before you ever spend a single Dollar on any type of paid ads it's important to be crystal clear about what you even want to get out of it different businesses have different goals and believe it or not not everyone is actually focused on profitability so as we go through this lecture we're going to help you be empowered to really decide and figure out what is your North Star metric and then as we progress through this course you'll have skills and tools to be able to evaluate make decisions make pivots iterate on your creative all in
service to your number one goal and that is the Northstar metric what is a Northstar metric a Northstar metric is the number one priority outcome that you have when you want to do paid ads it's important to really focus on one thing and make sure that you're tying this Northstar metric to your business objective what do you want do you want more money do you want more profitability do you want more people to know about you all of these things can come with trade-offs and it's important to get crystal clear on what is the number
one priority there's three main things that your Northstar metric should be in order to actually be a useful metric a useful tool for you to navigate paid ads the first it has to be easy to measure if it's not easy to measure if there's any ambiguity if it's fuzzy then we're going to be wasting a lot of brain power and we're going to have a lot of skepticism around how to make decisions based on this metric so it seems simple but there's some metrics that are a little more fuzzy than others and we'll get into
some examples in a moment the second is it needs to be very easy very black and white very binary to evaluate whether or not you've met your target for your North Star metric or not we don't want to be ambiguous we want to be very clear on what's success and what we're you know on the path to success look like so that we can make the right decisions to get there and the third really important thing when deciding what metric to make your Northstar is to ensure that it ties to your business goals so many
times I see clients or different brands get really hyper fixated on engagement rate or clickthrough rate but at the end of the day that really takes us off track from being able to focus on driving revenue or building brand Equity or all these other things that are more tied to the business's success and more tied to whether you are still in business next year so anytime you select a Northstar metric make sure it hits all three of these things as far as how often should you set a Northstar metric I would really urge you to
select something that you're really comfortable with committing to for a year maybe you re-evaluate this metric every quarter to make sure that you're still tying it to your business goals or if your business model shifts or if something really crazy is happening that you can recal calibrate and reassign the North Star metric but it is not going to be a useful tool for you if you're changing this every week definitely not every day and even every month is a bit excessive the reason for that we've mentioned before when we're trying to focus on optimizing too
many different things at once we really get nowhere and we get mediocre results across all of the metrics and we don't want that for you we want your business to thrive if you're going to be investing money in paid ads in the world of paid advertising I like to tell people that I can pretty much guarantee any one metric any one thing you want I can get it for you that does come with some years of experience and lots of experimentation on the platforms and many reps under my belt but the nature of paid advertising
is that we can usually really hone in on any one metric we want and the reason for that is because once we start getting into two or more metrics things get a little bit more complicated but if you only want a certain number of Revenue we can do that we're just going to have to change how much we spend if you only want a certain CPA a certain cost per acquisition or a certain return on ad spend we can definitely do that we'll just toggle the volume up and down however once we try to start
being hyp specific about the exact CPA the exact revenue and let alone the exact click-through rate the exact conversion rate all of these things we cannot really control all together because it's a multivariate puzzle and every time we tweak one thing everything else and the ecosystem is going to shift and a lot of these metrics frankly are red herrings so really again we want to focus on our Northstar metric identify what it is be really sure that that's what matters most to us and stay focused the reason it's complicated to try to get more than
one thing is that volume and efficiency are in tension anytime we increase the ad spend on Google or Facebook we usually see a short-term increase in the cost per acquisition over time of course as we deploy really Savvy creative testing methodologies and we're really diligent about our technical setup of course we can start to see the cost per clicks and the cost per Impressions come down and that translate into more efficient Revenue leads whatever the goal is however anytime we are trying to maximize one we are going to almost always see a short-term decrease in
the other side of the Teeter Totter we can also translate this volume versus efficiency kind of attension to growth and profitability if we want to have massive upside for our business and have huge potential for how much we can grow that is going to come with an offset increase in efficiency loss anytime we want to have massive upside to grow our business that comes with a short-term cost we have to be willing to risk more Capital we have to be willing to make more bets and that can impact our short-term profitability and potentially even the
long-term profitability on the other side of the equation we can be very miserly and very disciplined and very conservative about our profitability make sure that we're cash flow positive along the way and it's going to come probably at a lower growth rate at a lower pace of growth there's no right or wrong here it really comes down to what is best for your business some businesses are really you know have to make sure that they make payroll and have enough money in the bank and that their cash flow positive every single day there's other businesses
