‘Spending money to make money’: How a smart paid acquisition strategy can help grow your news business
Read the highlights of our “Ask Me Anything” conversation with LION Resident Expert Phillip Smith.
It’s a classic chicken-or-egg problem for news businesses: You need an audience to make money, but you often need to spend money to grow that audience at some point in your journey.
- How should I decide what platform to use for my paid acquisition?
- What’s a good cost per new subscriber if I’m advertising an email newsletter?
- Is it possible to convert people directly to paid products such as memberships or subscriptions?
Here are a few highlights from the AMA conversation with Phillip Smith, edited for brevity and clarity:
What tips do you have for someone who’s trying paid acquisition for the first time?
My #1 tip always comes back to the practice of running “good” experiments, i.e. follow these very simple quasi-scientific rules for not fooling yourself:
- State the hypothesis up front. For example: “We believe investing $1,000 in paid acquisition will result in 1,000 new subscribers in 30 days.”
- Give the experiment a time constraint (in this example, 30 days) because any experiment run long enough will likely “succeed.”
- Run the experiment. And when it’s done, evaluate the results objectively!
In summary: Design the experiment like you’re right, test like you’re wrong. Then iterate from there. If your experiment almost met the target and you decide you want to “pivot” (make a small change), then start by stating a new hypothesis and timeline. For example: “We believe that improving the copy and images of the ads will increase conversions by 10% in 30 days.”
That’s such good advice. Is there also danger in nottaking enough time to design the experiment, and then writing it off as a failure too soon?
100%. A lot of publishers turn off their first campaign within days (or hours) because they see one conversion come in at, say, $30, and they freak out. But the point of the experiment is to learn, and you have to invest in that learning to improve (and to be able to estimate the future potential).
How should someone decide what platform(s) to use for their paid marketing?
I’d start with the question: Where is my audience (or the audience I want to reach) consuming content on a daily basis? If you’re a business publication, that might be LinkedIn, for example.
At the Growth Lab, we always start the publisher off with an exercise of creating “avatars” or personas for their current audience, and also for their aspirational audience. Part of that exercise is to think about what they’re reading, watching, or listening to today.
If someone is trying to acquire email sign-ups for a newsletter, what is a reasonable cost per new subscriber?
That question gets asked a lot and, unfortunately, the over-simplified answers tend to miss the mark a bit.
The important thing to consider is not a specific dollar figure, but rather what a publisher should pay to acquire a newsletter subscriber. Here are the consideration points:
- An estimate (from non-paid efforts) of how many newsletter subscribers per 100 might convert to a paying donor/member/customer/etc.
- An estimate (historical) of the lifetime value of the publication’s donors/members/customers, or, if you sell advertising, how much an advertiser pays per 1000 subscribers (i.e. CPM)
Without that information, it will be challenging to know what to pay. You could go by what’s typical in the industry, but that would not be specific to your situation. For example, if 1 in 100 subscribers donate, and the donation average is $50 (and the project is too young to estimate future donations), you’ve got a 1% conversion rate and $50 lifetime value.
Thus, if you are paying $1 per lead (or $100 for 100 leads), you are going to grow your list but lose money because you’ll average $50 in donations for every $100 spent on lead ads. So, I’d encourage everyone to do the basic math to figure what you can/should be paying per lead!
Can you explain how that cost-benefit analysis might work for a news site that monetizes primarily through advertising?
Sure! If a publisher is selling a newsletter sponsorship on a CPM basis, it’s a bit easier to do the math (and there’s more incentive to grow the size of the list because that would make more CPMs available). So, let’s say that the newsletter CPM was $100, meaning that your advertiser(s) pay $100 per 1000 newsletter subscribers. In that scenario, you know that there’s only an additional $100 to be made from adding 1000 subscribers to the list, so the value per subscriber in terms of revenue is small, only $0.10 in this example.
So if that publisher was paying, say, $1.50 per lead, they’d be losing a lot of money!However, if it was a fixed-rate sponsorship of the newsletter that was not dependent on audience size directly, there’s a lot more flexibility in that cost per lead because they’re not directly related.
The conversion funnel you’re describing here involves at least a couple steps to get to monetization. Is it possible to use paid acquisition to convert people directly to a paid membership or subscription product?
Yes, we’ve been working with one publisher for more than a year now on just that: driving paid subscription directly. We’ve just surpassed 5,000 paid subscribers. It can work, absolutely, and is often less expensive than other marketing channels — but there needs to be a strong value proposition!
Membership is harder because it’s a bit more ephemeral than a physical subscription or a digital subscription that provides special access to content. In that case the membership value proposition needs to be even better! And it’s often helpful to tie the membership ask/CTA to some value provided in advance, like an event or a time-sensitive moment.
The problem here is that the cost to convert someone directly to membership can be A LOT higher than acquiring emails, so you’ve got to do the math first, and then really build a strong value proposition and some urgency into the ask.
Want more paid acquisition advice from Phillip Smith? You can read our full AMA conversation on Slack if you’re a member of the News Entrepreneur Community Slack group — or you can request an invite here.
And here are some other posts Phillip has written about paid acquisition:
- Smart investments in paid lead acquisition to grow membership (or, spending money to make money)
- Spending money to make money, Part II: Case studies of newsrooms using paid acquisition
- Is your newsroom doing paid acquisition right? Here are 10+ examples to check against
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