Those records were an asset. He paid $2000 or so for the records and they had a demonstrable market value of $10,000 (he sold them.) The liquidity could be questioned, but it wasn't a liability.
How did you manage all those people? If there are so many people at the same time looking through your stuff, how can you be sure they don't run off and steal something?
It looks like it's his back yard. Seems like it would be simple enough to simply stand at the entrance and make sure nobody walks out without having paid.
I think the type of people who are interested in old records probably aren't the type of people who would consider shoplifting. I'm not saying that there is no possibility of it happening, but if I was running the event I wouldn't be too worried about theft.
This is a nice happy story, but how can you be sure the attendees came from the Facebook adverts and not word of mouth / recommendations that Facebook displays about events friends are attending? That seems much more likely to me as the source of your success.
Those friends wouldn't have attended if they hadn't seen the ads, right? At least some of them must have clicked the ads.
If Billy is the only person who saw the ad and clicked "yes, I'm going", and 299 of his friends show up as well, I'd say that the ad is the original cause of 300 people showing up.
The original criticisms of the Facebook advertisements are for adverts to off-Facebook destinations, adverts that do not feed back into Facebook in any way, so to compare them is unfair.
This post proves that using Facebook adverts to increase Facebook engagement work, but not that off-site adverts aren't bad, which is what the majority of complaints from the last ~day are.
We can't, because we have no idea what you paid for those LPs when you bought them. $10 each? You're confusing turnover with earnings (and "we're" with "were", btw).
Lots of talk about the gross money coming in. But it seems to skim over the fact that there's a real product being exchanged. Records being sold at $3 seems like a bargain, but what was the cost of these records to begin with?
Sure you made $10,000 in sales, but that's not $10,000 profit, and definitely not a ROI of 2000-3000%.
It's true, this was a liquidation sale, but most of the records came from a batch of 8000 records that I bought for $2000.
I was being a bit flippant with the ROI percentage, sorry about that - just trying to stress how easy the process was - I really was blown away when I kept asking people how they found out about the event, and they said they saw an ad for it on Facebook.
One thing to keep in mind, as far as calculating ROI, is that if I were to continue to run the business, these are all new customers that I could continue to sell to, so the return on investment isn't purely a one-time thing - the LTV of each customer is way more than they spend in one day.
A quick scan on ebay shows that you were charging less than the buy-it-now prices.
One other difference is that you were advertising for an event on facebook (as opposed to an external site). Do you pay per click to the facebook page or pay per action (attend or won't attend)?
Great question. On Facebook you pay per click or "per mille" (CPM) - it'd be great if they added "attend" as an event parameter in the Ads API so that advertisers could optimize their ads for event attendance:
The ROI on the choice to use Facebook is the cost of selling $10k of records by non-Facebook means minus the cost of Facebook ads ($150). That's easily several hundred percent.
Profit = Selling Price - Cost of Goods Sold.
Cost of Goods Sold = original price of goods + marketing costs + labor cost + facilities costs.
This isn't the precise formula, but it's close enough. It's still a good ROI, but it's definitely not scalable as this was a liquidation. You also have to calculate the tax rate on the sales as well.
If you're grossing $10,000 and you spent $2000 on records, 8 hours of labor (paying yourself $15 per hour) + the cost of the facilities (let's say $100 for the day) and $150 on marketing.
You'll still pay sales tax on the full $10,000. Let's say your sales tax rate is 8%, that means $800 in sales taxes. So now, you're at $9200, so now we can subtract your costs, which, according to my hypothetical approximations total $2370. If you want to exclude your labor cost, you can do that, but it'll still be taxes one way or another, depending on how you claim it.
So your profit is $9200-$2370 which is $6830. For a short term capital gain (which is what this is,) the rate is approximately 25% for Federal, however you also have state capital gains taxes (it's either taxed as ordinary income or as a capital gain,) which will be about 7% (depending on the state), but that 7% is taken off the total gain of $6830. (25% + 7%) of $6830 = $4645.
From the $15 per hour you get paid from your wages, you'll then get to pay social security, self-employment and medicare taxes on top of the federal income taxes. You can avoid this by not paying the salary, but you can't work for free in the eyes of the IRS.. you'll either pay the tax on the wages, or the total gets added to the profit and taxed as a capital gain. Of course, you'll get a slight home "office" deduction for using your backyard as a facility, of course that gets offset by the facilities fee you've earned (and will be taxes on.) It's cheaper though, to charge yourself the facilities fee because that comes off the capital gain, which lowers the taxes on the gain, while only nominally increasing your personal tax (due to deductions.)
