How can I use my cohort analysis by revenue to determine if I'm spending too much or too little in advertising?

For example, lets say I'm currently spending $10K a month on advertising; how can I use my cohort analysis revenue data to see if my advertising spend is worth spending?


You'll find that looking at top line revenue alone won't provide much value to you if you are asking the question "Is my advertising spend worth it?"

Typically, in advertising I want to know the Lifetime Value of the customer or the Average Revenue Per User (ARPU).
Then, it boils down to : If I spend $100 to acquire this new customer and he spends $150 over the lifetime of his paid relationship with me then, yes--- my ad spend is worth it.

On the other hand:
I could spend 10K this month in ads.
I could sign up 20K in users/customers/top line revenue.
But my data will tell me I spent MORE per customer/user than they are actually worth over the average lifetime.

So that's what usually answers the "Is it worth it" question in any advertising scenario.
1. How much to acquire the user?
2. How much does the user spend over the avg lifetime?
If it doesn't make sense, it's not worth it, regardless of what your top line revenue tells you.

You might find this blog post on cohort analysts valuable as it goes into more detail. (I have no affiliation.)

Answered 9 years ago

There is often the challenge of simply spending too little to get effective feedback, but at $10k that's often a number I've seen that starts to make a difference. Are you spending this all on Google Adwords?

The first number to consider is 0. No sales on $10k is highly indicative. But even a couple sales (let's say you had a $50 product) is also pretty bad from a ratio standpoint. Can you share how much revenue you've generated from $10k in spend?

Answered 9 years ago

Just to understand better - are you building a game/app? or are you building a business with recurring revenues (like say SaaS)? The answer varies based on this.
Also, are you looking at the data specifically for users you are getting from just this campaign or just your overall revenue analysis?
Sorry I'm asking more questions, but the answer depends on these questions.
You should be careful to map the spend to its own results to judge if its ok to keep spending in the manner. Only that can tell you if its worth spending unless there are other benefits to the advertising spend (higher rankings on appstore for a game for instance)

Answered 9 years ago

Unlock Startups Unlimited

Access 20,000+ Startup Experts, 650+ masterclass videos, 1,000+ in-depth guides, and all the software tools you need to launch and grow quickly.

Already a member? Sign in

Copyright © 2024 LLC. All rights reserved.