Mike: 00:02 – Come on. Come on, checking ad manager here. Give me a low number. Low number, low number. 50 bucks a lead? What the hell, Mateo? My ad costs are skyrocketing.
Mateo: 00:11 – Mike. It’s OK. This happens. It’s not the end of the world. It’s not like Russian roulette here. You should have expected this.
Mike: 00:18 – What? I thought I was going to $2 leads for the rest of my life. I’m freaking out. Sky’s falling. Can you save me? Come on. Can you?
Mateo: 00:27 – Well, I could probably talk you off the ledge. Let’s talk about it, Mike.
Mike: 00:32 – Let’s start with that I guess, but like, OK, I’m good with that. We’ll start by talking about how to deal with rising ad costs. We’ll be back with Mateo Lopez and he’ll talk me off the ledge that I’m on right now with $50 leads. Right after this. Want to add $5,000 in monthly revenue to your gym? It can be done. If you wan to know how, talk to a Two-Brain business mentor for free. You can book a call at twobrainbusiness.com today.
Mike: 00:57 – All right. I am freaking out. My ad costs are doubling. Quintupling, doubling, tripling, everything is going bad. Mateo Lopez is going to talk to me about why this is to be expected and how we’re going to deal with it. So Mateo, first of all, am I right in saying that ad costs are likely going to increase regularly?
Mateo: 01:17 – You are correct, Mike.
Mike: 01:19 – Why is that?
Mateo: 01:19 – Gosh, there’s so many reasons why. I guess, well, one reason, right, especially if you are in a local market, which most of us are as gym owners, you have a limited size to your audience. You know, the people living in your town is not going to change drastically, especially from month to month here. So you’re going to exhaust your pool at some point. If you’re serving them the same ad over and over and over, and you don’t show them something new once in a while, you’re going to fatigue your audience and they’re gonna stop clicking. And then that means that when people do click, they’re going to be more expensive. So that’s thing number one.
Mike: 02:09 – 20- to 40-year-old, you know, women within five miles of my gym have been seeing the same ad for the last six months and they’re not interested anymore.
Mateo: 02:17 – Exactly. That’s tip number one. That’s reason number one. Reason number two is you’re not the only one out there. And so especially if you got gyms nearby and they see what you’re doing, they’re probably going to want to copy you. And if they copy you, that means they’re in there spending money on ads. And as we talked about last week or in a previous episode, there’s only a limited amount of space on your Facebook feed for ads. And so if other people are starting to put ads out that are around you that are targeting a similar group with similar programs, similar services, then yeah, that’s increased competition. That means the demand is going to go up for ad space on the Facebook feed, supply is limited so that means the costs are going to go up.
Mike: 02:59 – And that’s Facebook, just making money. Correct?
Mateo: 03:02 – Facebook making money.
Mike: 03:03 – Billions and billions.
Mateo: 03:05 – Yes.
Mike: 03:07 – So, we’ve seen, obviously we see a lot of people start with ads and they get spectacular results and then later on they have to keep working to maintain results. I know that there’s tons of variance depending on where businesses are at in their cycles and how they’re doing things. But let’s just like lay it out for me in the broadest scope possible. What would you consider a cheap lead and what would you consider an expensive lead? You know, the idea is for gyms, local gyms.
Mateo: 03:33 – I would say I don’t like that question. And instead, I would just say, you know, if someone told me, and this isn’t my line, by the way, this is borrowed content here, but if someone told me they could get me hundred-dollar leads, I would ask them how many can they get me?
Mateo: 04:05 – And the reason is is because the cost for the lead doesn’t make a ton of sense because, or the reason I would have that response is because I know what my sales conversion rates are for cold traffic and for leads. And I also know what my retention rate is. Right? And I know that if someone signs up with me, they’re going to stay, let’s say it’s 18 months, they’re going to spend on average $2,000 at my gym. So if they said, I’m going to give you a hundred-dollar leads, $100 to get 2000 is pretty cheap. So that’s kind of my response to that.
Mike: 04:41 – OK. So you have to have some perspective. You have to know your data to evaluate what’s cheap and what’s expensive.
Mateo: 04:47 – Exactly. I mean, and again, even that, like I’m asking how many of those can I get because that’s the more important question I think to me, you know, how many of those can I get versus the price.
