T&S - Growth Advisor for ambitious Ecom-Brands

Over the years, we have managed hundreds of projects, with multi-million $ advertising budgets, from startups / SMEs to DAX/MDAX/S&P Global 1200 corporations. Across all target groups, 2 scenarios have emerged. 

Every company always wants to grow as fast as possible and be as profitable as possible.
In paid advertising, however, these goals are somewhat contrary. The background is that as the budget increases, the target group becomes more and more saturated, so we pay more and more over time for the marginal next customer.

This is because we first persuade the "hottest" customers with the highest purchase intention. These require less persuasion, which requires fewer advertising touchpoints that we have to pay for.

We then tap into "warm" target groups. These still require little persuasion, but already somewhat more and are therefore somewhat more expensive.

Finally, we have to tap into colder and colder target groups, which are more and more outside our core target audience, therefore require more persuasion (more advertising touchpoints) and therefore become more expensive and more expensive.

However, it is individual when this saturation occurs. For every company, however, the question arises at a certain point: what are the maximum marginal costs that I can pay or want to pay for a new customer. Each company finds its equilibrium individually.

Now there are 2 scenarios. 

Company 1 wants to grow profitably first and foremost. Profitability > growth. Profitability is prioritized over growth.
Company 2 primarily wants to grow as quickly as possible. Growth > profitability. Growth is prioritized over profitability.

In scenario 1, we increase the budget more conservatively, grow more slowly, but more profitably. We get feedback from the market and can iterate on this basis. We slowly approach the individual equilibrium of the company from below. Often, the marginal scenario is then the absolute upper limit that we can spend on advertising. This is where you then have to look at advertising channels outside of paid advertising. From our experience, this is usually the case with self-funded companies.

In scenario 2, we increase the budget more aggressively. As a result, we also approach the marginal scenario much faster. We often get communicated that we should just not lose money on the initial purchase. So we don't earn anything on the customer's first purchase, just refinance the advertising costs. If the business model does not allow for many repeat purchases, this strategy makes less sense. If it has to be even more aggressive growth, money is often be deliberately lost on the first purchase, which is refinanced via the lifetime value of the customer. To determine the marginal cost here, one should know one's lifetime value very well. In our experience, this is usually the case for leveraged / VC funded companies.

The ideal approach for each company lies within these two marginal scenarios. Here, too, we are glad to advise you.