Paid Advertising, Explained

Paid advertising is a marketing strategy where you pay to show ads to your target audience on online platforms like search engines (Paid Search) and social media (Paid Social). Examples of Paid Search include Google Ads and Bing Ads; Paid Social include Facebook Ads, LinkedIn Ads and TikTok Ads.

To learn more about the fundamentals and basic strategies for each platform, read this article: "Paid Advertising 101: A Guide for Startup Founders".

Define business goal and campaign objective

• Is it to increase brand awareness, conversion or others?
• Each channel has its unique proposition and serves different needs

Identify where your target audience hangs out

• Think about their demographics, interests, and behaviours.
• Paid ads channels can be broken down into Paid Search and Paid Social.
• For each channel, gauge the traffic volume and growth potential to help you prioritise which channels to test.
• Where your competitors are advertising can be a good starting point.
• We built a tool to collect and analyze your competitors' ads, all in one place. Check out Kaya's Competitor Ad Intelligence tool.

For each channel, calculate CPL. Ideally, you’d want to focus on channels with lower cost with a sizable reach.

• Account for at least 3 months of budget for the campaign to be cost efficient / profitable. Ad platforms need time to learn from your data.
• A common beginners pitfall is losing momentum after a few weeks, resulting in wasted funds and missed learning opportunities.
• Tip: Try out this template we use to get an estimate of budget, conversions and CPL

Experiment and scale

• Run A/B tests to identify the potential customer segments, messagings and creatives.
• Analyse lead quality, customer LTV acquired via each channel.
• Prioritise channels that can scale sustainably. At this point you may also think about hiring a specialised agency or in-house to manage them.

Paid ads is a good idea in these two scenarios:

• You are early in product building: Your goal is to get early batch of users and test your messaging, targeting etc. At this point, you need to set realistic expectations with your ROAS and CAC
• You’ve found product-market fit and ready to scale: You roughly know what resonates with your audience. At this time, you can start focusing on cost efficiency

Paid ads can be your powerful growth channel given the right investments.

Pros:

• It is scalable, unlike other growth channels such as Product Hunt, Newsletter
• It produces high volumes of data rapidly, helping you learn and iterate faster

Cons:

• It takes at least 3 months for campaign to be cost efficient / profitable. Ad platforms need time to learn from your data.
• You need to allocate substantial resources (effort, time, money) to launch great campaigns

A common pitfall for startups venturing into their first paid ad campaigns is losing momentum after a few weeks, resulting in wasted funds and missed learning opportunities.

Hence, before jumping into paid ads, ask yourself:

• Have you exhausted other cheaper growth channels that could help you improve your website conversion rates, messaging and targeting?
• Can you commit to 1 to 3 months of resources and spend?

Learn more about paid advertising from our top article "Paid Advertising 101".

If you’re just starting out, consider allocating an amount that's manageable enough to risk, yet substantial enough to collect meaningful data.

If your budget is too low, it takes longer for the ads platform to optimise your campaigns, thus lower performance and slower learning for you.

If your budget is too high, your ROI will be low as paid ads is subjected to the law of diminishing return.

• For Paid Search: High budget for product with low search volume means that ads will show for random low intent keywords
• For Paid Social: High budget for product with small audience means that ads will either be: (1) shown to random people or (2) very frequently to the same group of people, making them desensitised or even have negative sentiment to the brand

Tip: Try out this template we use at Kaya to get an estimate of budget, conversions and customer acquisition cost for paid ads.

It depends on many factors. Generally,

• Identify bottlenecks: Analyze performance metrics to see if opportunities lie in optimising ad quality or other areas, such as the website's conversion rate or user drop off during onboarding.
• For e.g., compare your ads Click-Through Rate (CTR) and Conversion Rate (CVR) against industry benchmark or other channels. A low CTR signals poor ad copies / creatives / targeting. A low CVR points to poor landing page design and content, or bad traffic quality.
• Evaluate comprehensively: Examine your strategies throughout the entire user journey. If you struggle to generate initial interest, try amplifying awareness campaigns on Paid Social (Meta, LinkedIn, TikTok). For higher-priced products requiring additional persuasion, retargeting campaigns could be the solution.
• For e.g., use Google’s Keyword Planner to gauge product search volumes. A low search volume indicates a lack of awareness, thus ramping up Search budget will lead to a diminishing return. You should explore top-of-funnel ads instead.
• Campaign setup: This involves going into the technicalities of each platform. Typically, it involves testing different campaign structure, bidding strategy, targeting etc.

