Basic steps of the paid marketing loop
Acquire new users : users see your ad and sign up
A certain percentage of users convert to paid products: A percentage of registered users convert to paid products
Reinvest in advertising : Revenue from paying users is invested in new ads
Ad response : Users who france telegram phone number list saw a new ad clicked or visited directly
Differences between paid channels
Paid loops have different characteristics depending on the advertising channel you use. Four main factors influence this:
Initial cost : How much capital is needed to start up? Example: Facebook can be started with $10, but TV commercials require over 10 million yen.
Targeting : How efficiently you can narrow down your audience. The precision of your targeting will affect the economics of the loop and the speed of reinvestment.
Ad format and steps : The steps a user needs to take from ad to registration. Example: One-click transition on Facebook vs. watching a TV ad and searching on smartphone to register
Scale : The size of your target audience within a channel. How many potential customers can you reach and how long it will take to saturate?
Paid Loop Restrictions and Solutions
The main constraint on a paid loop is the amount of capital that can be reinvested. There are two ways to relax this constraint:
Funding : Raise more capital and speed up the loop
Shorter payback period : Recover your advertising investments faster
How to measure paid loops
The best way to measure the effectiveness of a paid loop is the payback period. Many companies use the LTV (customer lifetime value) to CAC (customer acquisition cost) ratio, but this has limitations.
Instead, we recommend using ROAS (return on ad spend):
LTV to CAC ratios don't reflect the cycle speed of the growth loop
Using ROAS, you can see how quickly you can recoup your invested capital.
This information alone doesn't tell us which company is growing faster. Looking at ROAS gives us a clearer picture of the speed of return on investment.
What is ROAS?
ROAS (Return On Ad Spend) is an indicator that shows the ratio of sales to advertising costs. Specifically, it is calculated using the following formula:
ROAS = Revenue from advertising ÷ Advertising cost
For example, if you spend $100 on advertising and generate $500 in sales, your ROAS would be 5 (50000 ÷ 10000 = 5).
The importance of ROAS
A direct indicator of investment efficiency : ROAS directly indicates how efficiently your advertising spend is converting into sales.
Short-term measurement of effectiveness : Unlike LTV, ROAS can be measured over a relatively short period of time, allowing for quick adjustments to your strategy.
Channel Comparison : Easily compare the effectiveness of different advertising channels and campaigns.
Budget allocation guideline : Allocating more budget to channels that show higher ROAS can improve overall advertising effectiveness.
Projected growth rate : A higher ROAS means a faster return on your advertising spend, allowing for faster reinvestment cycles.
Advantages and Disadvantages of Paid Loop
advantage:
Immediate results : immediate results after investment
Controllable : Easy to target and turn on/off
Precise targeting : Reach very specific segments
Cons:
Less sustainable : Tends to become less effective over time
Effective Paid Loop Strategy
Paid loops are best used to accelerate other growth strategies, and should complement other loops rather than being at the center of your primary growth model.
There are exceptions to this rule, however, in markets with high turnover (e.g. car sales, real estate), where paid loops can be sustainable, as these markets are constantly generating new, high-quality leads, making paid marketing more likely to remain effective.
Implementing an effective paid marketing loop strategy can accelerate business growth, but it's important to understand its limitations and use it in conjunction with other growth strategies.
