Lots of talk about the gross money coming in. But it seems to skim over the fact that there's a real product being exchanged. Records being sold at $3 seems like a bargain, but what was the cost of these records to begin with?
Sure you made $10,000 in sales, but that's not $10,000 profit, and definitely not a ROI of 2000-3000%.
It's true, this was a liquidation sale, but most of the records came from a batch of 8000 records that I bought for $2000.
I was being a bit flippant with the ROI percentage, sorry about that - just trying to stress how easy the process was - I really was blown away when I kept asking people how they found out about the event, and they said they saw an ad for it on Facebook.
One thing to keep in mind, as far as calculating ROI, is that if I were to continue to run the business, these are all new customers that I could continue to sell to, so the return on investment isn't purely a one-time thing - the LTV of each customer is way more than they spend in one day.
Great question. On Facebook you pay per click or "per mille" (CPM) - it'd be great if they added "attend" as an event parameter in the Ads API so that advertisers could optimize their ads for event attendance:
$150 in ads = 150,000 people who accepted invitation or 150,000 people who clicked to view the ad? if it's accepting an invitation, that's a STEAL. Although not 100% of ppl will actually go, it'll be a huge %. You're basically paying for a stronger intent than simply casual interest.
Profit = Selling Price - Cost of Goods Sold.
Cost of Goods Sold = original price of goods + marketing costs + labor cost + facilities costs.
This isn't the precise formula, but it's close enough. It's still a good ROI, but it's definitely not scalable as this was a liquidation. You also have to calculate the tax rate on the sales as well.
If you're grossing $10,000 and you spent $2000 on records, 8 hours of labor (paying yourself $15 per hour) + the cost of the facilities (let's say $100 for the day) and $150 on marketing.
You'll still pay sales tax on the full $10,000. Let's say your sales tax rate is 8%, that means $800 in sales taxes. So now, you're at $9200, so now we can subtract your costs, which, according to my hypothetical approximations total $2370. If you want to exclude your labor cost, you can do that, but it'll still be taxes one way or another, depending on how you claim it.
So your profit is $9200-$2370 which is $6830. For a short term capital gain (which is what this is,) the rate is approximately 25% for Federal, however you also have state capital gains taxes (it's either taxed as ordinary income or as a capital gain,) which will be about 7% (depending on the state), but that 7% is taken off the total gain of $6830. (25% + 7%) of $6830 = $4645.
From the $15 per hour you get paid from your wages, you'll then get to pay social security, self-employment and medicare taxes on top of the federal income taxes. You can avoid this by not paying the salary, but you can't work for free in the eyes of the IRS.. you'll either pay the tax on the wages, or the total gets added to the profit and taxed as a capital gain. Of course, you'll get a slight home "office" deduction for using your backyard as a facility, of course that gets offset by the facilities fee you've earned (and will be taxes on.) It's cheaper though, to charge yourself the facilities fee because that comes off the capital gain, which lowers the taxes on the gain, while only nominally increasing your personal tax (due to deductions.)
Let's just round the total profit at $4600.
So, $150 in Facebook ads to earn $4600.. still a pretty nice ROI, but it certainly isn't $10,000.
We all know the seller isn't going to go to this extreme in either paying or reporting this income to all the jurisdictions involved, but when calculating ROI or other things upon which a business is based, it's a little disingenuous to claim "making" $10,000 when in fact, that number is far less. But I get it, $10,000 makes for a nice headline.
Great post; I love seeing actual numbers being put to the test on HN.
Something that doesn't sit well with me: how sustainable is this business model? How often can you find crates of records for $2,000 that sell for $10,000? How much time does it take you to locate those crates? How long before your folks get mad about their lawn being trampled during these sales, and the neighbours get miffed having 300-odd people clogging up the streets? What are your opportunity costs?