Most cold outreach campaigns fail due to two main reasons: Irrelevant targeting and lack of brand awareness. People often filter out information from unfamiliar sources. This means your perfectly targeted message, addressing a known pain point, could get buried because they don't recognize your brand.

Open rates and response rates can be improved with pre-targeting: You run paid ads to your best prospects, so they’re familiar with your brand before reaching out to them. Pre-targeting can be particularly useful for warming up risk-averse decision makers in bigger, traditional companies.

To get started with pre-targeting, consider using Facebook Ads and LinkedIn Ads. These platforms allow you to upload a custom email list to create a targeted audience for your ads.

Given the long buyer journey, nurture your leads with educational content through outreach and various channels and formats. Paid ads can also be used to effectively retarget website visitors who have already shown interest

CAC refers to the amount of money needed for a business to gain a new customer

Generally:

• CAC: Total acquisition cost divided by number of customers acquired
• Paid CAC: Total acquisition cost divided by number of customers acquired via paid channels like Paid Search (Google Ads) and Paid Social (Meta Ads, LinkedIn Ads, TikTok Ads etc)

CAC = Total acquisition cost divided by number of customers acquired

• Total acquisition cost includes all expenses related to acquiring new customers, such as advertising costs, sales salaries, commissions, marketing software, and any other relevant expenses
• Number of customers acquired refers to the total number of new customers gained during the period

Check out the template we use at Kaya to get an estimate of budget, conversions and customer acquisition cost for paid ads

By calculating CAC, you can prioritise marketing channels that give you the best returns and optimize your channel mix. You should consider CAC alongside the Lifetime Value (LTV) of your customer to better understand the unit economics

Tip: Try out this template we use at Kaya to get an estimate of budget, conversions and customer acquisition cost for paid ads.

• A good benchmark for CAC depends on the lifetime value (LTV) you can derive from the user/business you acquired
• Generally speaking, your CAC should be as low as what you need to make sure LTV/CAC ratio is above 1, which means you’re profitably acquiring a customer
• However, the challenge with startup is that LTV is often unknown and bound to change as your product/service evolves. Hence, keep track of these metrics to inform whether you need to revise your marketing and acquisition strategy

At Kaya, we help startups 10x growth through paid ads. Check out the template we use at Kaya to get an estimate of budget, conversions and customer acquisition cost for paid ads‍

Average Customer Acquisition Cost (CAC) for Facebook ads differs by industry. Based on a poll by Databox, CAC distribution looks like this:

• Below $10: 50% respondents
• Between $6-10: 28%
• Less than $5: 28%
• Above $100: 7%

Generally speaking, lower CAC is associated with fast-moving consumer goods and B2C companies, which appeals to large group of users via discounts and sales.

Higher CAC is typically reported among B2B and high-end tech businesses. B2B also typically has higher revenue, thus justifying the higher price tag. Despite the higher cost, Facebook can still be a viable ad channel provided that their target audience is on Facebook.

At Kaya, we've helped hundreds of businesses run Facebook ads cost-effectively. Speak to us on how to lower your CAC for Facebook ads.

• Average Cost per Click (CPC) is the amount that you've paid for your ad divided by its total clicks. If your ad receives 2 clicks, one costing $0.20 and one costing $0.40, your average CPC for those clicks is $0.30.
• You can find the Google ads CPC for your product in Google Ads → “Campaigns” on left panel → “Avg. CPC” column in the table.
• Average CPC for Google ads depends on multiple factors, like industry, ad type and campaign strategy, bidding strategy, among others.
• The average CPC in Google Ads across industries is $2.69 for Search and $0.63 for Display, based on WordStream’s research

Generally speaking, competitive industries tend to have higher CPC as businesses need to bid higher to win top ad positions, for example finance, insurance and fitness industriesBut this doesn’t mean that spending more is the only way for Google ads to be effective.