Mike: 05:03 – OK. Let me give you, let me ask you another question. And again, feel free to throw it back at me if you don’t like it. The question is, is it uncommon for say a local gym to see like an ad cost of per lead of say 10 bucks at some point and then see a cost of like 50, 60, 70, 80 bucks in another campaign or later on in that campaign cycle?
Mateo: 05:23 – Yeah, for sure. Yeah, for sure. Your ad costs are going to go up. So you know, if you do your math and you feel really confident, you like sitting at around 20 bucks a lead or anything below that, you know, then yeah you want to shoot for that as your target. If that’s the way the numbers work for you. You have to know what your range is, and if things get outside of that range, then you got to make some changes. Either you have to sell more or you have to change your offer or your ad copy so that your ad costs come down. Right. That’s pretty much the give and the take there.
Mike: 05:57 – So I’m going to give listeners if you haven’t seen this or read about it, what Mateo’s talking about is something he taught me in his course in for Two-Brain Business, and I run this at my gym. You have a budget for your ads and you’re tracking exactly how much you spend. Then you’re tracking your conversion rates and your click rates and all the data that tells you exactly how many people are coming in, exactly how many of those people are buying services, what those services cost, what the staffing costs are, all these different things. And it’s one spreadsheet in which I plug these numbers in and it tells me that my ad spend is totally fine based on these results. And if the numbers start to change and all of a sudden my ad costs are going up to an insane number and my sales aren’t justifying it, I know I need to make change fast. So this spreadsheet is fantastic. You just go right through it and it will actually tell you, kick out a number and say this is the maximum you can spend per lead. I look at that and I’m like, wow, I’m well below that. This ad is A OK. Did I summarize that correctly?
Mateo: 06:53 – Yeah. I mean that’s really where this question kind of comes down to. Yeah. It’s not fun when you have a campaign and you were like getting $2 leads and then you know, three months later it’s jumping up to 25. Like it’s never fun to see that. And obviously you want to try and keep your ad costs low, but at the end of the day you need to know what—like that seeing those kinds of jumps become less important when, cause you need to focus—you need to know what your client acquisition cost is. What is your budget that you have available to acquire a new customer. That’s really the number that you need to figure out. Because then when you know that, it doesn’t matter what the—when you have that number, seeing where your lead costs are, becomes—there’s less emotion behind it, right? You don’t have to freak out if they are—as long as they’re still within range within your target client acquisition budget, you know, it’s fine. And if it’s out of that range, then you can know, you can take some action. Like you said before, Mike, either change your ad or you up your sales or increase retention or whatever it is.
Mike: 08:14 – And we’ll talk about some strategies in just a sec. But I can tell you from experience, like when I started doing this, I entered all the numbers and I don’t like spending money on ads. It kind of seemed a bit, you know, sketchy to me. I was worried about the whole thing, but when I tracked the numbers, everything made sense and I felt a whole lot better about it. Then of course I got busy and I didn’t track as well. And then all of a sudden I am looking at like, I don’t know if this ad is working. So if you’re not prepared to track stuff, I would suggest, and you can correct me if I’m wrong, but from my perspective, if you’re not prepared to track, I think when you’re working in the dark you might not be prepared to advertise properly.
Mateo: 08:47 – Yeah. 100%. I think metrics is key and something that, you know, we’re making a lot of changes to the Incubator in 2020 and one of the things is, yeah, making sure that you guys are understanding your sales metrics and are tracking that stuff. So when you do go into paid ads, you’re in a really good spot.
Mike: 09:04 – Yeah. And the Two-Brain dashboard that we developed has all this stuff in there. So if you don’t know like how to do these things or don’t know how to track it or don’t, you know, want to find an app or whatever it is, we have that built out where people can enter these things and a mentor can review the stuff immediately and then talk to you about it and start making some changes. Have you seen that? Have you seen the working versions of that dashboard?
