🏦 The costly mistake stunting info business growth: You're setting CPA all wrong (here's the fix)

Grab your FREE P&L framework template 🔖                                                                                                                                                                                                                                                                                                                                                                                                                 April 18, 2024 | [Read Online]( [fb]( [tw]( [in]( [email](mailto:?subject=Post%20from%20Inceptly&body=The%20Costly%20Mistake%20Stunting%20Info%20Business%20Growth%3A%20You%27re%20Setting%20CPA%20All%20Wrong%20%28Here%27s%20the%20Fix%29%3A%20%0A%0Ahttps%3A%2F%2Finceptly-agency.beehiiv.com%2Fp%2Fcostly-mistake-stunting-info-business-growth-youre-setting-cpa-wrong-heres-fix) Confessions of a marketing veteran: The CPA guessing game Have you ever felt like you're throwing darts at a board when it comes to setting your marketing targets and budgets? I know I have - and I've been in this game for over 7 years. Well, I've got a confession to make... For too long, I operated that way myself. Asking clients for their target cost per acquisition (CPA) only to get wildly different responses that seemed plucked out of thin air. Author: Brat V, Co-Founder of Inceptly and VidTao "I want leads under $20 and customers under $1,000" or "I don't care about the cost per lead (CPL) as long as sales cost under $500." It's all over the place. No rhyme or reason behind it. And it got me wondering - how are they coming up with these figures? What's the logic or process behind setting these numbers? Because from where I'm sitting, most people are going with their gut instead of any kind of systematic approach. Want to brainstorm with us on new ways to scale your business with YouTube Ads (and other performance video platforms)? Join us for a free YouTube ad brainstorming session here: [👉 Book a call]( Is your business REALLY profitable? From my experience working with clients, CPA targets tend to be set ad-hoc, rather than being tied to their actual business plans and financials. They are satisfied with a $1,000 CPA for their $2,000 coaching program. But why? How did they determine that $1,000 is the right number? Sure, I get that selling something for $2,000 while spending $1,000 means you pocket $1,000 in theory. But what about all your other expenses? Advertising is just one slice of the pie. You can't look at it in isolation. This siloed approach to KPIs is what I call "target practice." We're so focused on hitting our CPA or CPL goals for a particular channel, we miss the broader target of maximizing overall business profitability. But here's the hard truth: if you're not seeing your business holistically, and applying a real systematic process for setting targets and budgets, you're leaving money on the table. Lots of it. And profitability, as I'm sure you'll agree, has to be the #1 priority for any company aiming to be sustainable and growth-focused. Leveraging the info product advantage Luckily for info product entrepreneurs, their whole business model tends to orient naturally around the bottom line and cash generation. But only if we get our aim right from the start… That's exactly what I've been obsessed with lately - creating a framework any info product biz owner could use to map out their financial model and KPI goals in a methodical way. A system that would clearly show: - How to set your total advertising budget - How to derive target CPAs and other advertising KPIs from that - Where your bottlenecks are holding you back - What priorities to focus on first - How to communicate this whole plan to your team and partners A system that optimizes for profits above all else. Because at the end of the day, randomly shooting from the hip just doesn't cut it if you want to consistently hit your numbers and scale sustainably. The info product world, similar to SaaS, has a huge advantage - there's no added cost for each new customer. Once the initial product is created, you can sell it over and over with virtually no extra expenses. This is what makes the model so lucrative and appealing. Yet, I'd argue this very advantage can breed complacency when it comes to setting business goals and targets. We often get stuck looking at each individual sale, instead of stepping back to view the big financial picture. Why does it matter? Anchoring to your financial foundations Think about it - that new course you just sold didn't actually cost you anything extra to produce and deliver, right? But running the overall business machine still has lots of unavoidable costs. Having zero marginal costs per unit is incredibly powerful, but only if you've got a solid handle on managing all your other operational and variable expenses. Operational and variable costs - what exactly do those terms mean? This is where I see many business owners start to get tripped up. In any business, there are three core financial statements that you must stay anchored to: - The profit & loss statement (P&L) - This acts like a report card, showing if you made or lost money over a certain period. - The balance sheet - This is a snapshot of everything your company owns (assets) and owes (liabilities) at a given point in time. - The cash flow statement - Think of this as a cash diary, tracking all the money coming in and going out to show if you're managing your cash flow effectively. These three statements provide the full financial picture and health status of your business. They reveal whether you're actually generating positive free cash flow - which should be the #1 aim of any business activity. And, importantly for us, these core financial statements must form the foundation for setting all your KPIs, goals, targets, and budgets - including marketing. How often do you review your financial statements? From my experience in the direct response business, most marketers and product owners rarely look at these statements until the end of the year. And when they do, it's mainly for tax reasons. Having to comb through the financials at that point is never a pleasant experience. It's even more painful when you realize just how much of your hard-earned profit needs to go towards taxes. But here's the key. Trying to set business targets without first basing them on those core P&L, Balance Sheet, and Cash Flow documents is like trying to navigate blind. You have no compass or map to guide you. It's a recipe for getting completely lost and making