How do Ad agencies make money on low margin products? (3)
How do Ad agencies make money on low margin products?
Hey ya'll,
I've been pondering this.
How do Ad agencies make money on a product that has a low margin/ROI? Let's say a 20% ROI product.
Because I know they take a retainer and a % (10-20) of the adspend usually, but then how is it still profitable for the client?
They don't.
The client anyway. They're just looking for customers for their database to do direct marketing as long term customers. Most have calculated how much the LTV of a customer is worth and decides how much money they are willing to lose to buy a customer. That is usually the cost they pay for the initial conversion.
Ad agency a bit easier, they won't keep running if they don't make money. But they don't get to keep the customer data (aside from pixel data or anything else they are allowed to collect in their funnel).
Couple more options...
Good agency might reach super low costs per purchase with proper campaigns, if the ROI is high enough, client can still afford to pay 20% from the ad spend and stay profitable.
The client might be making money down the road on return purchases, list monetization etc...%
They're building audience to retarget.
They're testing something and don't care about the initial results.
They're building their brand and are willing to do it at a loss.
Or they might be losing money because they are just learning the game and exploring the options, as simple as that 
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