Let's just round the total profit at $4600.
So, $150 in Facebook ads to earn $4600.. still a pretty nice ROI, but it certainly isn't $10,000.
We all know the seller isn't going to go to this extreme in either paying or reporting this income to all the jurisdictions involved, but when calculating ROI or other things upon which a business is based, it's a little disingenuous to claim "making" $10,000 when in fact, that number is far less. But I get it, $10,000 makes for a nice headline.
Great post; I love seeing actual numbers being put to the test on HN.
Something that doesn't sit well with me: how sustainable is this business model? How often can you find crates of records for $2,000 that sell for $10,000? How much time does it take you to locate those crates? How long before your folks get mad about their lawn being trampled during these sales, and the neighbours get miffed having 300-odd people clogging up the streets? What are your opportunity costs?
In short, while this article clearly proves that Facebook ads are viable as profitable sources of lead generation, since this seems like such an occasional-hit scenario I'm still not totally sold on whether they are as suitable for sustainable long-term enterprise (I'm extremely curious as to how many people will attend a 2nd event? 3rd?).
This is particularly relevant if you're wondering what Facebook's long-term revenue growth will look like (how much of their present revenue can be attributed to businesses trying Facebook out? How many of these businesses will find repeat business with Facebook to be profitable?)
Cost of Goods Sold = original price of goods + marketing costs + labor cost + facilities costs.
Its nitpicky but this isn't how you calculate COGS. Marketing and Facilities don't count in COGS and labor costs are only the costs of producing the product which in this case isn't anything.
$150 in ads = 150,000 people who accepted invitation or 150,000 people who clicked to view the ad? if it's accepting an invitation, that's a STEAL. Although not 100% of ppl will actually go, it'll be a huge %. You're basically paying for a stronger intent than simply casual interest.
I can see this scenario working - local event, targeted adverts, non-commodity product.
The concern with FB (and other social platform advertising) is around 'intent' and whether you can viably sell commodity product to visitors not actively searching for the commodity product in the way you can by advertising on a search platform - and whether the pricing on a social platform should reflect a different quality of referral.
Totally agree. It's a huge challenge for brands that are selling products that aren't highly differentiated too - I had the benefit of selling a niche product that's partially built on scarcity.
Commercial products are tougher, but they also have agencies whose job it is to spend time and money figuring out how to reach people. As I said, I spent about 30 minutes creating these ads.
A big part of what I like about Facebook is that it enables me, as a business owner, to compete on an equal playing field with massive Fortune 500 companies, and in this case benefit even more from Facebook Ads than they do. That's huge for anyone doing anything disruptive, whether it's a startup, a local business, or anyone competing with the status quo.
Which massive fortune 500 company were you competing with for your yard sale? I don't get how your facebook event levelled the playing field for you in any way - it just let you clear your stock
He's "profiting" from a conversation. That's how things go around these parts (things always come in waves, and the people looking for hits will quickly get an opinion out. By the way, would you like to hear what I think of the new Apple ads?)
Oh wait so we shouldn't trust the guy whose livelihood depends on people buying FB ads when he says FB ads are fantastic and definitely not a scam cos they worked for him?
And on a side note, I'm not 100% convinced FB ads are going to be very efficient for a someone selling analytics software to multinational companies. So it'll be a different platform then.
It may not be the author's intention to imply this, and I'm glad he had a good experience, but it's worth mentioning that this is a single experience, and not necessarily evidence that some Facebook ad campaigns aren't being hit with false clicks.
As has been pointed out the 10k is revenue, not profit. At $3 a record I doubt there was much profit at all, though it sounds more like a liquidating event so it is still a happy result.
To the point of the article though, he advertised on facebook and people showed up and gave him money. Whether or not he is actually profiting from the business isn't really relevant. His ROI is clearly wrong, but the ads had the desired effect of bring in customers.
I really hope he doesn't report 10k in profit to the IRS though as he would then be losing even more money than he probably already did on that sale.
Sold 3000 records fro 10k$. I bet he spent much more when he was buying all those records, say 20k$? So, I could read the story as someone lost 10k$ in 10 years because of Facebook ads.
And I'm sure someone creating facebook ad analytic service would claim that facebook ads are effective.
Brilliant marketing play for PageLever :) Not saying his story isn't genuine.. just saying it's a perfectly timed post targeted at the perfect audience for the product. He knows what he's doing so definitely not surprised he can put together a successful Facebook campaign.