In short, while this article clearly proves that Facebook ads are viable as profitable sources of lead generation, since this seems like such an occasional-hit scenario I'm still not totally sold on whether they are as suitable for sustainable long-term enterprise (I'm extremely curious as to how many people will attend a 2nd event? 3rd?).
This is particularly relevant if you're wondering what Facebook's long-term revenue growth will look like (how much of their present revenue can be attributed to businesses trying Facebook out? How many of these businesses will find repeat business with Facebook to be profitable?)
The point about revenue != profit isn't very clever, though 1/3 of the existing comments are making it. The actual point is that he was able to successfully drive traffic to his event using FB ads. Every comment addressing profit vs. revenue entirely misses the point.
The argument OP makes is 'I made $10,000 in one day thanks to Facebook, thus Facebook is a superior platform' which is undeniably faulty.
1. The OP did not make $10,000 in one day.
2. We don't know how well this would have done on a non-Facebook platform.
My point is that this is like arguing that Facebook is a wonderful platform because Apple makes a lot of money and Apple uses Facebook to advertise. Apple would be making a lot of money without Facebook ads, too; if a company using Facebook ads generates $X revenue, that doesn't mean those Facebook ads were responsible for a specific amount of the revenue.
In short: congrats to the author! But this doesn't really prove anything.
While a worth while experiment, you are still going to have a hard time getting a comparable result set. You have records left over... presumably all the ones that the first batch of shoppers didn't want. You are also targeting a local set of people... hundreds of which already attended your sale and have picked up the records they wanted. If your next sale is solely advertised on, say, Craigslist, I would not be surprised if your take was much less than $10k. But I would not necessarily blame that on Craigslist when those other factors are just as likely to affect a second Facebook advertised sale as well.
jeff chimed in before me. if I were in your shoes, I would have probably leaned on Craigslist and the area subreddit (the latter is very hit or miss, but I could see something niche like records doing really well.) I'm not a vinyl guy, but I'm sure there are a TON of niche forums out there worth looking at as well.
I really wish you could apply multi-armed bandit approaches to physical problems like these more easily; obviously its hard to do A/B testing when you only have one actual supply.
Yeah, I actually only recently started to understand the impact that area subreddits can have - great channel for certain audiences. My intuition is that most of my target audience for vinyl isn't yet on Reddit, but maybe that's changed and I just haven't realized it yet.
There are certainly a lot of forums out there too, but most of them aren't local to one area, so most of the sales are online (I did a lot of business through these forums in the past).
In retrospect, it would have been rad to run this as a fully fledged A/B test. I honestly just didn't know that the ads would have quite the impact that they did.
Yes, but you did not read the title did you. It's an obvious Jab at the fact that FB overcharges. However the point was, the OP made a net profit of < 10k. The OP used it as a facebook EVENT not a click-through link. So this is not an Apples - to - Apples comparison.
You're almost wilfully ignoring that the poster is claiming that he's devised a way of making $10000 profit at 3000%+ ROI but decided instead to make a startup aimed solely around facebook ads - which coincidently were the things he took advantage of to achieve this massive product.
Surely something with stats as lucrative as this yard sale would mean that he would create a startup based around selling other peoples stuff after advertising through FB events instead??
It's actually an idea that I've entertained before, and I think there's tons of businesses that could be built in this space (for example, I'm a huge fan of Yardsale, and this could be an interesting growth strategy for them, to build Facebook Ads directly into their platform).
Right now though, I'm having a blast working on Facebook Analytics with my team at PageLever.
But you have to agree this is a very specific case.
It's a real life product, at a very low price with a very specific niche.
If this was a rule and not an exception, every big company in the world would be using these ads. Another point is that it was an event ad, so it was there for a very small window of time, limiting the exposure to any kind of botting.
Funny how he tries to say people should use utm campaigns and not care about bots clicking your ads.
