What Poker Teaches Us About Internet Marketing and Ad Spend

When you saw the title of this post, you probably thought to yourself, “What does poker have to do with an online business?”, or, “How can poker help me with my internet marketing campaigns?”

Recently I was driving home and listening to sports radio, like I usually do.

On this particular day and time, there was a poker show on, that gave tips, strategy, and advice for being a better poker player (just hang with me for a sec…)

As I listened intently to the hosts discuss the topics, I kept thinking in my mind how closely the decisions in poker mirror the decisions in an online business, specifically when it comes to paid traffic and ad campaigns.

Especially the concept of “pot odds,” which are used in poker to help you determine when you should bet and when you should fold.

In a second I’ll give you a few examples of what I mean, but first it’s important to realize and understand the concept of poker and how it applies to business in general.

I want you to think of “pot odds” in poker. If you don’t understand what pot odds are, pot odds are basically the risk you take by betting versus the expected money you would receive in return. When you’re deciding whether to bet or not, the pot odds can help you make that decision.

Let me give you an example…

Let’s say that there’s $500 in the pot, meaning if you won, you would win $500. Let’s say the person that you’re playing against only bets $50. The pot odds are in your favor there, because you’re only wagering $50, but the potential win is $500. You would want to “call” his wager and match his $50 to try and win the $500.

Now it can also be dependent on how much money you’ve put in the pot prior to that, but for the sake of this example, we’re assuming that you only have to put in $50 dollars to win $500.

In this example, the pot odds make sense for you to bet….they make sense for you to take that risk.

If the same person had wagered $400 and you could only win $500, then you would have to think a lot harder about if your hand is good enough to take that risk, because the pot odds are not in your favor as much as they previously were.

The same applies to your online business…

For example, if I’m running a webinar and it costs me $5,000 in ad spend to drive leads to that webinar, but I’m selling a $697 product that could potentially make $40,000 in sales off that webinar, then it makes sense for me to task that risk. The “pot odds” are in my favor in this situation.

But if I’m selling a $37 ebook and it costs me $5,000 in ad spend to drive people to a webinar, then in that case, the return on investment will probably be a lot smaller, and the pot odds are not in my favor. It probably wouldn’t make sense for me to spend that much on my advertising.

The same goes for an e-commerce business. If you have the potential to make $8 for every $4 you spend on ads, then the pot odds are in your favor. A lot of times, it takes testing and traffic to figure out if you have the ability to do that.

Just to give you another example, let’s say you have a test budget. A lot of people, when you tell them they need to test money on ads and then make the decision whether or not you want to put more money into that advertising campaign, they say they don’t want to spend the money.

If that $50 or $100, or even $500 has the potential to give you the data that allows you to make the educated decision that the campaign could be profitable, then the pot odds are in your favor, because that $500 you spend could allow you to realize that that campaign can be profitable.

If you had never spent that money, you would never know that that campaign could be profitable.

On the flip side, if the campaign isn’t profitable, yes, you spent a few hundred dollars, but now at least you know that you didn’t bypass a good advertising opportunity.

The same goes whenever I recommend people test, let’s say, $20 on a Facebook advertising campaign.

A lot of times, they’re hesitant because they want to know if it’s going to work. If that $25 has the potential to make you $1,000 long-term on the advertising campaign, then it’s worth the risk.

Now if I told you to test $20,000 on an advertising campaign, in that case, the pot odds probably aren’t in your favor, unless you have the potential to make $50,000, $75,000, or $100,000 if the campaign is profitable. For large corporations, that would make sense. For you, it might not.

From now on, whenever you’re doing paid advertising campaigns, I want you to think in terms of pot odds.

Think about what you’re putting into the campaign and the potential you have to get out of it.

If the potential return that you can get out of the campaign far exceeds your investment into the campaign, then it’s worth taking the risk…

It’s worth putting the money or the advertising dollars into the campaign, because the potential outcome of that investment could far exceed what you put in, not only in the short term but also in the long term.

That could open up more opportunities that you previously were unaware of.

As the old adage goes, “It takes money to make money.”

BusinessStrategySession

3 comments

  1. Great example here Jeremy. Playing poker, and blackjack, has helped me understand my business a lot better, and I love when people share examples of how they interact and play on each other. Thanks for posting this.

  2. The was a great analogy. This definitely gives me alot of clarity going into my next campaign.

  3. Profit = (Units sold)x(Selling price) – [(Cost Per Unit)x(Units Sold) + Fixed Price].
    I just summarized, what you said, in the above equation. Thanks for the analogy.