When should you launch ads for your SaaS?

If you're reading this, you're probably wondering when is it the right time to launch ads for your SaaS (but really this applies for any product).

There are many type of ads, and while a good chunk of what you will find here can be applied everywhere, I'm going to specifically focus on online ads (Facebook Ads, Google Ads, Reddit Ads, LinkedIn Ads, etc)

1. You want Volume and Speed

Yes, this one is the obvious but I had to mention it. 😅

Unlike "free" marketing channels like SEO or organic content, ads will cost you some money. So, why pay for ads when you can get users for free?

Let's say you are selling a $100 product, and you make $50 of profit per customer.

Let's compare 2 scenarios, one with full organic growth (A), and one where you run ads (B).

• Scenario A: 10 sales with $50 of profit = $500 total
• Scenario B: 100 sales with $20 of profit = $2,000 total

Scenario A might gets you more profit in percentage, but Scenario B gets you more total profit.

Basically, ads allow you to trade off profit (and speed) in exchange for volume.

If you prefer high-profit + slow growth, ads might not be the best fit for you.

Now, I mentioned "free" channels above. I specifically wrote "free", because... it's not really free.

With organic channels like SEO or other, the cost is your time and energy. You create content that platforms and people might like, and in return, they might show your content to their audience. But the only way to see results is with time, you won't get millions impressions overnight.

With ads, you're leveraging someone else's audience to grow faster. What it costs you in money, it makes it up in time. You pay money, and you get impressions immediately.

Instead of waiting for weeks or months to see if your new landing page converts better, ads gets you immediate data, in exchange of money.

But this also means... you need to have your finance in order

2. You have your finance in order

There are 2 essential numbers when you run ads:

• Your lifetime Value (LTV): How much revenue you make per customer
• Your Acquisition Cost (CAC): How much you spend to acquire a new customer

If your Lifetime Value is higher than your maximum Acquisition Cost, you ads are profitable and you can acquire new customers profitably.

So how do you calculate all that?

Lifetime Value (LTV)

The Lifetime Value is the sum of all the money you make from a customer over the span of their relationship with your business.

It might be hard to calculate if you're just starting out and don't have data about churn or extra purchases.

When you lack the data, just try to make an educated guess, aiming on the pessimistic side just to be safe.

Customer Acquisition Cost (CAC)

The Customer Acquisition Cost is the cost you can afford to spend to acquire a customer.

The acquisition cost itself it determined by your ads result, so you can't calculate it in advance, but you can calculate your Maximum Acquisition Cost.

For this, take your Lifetime Value and substract all the average operational costs per user (AI usage, hosting, etc).

That's your Maximum Acquisition Cost.

If the cost of getting a new user via ads (or any kind of paid marketing) is below this amount, you make profit.

If you're exacty at this amount, you're breaking even. If it's above, you are at a loss.

For example:

$120 LTV - $10 Cost per user = $110 Max Acquisition Cost

If your ads costs you $109 per new customer, then you make profit.

Of course, you don't want to make just $1 of profit per customer, so you need to define a Target Acquisition Cost. But you have to stay realistic.

Keep it mind it's impossible to know the exact cost in advance, as it completely depends on your industry and your marketing strategy.

This brings us to our next point...

Managing your Cashflow

Since it costs money, you also have to manage your cashflow, esspecially if you have a subscription model.

Let's take one of my previous businesses as an example: Talknotes

Talknotes had a $12/month subscription, and it costed me up to $50 to acquire a new paid user

That means that I was loosing money upfront: $50 Acquisition Cost - $12 subscription = $38 loss per user upfront.

But... why would anyone want to loose money on ads? 🤨

Well, you aren't loosing money. Not really. You're just delaying the revenues.

My lifetime value was something around $80, but since it was paid in monthly subscriptions, it took me a few months to make the money back.

It means I was loosing money upfront, to (maybe) make money over time. Exactly like an investment (because it is one!)

So, if your revenues are delayed, it means you need to have some cash available to make up for the upfront loss.

But luckily, there is an easy way to mitigate this: Yearly details.

In truth, for Talknotes I was not loosing any money upfront, I was actually making profit.

How?

Because I offered a cheaper yearly subscription to make up for the upfront loss. The yearly option was at $60, close to a 60% discount from the monthly price, so it was an amazing deal for users.

Around half of the users went with the yearly deal. This mean that I was making a profit upfront, AND I still had the higher profit from monthly subscribers.

This allowed me to scale Talknotes from $1,500 MRR to over $7,000 in just a few months, before I sold it.

💰 Total profit: $200,000 exit + over $40,000 profit (For $70k total sales)

Had I stayed with organic channels to maximize profit, I would never have been able to grow as fast as I did and sell it. And even if I decided to keep it and shut down all the ads, I would have kept making profit from the recuring subs as well as the natural organic growth (word of mouth, etc).

All that because I was fine loosing money on the short term to maximize growth.

So, consider what matter the most to you:

• Maximizing profit at the cost of your time and energy (organic channels)
• Maximize growth at the cost of your profit (ads)

But if you choose to maximize growth, make sure your finance are in order so you don't run out of cash and are forced to stop your ads.

But to have your finance in order, you need a good product & positioning...

3. You have a proven product & positioning

Ok, not having both is not directly a problem, but if you launch ads and they don't work, you will have no idea if it's an issue with your ads, your landing page, or your product.

When running ads, you want to reduce the amount of uncertainty as much as possible to figure out what to improve quickly.

Having 3 unknown variables (product + positioning + ads) is a recipe for disaster, because you won't be able to properly figure out what's working and what's not.