It will definitely drive up traffic, but I don't think that the story is anywhere near convincing enough to undo the damage that has occurred after the clickfraud claims.
Would be interested to know how many people from HN would sign up based on this post.
The point about revenue != profit isn't very clever, though 1/3 of the existing comments are making it. The actual point is that he was able to successfully drive traffic to his event using FB ads. Every comment addressing profit vs. revenue entirely misses the point.
The argument OP makes is 'I made $10,000 in one day thanks to Facebook, thus Facebook is a superior platform' which is undeniably faulty.
1. The OP did not make $10,000 in one day.
2. We don't know how well this would have done on a non-Facebook platform.
My point is that this is like arguing that Facebook is a wonderful platform because Apple makes a lot of money and Apple uses Facebook to advertise. Apple would be making a lot of money without Facebook ads, too; if a company using Facebook ads generates $X revenue, that doesn't mean those Facebook ads were responsible for a specific amount of the revenue.
In short: congrats to the author! But this doesn't really prove anything.
You're almost wilfully ignoring that the poster is claiming that he's devised a way of making $10000 profit at 3000%+ ROI but decided instead to make a startup aimed solely around facebook ads - which coincidently were the things he took advantage of to achieve this massive product.
Surely something with stats as lucrative as this yard sale would mean that he would create a startup based around selling other peoples stuff after advertising through FB events instead??
It's actually an idea that I've entertained before, and I think there's tons of businesses that could be built in this space (for example, I'm a huge fan of Yardsale, and this could be an interesting growth strategy for them, to build Facebook Ads directly into their platform).
Right now though, I'm having a blast working on Facebook Analytics with my team at PageLever.
Are you so naive as to think that someone would create a Facebook ad analytics company for something other than money? Not exactly changing the world bettering humanity type of stuff.
Yes, but you did not read the title did you. It's an obvious Jab at the fact that FB overcharges. However the point was, the OP made a net profit of < 10k. The OP used it as a facebook EVENT not a click-through link. So this is not an Apples - to - Apples comparison.
I'm curious - what other ad platform could I have turned to drive local commerce? Always interested to hear how other folks would approach the same problem.
I still have some records left over, thinking about doing another sale, would be game to test another means of customer acquisition and report back with results.
jeff chimed in before me. if I were in your shoes, I would have probably leaned on Craigslist and the area subreddit (the latter is very hit or miss, but I could see something niche like records doing really well.) I'm not a vinyl guy, but I'm sure there are a TON of niche forums out there worth looking at as well.
I really wish you could apply multi-armed bandit approaches to physical problems like these more easily; obviously its hard to do A/B testing when you only have one actual supply.
Yeah, I actually only recently started to understand the impact that area subreddits can have - great channel for certain audiences. My intuition is that most of my target audience for vinyl isn't yet on Reddit, but maybe that's changed and I just haven't realized it yet.
There are certainly a lot of forums out there too, but most of them aren't local to one area, so most of the sales are online (I did a lot of business through these forums in the past).
In retrospect, it would have been rad to run this as a fully fledged A/B test. I honestly just didn't know that the ads would have quite the impact that they did.
While a worth while experiment, you are still going to have a hard time getting a comparable result set. You have records left over... presumably all the ones that the first batch of shoppers didn't want. You are also targeting a local set of people... hundreds of which already attended your sale and have picked up the records they wanted. If your next sale is solely advertised on, say, Craigslist, I would not be surprised if your take was much less than $10k. But I would not necessarily blame that on Craigslist when those other factors are just as likely to affect a second Facebook advertised sale as well.
But you have to agree this is a very specific case.
It's a real life product, at a very low price with a very specific niche.
If this was a rule and not an exception, every big company in the world would be using these ads. Another point is that it was an event ad, so it was there for a very small window of time, limiting the exposure to any kind of botting.
Funny how he tries to say people should use utm campaigns and not care about bots clicking your ads.
I totally agree that this is a specific case. At the same time, there are a lot of smaller, brick and mortar businesses out there trying to figure out how to use Facebook Ads, and to me, hosting Events is a great way to drive people into stores (or in my case, a backyard :) )
Also, most big companies in the world actually are trying to figure out how to use Facebook Ads right now. The problem is that most haven't figured out how to create a compelling enough value proposition - I click on the ad, but what compels me as a user to take the next step? It's a big challenge for companies and agencies who are accustomed to being able to pay for captive audiences.
