Agencies' Motivations, Long-term Sustainability, and Micro-Optimizations
Alfred Lua / Written on 15 March 2020
This is my weekly private letter on marketing and distribution models. I'll also share numbers and discussions on Buffer projects to give you an insider look at the daily life at a tech company.
On Friday, I organized a small meetup to discuss social media marketing with a few marketers from various backgrounds. At one point, an agency owner shared that if a small business has a small fixed budget, he would recommend them to invest in paid social rather than organic social (or both). His rationale is that paid social has a direct, measurable return on investment in terms of traffic or sales. It is hard to even quantify any tangible return of organic social for the business.
For small businesses, which usually have a small budget, that seemed to make sense. They would want to invest in things that grow the business. Between engagement rate and revenue, I'm sure most would choose revenue.
What's interesting is when the agency owner shared his motivation for focusing on paid over organic social. According to him, organic social is less profitable than paid social for agencies. The price they can charge for organic social work often doesn't justify the cost involved in creating content, studying and following brand guidelines, and publishing the posts. Furthermore, it's harder to get other clients by saying "we helped Company X grow its following by 10 times" than saying "we helped Company X grow its revenue by 5 times".
It is reasonable for agencies to do this, and a business could benefit more from paid social than organic social, depending on its stage of growth. But marketers have to be mindful of agencies' motivations when they make recommendations – for either paid or organic – for your brand.
Is it better for your business or theirs?
Another marketer at the meetup, who has held several CMO positions, said that he avoids paid social as much as he can because it increases the cost of acquiring new customers (often known as CAC or cost of acquisition).
For a business to be profitable, it has to earn more money from a customer than it takes to bring in that customer. If the business is spending more money on marketing to get a customer than the customer is spending on the business, they are losing money for every customer they get. And many businesses can only lose money for that long.
It is easy to set up social media ads, and you can directly measure the (good or bad) results. But it isn't sustainable in the long run if you don't have an organic following. Without an organic following, the moment you turn off your ads, your sales will be affected because people won't see your brand any more.
It also isn't sustainable if you are competing against venture-backed companies (unless maybe you have raised even more funds). These companies are often willing to splurge on marketing to gain market share, even if they are making a lost. I experienced this while running ads at Buffer. It was for Google search ads but the concept is similar. A venture-backed competitor was targeting the keyword "Buffer" and constantly outbidding me. Google was showing their ad more often than mine. To show my ads to more people, I had to increase my bid. That drove the cost of my ads up, and eventually it was no longer profitable to run those ads.
This is also happening in the DTC space, as Maya Kosoff wrote:
There’s a reason DTC companies market on Facebook: Facebook ads are cheap to set up, and they let you target a specific audience. The problem, however, is that channels like Facebook have grown more saturated and more expensive. Now, everyone is armed with the same millions of dollars in funding; they’re all targeting the same users, and they’re all driving each other’s marketing costs up. (Marketing software company AdStage analyzed its Facebook impressions data and found that the median cost-per-click for Facebook news feed ads has risen from $0.43 during the second quarter of 2018, to $0.64 during the second quarter of 2019.)
While paid social might be an effective way to kickstart growth, organic channels such as organic social (or search) should eventually take over as the main acquisition channel.
As mentioned in my last private letter, I was launching a new feature at Buffer this week. (I'll share the launch numbers about two weeks from now.) The feature helps brands find their best time to post on Instagram to maximize their reach.
The point of mentioning that isn't to promote the feature but to highlight one of the many things you can optimize to grow your organic social. Instead of simply posting for the sake of posting on social media, think about the following for each of your posts:
- Creative – Is that what your audience want to see? Or is that simply an image you have at the moment?
- Caption – What message do you want to bring across? What "language" does your audience speak? How can you get people to comment, share, or save the post?
- Hashtags – What hashtags do your audience use or follow?
- Location tag – Will your audience check that location tag?
- Time – When are your followers online and engaging with your content?
- Trends – What conversations are happening in your audience's world? Can your brand add value by joining the conversations?