The Over-reliance of Social Media Marketing:

The reason why social media ads have a lower ROI than before

Have you noticed that many direct-to-consumer startups like Casper and Warby Parker are some of the many startups struggling to make a profit in this day of age? Being disruptors in their respective industries, you’d expect them to succeed and stay in business for a long time. In reality, many of these startups are struggling to make a profit and despite experiencing revenue growth, they’re losses are accelerating.

What exactly causes many of these startups to continue losing money? Is it because they’re selling their products for a loss? Is it because they’re conducting the same tax trick that Amazon is doing to avoid taxes?

In reality, it’s because many of these startups spend a lot on social media marketing. Casper is one of the many money-losing startups that spends most of its money on marketing than on anything else. By spending more on acquiring customers, the profits that these companies get from every customer is minimal. Some startups, like Casper, loose money from every customer they get.

For years, social media ads have been hyped as a successful form of marketing. The impressive ROI many brands experienced created a large wave of spending for social media ads. As more and more marketers invested in social media ads, ads got more expensive (because of supply and demand) and the ROI for social media ads started decreasing. To this day, as more and more marketing dollars are spent on social media ads, the ROI for social media ads continues to decrease.

If these money-losing startups want to find cheaper and more effective ways of marketing, they need to stop spending their marketing dollars on social media ads and start spending those dollars elsewhere. Hiring direct sales reps and putting them a commission-based pay system is something that Vector Marketing has done when it came to the sales of knives. There are many alternatives to paying for social media ads.

Overall, as many startups rely on social media ads for customer acquisitions, with the decline in ROI for social media ads, many of these startups are losing even more valuable for every customer they acquire. To combat that problem, they need to find another way of acquiring customers, and that method needs to be profitable for the company.