Mateo: 09:24 – Yeah, 100%. And I think it’s going to be really helpful for people out there. And I wanted to circle back to, you know, we’re talking about ad costs and $50 leads, oh my God. This is something I discussed at the Two-Brain summit last year. And if you haven’t marked your calendars, get ready. It’s coming. 2020 is coming up. Get your tickets now. But you know, if you look at just some studies that have been done by Deloitte and some of these other big companies, industries are like, you know, the industry that spends the most on marketing is consumer packaged goods, which makes sense if you think about it. There’s a lot of like, you know, a lot of different shoe brands out there, right? So they spend 24% of their total revenue on their marketing budget. Those businesses. Consumer services are the next one down.
Mateo: 10:26 – They’re the next highest at 15% of their total revenue spent on marketing. And so gyms would fall into that. Right. Which is wild, especially when you think about all the different gym owners we’ve talked to that say I don’t do any marketing. Every time I get on the phone, it’s like, yeah, you know, been open two years, I really don’t do that much marketing. When people walk in, I sell 90% of them and that’s it. And that’s most of the gym owners we talk to, which is crazy cause then when you talk to them, so talking about either investing in a copywriter to help write blogs, investing in a photographer to help them make a better-looking Instagram or investing in paid ads, all these things that are either branding, paid marketing and advertising, you know, they have a tough time with it. And the reality is like, you know, you’re so out of that range, you’re spending zero right now. So, you know, just getting them comfortable spending a little bit is a challenge and it’s just wild to think about that when you try to put it in perspective, like, you know, most industries—I don’t know why gym owners think that we’re different, but in every other industry, people are spending money to acquire customers. That’ just the reality. Yeah.
Mike: 11:44 – Do you wanna hear my theory?
Mateo: 11:45 – I think I know what it is, but yeah, go ahead.
Mike: 11:48 – Cause I’ve been on this hard for a long time. I think the idea in the gym industry is that you need to be a great coach and you need to have great programming and you need to build a great community and that is going to do it for you. And that is biblical in some places. Right? And I can tell you from experience that I did that and I thought I became a pretty good coach. I thought I built a pretty good community. I thought I had great programming and eventually I got to a spot where I just didn’t have enough clients at the right membership rates and I needed to start thinking about what else I needed to do. Now I’ll say that that approach did work for a time because when I started out in 2009, 10, I did no marketing, nothing.
Mike: 12:29 – And we managed to build a business from that. That survived despite my incompetence. But after I got to a point where that just wasn’t working more, I needed to start looking at things. And that’s when the Two-Brain crew was like, dude, maybe you start focusing on some other stuff. You can teach a squat pretty well. How’s that getting you new members? And it wasn’t. So now the stuff that we do is I do some marketing, I’m not spending huge amounts of money. I’m spending, I think what you recommended at the beginning like 10, 15 bucks a day kind of thing on Facebook or it’s focusing on organic content creation. We talked about that on a previous episode of Two-Brain Radio. Also focusing on affinity marketing and systems and retention. So what we’re looking at is we have a great affinity marketing guide on our free tools on twobrain.com, we’re looking at using our current members, talking to them and saying, Hey, have you got friends and family that would love to hang out with us? And then try to work on retention so that we don’t have to acquire as many clients. I mean, I don’t want to run this bait and switch six weeks nonsense and like get a bunch of people who leave right away. I want five year, eight year, 10 year clients, at a good price point that works for them. They’re getting what they want and I’m making a living. So we’re using this whole structure now to generate business that we never used before. And that really the trigger for it was when you guys, you and John, started talking to me about the market.
Mateo: 13:43 – Yeah, 100%. I mean, yeah. I don’t want to stay on my soapbox for too long, but well I want to comment on that. I’m going to comment on what you just said in a second. But yeah, I mean every other industry and every other business in the world spends money to acquire new customers and it’s wild to me that gym owners are so resistant to that. I think for us too, and to speak to your kind of story that you just laid out, I think also for the people we work with, the CrossFit brand did a lot of that work for us. Right? You said great programming, great coaching and community. The CrossFit brand did that for the affiliates. For a low price, right. And so you didn’t have to do that work for yourself.
Mike: 14:34 – CrossFit 204 survived because of people Googling it and using the CrossFit brand name, which people will say, oh my God, this affiliate fee, I don’t want to pay this.
