Hi cuties - In case ya missed it, I asked a couple of friends to be guest authors for my newsletter to educate us on a few topics where I consider myself educated but not the expert.

First, we had Bill teach us all about brand, and now Peter is giving us the 411 on paid ads for a few weeks.

Don’t worry - you’ll be stuck with me again soon!

Ok, so far this month, Peter has covered -

• When should I introduce paid ads to my marketing strategy?

• What channels should I target?

Next, he’s going to give you the rundown on what ‘good’ looks like for paid ads.

Let’s go!

What does good (and bad) look like?

Once you’ve decided to introduce paid ads, identified the best channels, and launched your campaigns, the next step is assessing the performance.

This week’s newsletter will help you determine whether your paid ads strategy is on track or needs optimization. 🔍️ 

While we can do lots of prep work before launching paid ads, the real insights emerge once you're in the paid ads auction, and you can evaluate the actual competition and user behavior.

When companies launch paid ads, their campaign performance typically falls into one of three scenarios:

1. Bad results – No sales and no leads

2. Decent results – Some sales and leads, but not at break-even or profitability

3. Outstanding results – Good amount of sales and leads, profitable from the start

Most advertisers will fall into the middle category when they launch with paid ads, decent but not great, meaning we have a lot of good fundamentals in place, but there’s room for optimization.

If I feel that an advertiser will fall into the first category based on the criteria in the first newsletter, then I really try to convince them not to launch in the first place!

Let’s break down how to assess performance at every part of the funnel in the paid ads campaigns to understand the drivers behind overall marketing performance.

1. Are your ads showing up to the right audience?

This might seem like a question you shouldn’t have to ask.

If you know your product, category, and target audience, shouldn’t your paid ads channel automatically show your ads to the right audience? Unfortunately, that’s not always the case, and certainly not the case with Google Ads.

Over the years, Google has loosened its keyword targeting, making it harder to control precisely when and where your ads appear. While match types still exist, they no longer function as rigidly as before.

The primary categories are:

• Exact match once meant your ad would only appear for the exact keyword you selected (ex, “kitchen furniture”). Now, it can trigger searches like “kitchen chair” or “kitchen table” as well.

• Phrase match used to require the exact phrase within a search (e.g., “best kitchen furniture”), but now it can stretch further to searches like “kitchen table” or “table and chairs”.

• Broad match remains the most flexible, often matching to loosely related terms, even terms such as “furniture” and “new home furnishings”.

Learn more about Google’s breakdown of match types.

Because of these changes and the current ‘match environment,’ even with the strictest settings, you need to monitor your search terms as soon as your paid ads campaign launches to ensure the variations make sense for your business.

Google may interpret your keywords more broadly than intended, which can be fine for e-commerce (where conversions are sales), but problematic for lead generation when the goal is a form submission, especially in niche product categories where Google is more likely to interpret your product category more broadly than you would like it to.

For lead generation, Google gets keyword intent right about 50% of the time; the other 50% of the time, you may see completely irrelevant matches. 🫠 

This means you'll need to monitor and adjust by regularly:

• Adding negative keywords

• Refining your keyword targeting

• Tightening your ad copy to help further pre-qualify the visitors to your website

💡 A similar exercise can (and should) be applied to virtually any other paid ads channel; review your audiences and targeting and see if you’re showing up to the intended audience.

2. What is your Click-Through Rate & Conversion Rate?

CTRs

Once you've confirmed your ads are reaching the right audience, the next step is analyzing the funnel metrics, starting with the click-through rate (CTR), which is the percentage of users who click on your ad after seeing it in their search results.

“What is a good CTR?”

I am always asked this question. The reality is that CTR varies widely, making it challenging to define a universal benchmark. The best way to gauge the relative performance of the CTR would be by comparing it to competitive data in your niche, which we can’t do…because that would mean we’d need access to your competitors’ data.

But you can generally gauge the CTR based on a combination of the relative intent of the search to the product you actually offer and the volume of competitors that are going after these search terms.

