
Do ads work? - terpua
http://sethgodin.typepad.com/seths_blog/2009/01/do-ads-work.html
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lionhearted
Seth's point is good, but there's an answer to, "Why not have an unlimited
budget for positive-ROI advertising?" In fact, there's three answers:

1\. Cashflow 2\. Budgeting 3\. Things change

First, you don't get your lifetime value of a customer right away. If you have
a huge pile of money, then yes, go for it. But if you bid $100 to get a $20
sale, knowing that you'll get an average of $20/month for two years, that's a
really solid buy. Awesome. But if you've got $1000 in the bank right now, you
can't go unlimited on that very good buy.

Second, budgeting. In a small business, there's probably lots of things that
you really can, would, should, and would like to have. A new hire. New tools.
More money into advertising is great, but you've got to put money into some
stuff that'll never show a positive ROI to fend off barbarians. A bit into
legal, a bit into accounting, more than a bit into customer service, upgrading
fulfillment/turnaround/uptime, etc. Those are things you can put off forever
in name of profit, but it's not such a good idea.

Third, one day the world's going to change, and if you have an unlimited
advertising budget the month that your super positive ROI stuff produces zero
return for whatever reason (might not be the advertising's fault!) then... you
go out of business.

So you have budgets. Smart businesses immediately pour most of the cashflow
from good resources back into them towards the limit, but slowing down and
building the foundation so you don't get crippled later is a good play. It's
not sexy, but cleaning up and locking down means you don't die when things get
ugly.