Mateo: 14:43 – That was your marketing budget. That was your ad budget. Right. Another thing I want to throw out there too, and again, this is stuff we discussed last year at the summit. We’re talking about spending money. Talking about spending money on ads online. Like social-media spending is expected to rise by 73%, 73% over the next five years. So if you’re not building a plan to, you know, become at least competent in some of these areas, when you’re trying to acquire customers, you’re going to be left in the dust because everyone’s—that growth is going to continue to rise. It’s going to become a more competitive landscape. One more little stat out there. United States, Small Business Administration, they recommend that small businesses, and for them a small business is anyone doing less than 5 million in sales, which I think is probably everyone listening to this podcast, almost everyone, should spend seven to 8% of total revenue on marketing and advertising. And so that means if your gym makes 30,000 in revenue a month, you’re spending at least 2,400 on marketing and advertising.
Mike: 15:55 – Wow, that’s incredible. And what I’ll throw this out to you, that should not be wasted money. There should be an ROI on that spend.
Mateo: 16:02 – Yeah, 100%. Yeah. I don’t want people to listen to this, to just like, alright, I just got to start spending money on marketing efforts, on flyers, on paid ads, on blogging, on copywriters. No, you should be able to track your ROI. And that’s exactly why when we started this conversation, I said, you need to know what that acquisition budget is for yourself. And the way you’re going to know that number is if you know your lifetime value. If you know average revenue per member and you know the length of engagement. If you know those numbers, you can figure it out from there.
Mike: 16:36 – What we’ll do next is we’ll go over a couple of solutions to rising ad costs and give you a few ideas of what you can do. We’re gonna give you actionable steps, that is what the podcast and Two-Brain Business is all about. And just as an aside, Chris Cooper has created a new Growth ToolKit to wealth. It is incredible. It will literally tell you step by step how to create an amazing business. It’s based 100% on data. We’ve studied the top gyms in the industry and we know what they’re doing. There’s no guesswork. It is just action. Results. Step one is to complete our Incubator. This is a 12-week sprint to build the foundation of your business. Step two is work with a mentor to use the Growth ToolKit to grow your business. For more info visit twobrainbusiness.com and book a free call with a mentor. Now, we’re going to talk about our own actionable steps. So ad costs are rising. Now, what are some of the things that people can do when this happens? Now we’re talking about like there’s some audience, there’s some creative stuff. How can we deal with rising ad costs? We know that they’re probably always going to rise over time, but what do we do when it happens?
Mateo: 17:35 – You don’t freak out, Mike.
Mike: 17:36 – I did. I apologize. Thank you for talking me down.
Mateo: 17:36 – I’ll throw out a couple of tips here. But I guess for those listening, what I would say is, before we focus in on the ad cost itself, like I guess the question I would pose to listeners, if you needed to get 10 clients next month, do you know how much it would cost you to get those 10 clients? If you don’t know the answer to that question, then I wouldn’t stress out about ad costs for your leads right now at this moment.
Mateo: 18:18 – But if you don’t know where to start, there’s tons of different formulas out there that you can use to figure out how much you should be spending on your client acquisition budget. There’s lots of different ways you can do this. The easiest way though is, and this is gonna be tough cause you’re going to be listening to this instead of like seeing me write it down. But the easiest way to do this or one way to do this, I should say is figure out what your target acquisition cost is for one client, right? For one new member, what’s it cost you to get that person? Or what can you spend, what can you afford to spend to get that person is a better way of phrasing it. And then if you want to figure that out, you basically take your lifetime lifetime value of a client, so you gotta know your ARM and your LEG. So Mike, let me just ask you then, if you need to get 10 new members this month, do you know how much it would cost you?
Mike: 19:08 – I think we can figure it out. I’ve got some numbers here for my fictional gym, CrossFit Iron Maiden.
Mateo: 19:13 – CrossFit Iron Maiden, all right. Well so then Mike, the first step here, right, is we’re trying to get the budget of basically what you can afford to spend or what you’re allowed to spend to acquire one new person, right? So again, there’s tons of different ways you can calculate this out. This is just one possible formula you can use, right? So let’s just see if we can figure out the target acquisition cost for one new member. So, Mike, for that, what we’re going to do is we need your lifetime value. That’s the first number we need. So do you know what your LTV is? What’s your ARM? What’s your average revenue per member?
