Could paid ads be the growth loop you need?

Hi there 👋,

We’re all desperately seeking the buried treasure of growth.

We’re following our map, eyes scanning where X marks the spot, all in the hopes of finding….

The golden growth loop. The mythical flywheels. The idea that simple efforts could lead to exponential growth.

It sounds easy enough. Find that one opening and cling to it.

But if it was that easy, wouldn’t we all be riding the crested wave of a growth loop?

You’ll struggle to find a more common channel for businesses than paid ads. They’re simple and yet effective.

So wouldn’t they make the ideal growth loop?

Various thought-leaders such as Reforge consider paid ads to be a main growth loop category.

So let's dive into it as to what paid loops are and whether they really can be a loop or not.

But before we do, I’d like to take a moment to credit Thorsten Strauss, the co-author of all the content I’ve created around Growth Loops including this idea that paid ads are not necessarily the strongest growth loops.

What is a paid loop?

Just like those colourful Froot Loops you used to pile into your bowl and drown in milk, a loop is a never-ending line in the form of a circle.

A growth loop is an action you take that then further invests in your own growth.

In this case, a paid loop means that as you get more users from your ads, you reinvest that revenue into more ads.

The circle of life? Well, at least the circle of growth.

Ortto defines paid loops as the following:

This loop can be used for any paid channel, such as:

• Google Ads

• Meta Ads

• Linkedin Ads

• TikTok Ads

• Twitter Ads

You get the point.

Note: some also consider paid partnerships or sales representatives to be another form of paid loops. I’m focusing solely on ads for now.

But are they really a loop?

Isn’t that just running ads…?

Are they just a linear channel being dressed up as a loop?

See, there is a challenge with paid ads being used as a growth loop; for as we increase the budget, costs can actually rise.

Cost of acquisition increases with volume meaning that as a loop, it would naturally slow down, which is definitely not what we want for a growth loop.

But finding a way to combat this, and turn them into a paid loop, will provide us with that dog-eared treasure map to exponential growth.

Making paid ads a loop

If we solve this matter of costs, and a few other small challenges, we can utilise this paid loop for exponential growth.

Is it as strong as a product-led, customer-led growth loop? No.

Would I recommend it as your main growth loop? No

Can it help you scale up growth faster? Yes.

So here are the five conditions that allow you to turn paid ads into a growth loop:

1. The starting Cost of Acquisition is low enough (or ROAS high enough) to handle a potential rise in costs.

2. You can measure performance on a near-individual level to understand which ads to scale up and, just as importantly, which to scale down.

3. Attribution to purchase is transparent and clear; you know what the channel did and didn’t contribute to.

4. You have the budget and autonomy to scale fast and incrementally (up and down).

5. You can react fast or near-instantaneous to gain momentum.

If all of these conditions apply, then paid ads can indeed be an advantageous growth loop.

But otherwise, it is usually a linear channel in your growth model.

Which isn’t a bad thing, it can still lead to growth. It won’t be quite the shortcut or treasure chest, but it will still get you there.

Recommendation

In every newsletter, I will also share a related resource to check out related to the topic of the week. None are affiliate links.

For many, thinking of paid ads as a growth loop is more a matter of performance: getting them to a place where they are working well enough to scale up.

I’ve learned so much about performance marketing, and more specifically paid socials, from Aazar Ali Shad.

He runs "The Performers", a great performance marketing Slack group I'm a part of, and an incredible newsletter that I always look forward to reading.

While I am not solely focused on performance marketing, I feel like following Aazar and being in his community saves me countless hours I’d have to spend staying up-to-date on the matter, and he always has the most unexpected tips.

I’m very critical of paid ad loops, but I think it is important to be.

With growth, it is easy to get caught up on plasters to drive our growth vs focusing on how we can first add more value.

The most powerful loops for long-term growth are product-focused and customer-led. They’re not the result of simply spending more on ads.

If this was the case, any company could make it big with this shortcut.

Again, that is not say that ads can’t be a powerful growth driver, but that much of the work that allows it to be- a strong product offering, high-quality messaging, attribution and analytics- are needed first.

Now all this talk of loops is making me crave a bowl of cereal before my next meeting…

Daphne