When do you cut your losses?

Hey there, I think I have a serious case of sunken cost fallacy and I don’t know if I should just kill my entire store or try one last time. I will try and be as brief as possible with what happened. This is for products that are in the $200-$350 price range.

-Started store In October and spent countless building the foundation of the business. Everything from product SKU spreadsheets, creating a beautiful site, finding suppliers etc

-November I hired an ad agency to take care of ads so I can focus on my main business. Ad agency was extremely poor and I ended up having to do most of the heavy lifting. Ad creation, copy writing, ad strategy ect.

-December I tried stepping back to let them do their thing, as they ran ads to work up to BFCM, they told me everything I wanted to hear. It was a complete failure and they were unable to achieve a single ROI.

-January I told them to stop all ads so I can try on my own. Got some sales but still was not profitable. Seems to be possible to make the site work but it’s extremely competitive.

The ad agency spent $9k USD with zero sales and I spent another $1.5k and made 1k gross sales, so around $500 or so net.

So basically I’m down 10k USD (I’m from Canada) and I don’t know if I should try one last time as the tax return season can be really hot for my niche. I was thinking about giving myself another 1k budget to try as I’ve already invested so much.

Is this a dumb idea as I’m already way into the negatives? I can also focus on my primary business which would most likely create a more profitable outcome, but at the same time I was building a brand for the other store.

Any advice or comments is greatly appreciated. Been stressing hard and I just can’t decide on killing my baby.

View Reddit by Amadi15View Source

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  1. PM me the site and I’ll take a look.

    Why did you let teh ad agency spend so much? If you didn’t get any sales after a few hundred it should have been obvious that they didn’t know what they were doing.

    I used to sell products in this price range and built a very successful ad campaign. But that was years ago and things are more competitive now.

    I would suggest handling the ads yourself. Maybe get a little help at first but if you hand over to an agency they will also take a cut, which will mean your spending more, which means it’s harder to compete with those that run the ads themselves. Once the ads are profitable they more or less run themselves, so there’s no need for an ad agency anyway.

    Where are you advertising?

  2. Without more info it sounds like it was doomed from the start. Even assuming a 10% net margin, you would need to sell $100k just to break even. It also sounds like you did not really think through your ad spend, as pouring through $9k without a single sale is a huge mistake.

    You also.onlybran it for 3 months. Anything in business worth going takes years, not months. Possibly you poured through the money much faster than you should have.

    Additionally it sounds like you are pretty emotional about this, calling it your baby and all. I would cut your losses, step back and learn your lessons, and come back stronger the next time. Remember that the allure of easy money is strong, and it also doesn’t exist.

    Good for you getting out and trying and putting money on the line to try and make it happen. Good luck the next time!

  3. A very early lesson is: never listen to advertising agencies, they will take all of your money. You need to figure out how to target your market cheaply and on your own.

  4. You are nowhere near being out of the startup stage! You’ve only been up months. It takes a lot longer than that to get anywhere. Don’t be put of by the advertising douches! I just blew $20k last year on them and got next to nothing from it. So I feel you. It’s all about your offering and the market for it.

  5. I’d like to see the site too, you can post or PM me.

    If you stop now, the 10K is gone, so it’s gone no matter what. The only value it might have is some branding as some people probably saw it.

    10K for a budget without any follow up was a mistake, but I think you know this already.

    I’d get all the info you can about where they ran ads and maybe see if they were fake ads. This was a common thing years ago, they would run mobile ads on devices that were programmed to view the ads or the ads were never actually run.

    I worked in the ad business before, did you get any proof that the ads were run?

    IDK if you’ve already paid them or not, but you may have been scammed and might have grounds for a suit. Was this a reputable company?

    Anyways, you really need to figure out the product and it’s target market and if they were actually hitting that target.

    Giving up now is not just losing what you have lost, but if the game plan actually had merit, then you’ve lost that too. If you’re 6 months from making it work and you stop, you’ll never know. Burning thru 10K without any sales vs you getting 1K from 1.5K tells me those people scammed you or don’t know what they are doing.

    I paid for someone to do a “find a person” and they came up 100% blank. I showed them the exact name on FaceBook that they didn’t find. These kinds of companies have no way of proving they did anything. Your ads may have never run. Did you ever check to see your ads?

  6. What exactly are you selling? What is the product? Who is your market? And the website? I can take a look also…i’ve been in your shoes before my friend it sucks

  7. *It sounds like you hired an ad team that gave you BS promises over well thought out strategies. It took me about 150k in the hole before I realized that if I wasn’t in on the strategy & getting weekly updates on implementations / analytics I was going to fail.*

    First. If you learn anything from this. IF you’re going to be a true Entrepreneur that means that you have a business plan and stick to that. **The process & and plan are more important than the product or people.**

    I’ve seen great products fail because the process was too fast or slow. Great groups of hard working people fail because the process was too free flowing or too strict. And I’ve seen 100k in the 1st quarter businesses scale quickly with average people and average products because the entrepreneur had everyone following a pretty tight business plan.