Mike: 19:47 – My average revenue per member is $166. Which if you know Iron Maiden, 166, pretty close to the number—
Mateo: 19:54 – Pretty close to the number of the beast. Perfect. And how long do they stay?
Mike: 20:02 – They’re gonna stay about nine months.
Mateo: 20:02 – Nine months. So let’s just say we’re gonna round that number. So 166 times nine, that’s about 1500 bucks is your LTV, right? So then if we look at the next number we got to do is we’re going to subtract out how much you want to make per person, right? So subtract out your target profit. So target profit for, I don’t know, someone like, for a Two-Brain gym, 33% is that target profit kind of operational number there. Let’s just round it down to 30%. So that’s going to be around 450. So you want to profit $450 from that 1500, right, from the LTV. Next thing we gotta do is your expenses, right? Your expenses for one person. So again, there’s a tons of different ways you can do this. What I like to do is I like to take your overhead, right? So how much does it cost to keep your doors open? The lights on per month?
Mike: 21:04 – Just to stay open for a month. It cost me 8k.
Mateo: 21:07 – OK, so $8,000. Multiply that by your LEG, right? So we said on average, people stay nine months. So nine times 8,000, that’s $72,000. All right? $72,000. And then how many people you have your gym?
Mike: 21:23 – 100 people.
Mateo: 21:25 – So divide that, right? So 72,000 divided by a hundred. So you’re looking at expenses for one person is gonna be 720 bucks. And let’s just add in, like let’s say you have like a commission for someone who makes sales for one person at a gym. Like if you sold a person, maybe you sell one person, you give a commission to your coach, or if you’re paying them something extra to do on ramp one-on-ones. Let’s just say there’s an extra hundred bucks there. So you got your LTV, it’s $1,500 subtracted by your profit, right? What do we say, Mike? 450, then you subtract out your expenses, right? And we said that’s going to be 720 plus a hundred bucks. That’s 820. So what do we got there, Mike?
Mike: 22:12 – Oh man. I was told there would be no math on this podcast, but I think that’s looking at about 230 bucks, am I right?
Mateo: 22:18 – 230? So that’s your target acquisition cost. That’s what you can afford to spend to acquire one person and still hit the profit margins you want and still subtracting the expenses that it would take to fill that person and subtracting what you would want to make from that person. So you still have 230 bucks left over just to acquire that person. So if you wanted to add 10 members, what’s your marketing budget for the month?
Mike: 22:46 – Well, I’ve got $2,300 I think.
Mateo: 22:49 – You got 2300 bucks, Mike.
Mike: 22:50 – So when I was freaking out at the beginning, for 50 bucks an ad, I’m actually well within my budget.
Mateo: 22:57 – I think so.
Mike: 22:59 – In fact I’m laughing, probably.
Mateo: 23:01 – I think you are, man. I mean, yeah, you got to make sure you’re getting the like, you know, make sure the closing percentages are staying constant, like that’s your budget for the month, right? How you want to use that budget to acquire people, you know, is up to you. And the method of choice for me is Facebook ads. But if you want to spend that 2300 on, you know, something else that you know will get you those 10 people to walk in through your door, that’s fine. You have to work with some of these numbers to see what you can afford to spend or what you can spend to get new members in your door and then figuring out your lead costs from there becomes a little bit less stressful, a little bit easier.
Mike: 23:42 – So the lesson I’m getting out of this is when ad costs rise, it’s to be expected. It’s not ideal. No wants to pay more for anything, but if you know your numbers, it’s not the end of the world and it’s not the disastrous panic attack kind of thing that some people play it up to.
Mateo: 24:01 – Yes. It’s not the end of the world, Mike.
Mike: 24:04 – That would give me a whole lot more confidence. And I think it really comes back, you have to track stuff. Like if you’re working in the dark, a $10 ad increase, you know, ad cost increase probably looks horrible, doesn’t it?
