Fundamental Reality #5: Economics and Algorithms Have Changed The Paid Traffic Landscape
Rising advertising costs, particularly on Facebook, and improvements in algorithmic optimization have changed how we approach paid advertising significantly.
In the recent past, complicated, multi-step methods for ‘warming up’ audiences to identify and channel intent were common.
For example, a few years ago I worked with a client who:
- promoted blog content thematically on Facebook (step 1),
- promoted a very low-cost offer (with a low cost upsell) based on whatever theme a prospect had engaged with (step 2),
- and promoted an alternative upsell for customers who didn’t take the initial upsell (step 3).
- Finally, step 4 was a more expensive core offer tailored to the initial offer and upsell(s) the customer had purchased.
That method worked very well, systematically showing offers based on each person’s demonstrated interests. However, it only worked because those clicks were inexpensive. As costs increased, that model was no longer viable (in most circumstances).
The entire process followed and reinforced a prospect’s initial behavior. This is important to understand because it’s how Facebook works.
At its core, Facebook is a reinforcing recommendation engine, curating content based on what Facebook’s data suggests the user already wants to see (which is based on what the user has already seen and engaged with through reactions, comments, and clicks).
Facebook collects an estimated 400,000 data points about its users and those data points are used to predict a person’s receptivity to content and offers.
For example, Facebook knows which users are more likely to click on content, to opt in, and to buy after clicking on a Facebook ad. When we as advertisers tell Facebook what we’re optimizing for (e.g., page views, leads, or purchases), Facebook uses its data and algorithm to match our goals to audiences who are more likely to engage in that behavior.
For example, if you optimize for leads Facebook is going to show your ads to people within the audience you have defined who are more likely, based on past behavior, to opt in.
The same is true for engaging with content and making a purchase.
It’s important to understand that we may see each of these behaviors as parts of a chain of causality leading to our ultimate goal, but Facebook does not.
For example, we may think that an individual will click on our content, then become a lead, and eventually become a customer. In our thinking, each step leads logically from one to the next. But that’s not how Facebook views its users. Where we see relationships, Facebook sees discrete data points. An individual who is more likely to become a lead according to one indicator, may be no more likely to buy online than another user, according to another indicator.
This is critical to understand. In the recent past we had to be smarter than Facebook, constructing our advertising in a logical progression to get the best possible results. That’s no longer true. Facebook’s algorithm can do the heavy lifting, and it’s our responsibility to give it clear instructions and then let it go to work.
We will discuss how to do that in modules five and six.
Fundamental Reality #6: We Have to Know What We’re Optimizing for Strategically to Make Better Choices Tactically
Let’s start with a thought exercise. If you woke up tomorrow and your business was perfect in every way, meaning it was accomplishing everything you want in exactly the way you want, what would that look like?
- How much revenue would it generate?
- How much income would it produce?
- How many hours per week would you work?
- What types of work would you do?
- Would you have a small team, a large team, or no team?
- What types of customers would you be working with?
- Would you want lots of customers spending a little money each, or fewer customers spending a lot of money each?
- Would you work in an office? From home? In a coffee shop?
- Would you travel a lot? Travel a little? Never?
- Would your customers go to you, or would you go to your customers?
- Do you want to be the ‘sage on the stage’, or the ‘guide on the side’? (Credit to Chip Conley for that phrase.)
I know what you’re thinking — we’re not going to wake up tomorrow with everything perfect so why take this thought exercise seriously?
These questions and your answers are important because, if we don’t know what we’re ultimately optimizing for, how are we supposed to design and optimize our businesses effectively to get there?
And, if we don’t take the time to answer these high-level strategic questions thoughtfully and accurately, how will we know what decisions to make day to day tactically?
In the 10-part free paid traffic training I wrote in early 2020, I introduced a question I find very useful in this context. Will it make the boat go faster?
Here’s an excerpt from Day 1 of that series:
At the 2000 Sydney Olympics, Britain’s Men’s Eight rowing team did something no British team had done since 1912 — they won gold. How they did it holds a critical insight for all of us seeking to accomplish anything meaningful.
After a disappointing finish in Cologne in 1998, the British team began to ask one question for every decision they made — will it make the boat go faster? (Hat tip to Simplero founder Calvin Correli for recommending Ben Hunt-Davis’s book that tells the story.)
“Will it make the boat go faster?” — modified slightly for our purposes — may be the most powerful question you can ask to radically transform your business (and your life).
Before we get ahead of ourselves, we need to unpack a couple of related questions. What is the ‘boat’ that we’re working on, and how do we clearly define ‘faster’? If we don’t take the time to answer both questions with razor-sharp clarity we’re doomed from the start.
We could define the ‘boat’ as an offer, a funnel, a particular traffic campaign. Narrowing our focus like that is appealing, but I think it would be a mistake.
Instead, I recommend that we define our particular ‘boat’ as our business / craft / profession. This perspective forces us to hold up every decision to a simple question — will this make my business go faster?