    The best plans include projections of failure. And they usually state uncomfortable “when to get out” scenarios. I always have points that match w/ budgets where I need to shift/pivot if things aren’t working. This takes emotion out of it because my team is aware of these as well.
    The good news is that you like to be organized. What you’re learn from this experience is preparation and expectation.

  8. without website or actual data….the AMOUNT of people posting these queries without data makes it hard for us to pinpoint the REAL people, with REAL queries.

    i hope you can PM people and they can PM you back.

    myself….i dont have time for random maybies.

    gl fellow hooman.!.

  9. Can you not try and get sales without ads? Ads don’t work for every product and take time to get right if they are gonna work. I’m not sure spending another 1k on ads is the way to go

  10. I know this wasn’t your question, but I noticed that you didn’t mention any type of idea validation prior to undertaking all of this. Could that have saved you all this trouble?

  11. Just to add to other comments – wow, you’ve done a lot in the last 3 months. Unfortunately I would say hiring an ad agency one month after starting your new business was probably not the best idea, and especially keeping them on to the tune of $9000 in fees (with no results) seems foolish.

    But 3 months! Hey! You are JUST getting started.

    Do you have proof there is demand in the market for your product? (One very easy way to determine this is to use find out if people are doing Google searches for it… lots of info around about how to do that.)

    I think that’s the first question to ask. Do people what what you’re trying to sell?

  12. Fellow Canuck here, I would say it’s not exactly time to cut your losses, but defiantly time to almost completely cut your ad spending and see what you can do without spending money.

    If you want, PM the site (I don’t own any business/service that could profit off you) and let me take a look and see what I could recommend (again, free, not trying to sell you anything). There are probably some affiliate type influencers, channels, blogs, etc that you could be reaching out to and offering a portion of profit to, rather then paying for them to advertise directly.

  13. I initially read this and immediately thought FB, but that would be an assumption. Which platform(s) were you spending the money on? If Adwords, then it’s likely that that CPC’s for your desired search terms are pricing you out of the game and the ad agency was attempting to “learn” on $9k spend.

    I won’t defend them, because they were clearly the worst marketers on Earth, but there’s some strategy to what they were doing when it comes down to identifying keywords that yield conversion, cutting the losers, scaling the winners and then getting lower prices because your quality score is higher…but to not get a single sale is absolutely insane and they were reckless, and quite honestly, didn’t give a shit because they’re getting paid either way.

    Now, FB is a different story. You can find much cheaper CAC’s on average vs. Adwords and while you’re not able to rely on point-of-sale search terms, thereby lowering customer purchase intent, you can hit a massive base of people that might still be interested in your product.

    I’ve seen 2 or 3 people in this thread that have offered to take a look. You should take them up on it. $1k USD spend on FB could be 500 – 3,000 unique clicks depending on the angles you use and you’re very likely to run inline with the 2% – 5% industry average CVR for retail. So it could end up very profitable once you have a system in place.

    The problem with retail is it tends to need a couple of touch points to close sales, so it’s smart to look at CAC based on your expected customer LTV and say “OK, I know I can get clicks for $1, and I can get them to come back for $2 on retargeting campaigns and 1:20 convert to sale, so this gives me a CAC of around $60 to acquire a customer that generates a lifetime value of $300”

    Determine what your break-even acquisition costs would be and then use that as a ceiling on all campaigns. Set smart budgets. Don’t overbid, ever. Be creative with ads (product shots, videos, testimonials, .etc) and nail down that core demographic so you’re not wasting spend.

    Then focus on remarketing to the people that made it to key sections on your site (landing page, 1st part of the funnel, shopping cart, .etc) and you should find some success getting them back to purchase if they didn’t the first time.

    Now, without seeing your site it’s impossible to comment on the effectiveness of your funnel. I don’t know your product, if there’s substantial interest in it, or if the site looks like crap. Those are variables that you have to fix before you even think about spending $10k on ads. You have to have a good system in place for conversion or you’re simply wasting money.

    As I wrote earlier, let someone look at it and they can give you advice.

  14. I think your decision-making moving forward should be based around is it a marketing problem or a valid offer problem. If it’s the former then you made a costly mistake hiring people who didn’t know what they were doing, and they ate up a sizeable investment. If it’s the latter, then no company is going to be able to help you make a significant return because you’re offering something that people don’t want. By the way, I read a statistic that 42% of the reasons businesses fail is this very problem — offering something no one will buy.

    What kind of sales have you been getting? Obviously the marketing company hasn’t worked out, but have you seen your own efforts turn into conversions?

    If you want to read about the 42% problem, you can see it here: https://www.cbinsights.com/research/startup-failure-reasons-top/

    It was then covered by Inc. Take it for what you will.

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