Mateo: 24:16 – Yeah. I mean, and also too, let’s say Mike, let’s say that you started coaching really horribly, right? The LEG, the length of engagement might drop to six months. So now what’s your LTV? It’s a lot less than 1500 for sure. Which means that if you still want to profit and your expenses are staying the same, I guess expenses might drop a little bit because—no, expenses would increase because if you have less members, 70 to a hundred divided by a hundred is no longer a hundred, it’s gonna be less than that, right? So people are staying for less time. So your LTV numbers going down and you’re having less people in your gym at one time. So that means your expenses per member are going up. Now that acquisition budget, it’s getting a lot smaller, right, Mike? So now $150 leads might be not so great. But if your retention is amazing, let’s say you move it from nine months to 18 months, that LTV number, it’s a lot bigger if you keep your profit margins the same and your expenses relatively constant, maybe they’re a little bit less now the fixed ones, at least per athlete, cause you got more people in there. That acquisition budget’s a lot higher.
Mike: 25:34 – Same thing, I’m going to guess if you drive your average revenue per member from 166 up to 200?
Mateo: 25:39 – That’s another way, right? If they’re not staying longer, but they’re paying more, that’s another way to do it. Right?
Mike: 25:45 – And we’ve seen gyms like we’ve put up some numbers on Facebook and people just laughed at it, but we’ve seen average revenues that are shocking to the average gym owner, you know, Two-Brain clients have created amazing programs and services that are like four or $500 average revenues. Is that uncommon?
Mateo: 26:03 – No, that’s not uncommon at all. And so that’s why like, you know, if your focus is on cost per lead, it’s an important metric to track. But you know, you really should be focusing on front-end sales, ticket price and retention. That makes your marketing budget grow to infinite numbers. And so you can afford to spend money on a hundred dollar leads and not worry about it.
Mike: 26:35 – So there you have it. That is how you deal with rising ad costs. I’ll ask you one final question. Just a short one. With rising ad costs, can freshening creative or making any changes to audience, can that have any effects on things?
Mateo: 26:51 – 100%, right? I would say, yeah. Your ad copy, your images, your videos, they play a big part. But I think I’ve said this on here before, the biggest driver though is going to be the offer, right? You can have a really crappy video or a really crummy ad image or even some ad copy that has spelling errors in it, but if your offer is amazing, those things don’t matter. Right? Like if your offers a free thing, yeah, you can get away with having some typos, but, you know, I’m not advocating that you make your front-end programs free. I’m just saying the driver of your ad performance is going to be the offer for sure. If your offer is not of value or if it’s not compelling, it doesn’t matter how clever you are in your ad copy, you’re still going to struggle.
Mateo: 27:46 – If you like your offer where it’s at, if you like this one program, like this one six-week introductory or 12-week introductory program for new members, then just think of different ways in which you can frame it. Think of different ways in which you can present that same offer. When you see your ad costs go up, that’s kind of the last option available to you, right? If you’re not changing your offer, then you’re kind of stuck with changing the frame. I guess one last thing too is if you’re having trouble with, you know, advertising your front-end program like a 12 week or six week or whatever it is, maybe that’s too much of an ask for your audience. Maybe that’s too much. You haven’t engaged with them enough. So give them something that’s a little bit less risky for them to inquire about like a free ebook, a lead magnet of some kind, a video workout series that they can do from home.
Mateo: 28:38 – And that again goes back to the offer, right? Try changing it up to something that’s a little bit lower commitment from them. That way at least if you offer them some kind of recipe book, they can opt in. Now they’re on your newsletter list and now you control that traffic, now that’s traffic you own and you can message them however frequently or infrequently you want, say whatever you want to them. But now they’re in your newsletter list and you can continue to nurture them and offer them things of value.
Mike: 29:08 – That is the handshake before the hug, so to speak. We have in the archives of Two-Brain Radio in this series, we have shows on how to create ads, how to write the copy, how to test photos. So if you’re looking at freshening ads, that stuff is in there and Mateo talked about compelling offers, we’re going to talk about one offer that may be compelling, we’re going to go over six-week challenges, whether they live or die in an upcoming show. So stay tuned for that. Be sure to subscribe so you don’t miss this stuff.
Mike: 29:34 – This is Two-Brain Radio. I am Mike Warkentin here for Mateo Lopez and Two-Brain Marketing. Please subscribe, check our archives for more shows, and if you’re a gym owner and you need some help growing your business, Two-Brain mentors can show you the exact steps. Book a free call on twobrainbusiness.com to find out more.