fluctuate? Now if you're not at that level where you want to use a third party attribution software, you can still Measure this holistically, right? And it's kind of just like a check and balance thing where every once in a while you, you check in and see is my NCAC healthy or not so healthy? So I'll go one level up from, from using a third party attribution software like Wicked Reports and Recommendations. One more Shopify app called not by the Numbers. This one is called Lifetimely. So Lifetimely is a much cheaper app. It's in like the $20 a month range, depending on the size of your business. If you have a really big business, it can be more expensive, but it's still a fraction of what the third party attribution software's cost. And these platforms allow you to see your holistic numbers in that context where it will allow you to, it will import all of your ad spend data. You know, your spend on Facebook, your spend on Google. It will also import, you know, the conversions on Facebook and Google. But the real important part is it's, it's collecting all of your media spend and then comparing it to all of your sales data. So you can then see, okay, when we, when we scaled Google last month, you know, the client asked us to double our spend, what happened to our ncac, right? Did, did we, did, did our cost to acquire a new customer skyrocket or did we. Ideally, what you want is did we increase our spend, we increased our revenue and our NCAC maybe stayed the same or it only, it only went up a little bit, but stayed under our benchmarks. Because remember, this all comes back to what we spoke about in the previous episode, where once you establish your break evens, it's about identifying, okay, our break even is X right now we are, you know, X amount of distance away from that. We are, you know, let's say $10 below that number, right? If it goes up by $5, but our revenue went up 30%, that's a win, right? It's okay if your NCAC goes up, but what you don't want it to do is exceed your threshold and you just want it to go up proportionally with your other efforts. So again, if spend goes up and revenue goes up and your NCAT goes up a little bit, but still under your threshold, you are good. What you don't want is, oh, you know, we increased our spend by 20%. Our revenue, yeah, went up 20%, but then our NCAC skyrocketed and now it's way above our benchmark. You know, that's when you know, okay, what does that tell me? We just leaned into new Visitors and you know, often you see this at sales when you have a sale, you know, you see a big surge in revenue and everybody gets all giddy. But what happened to your ncac? Right? And that's why we can't rely always on these short term gains of the cash flow from a sale. Oh, let's just have a sale every month. No, then you're not really, you know, if you're going to have a sale every month and you really need to have a new customer pipeline set up every month so you can close that new business all the time. And yeah, it just comes back to this principle. New customer acquisition is so important for all elements of your entire digital marketing strategies, holistic growth. So I can't stress it enough, new customer acquisition. And you know, Shopify natively does show you your new versus returning customers. So now let's say you don't want to do, you don't want to do any app. You just want to do this, you know, manually. You can just log into your Shopify account and monitor those new versus returning customer charts and just like timestamp them to your efforts in Google Ads. Okay, we doubled our spend this month. How did our new customer chart line compare to our return customer chart line? And look at them like day by day. When we increased our spend this day, did my repeat customers skyrocket or did my renew customer skyrocket? Right. And then okay, well, new customers went up. We know we have let's say a seven to eight day conversion lag which means typically it takes like seven days for, for a customer to purchase something. So let's hold, let's wait for seven days and see if our purchases increase and let's see what happens to our ncac. And you can also always just calculate the NCAC manually. You know, you take all your costs in your media spend and your, all your costs, all your, your, your new customers and you divide them. Right, because Shopify will export you new versus returning customers. So you can always just take your new customer list and compare it to how much money you spent. You can do it manually. So I hope this was helpful. I'm always happy to talk about this further. This topic is a very, it's a deep topic that's got a lot of nuance that I can't really cover in 15 minutes. So if anybody, you know, wants to dive in a deeper send, send Chris an email with a, with a question. Happy to answer it or reach out to me on LinkedIn, but always happy to keep the conversations rolling. And yeah, I'll hand it back to you, Chris.
