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What is the average ROI on advertising by using google AdSense et. al?

Advertising is an assumed cost of business for any medium to large company these days, but I feel there's a growing silent minority who slowly believe, slowly know, that advertising in the online space is unfeasible for a majority of products. Advertisers like google make so much money because online advertising is one of those things that is super easy to keep throwing more money at. I wonder how many companies would benefit from entirely ditching online advertising and pursue alternate methods like direct outreach or sponsored content.

We might see 4,000-10,000 advertisements a day[1]. Do you remember two advertisements you saw today? Mere-exposure effect is the only thing going for it. Which may be fine if you're Coca-Cola, not so much if you run an online clothing store.

[1]https://webtribunal.net/blog/how-many-ads-do-we-see-a-day/#:....

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There's no such thing as an overall average ROI.

"Good" marketing, for a B2C company, is often defined as a 3x CAC/LTV ratio and 12 month payback. That means for every $1 you spend on advertising you make $3 in gross profit, and you get back $1 after 12 months. This is fairly healthy for many businesses, but some businesses may be looking for a 1 month payback, or may be looking for a 5x LTV. It's also possible to trade off LTV and payback, the latter may be more important for a fast growing business so that they're not tying up capital, and they may not yet have enough data to accurately predict 3 or 5 year LTV anyway.

In reality though these things fluctuate all the time, you may have 2-5 marketing channels at a small company (e.g. FB, IG, Adsense, YT, direct mail, out of home, etc), of which some will be better and others will be worse, and you blend them together, changing proportions over time as channels change in effectiveness or cost.

What do 'CAC' and 'LTV' stand for?

Customer acquisition cost and lifetime value

Customer Acquisition Cost LifeTime Value

According to ChatGPT, in the context of gps post:

"CAC" stands for "Customer Acquisition Cost." It represents the cost a company incurs to acquire a new customer, including all the costs associated with marketing and advertising.

"LTV" stands for "Lifetime Value." It represents the total net profit a company expects to earn from a customer throughout their entire relationship with the company. This takes into account all the revenue a customer will bring to the company minus any costs associated with serving that customer over their lifetime.

> "LTV" stands for "Lifetime Value." It represents the total net profit a company expects to earn from a customer throughout their entire relationship with the company. This takes into account all the revenue a customer will bring to the company minus any costs associated with serving that customer over their lifetime.

This seems subtly wrong from what I remember (though it's been like 6 years).

Gross profit not net profit.

Lifetime is "lifetime", you set a cap in years, it's not really the "entire relationship".

The latter one isn't as big of a deal because it gets stupid hard to track/measure that long anyways, but the former one is a pretty big deal.

Remember not to trust ChatGPT with facts.

Apologies. CAC is "Customer Acquisition Cost" and LTV is "Life Time Value".

e.g. If I buy $100 of ad views and over all of those ads get 10 new customers, then my CAC is $10. If a customer on average spends $100 over their lifetime (typically defined as 3 or 5 years, but varies per business) on orders that cost me $70 to fulfil, then their LTV is $30 (Edit: as marketing is not included in gross profit).

Would it not be $20, or does eve acquisition cost not factor?

Good question, but it doesn't (I've updated the comment).

The LTV is in terms of gross profit not net profit. It's the revenue minus the direct cost of fulfilling that revenue (cost of goods sold), so it would include: products, shipping, packaging, payment fees, staff time for handling, etc. It would not include: marketing, customer support (surprisingly!), R&D or creating the product, fixed costs such as offices, staff, etc.

I'm not quite sure what the best practice is on accounting for salaries of the marketing department. I think you wouldn't typically include full time employees managing marketing channels, but if you outsourced marketing to an agency you probably would account for the all-in cost to acquire customers via the agency, as they are almost their own marketing channel in a way. It really varies though, and I could be wrong on the best practice here.

It's $30 because people look at the ratio. That is, LTV/CAC is an important ratio that takes both into account.

It makes more sense if you think about it as a function that turns CAC into LTV.

Customer acquisition cost. Lifetime value.

I am not sure about whether the metrics above are benchmarks for CAC based on advertisement alone.

CAC includes all costs, marketing and sales (implementation is part of COGS)

Some products (B2C) are marketing heavy. Others (B2B) are sales heavy. But they both get included

One might say that LTV/CAC ratio is the overall average ROI :)

Author of article here - this is spot on! 3x CAC/LTV ratio and 12 month payback is often what you're aiming for.

How do you accurately measure these numbers? I suspect you don't.

Take the ACV, compound it with net churn to it to obtain LTV.

Add the cost of your sales and marketing and divide by the number of deals during that time to obtain CAC.

Then you can calculate both LTV/CAC and CAC payback.

Doesn’t that have to assume that all deals came through advertising? In my case I find more and more sales are word of mouth or from organic search, but it’s very hard to measure (at least in B2B).

CAC is an aggregate measure, for all sales and marketing costs.

