Episode #9

The 6 Fundamental Principles of Paid Advertising

This is the first - and most fundamental - of my videos about paid advertising. I've condensed my 10 years' of forays into advertising into six principles: 1) Advertising platforms will screw you (i.e. send you low commercial-value traffic) unless you explicitly tell them not to.; 2) Adopt the paradigm of 'aiding discovery'; 3) Expect to lose money (but gain info) at first; 4) The incremental cost of advertising increases with volume; 5) All online advertising should be connected to some sort of revenue tracking. 6) Understand the difference between static and fluid advertising targets.

October 25, 2020

Show Notes

No notes available for this episode.


Transcribed by Rugo Obi

For indie hackers profitable paid advertising is probably the holy grail of all marketing channels.

I believe this for two reasons.

The first is that - similar to when you're programming - if you create a set of paid advertisements, they can potentially keep running for years and continue to serve you and continue to bring in new traffic.

Compare that to having some sort of social media marketing, where you have to manage a Twitter account and then constantly post updates and have to be creative on demand.

That’s a much more difficult situation and much more demanding on your energy.

With my own website Oxbridge Notes, some of my paid advertisements have been running for nearly a decade and they continue to work. You don't get that kind of results elsewhere.

The second reason why I think paid advertising is the holy grail for indie hackers, is because it has a short feedback loop.

It brings in traffic and revenue right now as opposed to in 12 months time, like what may happen with an SEO campaign.

Therefore, in particular, if you're at the validation stage of your journey, paid advertising is probably the most effective tool you have to figure out whether or not the market wants what you have and is willing to pay the kind of money that you need for that business model to work.

As I mentioned in my episode on MVPs, when I started my business, I had 100% of my traffic originally coming from AdWords, and this allowed me to get to the point where I was ramen profitable very very quickly, within a couple of months.

Nowadays, I get 90% of my traffic from SEO, but that absolutely did not happen overnight.

Online advertising is an absolutely huge set of topics, so roughly here's how we're going to approach things.

Today, I'm going to give you some general principles, some sort of mental models.

And then in the ensuing episodes, we'll look at individual platforms like AdWords, Facebook, Twitter and so on...talk about strategies, how to organize your campaigns, how to optimize them, how to write better adverts, how to choose images, that kind of thing.

My goal is to get you up to speed with modern best practices ASAP in as few episodes as possible.

The first principle of online advertising is that most of these platforms will screw you, unless you tick the box saying, ‘Please, do not screw me’.

Let me give you a few examples of what I mean by that.

A while ago I was advertising on Twitter for the keyword "Rails screencasts", and it was getting a very good cost per click, and I was also getting lots of low cost email signups on my website.

Few weeks later I cross referenced that traffic with Google Analytics and discovered that most of it was coming from India and Pakistan.

So, those are great countries but they tend to have low commercial value for a business in the "west".

I found with Oxbridge Notes that very few people from those countries were able to afford my kind of products.

This tends to be true for most advertisers, and this is what I mean when I say that you kind of get screwed when you don't filter out the stuff you don't want from an advertising platform's settings i.e. they will send you the traffic that isn't of much commercial worth to other businesses if you don't specify that you don't want that.

Another example: I wanted to compare the results of advertising on desktop to the results of advertising on mobile.

In general, conversion rates tend to be much much better on desktop, but I wanted to double check that. So I told the advertising platform to advertise to both desktop and mobile.

I check in a couple of weeks later, and sure enough the platform had sent 99.9% of traffic to mobile, which tends to be cheaper because on average it converts less, and the rest, 0.1%, to desktop, the more expensive traffic.

So, basically, they just sent me the traffic that no one else wanted. Even though I specified both, they really only gave me mobile.

The third and last example of this idea was one time I didn't set a maximum bid per click on a particular platform, and sure enough they charged me €2.50 per click.

So for my €20 of budget every day, I got only eight clicks. I went into the platform and I changed my bid, my max bid, to 10 cent.

And sure enough, I was getting 10 cents clicks and my €20 per day got me 200 clicks per day.

So basically I just had to tell the advertising platform, not to overcharge me, and then they wouldn't.

This isn't true of all advertising platforms, by the way, some of them send you the best price a competitor will pay. But others don't. So be very, very, very careful.

The second principle I found really really helpful with all types of online advertising is to view it as aiding discovery.

What do I mean by this?

Well, there are a lot of people out there who don't give a damn about your product, and it's best if you don't advertise to them.

It’s a waste of your money, and also just pisses them off and maybe generates some sort of negative reactions from them online.

Let me give you an example of advertising as discovery done well. Think of your favorite band. Now imagine that you were browsing Facebook and then you see an advertisement that they are playing in the town that you are currently in tomorrow night. You would find that information, really, really useful and you probably wouldn't even think of it as advertising.

That's what you want to be like.

When you keep this paradigm of advertising as discovery in mind, you get two big benefits the way I see it.

One is that you tend to focus a lot on getting targeting right. There's so many ways to pick and choose who you advertise to, and I think it's very worthwhile getting good at that.