First, calculate and assess your metrics and trends. Essential metrics to include are ROAS, CPA, CVR, and CTR.

When considering scaling up, be aware that ROAS tends to decrease as the budget increases. Therefore, effective scaling requires strategic steps:

• Identify the bottleneck: Is there room to further optimize your funnel? Review your CTR and Landing Page CVR. If your CTR is low (compared to historical data or industry benchmarks), focus on improving your ad assets. If your Landing Page CVR is low, prioritize enhancing the UI/UX of your landing page.
• For B2B or high-ticket value products with longer purchase cycles, ensure you have a comprehensive full-funnel marketing plan.
• Assess channel saturation: Use tools like Google’s Performance Planner for this purpose. A pro tip from growth expert Guillaume Cabane is to double your budget weekly and monitor the changes in ROAS—does it plateau? Note: This method might not be viable with a limited budget (due to a lack of statistical significance) or in cases where seasonality impacts your results.
• Optimize your campaign setup: This may require consulting experienced marketers due to the technical nature of each platform. Key areas to focus on include budget allocation, bidding strategy, and bidding caps.

In your Paid Search campaigns:

• Identify which keywords or products had the most significant impact. Analyze their search impression share and quality score, and use this information to guide improvements.
• For Paid Social, assess which assets resonated most and least with each audience segment.
• Reflect on your top learnings from the past. Do you have a structured approach for documenting these insights? We recommend maintaining a marketing logbook for this purpose.

This depends on the stage you’re at and your business priority:

• If you're just starting out, we recommend focusing initially on conversion volume. This approach helps in testing channel viability and establishing baseline metrics across your funnel. It's important to identify which part of your funnel is underperforming and what needs optimization first. Note that cost efficiency might not be high at this stage. We have observed businesses double their cost efficiency in 3 months through continuous optimization.
• It typically takes at least 1 month for performance to stabilize. Ensure that you've allocated sufficient resources for ongoing optimizations.
• If you've been running ads successfully, start focusing on cost efficiency metrics like Return on Ad Spend (ROAS) and Cost Per Acquisition (CPA). If you're considering scaling up your budget, remember that it requires different skill sets than starting from scratch. For more information, refer to the section below on analyzing past campaign performance.

Ensure that the conversion metric you choose aligns closely with your desired business outcome, such as lead form submissions for a B2B sales-driven business. Avoid superficial metrics like the number of clicks.

Also, make sure your budget is realistic in relation to your goals. For example, setting a CPA goal of $10 when your Cost Per Click (CPC) is also $10 is not feasible.

When it comes to allocating budget, businesses usually adopt one of these approaches:

• Top-down: Allocate a set percentage of your revenue or profits.
• Bottom-up: Calculate your CPA and multiply it by your target.

As a startup founder, you may have been doing most of the things yourself early on. However as you look to scale your marketing, you may want to consider hiring domain expertise to see results faster.

You can hire a marketing agency or build an in-house team. Each has their pros and cons:

• With an in-house team, what you’d get is building deeper product knowledge and faster turnaround. However, finding the marketing unicorn talents take time and money to find, build and retain.
• With a marketing agency, you’d have better flexibility on costs and expertise, which makes scaling simpler and faster based on your needs. The experience, however, is highly dependent on communication and finding the right growth partners as you’d be working together to finetune your strategy.

A startup marketing strategy outlines marketing strategies that enable you to grow your startup. It addresses your strategic direction, approaches, and marketing methods and tools. It is essentially a marketing roadmap for your startup.

A startup marketing agency is a marketing agency that offers digital marketing services geared toward the needs and requirements of startups and small to medium-sized businesses.

Identify your business goals, search for startup marketing agencies in your industry and evaluate every potential partner. Review their websites and social media handles to learn about their services, pricing, and past performance. Also, consider your budget and the cultural fit and ensure that these are fully aligned.