The Paid Media Spiral
Can paid media be profitable? A Shakespearean Drama in 3 Acts.
Curtain Up: The Paid Media Illusion
During my MBA, I loved tackling case studies. Of course, if they had been real businesses, most of mine would have folded before their first anniversary.
One case that stuck with me was about a group of Harvard MBAs who opened a gelato shop in Miami right after graduation. You can probably guess how that ended—melting away into bankruptcy. Their fatal flaw? They never bothered to analyze their breakeven dollars per square foot, a critical metric in retail. Long story short, they needed the same revenue per square foot as an Apple Store—at the time, the highest in retail.
The lesson? Even smart, well-educated people ignore the obvious.
Cue for applause. Enter Paid Media, stage right.
Act 1: The Google Search Era
According to Google Gemini, around 80% of companies run PPC and AdWords campaigns. And why not? Google claims an average ROI of 200%. Sounds great, right But is 200% actually good?
(Lights dim, ominous music plays.)
Enter Customer Lifetime Value (LTV), stage left, wearing an eye patch and twirling a villainous mustache.
Act 2: The B2B Math That No One Wants to Do
Let’s say you’re in a competitive B2B industry with well-funded players, where success is often defined by customer acquisition rather than profitability. Your average order value is $2,500, and the cost-per-quote in paid search is a hefty $300.
If your win rate is 30%, that means your customer acquisition cost (CAC) is $1,000 ($300 per quote ÷ 30% win rate).
With a 50% gross margin, you’re left with $250 in gross profit per order—just 10% of revenue. That’s before accounting for operating expenses. So, any order won through paid media is sold at a loss. And depending on how much of your business relies on paid media, your entire company might be running at a loss.
And yet, in this scenario, Google’s ROI calculation shows an eye-popping 833% return—while the business is still losing money.
Act 3: The “Trust Me, We’ll Fix It” Agency Pitch
Ask a paid media agency, and they’ll tell you their secret sauce—better targeting, demographic segmentation, superior bidding strategies—will magically solve your CPC problems.
In 20 years, I have yet to see that happen.
Instead, let’s go back to fundamentals. The two biggest levers in this equation are gross margin and customer retention:
Gross margin – Unless you’re in the software business with 80%+ margins, there’s usually not much wiggle room here.
Customer retention – This is where most sales and marketing leaders ignore the obvious.
How often will a customer realistically buy your $2,500 product or service? If the answer is “not often,” then you’re reacquiring the customer for every single transaction—driving up CAC and crushing profitability.
This is the gelato shop problem: No customer can physically eat enough gelato to match Apple’s dollars per square foot.
Final Act: The Critical Questions
If you’re relying on paid media, ask yourself:
Can my customer realistically buy enough of my product to cross the breakeven point?
If your customers can’t eat enough gelato, your company will always operate at a loss.
Can my customer buy often enough so that I don’t need to re-acquire them?
If they forget about you between purchases, they’ll start another Google search—and you’ll pay to acquire them again.
Can I effectively estimate LTV for customers acquired through paid media?
What you can’t measure, you can’t improve. If you can’t even come up with a rough LTV estimate, your organization probably isn’t equipped to take a first-time customer to their third order.
Curtain Call
If you answered no to any of these questions, you should probably rethink your paid media strategy. It might be time to explore a better GTM approach—which we’ll cover in a future edition of this newsletter.
So, can you confidently say your paid media spend is profitable?
(Spotlight fades. Curtain drops.)