The second benefit is that you feel a lot more comfortable doing online advertising.

For a lot of programmers and new business owners, it feels uncomfortable to advertise if you're somehow sleazy and pushy.

But when you realize that if you advertise to the right people, it's actually helpful, then you feel a lot more comfortable about doing online advertising and therefore are able to push yourself to get better results.

The third principle of online advertising is that you should expect to lose money at first, perhaps the first couple of hundred bucks you spend on any given campaign.

The reason why this happens is twofold (or the reasons rather).

First is that a lot of these platforms use, heavily use in fact, machine learning and AI. And like most machine learning algorithms, they need lots and lots of data and examples in order to reach an optimum.

How does this manifest within the online advertising campaigns that you do?

Well, I tend to notice, across all platforms that when I start advertising something, the cost per click is very high, but then as I spend more time advertising, it tends to get much, much lower. The algorithm finds a way to target better and to show the right ads to the right people.

The second reason is on you, the advertiser.

So, when you advertise you usually have something like an image, a headline on top, and some body text underneath.

Now, it's lunacy to just create one variant. What you should really be doing is creating 10, 100, god knows how many variants, and then kind of pitting them against one another.

You'll end up running them at the same time in the advertising platform, and it will give you a comparison of how well they perform against one another.

And sometimes you notice that one advertisement is performing 3x better than any of the others you have.

The upshot of all this is that, until you've had your advertising variants battle it out, you're not going to know what kind of messages are effective at selling, and your advertising campaign is therefore going to be really really ineffective and therefore expensive.

So you have to go through a trial and error stage first.

There is a strong silver lining here, in that the information you learn about what advertising copy sells is generally useful across your business. You can use this for conversion optimization on your website and in other marketing materials.

So basically, you are spending money in order to gain information about how to market to your audience.

Principle 4: The cost per click or per impression that you pay increases with the number of clicks or impressions that you buy i.e. your first click will be extremely cheap, your second click will be cheap but not as cheap, and so on and so forth.

This is a direct consequence of the way online advertising platforms are set up as auctions.

Imagine that you, an advertiser were trying to advertise to me.

You might target me by my age or the university I went to and bid a certain amount for that.

Then another advertiser might try to reach me by bidding on the fact that I like Ruby on Rails on Facebook or something like that.

Now, at any point in time, there will be more or less advertisers bidding on those particular targeting options, and also they will be bidding different amounts.

Therefore there is a large fluctuation in the price of reaching me, an individual, over this platform.

A corollary of this is that there are times of very low competition for certain targeting options. At that point, an advertiser is able to target me very very cheaply.

So, from a practical point of view, this means that if you have advertising campaigns that are running long term, but bid very little, then they might only get a small trickle of traffic every day, but they will get that trickle of traffic at extremely favorable prices.

So, in summary, volume tends to be negatively correlated with efficiency in the online advertising game.

Principle 5, all online advertising should be connected to some sort of revenue tracking.

The key advantage of online advertising over, say, print advertising is that you can use conversion pixels and the likes of Google Analytics to figure out exactly how effective a certain type of advertising was.

So, it's no good just to leave your advertisements running, and then to check on your sales and then, you know, get a feeling for whether or not they increased or not.

What you want to be able to do is trace the exact contribution of each advertising campaign or perhaps even each keyword within each platform, and then discover whether or not that is making you money.

This allows you to really really refine your advertisements, until you have a core that is very very profitable.

Principle 6, be mindful of the difference between targeting a "fluid" group, and a "static" group.

What do I mean by these terms?

Well, say for example that you sell air conditioning. If you target the keyword ‘buy home air conditioning’, then it's pretty likely that whoever sees that advertisement is seeing it for the first time, because people don't tend to buy air conditioning very very often.

Now, compare that to when you advertise, say on Facebook, to all the people who live in a particular city.

The set of people who live in a particular city is relatively static. Yes, people come and go every year but most people just stay.

Therefore, with that kind of targeting, there comes a point at which everyone has seen your advertisements, therefore they’ve become ad-blind or they get annoyed by them or everyone who was going to buy from you has already done so.

Being aware of the difference between static and fluid groups enables you to be more tactical in how you approach your advertising.

For example in Oxbridge Notes, I targeted law students, and that's a group, a static group that's about three to four years in length.

I was able to make my advertisements more effective by targeting just the first year of a law degree or the last year of a law degree.

If you assume that it takes one year of advertising exposure to saturate this particular group, then by narrowing my advertising focus to just a single year, I ensure that that group does not get saturated, compared to the situation where I was targeting all four years of the law degree.

The people who have been within that group for three or four years are already heavily saturated and therefore that advertising money is poorly spent.

By the way, in reality, groups tend to get saturated much much more quickly. That obviously depends on how much budget you're spending.

So those are the big overarching principles I wanted to share with you, by way of introduction.

In the next couple of episodes, we're going to start looking at actual advertisements and how to create them within platforms like Google AdWords, and Facebook Ads and so on.