I totally agree that this is a specific case. At the same time, there are a lot of smaller, brick and mortar businesses out there trying to figure out how to use Facebook Ads, and to me, hosting Events is a great way to drive people into stores (or in my case, a backyard :) )
Also, most big companies in the world actually are trying to figure out how to use Facebook Ads right now. The problem is that most haven't figured out how to create a compelling enough value proposition - I click on the ad, but what compels me as a user to take the next step? It's a big challenge for companies and agencies who are accustomed to being able to pay for captive audiences.
I've also talked with a LinkedIn "expert" who claimed that advertising LinkedIn events on LinkedIn had a much better conversion because you loose people when you go off site (i.e. from linkedin.com to yourdomain.com). By keeping people on the same platform, you should have a higher conversion rate. (according to one guy who does have a book deal but whatever)
As has been pointed out the 10k is revenue, not profit. At $3 a record I doubt there was much profit at all, though it sounds more like a liquidating event so it is still a happy result.
To the point of the article though, he advertised on facebook and people showed up and gave him money. Whether or not he is actually profiting from the business isn't really relevant. His ROI is clearly wrong, but the ads had the desired effect of bring in customers.
I really hope he doesn't report 10k in profit to the IRS though as he would then be losing even more money than he probably already did on that sale.
The author points out that Limited Pressing should be using UTM tags and Mixpanel to track visitors to their site from Facebook, which was not at all the issue that Limited Pressing was concerned with. The issue they had was with paying for those visitors when they shouldn't have to.
As the author's current company is based on providing a layer on top of Facebook Analytics/Insights I could see how hearing that 80% of clicks may be bots could be disheartening, but there is no need to lash out at Limited Pressing for presenting their own perspective.
I can see this scenario working - local event, targeted adverts, non-commodity product.
The concern with FB (and other social platform advertising) is around 'intent' and whether you can viably sell commodity product to visitors not actively searching for the commodity product in the way you can by advertising on a search platform - and whether the pricing on a social platform should reflect a different quality of referral.
Totally agree. It's a huge challenge for brands that are selling products that aren't highly differentiated too - I had the benefit of selling a niche product that's partially built on scarcity.
Commercial products are tougher, but they also have agencies whose job it is to spend time and money figuring out how to reach people. As I said, I spent about 30 minutes creating these ads.
A big part of what I like about Facebook is that it enables me, as a business owner, to compete on an equal playing field with massive Fortune 500 companies, and in this case benefit even more from Facebook Ads than they do. That's huge for anyone doing anything disruptive, whether it's a startup, a local business, or anyone competing with the status quo.
Brilliant marketing play for PageLever :) Not saying his story isn't genuine.. just saying it's a perfectly timed post targeted at the perfect audience for the product. He knows what he's doing so definitely not surprised he can put together a successful Facebook campaign.
He's "profiting" from a conversation. That's how things go around these parts (things always come in waves, and the people looking for hits will quickly get an opinion out. By the way, would you like to hear what I think of the new Apple ads?)
i.e. the garage sale took place in a highly-cultured, net-savvy area full of people who do bargain/antique shopping. Back in the late 2000s, my friends in the same area put a cheap 30 word ad in the local newspaper for a garage sale and got dozens of visitors. I don't know how much the ad cost but probably something like 50 to 60 dollars.
It's hard to gauge how much of a "success" this is when a Craigslist ad, plus some postings on large music mag forums (and I'm sure SF/Berkeley have their own large local websites) would've drawn the same attention...with a little more handiwork on the seller's end, but without costing $150.
* edit: I'd even argue that he might have drawn more people in with Craigslist and a few other nichey-type posts. I'm not a record-collector myself, but I'm guessing that there's a fair amount of them who are used to "digging" to find gems, as opposed to checking out ads/events on Facebook...antique collectors regularly scour the old-fashioned newspaper ads for garage sales because they know the type of old-fashioned people who might have undiscovered antiques are also the type to advertise in newspapers.
