Making Digital Ads Profitable (Part 1)

This is part one of a ten part series in setting up digital ads for your business.

With over 22 years in SaaS, managing $50 million in profitable B2B digital ad spend has been our focus at SaasRise, a B2B SaaS scaling and exit advisory agency. We've distilled crucial lessons to elevate your paid advertising efforts. You can forward this detailed ads guide to your marketing team for implementation or you can hire our team to set up, optimize, and and scale these six channels for you.

If you’re not already a SaasRise member, if you like in-depth quality growth content like this, apply to join our community for SaaS CEOs and Founders with $1M to $100M in ARR. So far we are up to 286 members representing $1.8B in ARR.

All right, let’s jump in to the good stuff…

Before we can dive into the first part of "The Six Most Effective Types of Digital Ads", we need to address the four most common mistakes in setting up paid ads. So, let's take a look at these.

Here are the four most common mistakes in setting up paid ads.

1. Not setting a target CAC before you start running ads
2. Not tracking CPL and CAC
3. Not sending traffic to a landing page with a clear Call-to-Action
4. Not using a multichannel attribution tool

CEOs often tell me, 'We tried paid ads, but they didn’t work for us. We’re sticking with organic content and tradeshows.' When I ask about their Cost Per Lead (CPL), Customer Acquisition Cost (CAC), and payback period, they usually don’t have answers.

SaaS marketing isn’t like ecommerce, where you aim to break even on the first sale. SaaS generates ongoing revenue for years, so you can break even on sales and marketing investments over 6-12 months.

When you run ads, it’s crucial to calculate CPL, CAC, payback time, and the Lifetime Value (LTV) to CAC ratio for each channel and ad type. Often, campaigns fail because traffic is directed to a homepage without a clear Call-to-Action (like a trial or demo).

Two Ways to Calculate CAC

I find it helpful to calculate CAC (Customer Acquisition Cost) monthly in two different ways:

1. Ad CAC: Total ad spend divided by the number of customers acquired from ads during that period.
2. Overall CAC: Total sales and marketing costs divided by all customers acquired during that period.

For our SaasRise clients, we scale up campaigns that pay back in 12 months or less (with a target of 6 months) and achieve an LTV ratio of 6:1 or better. We scale down campaigns that don’t meet these performance standards.

Achieving these key ratios means that for every dollar spent on ads, you should generate at least $6 in lifetime revenue. For example, if you have an ACV (Annual Contract Value) of $10,000, you should aim for a customer acquisition cost of $5,000 (or up to $10,000 if you have a strong balance sheet and want rapid growth).

As shown below, we are currently breaking even on our ad spend in just 1.25 months of subscription revenue, making it an obvious decision to continue increasing our ad spend.

We are very transparent about our metrics, as we use them to help our community learn. As illustrated in the graphic below, we’ve grown SaasRise from an ARR (Annual Recurring Revenue) of $1.2M to $2M over the last six months. Not bad at all.

Next, we will delve into the second most common mistakes in setting up paid ads which focuses on "Setting Up Ad Tracking & Conversion Attribution." Stay tuned for more valuable insights!

If you find the resources above valuable and want more content like this, apply to join SaasRise, our exclusive mastermind community for SaaS CEOs and Founders with over $1M in ARR aiming to scale up their MRR. Every Wednesday, we host an optional mastermind call where we support each other and share successful strategies for scaling our companies. Throughout the week, we continue this support and collaboration in our private community on Slack, WhatsApp, and our custom platform.

I'll be back in touch tomorrow with part two of this guide...