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Thank you. Thank you. Seriously, thank you, Joey. That, that was great. And I, you know, after hearing the message of what you talked about, I was so inspired. I actually don't have questions this week. I skipped the, the question section because I wanted to just add on to this. And you can see, you know, I, I dedicated the entire episode to this topic. It inspired me so much to talk about this and to try and give some further illustrations and examples and some concrete advice on, on how to understand this and what it means, you know, why businesses don't grow. You know, some businesses just don't grow from their pay per click. It doesn't work. You know, they either remain stagnant or lose money, possibly lose business, lose their business from it. And I think the one thing I want to key on here that Joey said was you can't scale a campaign relying on returning traffic, okay? There is a set amount of returning traffic, period. Whether you're a big company or small company, there's only a set amount of it. And that pool of customer value that you have shrinks every day if you don't pour new life into it. Right? And I actually taking after my favorite teacher, I have a parable to share with you because I think when you talk in stories, I think that's the best way to help someone understand. And I came up with a parable, a story to help you understand. What I see when I see a company that is doing this, you know, that's selling to returning customers. So imagine this. There's a fisherman who throws his net. He has it. He has a special net that he made. It's, you know, he bought special golden thread from a merchant. And, and he also, he bought a magic pond from a merchant, okay? And he's throwing this special net into this magical pond. And this magical pond continues to regenerate fish every day. And the man doesn't eat the fish. He puts them into his aquarium. He dumps the fish that he catches in his magical pond into his aquarium. But for some reason, the aquarium is never full. Every day he's. He's dumping a few fish that he, that he catches in this magical pond into this aquarium. But it's never full. And here's the secret. The aquarium has a hole in it. The aquarium has a hole that funnels back down into the magical pond. And the fish just swim out and go back into the pond the next day. And then he catches those same fish. So you understand what's happening here. This fisherman is Seeing the reward of his work. He's seen the reward of, I got some today. Doesn't realize that that was the same fish that he caught the day before. And the day before his aquarium. His, you know, what he's trying to build and grow just is remaining static. You know, a few of the fish may not swim out. So, you know, he notices he dumped 10 fish in the next morning. There's another, you know, there's only two fish left. But he doesn't really notice that. He doesn't keep track of the aquarium. He dumps in another 12 fish the next day. And, you know, the cycle just keeps returning. There's always fish in the pond, and he's always losing fish from his aquarium. Right. This is the kind of unhealthy relationship that you could be having on Google Ads if you don't know. And this is where I want to get into something concrete because I think it's important that I try and share tips. I mean, Joey shared some very specific tips and, you know, multiple software and places to look. And I'm going to dig into the Google Ads aspect and I'm going to answer the question, how do you know if you have a campaign that's serving to returning customers? Okay, so I'm going to go through a couple bullet points here. There's basically three. Number one, you set up your campaigns following all the online prompts straight from Google. Okay, you created a campaign. Well, let's start from the beginning. You created an account. You followed the arrows and the buttons that says, click here. Now click here. Type this in. Type this in. And you just followed the guidance from the tool itself. It is extremely likely that you have some degree of returning traffic that is being fed back to you. You are catching those fish over and over again. Now, you might have a source of new fish that are coming in from the ocean somewhere, but you're definitely dipping your net into the pond and the ocean. So I'm not saying that it definitely doesn't work, but the likelihood of you having this problem if you just followed all the prompts and you use the magical phrase, I know enough to be dangerous. I hear that phrase all the time from people that are suffering from this problem. Say, I know enough about Google Ads to be dangerous. They listen to podcasts, they watch YouTube videos, they've maybe read a book, taken a course, something like that, or they've just done it long enough. Right. And what they're saying is they don't know enough to dig past that point of mystery. Okay? So if you're anywhere from that point or less as far as your knowledge and you just followed the prompts. You're probably suffering from this problem. Okay, here's another sign. You likely have a campaign that is generating a lot of returning traffic and therefore returning customers and have the same problem as the man with the pond. If you constantly see high performing metrics in your Google Ads account, in other words, the most important metrics in your account remain steady. But the fact is, is that the most important metrics in your account never remain steady. Nobody's account always stays the same. And I'm not talking about clicks, I'm not talking about impressions. Click through rate, cost per click, right? Plenty of people can have steady cost per click and click through rate. That's not what I'm talking about. I'm talking about the important ones. Cost per conversion, conversion value over cost. Those don't stay the same, you say. Well, mine does. Well, I'm telling you it's very likely that you, you have a problem here of returning traffic. You are not generating new sales, you are putting those same fish back into your aquarium. Alright, so why, why can I say this so confidently? Why can I say that nobody's metrics stay the same? Well, from experience I can tell