Module 6 - Turnover is vanity

Why is turnover vanity and profit sanity?

Turnover is vanity because it isn't the number that matters, profit is, and teaching Google your real numbers properly, without giving everything away, is one of the most important things a media buyer learns.

Google would love to know every part of your business, because if you told it every sale makes you £100 profit, it would decide it deserves to take its percentage of that £100. As a media buyer, you are constantly battling Google not to spend more of your budget than you want it to. If you continually tell Google the absolute truth about your turnover, rather than the truth about your actual profit, you end up giving Google a percentage of the wrong figure. If a product sells for £100 and makes £30 profit, telling Google a conversion is worth £100 is not correct. What Google needs to understand is the £30 profit figure, not the £100 turnover figure, so it can take a percentage of profit rather than a percentage of turnover.

How does Google's percentage model actually work?

Google, like Amazon and eBay, takes a percentage of your sale, and the more you spend and scale with it, the better the terms you get.

Amazon typically takes between 13 and 18 percent, or sometimes more, of a seller's sale, and eBay works on a similar model, since eBay was arguably the original version of taking a percentage of the sale. Using Google as an advertising partner doesn't mean it works any differently, it is absolutely geared up to work with businesses that want to scale and are willing to give it a percentage of their turnover. So the real question is whether you want to give Google a percentage of turnover or a percentage of profit. Working from profit is achievable, because it can be built into your margin and lets you scale properly.

If you look at Amazon's model, a premier partner selling millions of pounds worth of product enjoys a lower percentage taken from their account than someone just joining the platform. The same applies with Google Ads: a newcomer to YouTube and Google will pay a higher percentage while they learn, but Google will give them the ability to scale over time. Google doesn't want low quality advertisers, people chasing a quick buck or offering shoddy products or scams, because it wants to keep the quality of what it shows the public up. Advertisers who spend consistently and properly enjoy more space, better conditions and a smaller effective fee, but you have to pay to join that club.

Why does Google want you to succeed, but only on its terms?

Google wants long-term advertisers, because a business that scales properly and keeps spending is worth more to Google over time, but it will only let you scale within the framework it has set out.

Feeding Google the conversion data properly, over the long term, is what allows you to scale. Google doesn't want you to fail, it wants you to grow, potentially into tens or hundreds of thousands, or millions, of spend, and at that point it wants you to keep doing well, giving you an advantage over other advertisers in your market. It's the businesses that do it properly, that build the conversion data in correctly, that feed Google that data properly, that win and are able to scale. Nobody should expect a decent return or a profit from day one, this is an investment of time as much as money, and if you're prepared to put that time in, the advantage over other advertisers who aren't is significant. Being in control of your campaigns and understanding your profit, not just your turnover, and feeding that data into Google properly, is what drives that advantage.

Google will ultimately only let you succeed within the framework it sets: you have to teach it, feed it the data, have good collateral, good adverts that people engage with, and a good product. Fall down on any of those steps and you have a real disadvantage, and you'll struggle to scale properly.

How do you actually teach Google properly?

Feeding Google not misinformation, but the profit information you want it to work with, rather than raw turnover, is the first step, and from there you learn where Google tends to get greedy and dial things back accordingly.

It's easy to get an early level of success, because Google wants new advertisers to get going and to enjoy the platform, wants people to think YouTube ads are fantastic. It gets harder at the scaling stage, and that only comes through testing, learning, sticking within the rules, and setting bids properly, knowing what's behind a decision rather than guessing. Even a business making a healthy margin on its products likely has room to save 20 to 30 percent of its ad budget, or generate 20 to 30 percent more turnover, by following the system properly.

Moving to a target cost of acquisition model, teaching Google the profit figure you're happy with, and then dialling the budget back and, in effect, telling Google off when it isn't delivering what you want, is what a good media buyer does: improving placements, tweaking bids, making sure Google understands where it's overstepping the mark. Understanding that the goal is profit, not turnover, and teaching Google the numbers you want it to know, are the keys to making a profit consistently from these campaigns.