Absolutely - there's a huge competitive advantage being in the Bay Area, and Craigslist ads can get you pretty far. In the past, I'd used Craigslist ads for selling records and seen an okay response - maybe 20-30 people or so, but nowhere near what I saw for this.
The other advantage that I didn't fully realize until I started running the ads is how the activity within the Facebook Event serves as a reminder for people to show up - we see tons of ads for events every day that we want to go to, but very few of them ever make it onto our calendar the way that Facebook Events do with one click.
My argument isn't that Facebook Ads are the be-all end-all marketing channel - just wanted to share my experience with them. YC folks - feel free to ping me if you want help spinning up some Facebook Ads - always down to help folks out.
> The other advantage that I didn't fully realize until I started running the ads is how the activity within the Facebook Event serves as a reminder for people to show up - we see tons of ads for events every day that we want to go to, but very few of them ever make it onto our calendar the way that Facebook Events do with one click.
That's a very legit point. The various features of FB events make them "stickier" (or whatever the buzzword is) than regular advertising...the feedback options, with prospective attendees asking questions and seeing how you respond to them, is also likely to boost interest. It's not quite fair to say "Oh, this is the same as Craigslist ad postings, except you paid" just as it would be silly to ignore Airbnb because it seems just like paid Craigslist ad postings.
That said, given the nature of the niche market here (though you probably know better than anyone), it's not clear that the success would easily apply to other kinds of businesses...or phases (i.e. a startup trying to get attention vs. a business having a out-of-business clearance sale).
Yeah - I think the real challenge for startups is often that the communities and audiences for what they do, particularly early in the game, aren't often well-defined. Even when they are, they are often fragmented, and the precise interest targeting in Facebook Ads only works for Pages above a certain size threshold (unclear what exactly this is) - so if your target audience likes a few dozen smaller, scattered Pages, you can't necessarily target them directly.
For some startups/companies, though, there is a pretty clearly defined audience, or a big competitor with an audience to target. If I'm Hipmunk, I can run ads targeting Kayak, Hotwire, Expedia, to go after people who I know book travel online (and then, of that subset of people, target only people who match certain demographic/geographic parameters).
Also relevant is the nature of the product being advertised - in this case, it was a specific event - not a call to visit a website or even to visit a store that holds regular business hours. Clearly, this was a very effective way of drawing customers to the event but the lessons learned hardly apply to other businesses.
Lots of businesses can host events, IRL and online - a brick-and-mortar shop can host a sale or a meetup, an online business can host a webinar or a conference - in fact it's tough for me to think of a business that, by nature, could not host any type of event.
Whether it makes sense for them to advertise on Facebook - that'll be up to them to test, but events are a pretty tried and true marketing technique.
I think this is a great idea. Like you mentioned, craigslist doesn't really do events. I just resqued a couple thousand comic books from my parent's basement and I think I'll try this out to see if I can off load them.
Hah, yeah! My advice, unless you are a comic book expert and want to spend the time marking prices on everything, is to set a single price per item, such that on some items you'll be making more than you otherwise would, and on others you'd make a bit less.
I would drive for hours to find $3 vintage records, and I'm not alone -- he tapped into a cult. I'd need to see a control of posting an ad on craigslist for free to be able to conclude anything about the effectiveness of Facebook ads.
In my experience Craigslist is great for capturing the older collector audience, or anyone looking to grip and flip, but Facebook Ads brought me the younger audience, who isn't otherwise dedicated enough to wake up early on a Saturday and hit 15 garage sales. There are a lot of folks that aren't willing to dedicate that kind of time to the hunt, but who still have money to spend.
The article reminded me of a thought I had regarding FB's monetization strategy: strictly local advertisements. The ad matching algorithm would place the most weight on geographical distance then interests etc. FB's ubiquitous nature today could make this work.
