Many SaaS companies seem happy to run PPC campaigns that lose money.
And I don’t mean “Take a few years to recoup the ad cost.” I mean they never recoup that cost and the company knows that.
So is this just bad business, or is it justified?
Well, it depends…
Here are a few situations where you could justify losing money on your advertising:
#1: When there’s a network effect where these additional users add value to existing – or potential – users.
#2: When you’re in a fast-developing market where it’s “grow or die.” And where the higher your market share, the better your chances of survival.
#3: When the word of mouth from users makes up for the over-spend to get those users. (Though, of course, you could include that when calculating lifetime value.)
When is it not ok?
When you’re chasing vanity metrics. That might be if you’re the head of growth and you’re being judged only on signups, not on profit.
Or maybe your CFO is trying to please your investors.
Or maybe your VC wants signups to placate his boss or his LPs?
Or you’re looking for investment and your CEO has told you “growth at any cost!”
But all these things have one thing in common: you’re wasting money trying to make things look better than they actually are.
Now, you could justify this by saying the startup world is a broken, dysfunctional environment where such behaviour is rewarded.
If you want to argue that, that’s between you and your conscience.
All the best,
Steve Gibson