that might have you know a lump sum of cash they have a Runway maybe they're trying to meet certain performance metrics to show investors potential growth of the company neither of these are right or wrong they're just different so it's crucial that you can be very honest with yourself about what your needs are in terms of this volume versus efficiency story we have several examples here of what Northstar metrics could be and again these are all very specific to your business so take some time you know maybe write out all the things that you want
about your business and do kind of a brainstorming session with your yourself the first example might be gross revenue if you are especially focused on growing the business you want to see how much net new Revenue can I pull in every month on the other hand maybe you're in apparel business and returns massively impact your bottom line and you're more profitability focused and maybe you look at net revenue because that's going to take into account some of those other costs that are happening and natural to your business customers acquired is also a great metric this
one is really popular amongst all types of businesses um it's very growth Orient oriented it lets us know how much we're growing the P it allows us to understand what our customer retention goals needs to be but some PID to ad programs are really focused on customer acquisition since it is pricey and then focusing their LTV efforts the lifetime value efforts more on other channels like email and text messaging order volume is another Northstar metric maybe you don't really care about how many new customers you're getting you really just care about how many orders you're
fulfilling every month we also have marketing efficiency ratio so this is simply taking total of your it's just a ratio between the total revenue of your business and how much money you're investing in marketing this could span Beyond paid ads and as we get into our dashboards in a little bit you'll be able to you know add things in like that if you so choose Blended CPA is similar to M but slightly different it's not taking in account the volume as much as how cost effective is it to acquire customers this is super popular for
SAS companies or anything that's more the profitability model and the overhead model is really based on how many customers there are and the last one on this list is reach and I put an asterisk on there because reach is probably not going to be your goal but I work with many businesses where it is so where this mostly applies is very large companies that aren't looking for direct Roi from the ad platform but they fundamentally believe that if they can get more mind share in the public if they can grow the awareness of their brands
that's going to long-term translate to results so I generally don't recommend reach as a goal or a primary North Star unless your budgets are quite high and unless you already have highly established other channels and other mechanisms for acquiring customers it makes total sense if your product is in stores like Walmart or Target or some big retailer because you're simply just trying to get in people's minds and knowing that they're going to probably make this purchase in person and you're not going to be able to track that very well in the digital marketing environment so
here's just some examples there's totally more I mean there's kind of infinite possibilities here but make sure that you are following those three guidelines for the Northstar metric and you are only picking one okay so I've gone on my tie rate about why it's important to only pick one Northstar metric but here's the way we kind of cheat the system we can come up with and establish ranges that are uh give us a range for the volume and give us a range for the efficiency give us a a range for potentially how much revenue we
want to generate or how many orders we want and a range for what efficiencies we can tolerate when we can come up with two ranges this gives us a little bit of flexibility knowing that if we increase the budget to increase potentially a higher Revenue goal that we're okay with the CPA or the roaz shifting within a certain guideline this is going to help you make decisions along the way and we'll get deeper later into the course about how to optimize your campaigns and how to scale your campaigns but setting these rules for yourself is
going to make it so much easier and way less stressful for you dayto day and our first example this is really about if you're going to prioritize Revenue so this Northstar statement example says we want to generate $300,000 as profitably as possible so again like of course we want to be profitable and have a lot of Revenue that's what everybody wants I totally hear you um but in some cases you know volume might be the number one goal the second is a profitability focused we want to generate as much revenue as possible at a 3.5
marketing efficiency ratio super simple and then if we want to cheat the system and kind of balance these things out we could come up with a statement like this we want to generate $150,000 to $200,000 at an me between two and five so all of these are examples that you might use for your monthly goals or quarterly goals depending on the size of your business um and they're really meant to help guide you and make sure that you are making the best decisions on the Tactical level that actually translate into business results for you the
last thing I want for any of you is to go through this course and get too hung up on the in platform metrics and not see the bigger picture and not really connect what you're doing to tangible outcomes that make your life better and make your business better if you take one thing from this lecture it's that you need to be crystal clear on what your goal is and allow all decision- making to be filtered through that goal
