The Case Against Paid Ads For Coffee Roasters

by | Feb 4, 2021 | 🚀 Coffee Ecommerce

Everyone wants to explode growth with paid advertising on social media. But in the coffee industry, it's not so simple.
Coffee business customer research

I remember reading articles of explosive growth from up-and-coming DTC companies like Casper, Warby Parker, Dollar Shave Club using Facebook and Instagram ads a few years ago.

They made it look so simple: spend $5 in ads, get $25 in sales. And for a while, it was pretty simple — at least, compared to today.

The hayday of high-ROI ad social media ads is over. To achieve even a marginally positive return on investment is a major accomplishment, even for professionals who live and breathe ad platforms.

Let’s explore why it’s harder than ever to grow your coffee roasting business using paid ads. We’ll touch on a few things, like…

  • The break-even $ amount for the average coffee company
  • Ways to increase your ROI for paid ads
  • Why paid ads isn’t a long-term strategy

How Many Bags of Coffee You’ll Have to Sell to Break Even

Before you sell a single bag of coffee, you have costs. Whether you’re buying ads using a cost per thousand views (CPM) or cost per click (CPC), it all comes down to one thing: your customer acquisition cost (CAC).

It might take $10 to make that first sale. It might take $400.

The ecommerce industry benchmark is somewhere around a $65.80 customer acquisition cost. This cost includes paying a freelancer or agency a 15-25% service fee. In my work with ecommerce clients, both in and out of coffee, I’ve seen that to be true (there are always exceptions, of course).

So what does it take to be profitable at this CAC? Here’s the equation.

$65.80 / (sale price – COGS) = bag sales to break even

So let’s say you sell bags of coffee for $20 each. You’d have to sell 3.29 bags to break even. Except, not really. You still have your cost of goods to factor in.

$65.80 / $20 = 3.29 bags

Now let’s say it costs $6 to roast and package a bag of beans. Now you have to sell 4.7 bags of coffee to break even.

$65.80 / ($20 – $6) = 4.7 bags

You will have to sell 4.7 (well, 5) bags of coffee per customer to break even after the cost of goods sold and the professional management fee.

This puts your Customer Lifetime Value (LTV) at a minimum of $100 to break even on paid ads. The more they spend from that point on, the higher your ROI.

Also Read: The 3 Things Every Coffee Ecommerce Page Needs

Budget for the Hidden Up-Front Cost

All the numbers listed above are averages, but before you can achieve the average, there’s always a learning period.

It takes a while to find images and copywriting that convert. It takes a while to target the right audiences (most platforms start broad, then help you get more specific over time). Chances are you’ll have to run several tests costing hundreds of dollars each before you finally hit a groove.

Make sure you have some working capital set aside for this learning period, and I don’t suggest getting into paid ads if losing $1,000 on this learning period is going to trigger you to run for the hills.

Ways to Increase Your Paid Advertising ROI

So you need to sell 5 bags per customer to break even, 6 to be profitable. That’s if you’re only selling $20 bags of coffee one at a time. There are a few ways you can boost your average order value (AOV) and margins to get to break-even faster.

  • Offer a monthly subscription. Earning one sale after the other is an uphill battle. So instead, only run ads to a subscription offer reduce one-time buyers and increase your LTV. Bonus points if you can get paid for 6 months up-front — that’s immediately profitable!
  • Bundle products together. Package some coffee beans, swag, and brewing gear together to create a high-value bundle. The goal here is to increase your average order value, so it takes fewer overall orders to fly past break-even.
  • Sell coffee in bulk. Offer a slight discount for a 3-bag purchase, or start selling massive 5-pound bags. The higer AOV will get you to break-even faster than single-bag orders.

Moral of the story: get customers to spend more.

Also Read: 3 Lessons From Membership Marketing Coffee Shops Can Apply To Boost Customer Retention

Paid Ads Aren’t A Long-Term Strategy

When it comes down to it, paying for ads is like building on rented land. You don’t own your Facebook or Instagram audiences, and prices could rise at any time.

Facebook ad prices have been rising at a stunning pace since 2016. In 2017 alone, costs jumped 171%!

When it comes down to it, paying for ads is like paying for attention.

Buying attention is like going to a parade and being in the fifth row of people. You have to stand on a box. But then other people around you also stand on a box so THEY can see. Then you have to get a ladder. Then stilts, then you have to build a big platform.

Before long, advertising costs are 2-3x as expensive as they were when you started (which is exactly what happened from 2015 to 2020!).

This applies to almost any business strategy, but it’s most extreme in paid advertising. It’s so extreme that there’s a paid ad principle that says: 

“The one who spends the most wins”.

If you’re a small company (most coffee businesses are), that’s not a good sign.

This is why I’ll keep ringing the same bell:

The most resilient and profitable coffee businesses earn attention through authentic, emotional marketing and content.

Paid ads are a hamster wheel that gets harder and harder to run. Emotional storytelling and relationships creates fans who are engaged for the long-term.

Here’s how you can do that:

Hey 👋 I'm Garrett Oden

Hey 👋 I'm Garrett Oden

Freelance Coffee Marketer

I'm a coffee industry native who works with coffee brands around the world to create and execute captivating marketing strategies.

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