you done this for a long time and I can tell you no account stays the same. There are ups and downs. Okay, but I'll give you the exact reason why. And there's a lot of reasons, this is just a few. Nobody's conversion rate stays the same all the time. It goes up, it goes down. Conversion rate is the direct driver of the metrics that matter most. Cost per conversion, conversion value over cost. Those two things are driven directly from conversion rate. Bring conversion rate down, those metrics are going to suffer. Bring them up, bring the conversion rate up, they're going to. They're going to succeed. All right. Something else that's somewhat indirectly related is competitor prices. Competitors lower their price or innovate into something new, offer a special, something like that, a better product, a better service that will directly impact your performance. Also, competitor bids and their budgets will directly affect. So these are reasons why you would be, and I say this in the most literal sense, you would be very ignorant to believe that your metrics are solid. Okay, And I say ignorant meaning again, just don't know. Not that you're stupid, it's just that you don't know. And that's the majority of times is what I see. And then the big one, why wouldn't someone's Google Ads campaign Stay steady, seasonal change. Nobody's account goes from Christmas to summer to fall to spring. Nobody's account stays the same year round. Even if you took away those other things, conversion rate, competitor prices, still just consumer tendencies change throughout the year. And it would be ridiculous for you to think that you're immune to that. Okay, and the last thing is, how do you know if you have a campaign that's serving two returning customers? How do you know if you're having a problem with this? Well, because you investigated and you find it right? That would be the only way that you would know for sure. I'm telling you, if it's the first two, you're highly likely to have this problem. If you set up everything just the way that you were guided straight from Google Ads, you probably have this problem. Or if you see very high metrics, you know, just, you know, you talk to everyone else, everybody else seems to having, be having problems with their metrics and you don't. Yeah, you're not, you're not that special. Okay, it's 2025. I know everyone likes to be told they're special. I think that's a lie. You're not special. I'm not special. Everyone has the same. I mean, you're not that much smarter than everyone else. You know, there's that old Saturday Night Live, you know, everyone likes me. No, I'm not for self affirmation. I do not think that you should live ignorant, ignorantly thinking that you just do things right and nobody else does. You're. You're wrong. You're wrong. So let me tell you one last story and then we'll call it a, we'll call it a day. All right? I'm going to tell you about another story. This one's real though. This is no parable. This is a real story. I was working with a company, they work in the automotive sector and they sell automotive accessories. Okay. And I'm going to use generalizations just to be private about this, even though you guys don't know who it is. But regardless, they sell accessories of different kinds and clothes and you know, different accessories that you can wear, things like that. Okay? So this is a large company, many products. And this is the key point, the key point of what I just mentioned. You know, I said you weren't special and you kind of got mad about that. Well, there was a. The CEO of this company is a very smart guy. I was very impressed by his level of understanding. He grasped things very quickly. His communication level was very high. Obviously a very intelligent Guy. Okay. And after I did an audit on their account, I discovered the successful company with many, many products, multiple businesses under the same roof of this company. I discovered after an audit that their new customer acquisition cost was extremely high. It was. It was so bad that I actually dreaded doing the audit for this gentleman. I was very nervous because I was going to be delivering some very bad news. He took it very well, immediately grasped the severity of the problem and went to resolve it, you know, and I'm working with him now to. To fix this whole problem. And let me tell you, if it can happen to companies like that, you know, that has a. Nobody on the team knew this. You know, they're working with an agency, you know, and they were working with people that supposedly knew what they were doing and yet it was still happening to them. So let me say this. If it's happening to them, absolutely, it can happen to you. And I have nothing to gain by telling you this, only just to know that I'm helping people by lifting the veil and that that's a large part of what this podcast does. I. People all over the world listen to this and they tell me all the time, Chris, thank you so much. You help my business, you help my company. You know, that's what I get out of this. And of course, people reach out to me and hire me sometimes, so there is that. If you would like to reach out to me, Chris, Schaefer.com is my business site. You can reach out and schedule a time to chat with me. I can do an audit on your account. And of course, do not forget the great Joey Bidner who brought this whole topic to light. Thank you, Joey. You can find him@joeybidner.com he offers Google Ads management and many great services. I highly recommend reaching out to him as well. Thank you, guys. I'll see you next week.