Here's a use case that motivated the idea: I live in a densely populated area where everyone around me has a car. Say I wake up to a flat tire. I'd much rather pay someone $20 to just fix it in 10 minutes than get the car towed or figure out how to do it myself. Imagine searching for "fix spare tire" on Facebook and receiving search results for five people that all live with-in two blocks. Choose a person, agree to pay with cash, they show up and fix the tire.
The service FB provides in this example has real value. If this service existed I'd actually use Facebook, take a good look at the ads and perhaps even pay a small monthly fee.
To use an over-used term I see this as "the Airbnb of everything else". It could be applied to simple plumbing tasks like fixing the toilet (which was a real pain-in-the-ass to figure out). It could even apply to borrowing vacuum cleaners! The point is there's under-utilized resources around people. Imagine FB helping people utilize these resources like Airbnb helps people utilize extra living space.
Yeah, I can't imagine Facebook building exactly what the commenter described, but it'd be interesting for a company like TaskRabbit to integrate their product with the Facebook Ads API, such that if you posted a task, you could pay a few bucks to run local, targeted ads to folks in order to make sure that your task reached the right people.
It may not be the author's intention to imply this, and I'm glad he had a good experience, but it's worth mentioning that this is a single experience, and not necessarily evidence that some Facebook ad campaigns aren't being hit with false clicks.
For fun, let's look at the net income from this venture.
The seller sold about 3,300 records. Let's say that he paid an average of $0.60 per records. That's a cost of goods sold of $1,980 and a gross margin of $8,120. The Facebook ad cost $150, which brings net income in at $7,970. Not bad, hey?
As per return on investment, let's toss in a measure of time. Let's say that, over the years, the seller spends an average of two minutes on each piece of vinyl he sell. That means that he spent 6,600 minutes (110 hours) on these 3,300 pieces of vinyl. Add in another 6 hours for the sale and the seller still made over $69/hour off of this venture.
This analysis ignores all the time it takes to become good enough to actually deal records.
You are not quite right, for you, yes, your clicks may be real, because frankly you're small fry. You aren't managing a brand, there is no one's job hanging on the success of your campaign, no one needs to prove anything to you. So no bot is going to click on your links. However, for ad-agencies, and other big marketing companies, I know for a fact, that some of them engage in purchasing clicks for the marketing campaigns they do for their clients. Why? Because their reputation hangs on the success of the campaign. Slow campaign? Buy a 1000 clicks! I KNOW it is done.
I think the type of people who are interested in old records probably aren't the type of people who would consider shoplifting. I'm not saying that there is no possibility of it happening, but if I was running the event I wouldn't be too worried about theft.
"I counted $10,000 in cash (and some payments accepted via Square - yes, I’m reporting the income, IRS"
As an aside the only reason he owes taxes to the IRS would be if this was inventory that he purchased and expensed for the business.
If you pay money out of your pocket for some CD's and sell the CD's and assuming you recoup only the amount paid you don't owe taxes on the money that you collected. You haven't made a profit.
There aren't enough details in the OP to determine the proper tax treatment of the sale of these records. But typically if he was in business he would have bought records and they would be inventory. When he closed down the business he would have had a taxable event and had to dispose of the inventory and there might have been a loss. He could have purchased that inventory as a private person for any amount and then he becomes the owner. At that point typically any gain over what he paid he might owe taxes.
The IRS is not trolling around looking for people who post stories and spending time to see if they reported the income. Besides this would relate to 2012 income which wouldn't be reported until April 2013 and with an extension the return wouldn't be due until Oct 2013.
And lest you think someone could turn him in or tip the IRS off - not going to happen. If you don't believe me try to contact the IRS and tell them your neighbor is cheating on their taxes. They want tangible proof. Proof enough to open a case which involves access to actual numbers and records. Like you worked in the office not "I know he's cheating" type info. A story is not enough to get them to investigate. Besides there is nothing they can do until he doesn't pay the taxes by the above dates.