I encourage you to answer all of the questions in this list above to better understand what ‘faster’ means to you. It’s easy to skip this exercise, but the clarity you’ll get from it will be worth 1,000x the time you invest. Take it seriously.
Or, at a minimum, ask yourself these three questions:
First, what’s the outcome I want from my business in order to feel that it’s successful?
Think in terms of pre-tax income to support the lifestyle you want for you and your family. Don’t just default to an enormous number. Take some time and be honest, thoughtful, and accurate. Define a baseline goal and a stretch goal. The baseline would make you happy. The stretch goal would make you ecstatic.
Second, what’s the experience I want to have working in my business in order to feel like I am successful?
Think in terms of how you feel day to day about the work you’re doing, who you’re working with, how engaged you are with the work, how much time you spend working, the level of control you have over your schedule, and how you’re spending your time.
Third, what’s my ultimate priority — outcome or experience?
This is a spectrum, not absolute. For example, if the outcome you want is $240,000 in pre-tax income, and in order to achieve that you would need to work 12-hour days, seven days a week for six weeks for the last $40,000, you may decide the difference in your quality of life between $200,000 and $240,000 is not worth it. If that were the first $40,000 with no other prospects available, however, you may have a different perspective.
In my experience, most people focus on that first question, with little (if any) attention paid to the second question. That’s a recipe for frustration. We’re designing a system to produce the results we want — being clear about those results is a critical first step.
Once you have a reasonably clear understanding of the outcome you want from your business, the experience you want to have while engaging in your profession, and the relative priority of each, write it all down and keep that someplace visible. Look at it at least once a week, and refine it as necessary.
This doesn’t have to be complicated. It can be a few sentences, or a bulleted list. What matters is that the answers are precise and they’re true for you.
Once you have that clarity, everything that follows is easier because there’s something to reference against. For every idea or opportunity you have, you can look at that list and ask a few questions.
Question #1 — will this idea or opportunity help me achieve my most important outcome?
Question #2 — can I pursue this idea or opportunity without sacrificing my positive experience of work?
Question #3 — if this idea or opportunity is wildly successful, will that have any unintended negative consequences?
Structurally, this creates a hierarchy where your vision for your business informs your strategy, and your strategy informs your tactics.
‘Will it make the boat go faster?’ will become your own personal short hand for these questions. Each opportunity that arises, or decision that has to be made can be viewed through that lens.
Take this exercise seriously and it will reward you over and over again.
Fundamental Reality #7: Few Things Matter, But Those Few Things Matter a Lot
I saved this one for last because it may be the most important part of The Traffic Engine training. It certainly is the most important lesson I’ve learned professionally and personally.
The ’80/20 rule’ or Pareto principle tells us that, in general, there is a significant asymmetry between cause and effect. In general, most of the effect is the result of a minority of cause.
It’s also important to note that, in general, 80/20 behaves like a fractal, meaning the pattern repeats within itself. Each 80/20 has an 80/20 within. The 80/20 of 80/20 is 4/64, and the 80/20 of 4/64 is 1/52.
Think about that for a moment. One percent of cause creates half of the effect.
It’s important to note that mathematical precision doesn’t matter (and it’s not particularly accurate without large data sets). What does matter, however, is the conceptual framework that 80/20 implicates. For example:
- Few things matter. The overwhelming majority of actions that you could take are mostly inconsequential noise.
- Those few things that do matter matter a lot. The effects you get from your work are primarily from a very tiny minority of the work that you do. Identifying that work (and shifting more of your time in that direction) creates significant leverage (both in terms of outcomes and your experience of work). Ignoring this critically important work also has profound negative consequences.
- This idea is outcome-agnostic. It applies equally to effects that you want and effects that you don’t want. (Meaning there’s an 80/20 within problems you want to avoid.)
Much like the way I use the phrase ‘will it make the boat go faster?’, I have abbreviated the conceptual 80/20 framework into an idea I call 5/95 thinking. I use this everywhere in my life to produce profound clarity, better results, and economy of effort.
For example, when I teach Taekwondo I focus students’ time on the very few movement patterns that inform the majority of techniques. Spending time on those produces broadly useful downstream effects. Specific techniques get better even when we don’t train those individual techniques.
When I teach entrepreneurship at the college level I rely on four primary ideas and, within each of those four ideas I teach 3-5 core concepts. By the end of a semester a typical student has a profoundly useful understanding of the principles of entrepreneurship that are broadly applicable.
The principles that follow in Module 2 are informed by 5/95 thinking as well. That means there are few of them, but understanding those few is profoundly important. And, by extension, not understanding those few is especially problematic.
The reality is that we’re not going to consult a 10-page checklist every time we want to take action. That’s too cumbersome and will lead, invariably, to resistance.
However, if we have a small number of ‘rules of the road’ that are the lens through which we make our decisions, and we internalize those rules into a decision-making operating system, we’ll use them effectively and they will become second nature.