poor decisions. Every strategic activity, every KPI you track, every budget you set - it all needs to be rooted in and consistently realigned to those three critical financial statements. They should be the North Star that you refer back to time and time again. How to map out your P&L model So now you may be wondering: "Okay, but how can financial statements help me set targets like cost-per-acquisition or my marketing budgets? Where do I start?" Well, let me walk you through it... For the purposes of mapping this all out, we'll focus solely on the P&L statement, as it's the most relevant for understanding how much you can allocate towards advertising to acquire new customers. Let's outline the core assumptions We'll walk through a case study example to accurately define a target CPA and overall advertising budget using the P&L for a hypothetical info product business with the following characteristics: - The company operates in the coaching/education space - Their main marketing channel is a webinar funnel - They use paid ads (Google, Facebook, etc.) to drive traffic to the webinar - The core offer sold via the webinar is a $1,500 DIY course - They also have a higher-tier $5,000 "done-for-you" program on the back end - Their revenue goal for the first year is $1 million - Profitability is a must (they aren't VC-funded) The webinar funnel model has been a staple for info product companies for ages. Typically, it involves an opt-in page that captures a lead, followed by a video presentation/training, with a product offer made at the end. The beauty of webinars is that even if someone doesn't purchase right away, you've still obtained their contact info as a lead to follow up with and potentially sell other products down the line. Webinars tend to be utilized for higher-ticket offers in the $500 to $2,000 range. And there are often sales teams working to sell even more premium coaching/implementation services behind the scenes. Accounting for all cost drivers Now that we've outlined the key assumptions and defined webinars as the core lead gen channel, let's map out all the cost elements that go into running an operation like this from the P&L perspective. You'll need to account for numerous services and line items, such as: - The face of the brand and products - usually, the creator/founder who is the authority in the niche - Various software tools - webinar platform, landing pages, CRM, analytics, shopping cart - Production costs for recording, editing, and uploading webinar content - A team to set up and manage all the tech (webinars, pages, CRM, etc.) - If selling a "done-for-you" high-ticket program, the costs of delivering that service - Employee costs for marketing, operations, customer support - Sales team costs if utilizing phone sales and upselling on higher-ticket services - The advertising budget itself for paid media With that in mind, here's what the expenses section of your P&L might look like: - Software/Tool Costs - Payment Processing Fees - Content Production (webinars, ads, etc.) - Done-For-You Service Costs - Employee Payroll - Sales Commissions - Advertising Spend Here is a simplified view of your P&L statement. And this is a more detailed snapshot so you can see what constitutes the various costs. Making sense of OPEX & COGS You'll also likely see line items for COGS (cost of goods sold) and OPEX (operating expenditures) which are common P&L categories that most businesses track closely. - COGS refers to the direct costs incurred in producing/delivering your products and services. - OPEX covers operating expenses like payroll, rent, software, etc. that are necessary to keep the business functioning. Both COGS and OPEX are critical expenditures that get deducted from your revenue to calculate your net profitability bottom line. Let’s zoom in a little more on those categories in our sample P&L. So as you can see, there's a lot that goes into mapping out an accurate P&L model for an info product business like this. But having that comprehensive view is absolutely essential for setting your business goals correctly. What about your sales team? Let's talk about sales teams for a minute, as they've become increasingly common for info product businesses in recent years. Typically, you'll have "setters" whose job is to get potential customers booked for a call with the "closers" - the folks actually making the sales pitches. From a business perspective, having dedicated sales teams represents a real investment in operational costs. Their compensation, usually a percentage of revenue from closed sales, gets categorized under Cost of Goods Sold or COGS. So with each backend program or service you sell, you're incurring direct COGS in the form of sales commissions. And if you're delivering any kind of high-ticket coaching or implementation, you'll also have COGS for the time/labor involved in actually delivering that service to clients. The takeaway here is that certain product types and sales models inherently create COGS that need to be accounted for. Selling a DIY course may have virtually no incremental cost, but selling coaching programs with a sales team definitely does. Being mindful of where you have COGS baked into your model can save you a heap of money and help you structure your funnels more effectively. So it's an important distinction to make when mapping out your P&L. Okay, now back to building out that P&L model… If you've made it this far, you're clearly committed to unlocking new levels of profitability and efficiency for your info biz! Kudos to you! Head over [to our website]( to finish reading the article and learn: - How net margin and profit margin affect all the other pieces of the puzzle that is your business - A simple way to figure out what advertising budget is sustainable for your bottom line - An easy-to-follow method for calculating your optimal target CPA - What effect revenue and product ratio shifts have on your advertising strategy - How to arrive at sustainable and profitable CPL for your business But that's not all! We've prepared a [free P&L framework template]( that you can download on our website to do a proper health check of your business funnel, and see where you might be flying blind. Don't worry - it's easier than it seems! Ready to continue? Simply click the button below to read the full case study and download your free, fully customizable P&L template to make sure your KPIs are fueling your info biz growth! [👉 Continue reading]( Brat Vukovich, Co-Founder of Inceptly and VidTao 💌 Like this newsletter? 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