How To Scale a Subscription Business With Metric Driven Facebook™ Ads…

>>> 1. Determine your Day 1 ACV (Average Customer Value)

For example, for one of my businesses our newest funnel looks like this:

Ad > $20/month offer* > $120/year up-sell

*DVD ($20) + 30 day trial of $20/month membership

It’s been a few days since we launched the funnel and out of the first 100 customers (trial members), 17% (17 out of 100) bought the $120/year up-sell.

100% * $20 = $20.00

17% * $120 = $20.40

So our ACV is $40.40:

$20.00 + $20.40 = $40.40

Our costs are $4.50 (Accidentally said $4.05 on my FB live yesterday):

$0.96 – Product

$2.02 – Shipping & Handling

$1.52 – Merchant Fees

So our Day 1 Gross Profit Per Customer (before ads) is $35.90:

$40.40 minus $4.50 = $35.90

That’s how much we can spend on ads to acquire a customer and be break even on the first day the customer enters the funnel (before re-bills, back-end offers etc)…

>>> 2. Determine the following metrics:

-Day 30 ACV

-Day 60 ACV

-Day 90 ACV

-LTV (Lifetime Value)

-Day 30 Gross Profit Per Customer (before ads)

-Day 60 Gross Profit Per Customer (before ads)

-Day 90 Gross Profit Per Customer (before ads)

-Lifetime Gross Profit Per Customer (before ads)

As I mentioned above, so far we’ve acquired 100 trial members and 17 upgraded to annual paying members…

Based on data from the last 12 months, about 75%-80% of our trial members become paying members.

So of the 83 members still on a trial, 62-66 will become paying members after 30 days:

75% * 83 = 62

80% * 83 = 66

Let’s call it 65 to make the math simple.

So not including additional revenue (from day 1 leads that didn’t originally convert or back-end offers), I know that we’ll make about another $1,300 within 30 days:

65 * $20 = $1,300

Based on the original 100 customers, this adds $13 to our ACV (after 30 days):

$1,300/100 = $13

Remember, our Day 1 ACV is $40.40 (Call it $40)…

So our Day 30 ACV will be $53 because:

$40 (Day 1 ACV) + $13 (Additional CV after 30 days) = $53

Our merchant fees (2.9% + $0.30 per transaction) on the $1,300 is $57.20:

(2.9% * $1,300) + ($0.30 * 65) = $57.20

…Divided by 100 customers, that’s $0.57.

*****

Have I lost you yet? Lol, I’m going to keep geeking out here and hopefully you’re picking up what I’m putting down… 😉

*****

Remember, our Day 1 Gross Profit Per Customer (before ads) is $35.90…

And we’ve added $13 to our ACV and incurred an additional $0.57 cost.

So now we know that our Day 30 Gross Profit Per Customer (before ads) will be $48.33:

$35.90 + $13 – $0.57 = $48.33

Call it $48 (to make the rest of this post easier to explain).

*****

Let me summarise where we’re at now:

Day 1 Gross Profit Per Customer (before ads) is $36 (rounded)

Day 30 Gross Profit Per Customer (before ads) is $48 (rounded)

*****

Based on an 80% stick rate on month 2 and an 80% stick rate on month 3 and an average overall stick rate of 6 months…

Day 60 Gross Profit Per Customer (before ads) is $58 (rounded)

Day 90 Gross Profit Per Customer (before ads) is $66 (rounded)

Lifetime Gross Profit Per Customer (before ads) is $100+ (approx)

*****

So again, let me summarise where we’re at:

Day 1 Gross Profit Per Customer (before ads) is $36 (rounded)

Day 30 Gross Profit Per Customer (before ads) is $48 (rounded)

Day 60 Gross Profit Per Customer (before ads) is $58 (rounded)

Day 90 Gross Profit Per Customer (before ads) is $66 (rounded)

Lifetime Gross Profit Per Customer (before ads) is $100+ (approx)

*****

>>> 3. Acquire as many customers as possible (with paid traffic) for less than your ‘Day 1 Gross Profit Per Customer (before ads)’

In this case, acquire as many customers as possible for less than $36 ad spend.

Start with your warm audiences:

– Customers

– Email list

– Retargeting list

– Fans

Then scale to specific interests and/or 1% lookalike audiences.