I've also talked with a LinkedIn "expert" who claimed that advertising LinkedIn events on LinkedIn had a much better conversion because you loose people when you go off site (i.e. from linkedin.com to yourdomain.com). By keeping people on the same platform, you should have a higher conversion rate. (according to one guy who does have a book deal but whatever)
He titled the post "how I made 10k" - making it very clear that the "point" of the article is that FB ads made him money.
The people who are asking about his profit are just asking him to clarify and validate his title and entire premise for his argument. I would say that's not missing the point at all.
The author points out that Limited Pressing should be using UTM tags and Mixpanel to track visitors to their site from Facebook, which was not at all the issue that Limited Pressing was concerned with. The issue they had was with paying for those visitors when they shouldn't have to.
As the author's current company is based on providing a layer on top of Facebook Analytics/Insights I could see how hearing that 80% of clicks may be bots could be disheartening, but there is no need to lash out at Limited Pressing for presenting their own perspective.
Lesson: facebook ads work great for selling items at below cost.
I'm not sure ads were needed in the first place; an event and posting on the pages he talked about /a couple of forums may well have had a similar result.
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[ 5.9 ms ] story [ 166 ms ] threadIf Billy is the only person who saw the ad and clicked "yes, I'm going", and 299 of his friends show up as well, I'd say that the ad is the original cause of 300 people showing up.
This post proves that using Facebook adverts to increase Facebook engagement work, but not that off-site adverts aren't bad, which is what the majority of complaints from the last ~day are.
Facebook events are a fantastic way to profit and you hit the nail on the head. Glad to see you succeed so well with that effort :)
We can't, because we have no idea what you paid for those LPs when you bought them. $10 each? You're confusing turnover with earnings (and "we're" with "were", btw).
Sure you made $10,000 in sales, but that's not $10,000 profit, and definitely not a ROI of 2000-3000%.
I was being a bit flippant with the ROI percentage, sorry about that - just trying to stress how easy the process was - I really was blown away when I kept asking people how they found out about the event, and they said they saw an ad for it on Facebook.
One thing to keep in mind, as far as calculating ROI, is that if I were to continue to run the business, these are all new customers that I could continue to sell to, so the return on investment isn't purely a one-time thing - the LTV of each customer is way more than they spend in one day.
One other difference is that you were advertising for an event on facebook (as opposed to an external site). Do you pay per click to the facebook page or pay per action (attend or won't attend)?
https://developers.facebook.com/docs/reference/ads-api/optim...
The ROI on the choice to use Facebook
How much more did he sell by using Facebook than if he had sold without using Facebook?
This isn't the precise formula, but it's close enough. It's still a good ROI, but it's definitely not scalable as this was a liquidation. You also have to calculate the tax rate on the sales as well.
If you're grossing $10,000 and you spent $2000 on records, 8 hours of labor (paying yourself $15 per hour) + the cost of the facilities (let's say $100 for the day) and $150 on marketing.
You'll still pay sales tax on the full $10,000. Let's say your sales tax rate is 8%, that means $800 in sales taxes. So now, you're at $9200, so now we can subtract your costs, which, according to my hypothetical approximations total $2370. If you want to exclude your labor cost, you can do that, but it'll still be taxes one way or another, depending on how you claim it.
So your profit is $9200-$2370 which is $6830. For a short term capital gain (which is what this is,) the rate is approximately 25% for Federal, however you also have state capital gains taxes (it's either taxed as ordinary income or as a capital gain,) which will be about 7% (depending on the state), but that 7% is taken off the total gain of $6830. (25% + 7%) of $6830 = $4645.
From the $15 per hour you get paid from your wages, you'll then get to pay social security, self-employment and medicare taxes on top of the federal income taxes. You can avoid this by not paying the salary, but you can't work for free in the eyes of the IRS.. you'll either pay the tax on the wages, or the total gets added to the profit and taxed as a capital gain. Of course, you'll get a slight home "office" deduction for using your backyard as a facility, of course that gets offset by the facilities fee you've earned (and will be taxes on.) It's cheaper though, to charge yourself the facilities fee because that comes off the capital gain, which lowers the taxes on the gain, while only nominally increasing your personal tax (due to deductions.)
Let's just round the total profit at $4600.
So, $150 in Facebook ads to earn $4600.. still a pretty nice ROI, but it certainly isn't $10,000.
We all know the seller isn't going to go to this extreme in either paying or reporting this income to all the jurisdictions involved, but when calculating ROI or other things upon which a business is based, it's a little disingenuous to claim "making" $10,000 when in fact, that number is far less. But I get it, $10,000 makes for a nice headline.
