Ad Paid Loops: Run Profitable Ads and Keep More of Your 💸💸💸

Alright, Nerds, in our recent post we discussed Paid Growth Loops, where you learned how to build a marketing strategy that'll help you grow your business fast—without burning through all your cash!

A Paid Growth Loop is a cycle where a new customer generates profit for your business, which you then reinvest in paid ads, sales, or integrations to acquire even more customers. It's like a money-making machine that keeps on giving!

As you can see in the image above, the input is a new customer or user, the process is the revenue generated by that user, and the output is the reinvestment of that capital into more paid efforts.

Today you are going to discover about Ad Paid Loops - AKA Advertisement.

Unless you've been living under a rock (or have a really good ad blocker), you've seen those ads everywhere online—websites, TikTok, Instagram, you name it.

Ad Paid Loops, are all about buying those ads - whether on Instagram, TV, Google, radio, or even those billboards you see on your morning commute.

They might be annoying sometimes (I'm looking at you, irrelevant retargeting ads!), but there's no denying that they're effective for many companies looking to grow quickly—especially if they have the capital to invest.

The beauty of paid advertising is that you can choose how much to invest and even predict the results you'll get (with a little help from data, of course).

.Are they right for your product or service?…

But before you start pouring money into ad campaigns, ask yourself: Are these platforms the right place to reach your target audience?

Here's the key: Ad Paid Loops work best when the user friction to get to your Promise Value Proposition is low to medium.

For example, companies with complex sales processes, long contracts, or a high barrier to entry (like those enterprise software giants) might not see the best results with Ad Loops. They'd probably be better off focusing on Sales Loops (more on those later!).

Above, you can see the example of Salesforce, a CRM heavily focused on selling high-ticket items.

But for companies where access to the core value proposition is relatively easy Ad Paid Loops can be a goldmine.

Take Temu, for example—a massive e-commerce player from China that at one point represented up to 10% of Facebook’s revenue in 2023. In this case, the input is a new purchase by a user, which generates revenue, and that revenue is then reinvested in more ads on Meta.

.Qualitative Properties: Understanding the “Motivation” behind Ad Paid Loops…

Let’s start by defining the qualitative properties of these loops—the “why” behind those user actions that make your loop spin.

In other words, what fuels the relevant actions and actors at each step of the loop.

Just like with other Growth Loops, the qualitative properties are broken down into three key elements that occur at each stage of the loop:

• The "What" (The Action): The specific behavior happening at each loop stage.

• The "Who" (The Actor): The person or group driving that action.

• The "Why" (Value Promise): The underlying reason behind the action.

In this case, the capital invested and the promised value are what drive the loop. The company earns revenue with each completed cycle, which can then be reinvested.

In these types of Growth Loops, the company is the main actor that takes action to distribute and generate value. You need to have a clear understanding of your unit's economics and how much revenue can you reinvest after each purchase. You also need to run your ads campaigns.

Let’s analyze a real example with one of the largest marketplaces in South America, Mercado Libre.

The loop begins when a user makes a purchase and generates some revenue. That revenue is then distributed into Meta Ads and Google Ads campaigns aimed at generating new customers. These new customers, in turn, generate more revenue, which is distributed again.

.Quantitative Data: The Numbers Game…

it's time to put on our data goggles and dive into the world of numbers! 🤓

Quantitative data is like having a crystal ball for your Ad Paid Loops. It helps us predict the future (okay, maybe not predict the future, but you get the idea). We can figure out how much to invest, what kind of returns to expect, and how long it'll take for those sweet, sweet results to roll in.

Think of these quantitative properties as the performance metrics of your Growth Loop Engine. They'll tell you if you're cruising towards success or stuck in a marketing traffic jam.

Quantitative data breaks down into three key metrics:

• Minimum Scope: The effort required to get our loop up and running.

• Speed: How quickly our loop will scale and those referrals will start rolling in.

• Maximum Return: The maximum growth we can realistically expect from our loop.

The minimum scope for an Ad Paid Loop is usually very low. Investing in paid ads accelerates everything.

You can invest just a little—$5 or $10 a day on various digital ad platforms—start generating traction, and measure the ROI on each dollar spent.

However, keep in mind that “Ad Paid” can mean anything from a Google ad to mass media like radio, billboards, or TV. This can cause the minimum scope to range from very low to medium, depending on the platform you choose.

Ad Paid Loops can scale fast! This is one of the most attractive aspects of this type of loop—if you do it right, you can simply increase the investment with the revenue generated by each new user.

Speed has three key components:

• High Slope: Because of the paid component of these loops, the slope is pretty steep—the more you invest, the more results you get.

• Cost: People and time costs are pretty low, but the only downside here is that financial costs can be medium to high, depending on the ad network and format you’re using.

Now, here's where things get a little less exciting. The Maximum Scope (or the total potential return) of Ad Paid Loops can be limited.

Why? Because those advertising tactics are easy to copy. Your competitors are watching, and they're not afraid to steal your winning strategies!

You might discover a new ad format or network that gives you amazing results initially, but over time, those costs will likely increase as more companies jump on the bandwagon.

.Ad Paid Loops Trick…

Alright, Nerds, we've talked about the different flavors of Paid Loops, those capital-fueled engines that can supercharge your growth. But here's a crucial lesson I've learned from my years in the marketing trenches: Paid Loops shouldn't be your only growth strategy.

Here's the secret sauce: Don't just focus on acquiring new customers—think about retaining those valuable users and turning them into loyal fans!

When you rely solely on Paid Loops as your core growth engine, you're essentially playing a high-stakes game of marketing roulette. You might hit those jackpot returns in the short term, but eventually, your costs will catch up with you, your competition will copy your tactics, and your growth will plateau faster than you can say "customer churn."

Think of Paid Loops as an accelerant to boost other Growth Loops, like Content Loops or Viral Loops. Start with a strong foundation of organic growth and then use Paid Loops strategically to amplify those results.

.In a nutshell…

Ad loops are a powerful tool, but they require careful management. Focus on where your budget is most effective, target precisely, and aim for quick payback to keep your growth on track. By balancing these elements, you can amplify your growth without burning through your resources.

.Other newsletters that I am reading…

• B2B Growth: Every Friday, they study a successful content creator... then share what we learn with B2B content marketers.

• simple.ai: Join 100,000+ others and learn how to use Agent AI to grow your career or business.

• Growth Archive: Get real-world marketing examples every week from successful B2B projects that you can replicate for your own business

• Better Letter: The behind-the-scenes playbook for how to launch, operate and grow a profitable newsletter with paid ads 📈

• Scalable: 🚀 Practical know-how for founders to build winning startups

That is all for today friends.

Keep measuring, keep optimizing, and keep growing!

Jojo