If you have no clicks, it could be your ad's design, it could be your messaging, or it could be your targeting. You will have no way of knowing.

That's why you often hear "Ads don't work until you get Product-Market-Fit". Because most people try, fail, and blame the ads instead of figuring out the root cause.

That being said, you can definitely run ads on "unproven" product if you know your audience for sure.

On a B2B startup I sold recently, I ran ads on Meta from day one because I had a very clear idea of the audience, their pain points and what made them click. I was able to grow it to $1300 MRR without any other marketing channel before selling it.

But I only managed to do it because I had a proper funnel...

4. You have a good Funnel

Ok, now I want you to forget everything I mentioned above, because none of what we mentioned above matter if your funnel sucks. For a SaaS, your funnel IS the whole business.

If your funnel is broken, all the money and time you put into it will be wasted.

This is even worst for ads, because ads platforms like Facebook or Google penalize you for not converting users they send you.

If your landing page sucks, platforms will see that they are sending traffic to a low quality page, which will lower your user experience score and predicted action rate.

This means that if you have a funnel that does not convert, your ads will be more expensive.

Now, here is the good thing: You have 100% control over your funnel. This is the only thing in the advertising process where you have absolute control over.

You can always improve your ads and targeting, but the result is still dictated by an algorithm, not you.

On the other hand, you can improve your landing page at any time, the only thing dictating how good it performs is your copywriting skill.

It's much easier (and faster) to improve your landing page and funnel than making better ad creative.

Improving your landing page conversion rate from 0.5% to 1% means you get twice more sales with the same amount of traffic. That can be the difference between making profit or not.

There are many ways to improve your conversion rate, and this will be a whole article on its ownm, but the bottom line is:

• Algorithm will penalize you for not converting users they send you.
• Unlike ads, you have 100% control over your landing page and funnel
• Doubling your conversion rate means doubling your sales for the same amount of ad spend.

So, get your funnel in order!

But of course, a funnel only matter if there are people visiting it, which brings us to my last point...

5. Audience Size & Platform Match

Before running ads, you need to ensure your audience can actually be reached effectively by ad platforms.

There are 2 things that determine this:

1. Audience Size: Your target market needs to be large enough for ad platforms to efficiently find and target them. Ultra-niche audiences (like "developers currently looking for a screenshot API") might struggle on certain platforms.
2. Identifiability: How easily can platforms identify your audience? Some audiences have clear behavioral signals (ex: People who got engaged), while others are virtually invisible until they actively search for a solution.

The key is to match your audience characteristics with the right platform type.

If your audience is small and only identifiable by their search intent, search-based platforms (Google Ads) will likely outperform interruption-based platforms (Facebook Ads).

On the other hand, audiences with strong behavioral patterns work well on interuptions platforms, because their algorithms can easily identify them.

We're almost done! But before wrapping up, I wanted to mention a few special cases.

6. Special cases

There are some situations where the rules mentioned above don't necessarily applies, and where making an immediate profit is not the main goal.

Market Validation

Making a complete product take lots of resources, and you sometimes would rather have some proof the market will want the product before building it. This is when pre-orders, waitlists or other market pre-validation tactics can make sense.

There are usually 2 ways to do this:

Waitlists:

Waitlists are the "cheapest" way to do this because you're optimizing for leads. You create a landing page explaining what the product is, mention it will be available soon and they can join the waitlist.

Problem with this approach is that it's not super qualified because most people will forget about you by the time you launch, so it only works if you actively contact users, send them updates and/or go on calls with them

So you're getting more volume but less quality

Pre-orders:

You create a landing page explaining what the product is, then let people pre-order it.

It's harder because:

• People don't have the product right away after they pay
• The product is new, and no one like to be first
• Ads are more expensive because there is no prior data to optimize for (and since you're optimiing for sales it's more competitive too)

The way to counter-balance that is usually to offer a huge discount. But in any case, it will be hard to be profitable or break-even. Pre-orders should mainly be used to check if some people would pay for your product, not to make profit.

Dummy Checkout:

Another variant of pre-orders is the "dummy order". You make it looks like the product is already available, but use a dummy checkout page to see if people enter their payment info and show them an error message after they click "pay".

This is also a good way to quickly see if people are willing to pay for the product.

Brand Awareness

Brand awareness ads can't be measured. You have no way to know if they work or not, at least for a while. So, what's the point of making them?

For you, reading this, there probably isn't, until you've exausted the pool of audience ready to buy. Which might take a while.

But for big corporations, it allows them to scale. There are only a handful of people who are going to buy your product at any given time. But there are millions of people who might need their product *at some point.*

Take a niche B2B SaaS like a screenshot API service like ScreenshotOne. The audience ready to buy now is extremely specific: "Developers that are building software that needs website screenshots, AND don't have a solution yet." That's a really tiny portion of the market.

But if you did Brand Awareness Ads you would focus on "Developpers that are building softwares" in general, because maybe they could need a screenshot API one day. And when this time come, if they are aware that your product exists, it will likely the default option they go with.

So, you're basically betting on the fact that people will remember your product when they will need it. This is why you get hammered all day long with ads, sponsorship and the rest. Those brands want to make sure they stay in the top of your mind.

Which is hard to measure and very expensive. That's why only big companies should do it.

Conclusion

That's about it! Hopefully this gives you a better idea of when to run ads for your SaaS.

If you have any question or need more precisions, feel free to reach out to me on Twitter!

You can also check out our Free Advertising Tools to help you calculate your ads profitability and more.