Thread by @heykahn

I've spent over $8 million on paid marketing ads.

These ads have generated over 1.5 million users across 6 different products.

THREAD: How to build paid marketing channels that create millions in revenue:

1. The 4 steps of building a paid marketing channel:

A) Buy ads. For example, spend $1,000 on Facebook Ads

B) Acquire users that generate revenue

C) Measure your performance (more on this later)

D) Re-invest the revenue generated from users back into purchasing more ads

2. Remember: Paid ads can't be your main acquisition channel.

Startup history is full of companies that went broke after overspending on paid marketing.

Paid ads are the most dangerous channel in the world.

But why?

2 reasons:

A) Paid marketing channels are easy to copy and don't give you an advantage against your competitors.

B) It's easy to fool yourself. Many companies spend $1 to buy $0.50 in revenue, and by the time they realize they're losing money, it's too late.

3. Pick a channel that aligns with your product & business model

Paid channels aren't created equally

A channel like Google Ads might be better for B2B products, while a channel like YouTube might be better for consumer products

There are no hard rules. Pick what makes sense.

As a general rule, online channels are better than offline channels for 2 reasons:

A) The amount of money needed to test an online channel is lower than offline

Example: FB requires $100 to test, whereas TV ads need at least $25,000

B) Online channels are easier to measure

4. Measure your performance - your company depends on it.

Capital is the oxygen startups need to survive.

And paid channels consume a lot of capital.

Make sure your startup doesn't run out of oxygen by burning all your capital on paid marketing.

Key metrics to measure your performance:

1. Cost of Acquisition (CAC) = Total spend / Number of new users acquired

2. Lifetime Value (LTV) = Revenue generated over the course of an average user's lifetime

3. Payback Period = Time it takes to recover $ spent on ads

How to use these metrics:

A) If your CAC exceeds your LTV, you will lose money. Make sure these 2 align in the long run.

B) Pay attention to Payback Period. If the pace of your $ spend exceeds the pace of your $ recovery, you will lose money.

5. Paid channels have finite scalability

Early on it's possible to acquire high LTV customers at a low CAC

But with time, CAC & Payback Period increase but LTV decreases because your ads expand to a lower intent audience

All paid channels have decaying unit economics at scale

Recap:

1. Nail the 4 steps of building a paid marketing channel

2. Don't make paid ads your main acquisition channel

3. Pick a channel that aligns with your product and business model

4. Measure your performance

5. Know when you've hit your scale cap

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I write about marketing, tech, and psychology. I share my insights along the way.