Per channel attribution is of course far more difficult, depending on the channel.

there is no such thing as defined LTV/CAC ratio. That depends on almost every business.

"We might see 4,000-10,000 advertisements a day[1]. Do you remember two advertisements you saw today?"

Thank god for adblockers and pity those who do not have one or do not know firefox on android still allows them.

Mobile phones are definitely what keeps the advertising industry alive, especially social media.

In my opinion, thats a good thing for the majority of the population. Those who do not care about ads and tracking makes it so evasion still possible (to some extent)

You can’t block ads in Facebook, Instagram or TikTok on mobile. Google places Android search ads. In app ads also cannot be blocked.

It is a misconception that ad blockers significantly impact the ad market as a whole, obviously they impact Google and web advertisers though.

https://pi-hole.net not work?

No. The in app ads in Meta properties are served from the same gateway as the rest of the API.

Checkout "revanced" (the git repo) it contains a collection of "patches" for a lot of major apps. There are AdBlock patches for Instagram and TikTok. You can build the patched APKs on your phone using their manager app

The truth is it is a net positive for most advertising for Android users to remove themselves.

Thanks, I don't use those apps, but know people who can profit of it.

Also I really like the given email:

nosupport@revanced.app

Makes it clear what not to write them (but I bet many still do).

Unless I'm mistaken, most ad blockers prevent a programmatic auction from even triggering, right?

Yes, the only one that doesn't AFAIK is adnauseum as that is their core value, triggering these ads to make it a loss.

Which is kind of shitty because (also AFAIK) you end up hurting the publishers who run those ads way more than the advertisers who place them or the ad platforms who facilitate buying and selling the ads... I'm pretty sure a lot of ad platforms will ask for their money back if they find out the publishers are serving ads that don't get seen by human eyes.

I don't know how much of that is true, but yes the intention is to cause disruption to ad systems that encourage data profiling and so groups involved from publishers to the auction owners will be distrustful of one another increasingly.

I use a DNS based ad blocker on Android which is very effective. It sometimes causes minor issues, but it works even outside the browser, blocking ads from apps that spam you at every turn.

I guess you use curated lists (the same as ublock uses), or do you maintain your own?

I use curated lists that I've added exceptions to

> Do you remember two advertisements you saw today?

Maybe I’m in the minority, but I absolutely despise advertising. The only advertisements I ever remember are due to hating them more then the others for some reason- like being even more aggressive and in my face. There has to be some tipping point where advertising does more harm for the advertisers then good.

> Maybe I’m in the minority, but I absolutely despise advertising

This is like the most insane comment I've ever read

I for one welcome the slop on my feed.

That being said I don't mind a well targeted technical advertisement e.g. trade magazines, new electronic components, and so on.

On a less passive level the company my dad used to work for basically made a living selling marketing lists of people who they'd confirmed (via voice) were genuinely looking for (say) new solar panels.

Because he despises advertising or because he thinks it puts him in the minority?

Then you should read more.

I'm with you, but we are most definitely the minority. The vast majority doesn't mind them.

I used to not mind them, feel like people were just supporting their sites, etc., but I was eventually pushed over the edge, lost it, and stopped using apps with ads I couldn't block, and started using uBO everywhere.

(And stopped reading news because it's almost as bad for you as advertising.)

So let's just call it my inability to see ads without feeling angry, and so I need a "psychological exemption". :)

Since I'm just one of a few out there who does this, I figure content creators will survive.

(I, too, am a content creator, but I distribute mine for free without ads. I make money with my day job.)

Author of article here - this is quite interesting. I also despise advertising (which is why I'm now a developer..) and I think everyone hates advertising that is just badly targeted (does not interest you). And that is most of advertising - but if they find a person who has the problem their product can solve, then the ad is welcomed!

In my experience, many of us on HN have just disallowed FB & Google to really hone in on our needs and likes (ad blockers, disallowing cookies etc) so we see crap ads all the time. But many people I know don't do that, hence their ads are really about stuff they want to see and they don't mind the ads as much.

As an example, I now see many ads about new video games and new fine dining restaurants in my city. And I love that (compared to the other crap I often get). Because it lets me stay updated on new games and gives me inspiration on what I can cook.

So again, all ads are bad ads for everyone until they actually resonate with you - you might just haven't had one of those yet!

I’ve been a pure software engineer for close to a decade now, but before that I was a data analyst/scientist working with a marketing team, including their paid ad ppl.

We ran some legit experiments with ads, where we didn’t just count ppl who saw the ads then later converted (how Google, FB, etc. want you to “measure” impact), we compared them to actual control groups. We did find most types of ads to not be worth the $$.

However, remarketing did seem to be worth it, at the time, for us. This is when you generate interest in your product through other avenues (organic content marketing, organic social media marketing, PR, attending industry events, etc.), then when ppl show some interest in your product (visit your website), but don’t convert, you cookie them and keep showing them ads all around the internet. These ppl are already legit interested, they’re gonna pay more attention to the ads, and keeping your product top of mind can be enough to get them over the line to conversion.