Something that doesn't sit well with me: how sustainable is this business model? How often can you find crates of records for $2,000 that sell for $10,000? How much time does it take you to locate those crates? How long before your folks get mad about their lawn being trampled during these sales, and the neighbours get miffed having 300-odd people clogging up the streets? What are your opportunity costs?
In short, while this article clearly proves that Facebook ads are viable as profitable sources of lead generation, since this seems like such an occasional-hit scenario I'm still not totally sold on whether they are as suitable for sustainable long-term enterprise (I'm extremely curious as to how many people will attend a 2nd event? 3rd?).
This is particularly relevant if you're wondering what Facebook's long-term revenue growth will look like (how much of their present revenue can be attributed to businesses trying Facebook out? How many of these businesses will find repeat business with Facebook to be profitable?)
Its nitpicky but this isn't how you calculate COGS. Marketing and Facilities don't count in COGS and labor costs are only the costs of producing the product which in this case isn't anything.
What if selling the records via eg. Craigslist would have cost less than $150? Then the ROI would be negative.
The concern with FB (and other social platform advertising) is around 'intent' and whether you can viably sell commodity product to visitors not actively searching for the commodity product in the way you can by advertising on a search platform - and whether the pricing on a social platform should reflect a different quality of referral.
Commercial products are tougher, but they also have agencies whose job it is to spend time and money figuring out how to reach people. As I said, I spent about 30 minutes creating these ads.
A big part of what I like about Facebook is that it enables me, as a business owner, to compete on an equal playing field with massive Fortune 500 companies, and in this case benefit even more from Facebook Ads than they do. That's huge for anyone doing anything disruptive, whether it's a startup, a local business, or anyone competing with the status quo.
Oh.
To the point of the article though, he advertised on facebook and people showed up and gave him money. Whether or not he is actually profiting from the business isn't really relevant. His ROI is clearly wrong, but the ads had the desired effect of bring in customers.
I really hope he doesn't report 10k in profit to the IRS though as he would then be losing even more money than he probably already did on that sale.
And I'm sure someone creating facebook ad analytic service would claim that facebook ads are effective.
Would be interested to know how many people from HN would sign up based on this post.
1. The OP did not make $10,000 in one day. 2. We don't know how well this would have done on a non-Facebook platform.
My point is that this is like arguing that Facebook is a wonderful platform because Apple makes a lot of money and Apple uses Facebook to advertise. Apple would be making a lot of money without Facebook ads, too; if a company using Facebook ads generates $X revenue, that doesn't mean those Facebook ads were responsible for a specific amount of the revenue.
In short: congrats to the author! But this doesn't really prove anything.
Now you're almost willfully missing the point.
Surely something with stats as lucrative as this yard sale would mean that he would create a startup based around selling other peoples stuff after advertising through FB events instead??
Right now though, I'm having a blast working on Facebook Analytics with my team at PageLever.
So many in fact there are even university courses for it.
I still have some records left over, thinking about doing another sale, would be game to test another means of customer acquisition and report back with results.
I really wish you could apply multi-armed bandit approaches to physical problems like these more easily; obviously its hard to do A/B testing when you only have one actual supply.
There are certainly a lot of forums out there too, but most of them aren't local to one area, so most of the sales are online (I did a lot of business through these forums in the past).
In retrospect, it would have been rad to run this as a fully fledged A/B test. I honestly just didn't know that the ads would have quite the impact that they did.
It's a real life product, at a very low price with a very specific niche.
If this was a rule and not an exception, every big company in the world would be using these ads. Another point is that it was an event ad, so it was there for a very small window of time, limiting the exposure to any kind of botting.
Funny how he tries to say people should use utm campaigns and not care about bots clicking your ads.
Facebook captures location + interests.
Also, most big companies in the world actually are trying to figure out how to use Facebook Ads right now. The problem is that most haven't figured out how to create a compelling enough value proposition - I click on the ad, but what compels me as a user to take the next step? It's a big challenge for companies and agencies who are accustomed to being able to pay for captive audiences.
To me, it shows the power of combining native Facebook functionality like Events with Facebook Ads.
The people who are asking about his profit are just asking him to clarify and validate his title and entire premise for his argument. I would say that's not missing the point at all.
As the author's current company is based on providing a layer on top of Facebook Analytics/Insights I could see how hearing that 80% of clicks may be bots could be disheartening, but there is no need to lash out at Limited Pressing for presenting their own perspective.
I'm not sure ads were needed in the first place; an event and posting on the pages he talked about /a couple of forums may well have had a similar result.
over 9000%