Then scale to broad interests and/or 2%-5%+ lookalike audiences.

Track your CPA (Cost To Acquire A Customer) on a DAILY basis.

It might be stable for a while but then it will eventually increase over time…

There are only so many customers you can acquire profitably on the front-end (Think 5 ROI buckets – Check out my 2 FB LIVES on this concept a few weeks ago)…

On day 1, your CPA might be $18.

On day 30, it might have risen to $27.

On day 90, it might have risen to $36.

When your DAILY CPA is consistently around $36, move on to step 4.

>>> 4. Determine the GROSS PROFIT you generated in step 3

By now it’s costing you $36 per new customer on a DAILY basis…

You may have acquired 1,000 customers up until this point for between $18 and $36 and your average CPA might have been $27 – You’ve spent $27,000 on ads to generate 1,000 customers.

That means you have generated $9 in gross profit per customer and you have generated 1,000 customers…

So you have generated $9,000 in GROSS PROFIT.

BUT if it took you 3 months to spend that $27,000 on ads and acquire 1,000 customers, some would have been re-billed either once, twice or 3 times.

So you probably have $20,000+ in GROSS PROFIT (Cash) and you’re ready for step 5…

>>> 5. Invest your gross profit into ‘going negative on the front-end’ (knowing that you’ll make back your front-end loss after 30 days)

Remember:

Day 1 Gross Profit Per Customer (before ads) is $36 (rounded)

Day 30 Gross Profit Per Customer (before ads) is $48 (rounded)

Up until now we have focussed on getting customers for less than $36 each.

But now we have $20,000+ in CASH to FINANCE agressively acquiring customers at a ‘front end loss’ knowing that we’ll make it back over 30 days.

So now here’s what you have to do:

Acquire as many customers as possible for less than your ‘Day 30 Gross Profit Per Customer (before ads)’ – $48.

In other words, now you are happy to spend $48 to get a customer rather than $36.

You might spend another $42,000 on ads (over a few months) until your DAILY CPA is consistently around $48.

In other words, you may have acquired another 1,000 customers during this period for between $36 and $48 and your average CPA might have been $42 – In this period, you spent $42,000 on ads to generate 1,000 customers.

That’s a $6,000 ‘front-end loss’ but you’re financing the loss with your cash flow from the first 1,000 customers.

*****

At this point, a LOT more customers (old and new) have been re-billed and you have even more cash…

*****

>>> 6. Keep scaling your ads and investing gross profit (cash) into agressively acquiring customers

You might get to a point where you are spending $60+ to acquire a customer buying a $20 DVD…

Because you have the cash to do it and you know you’ll make back the money over a certain period of time – whether it be 60 days, 90 days or longer, depending on how aggressively you re-invest gross profit into customer acquisition and how high your ad CPA gets.

You’ll be tapping into a broader market and dominating your competition who ‘sell dvd’s’ (whereas you’re building a media company).

Your competitors can only afford to spend (for example) $10 to make a $20 DVD sales (reaching far less people and doing far less volume)…

Something worth noting:

I haven’t talked much about NET profit because for the business I’ve used as an example in this post, our current monthly recurring revenue (generated from previous funnels) already more than covers our monthly overhead costs…

If you’re starting out though and you have overheads (software, your own salary etc), you obviously need to factor it in BUT I would recommend that you minimize your overheads so you can aggressively acquire more customers by investing in advertising 😉

*****

>>> 7. (Should really be #1 so you do it right) – Watch me go through this exact process, scaling one of my funnels and sharing my insights with you so you can model what works for me and avoid what doesn’t work…

I’ve put together an 8 week course called ‘Metric Driven Funnels’ that goes live on Monday for the first 10 students at 50% off the price it’ll be when I get my funnel 100% together and start marketing it with ads.

There’ll also be weekly webinars where I show you behind the scenes of what’s happening in my niche business.

A few spots have already been snapped up and there’s a handful of spots left for a few lucky marketers.

PM me if you want in.

If you’re on the fence, I recorded a 60 minute ‘off the cuff’ screenshare showing you behind the scenes of my niche business (funnels, fb ad account etc) as well as a sneak peak at the course modules and lessons – PM me for a link to the screenshare video.

RB out.