How to Avoid Facebook Ads Bankrupting Your Company, as Taught by this Startup’s Shutdown
How great would it be if someone handed you $150k to spend on Facebook ads to grow your business? It would magically solve ALL of your growth problems, wouldn’t it?
While that may have been the case 10 years ago, that’s simply not the case in today’s age of rising digital advertising costs — as shown by the latest shutdown of Unicorn, a direct-to-consumer e-scooter company that claims to have spent the majority of its incoming revenue on Facebook ads.
“A large proportion of the revenue went toward paying for Facebook ads to bring traffic to the site,” an email from founder Nick Evan states, following the closing of a $150k seed funding round.
“Unfortunately, the cost of the ads was just too expensive to build a sustainable business.”
While this steep digital advertising budget may seem insane to some, it’s certainly not unheard of with emerging tech and D2C companies that have raised funding rounds. In fact, 40% of venture capital raised by today’s startups gets spent on Facebook and Google ads, according to Clearbanc co-founder and investor Michele Romanow in a recent interview with Business Insider.
So, how do you prevent this fruitless burning of capital from happening to your business?
Companies, regardless of size, need to be investing in their digital strategy and creative BEFORE spending boatloads of money on the ads themselves. This is, of course, assuming they’ve already validated a product-market fit — which may have been another key contributing factor to Unicorn’s failure to gain traction, though that’s a conversation for another day.
Test Your Creative At-Scale
Ads are no longer “expensive” when they’re providing a 2–5x return on every dollar spent. Though, to get to that point, you’ve got to be efficient with every dollar leading up to that — meaning TEST, TEST, TEST.
With any creative we produce for our clients at VAXA Digital, we’re constantly testing the order and combination of the shots, the ad format (e.g., 4:5 vs. 16:9), the display (e.g., feed, story, sidebar), the colors, the copy, the music, and the call-to-action. Test it once, make some tweaks, then test it again. Notice a trend here?
Test it once, make some tweaks, then test it again.
Often times, companies rely on such limited creative for their ad sets — spending thousands of dollars on a single “hero” video or two, combined with some beautiful product photos. While these are typically produced very well and look amazing, they severely limit the value proposition to a scope far too narrow (or broad) to effectively appeal to all customer personas.
The average consumer is exposed to nearly 10,000 ads per day, according to Advertising Association president Keith Weed. It’s become muscle memory to hover our hand over the “Skip Ad” button on YouTube pre-roll ads, tap through Instagram and Snapchat story ads, and get up to do something during TV commercial breaks.
If your ad doesn’t immediately appeal to someone, they’re going to skip it.
By not investing time and effort in testing quality creative at-scale, companies such as Unicorn are left burning capital on beautiful, yet broken ads that aren’t providing a strong enough ROI to keep them afloat.
When it comes to Facebook (including Instagram) ads, your multi-thousand dollar “hero” video isn’t going to be what converts — but 15 less expensive videos with different marketing angles are… or at least a few of them.
The Sailboat Analogy
Think of it this way: Let’s say you had a plan to sail across the Atlantic Ocean (i.e., build a profitable company). It requires a bit of capital to fund the supplies and expenses for the journey, so you raise $150k to do so.
However, you don’t think through your strategy, go cheap on buying a single ship (i.e., ad content), and plan to spend the remaining $140,000 on supplies (i.e., ad spend) to get you across.
Because of this decision to spend so much on the journey BEFORE investing in the vessel, you’re now left with a subpar, inefficient boat that starts sinking as soon as you get out to sea. Rather than stopping and diagnosing what’s wrong with your only ship, you start blowing money on useless repairs along the way (e.g., more ad spend) and trying to save it— only to run out of money halfway across the ocean.
Now, you’re out too far and there’s no going back.
The Key Takeaway for Your Business
When you’re in the process of making a decision to break into digital advertising, whether for the first time or improving on your current strategy, remember to invest in a fleet of quality “vessels” before you start paying for the journey — and constantly be testing along the way. You don’t want to take a bet on taking a single, potentially broken boat out to sea.
Remember to invest in a fleet of quality “vessels” before you start paying for the journey — and constantly be testing along the way.
Allocating $150K, $1.5M, or whatever amount of money you can on advertising isn’t going to magically solve all of your problems, as you’ll simply burn money faster with the more you have to spend.
What type of creative have you seen working best for your business? What “sailboats” are you planning to doubling-down on for the rest of 2020? Share them in the comments below!