Here’s some general guidance:

High-intent OR low-competition keywords —> 10-20% CTR (sometimes even 20-30% in rare cases)

If you’re selling an “AI scribe” and you’re bidding on the search “AI scribe”, you should expect a relatively high CTR because this search is highly relevant for you. Similarly, if you are in an auction with low competition, you’re going to be one of the few ads shown, and you’re likely going to get most of the clicks.

Low-intent OR high-competition keywords —> 2-5% CTR

If you’re selling an “AI scribe” but you’re bidding on the search for a “note taker,” that’s a bit of a stretch on the average purchase intent behind the word and what you actually sell. Sure, some of those people could be interested in an “AI scribe,” but a lot of them just want a notepad!

Similarly, if you’re in a highly competitive category and there are 5 ads being shown every single time someone searches, they’re probably going to get a bit tired of reviewing the options after they click on the first 2-3 ads, and maybe they never get to yours.

🟥 It would be a red flag if you felt you were showing up to highly relevant audiences and you were seeing CTRs in the <2% range.

Conversion Rates

Now that we've assessed ad performance through CTRs, the next step is evaluating what happens after users reach your website through conversion rates.

The relevant conversion rates depend on the type of acquisition model you have:

• E-commerce: Website visit to purchase conversion rate.

  • Visit to purchase: typically 1-3%

• Lead Generation: Website visits to leads, then leads to paying customers.

  • Visit to lead conversion rate: typically 1-5%

  • Lead to close rate: typically 10-20%

• Product-Led Growth: Website visit to free trial, then free trial to paying customer.

  • Visit to free trial: typically 40-50%

  • Free trial to purchase: typically 1-2%.

The conversion rate is a reflection of so many different elements of your marketing and your product, including but not limited to:

• Audience targeting

• Product positioning

• Product value and performance

• Social proof and reputation

• Brand awareness

• Website’s speed

• Website’s UX/UI

• Website’s mobile responsiveness

• Competition & alternatives

• And more …

This is when we have to make an educated guess about which of these are contributing the most to your lack of desired conversion rate and then prioritize them accordingly.

3. What is your Return On Ad Spend?

Paid ads are a zero-sum game.

Search volume or buyer intent is limited for every product category, and many companies compete for that pool of potential customers. The cost per click (CPC) or the CPM reaches an equilibrium determined by how much companies are willing to bid to acquire that audience.

Companies with excellent conversion rates, strong websites, and compelling products tend to be profitable with paid ads. Most companies with average performance or qualities in these areas achieve only average results. Some companies, lacking the necessary fundamentals mentioned in the first article on this topic, should avoid paid ads altogether.

The key question is whether you are making a profit with paid ads.

Return on ad spend tends to follow a bell curve for companies participating in paid ads auctions:

• Companies with a high-converting website, a compelling offering, and a high close rate tend to be highly profitable with Google Ads.

• Most companies have a decent website, offering, and close rate but typically break even with paid ads or sell only a small quantity of their product at profitable levels despite high demand.

• Some companies are highly unprofitable with paid ads and will likely discontinue their paid ad efforts to reevaluate their strategy. This bottom cohort is a revolving door; new companies constantly try paid ads while others stop altogether.

Find out which category you fall into.

Be smart, be proactive - but you’ll also have to be patient.

Optimizing paid ads takes time.

If you've done the prep work, selected the right channels, and have the right expectations, you’ll be in a strong position when you launch.

However, most advertisers won’t see immediate paid ads success in the first month or two of running ads. That’s simply because you need time to enter the paid ads auctions and observe how users behave in a real-life scenario.

Once you start gathering data, you can analyze what needs improvement. Is it your website, positioning, or offering in need of change?

By evaluating the different levels of metrics I’ve shared, you can pinpoint exactly where optimization is needed.

Expect to refine your approach over 4-6 months to achieve a profitable, repeatable system.

And on that last note, next week, we’ll unpack how to build a budget. See ya there!

Want to learn more about how I help startups increase their revenue by 150-590%? 👀 

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With love and gratitude,