That’s why the PPC or PPE model is so appealing—you know that you’ve stood out from all the other messaging they saw that day, at least a little bit. Their own analytics or sales funnels take over to assign a value to the click to compare to what they paid.

(That’s not to say everyone should be spending money on ads, that currently spends.)

> direct outreach to key customers

are you talking about b2b?

I don't know what you have in mind. Sounds like you are suggesting companies should start calling me or knocking on my door instead of puting ads on google search results. That doesn't sound great.

How about giving out free samples in the supermarket? Going to a conference and talking with people? Busking at the farmer's market?

Yeah, edited my comment. Agreed that direct outreach is ineffective if you aren't b2b.

If you're selling commercial products for a mass market, I think doing things like sponsored content might be more effective.

If I'm selling products to businesses or a few customers, it's better to do outreach by attending industry events, talks etc... I think the cold approach still works.

It’s all of the above for B2B. The cold call and email definitely makes some money - that’s why people do it. Ideally, they already know who you are when they get the cold call.

Here are the economics of ad spend from when I worked at Travelocity nearly a decade ago.

For an e-commerce business the goal is what's called conversion, which is when a user makes a product purchase. The margins on conversion vary by product and product segment. At that time most people came to travel sites to book airfare and the travel sites just basically resold what the carriers had on their own sites plus a $7 service fee charged by the carriers. Hotels were more lucrative averaging a margin closer to $50 per purchase. Travelocity had figured out some pricing algorithm that dominated the industry for packages where packages were flight plus hotel and optionally rental car. I can't remember the margin for Travelocity packages but I want to say it was around $300 per purchase.

The problem with conversion on e-commerce sites is time. The more expensive the product the more time the user will spend investigating a purchase. The more they will hop between various different competing web sites. Air purchases had a time realization of a few hours, hotels about a week, and packages were about 3 weeks. That means you do anything to induce increased conversion it will be 3 weeks before you should expect to see money in the bank, which complicates analysis of what went right and what went wrong. This means A/B testing becomes supremely important.

Ad spend was the opposite across the board. Ad spend would always bring tremendous traffic to the site but almost never would it increase conversion. However once you have eyes on pages you can generate revenue by other means such as affiliate programs and certainly with ads on your own site. The most amazing thing about ads whether they bring people to your site and cost you money or they are on your own site and generate you money is that the money spent/realized occurs in real time. Suddenly your analysis becomes stupid simple.

Ad traffic is dirty traffic though. Ads that cost you money rarely increased conversion and ads on your own site substantially detracted online traffic, by as much as 15% in a near term and much more gradually over a longer time horizon. The margins on ads is next to nothing so the more you invest in it the more you must invest in it to justify the both the spend and decreased traffic volume. This is what I would refer to as a drug addition. They had an immediate high, it was killing their business, and they only knew how to increase ad participation. Toxic.

Author of article here. I don't think there is an average but as a child comment mentioned, you'd usually aim for 3x return on your ad spend. But it really depends on your product.

If you're selling expensive B2B solutions the customer journey will look very different to a consumer product - direct ads might be a terrible idea because no business clicks on a facebook ad and then decides to invest in an expensive enterprise software.

You might be better off investing in content, make a custom landing page for that lead, account based marketing etc - and not do any AdSense.

But yes, you do have to evaluate your marketing mix and channels against your customers purchase journey. Will write more about that in the upcoming posts :)

> We might see 4,000-10,000 advertisements a day[1].

Yeah, that’s definitely false. At best 100+.

The article might be an interesting read for you. What you say is supported by their findings:

> We only register under a hundred. And we pay conscious attention to even fewer.

I think some people just spend a lot less time on places that have the majority of those thousands of ads. They mention it mostly being from social media scrolling. Using an ad blocker and not scrolling through social media apps removes the vast majority of potential ads you would see.

Depends what you count I suspect. Is the sign above a store front an ad? Kinda! Is a brand logo on a shirt an ad? In a way. Is the Netflix ident at the beginning of an episode an ad? Pretty much.

All these things are considered by marketing departments, and while they might not always be explicit advertising, they do the same thing, building a brand image, associations, and mindshare.

I'm sitting on my sofa and I can see 26 things that could be considered adverts, and my TV is off.

Edit: >30. I haven't moved, just realising what a capitalist hellscape I live in. Thankfully my laptop stickers are facing away from me.

That's a really interesting exercise. I read this comment whilst standing in my bedroom, and counted seventeen of these ads / brand impressions in one 360 revolution. Two steps to my left, and I saw three more I couldn't from my previous position; two steps to the right, four.

Jesus.

"Do you remember two advertisements you saw today?"

https://www.youtube.com/watch?v=x8iXj2vkpJI

You will remember at least one...

> Do you remember two advertisements you saw today?

Thanks to uBlock, Newpipe and the like, I generally see less than two advertisements a week.

that's the problem with google's monopoly on advertising - we can't know

Not at all true. Third-party analytics tools exist.

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