Side story: I know of pharmacist locally who dealt in drugs (and went to prison) who was found with $200,000 in cash in his home safe. Eyebrows were raised. Oh boy cash! Did he report it!
No problem he went to jail for the drug charges but had no problem with the $200,000. He just reported it on his next tax return that was due. Problem solved.
You've got the right conclusion but the wrong reasoning. Non-inventory sales result in taxable gain if the sale price exceeds the seller's "adjusted basis" (i.e., tax-adjusted cost) in the item sold. For personal property that isn't subject to depreciation (basically, stuff you would sell at a garage sale), the seller's adjusted basis usually exceeds the sale price, so the seller recognizes a loss on the sale. Consequently, the money earned from the sale does not result in taxable income for federal income tax purposes.
State income tax laws vary....
Also, income taxes are actually owed at least quarterly. The self-employed and contractors must deal with this timing issue, which can result in penalty interest rates on taxes not timely paid. Employers withhold and remit the taxes with each paycheck using automated payroll systems.
April 2012 is the due date to settle up all income taxes for the entire 2012 tax year. In most cases, people will have overpaid taxes b/c remittances over the year were based on estimated income (i.e, prior to deductions and credits).
"Non-inventory sales result in taxable gain if the sale price exceeds the seller's "adjusted basis" (i.e., tax-adjusted cost) in the item sold."
The assumption here is that the OP was selling inventory. The FB ad said "I used to be a record dealer selling" and he is selling the inventory. We don't know if he had wound down the business or not. Hence my attempt to be circumspect about this.
"April 2012 is the due date to settle up all income taxes for the entire 2012 tax year."
I'm talking strictly about when the return is due. Not whether you have paid in estimated taxes. If you underpay, sure you will get hit with a penalty and interest potentially.
The interest is actually quite reasonable.
"For personal property that isn't subject to depreciation (basically, stuff you would sell at a garage sale), the seller's adjusted basis usually exceeds the sale price, so the seller recognizes a loss on the sale."
These are typically de-minimis transactions that fly under the radar and people typically avoid paying taxes on because the chance of getting caught is low and the penalty is also low. If for arguments sake you buy 10 iphones and manage to resell them for higher than what you paid and make some money yes technically you owe taxes. Otoh if you are operating and doing this on a larger scale you have a different problem. And unless you are doing this on a grand scale you aren't getting any jail time and that's assuming you get caught. I'm not advocating any particular behavior. Just pointing out what actually happens (which explains why people cheat as well).
Also keep in mind that the amount of risk an attorney (such as yourself) should be taking and how squeaky clean you need to be (to avoid losing your law license) is not the same as some guy selling stuff on ebay or by FB ads would do.
"The self-employed and contractors must deal with this timing issue, which can result in penalty interest rates on taxes not timely paid."
There are of course safe harbors  with all of this
I would be interested in seeing the statistics on the advertisements themselves. Did the OP see an 80/20 response rate like Limited Run? What was the ratio of people who showed up to the event versus the ratio of clicks on the ads versus the number who said they would attend the event on facebook versus actually showing up. Please provide more information, otherwise I see this article as useless babble with a plug at the end.
This mirrors my (extremely limited) experience with Facebook ads. They really suck for driving traffic to your site, and you'll see an obscenely high bounce rate. But, if you're trying to drive traffic to something ON Facebook (like this event), they work pretty well.
This is a nice happy story, but how can you be sure the attendees came from the Facebook adverts and not word of mouth / recommendations that Facebook displays about events friends are attending? That seems much more likely to me as the source of your success.
$10,000 at $3/album means over 3000 albums were sold that day, out of 6000 available (according to his ad). So more than half of this random collection was worth buying, and if lets say each person buys three albums, over 1000 people came to his house?
A basic question: How does the bot owner gets benefited by driving up clicks on FB ads? I understand in case of AdSense, the owner of the site would get cut. But how does the bot owner gets cut from the ads that are displayed on FB pages?