The fastest way to lose money is to play the guessing game with Facebook Advertising.
People ask me if €0.95 is expensive per website click, if €5 leads are expensive, and how can I cut my €10 CPM in half!
My answer is always always the same:
Focus on ‘the numbers that give profit‘ …let me explain…
One of the earliest book I read on FB advertising, and one of my earliest marketing mentors both answered in the same way.
The answer? Focus on the number that gives profit.
First, I hated that touchy freely, no answer answer!! Second, that answer was right up there on my hate scale with the ‘it depends’ answer, third, I wanted a simple yes or no answer.
As my logical and rational ‘that does not compute‘ brain wanted a nice and neat rows and buckets.
But, oh no, I keep that ‘the number that gives profit‘ answer on a mental scrap piece of paper placed on my pin board like one of those messy desk office worker 9-5 drones.
I’m recovered now (no AA meetings for me) – I was more a logical, rational mined bloke back then.
Now, I can live comfortable with ambiguity, and the infinite beautiful shades of gray that lie between black and white .
Yes, that ‘it depends’ is the marketing art vs science argument.
Alas, my mentor was correct!
Find ‘the numbers that give profit‘
The problem, my problem, back then, was, I did not understand funnels or conversions funnels.
I had no real sense what was customer life time value, LTV; cost per acquisition, CPA; or net present value, NPV.
My lack of financial acumen spelled doom as I did not fully grasp the ‘The numbers that give profit‘ points.
Fassst fasst forward to yesterday and it makes complete sense.
Sense, because when you figure out your own costs per customer acquisition number you are fully in control and fully empowered.
You stop guessing about budgets and start operating from a position of solid footing and strength.
‘The numbers that give profit‘
In this flood Facebook provides us 231 different metrics (yes, I counted) and in this post I suggest the 11 important Facebook Ads Metrics you should monitor, and the 220 to ‘ignore’.
Note: I am going to roundup the calculations to keep it simple.
The numbers below are not a real life case study, although I really really wish they were!
Calculating Facebook Advertising Spend
Let’s say you have a sales page that converts at 10% (which is a fantasy number I know, but go with it – the average is closer to 1%).
The product is a 3 video video course helping homeowners set a monthly budget so they can save for a down payment for a mortgage. The Facebook Ads budget for this campaign is €100.
Take three different Campaign objective as examples:
Conversions Campaign objective – The ad is shown to people most likely to convert – You are charged when a conversion happens, not when impressions occur. E.g. 1600 impressions, 290 conversions, €0.56/conversion. Therefore, 290 * €0.56 = €162.4 Cost of the advertising campaign is €162.4.
Traffic (formally Clicks to website) Campaign objective – The ad is shown to people most likely to click on a advert – You are charged when a click to website happens. E.g., 43,616 impressions, 660 links clicks, amount spent €158.78. Therefore, €158.78 / 660 = €.024/link click. Cost of advertising campaign is €158.78.
Engagement (Post page engagement, page likes, Event response) – Facebook finds people who are likely to like, comment and share Facebook posts. E.g. 21400 impressions, 900 (likes, comments, shares), amount spent €225.1. Therefore, €225.1 / 900 results = €0.25 per result.
Using the 10% from above and if we send 100 people to the checkout page, the maths are simple;
100 (people) x 10% (Conversion) x €100 (Product Price) = €1000 Revenue
Therefore, the maximum cost per acquisition, CPA, we can tolerate without going into the red (loosing money) is €10. Because:
€10 CPA x 100 visitors = €1000 spend
The campaign is an example of a self liquidating ‘funnel’ (SLO). If you’ve never heard of a SLO funnel the goal is for the revenue from the sale to cover the cost to acquire customers … and not to generate profits.
Ok? You ok with this idea? Revenue from products sold covers cost to acquire customers – the goal is to self-fund your advertising!
Further, the idea of a SLO funnel, is profit is made on subsequent offers. The ‘€100 product’ is your ‘introductory offer’ and not your ‘granddaddy of all products‘.
Traffic, Engagement, and Conversions:
Further complicating the situation is that these 100 visitors are cold, brand unaware people. We have not one chance in hell freezing over of getting 10 cold traffic peeps to buy a €100 product (hey, this is my example and I can do what I want!! )
How and ever, adding a pre-sell / landing page / squeeze page before the product/checkout page warms up people and the conversions will go up.
Pre-sell page is the blanket to warm up cold traffic
If our new pre-sell / landing page / squeeze page warms up cold traffic then our conversion rate goes up to 40% (picking a number from the sky). Using the same €100 product offer from above then the calculations follow as:
100 (people) x 40% (conversion) x €100 (product) = €4000 Revenue
The maximum cost per acquisition is now €40. Because:
€40 x 100 visitors = €4000 revenue
The €40 is the revenue neutral number.
OK, let us take a deep breath and pause as we’ve covered a lot of ground.
This campaign is for lead generation in the info-product space. We are hitting up cold traffic for a €100 offer.
In the info-product space cost to acquire a customer is the linchpin number. You can spend up to that number before going into the red.
Ideally, with a functional value ladder in place (add see above image) you can ‘budget’ to break even or loose money on your front end offers knowing you will make profit on subsequent sales.
Ecommerce has different customer acquisition cost curves and business model. Ecom usually/often a single purchase transaction. I’ll leave ecom for a different day.
With me so far?
The ’16’ Numbers You Must Track for Business Success
The funnel we walked through consists of four main parts:
- Facebook™ Ads
- Landing page
- Product page
- Checkout page
Remember Facebook ads are only one third of your campaigns success, your offer and your landing page are the other two thirds.
What’s absolutely vital when running Facebook Ad Campaigns are the numbers. If you ignore your numbers, how do you know if it is working or broken?
Don’t over-complicate your tracking … hehehe … but, you gotta be sure a) you are getting sales, conversions at the numbers (€) you want, b) find the ‘holes’ in your funnel where people are falling through.
Facebook Adverts metrics to monitor
- Relevancy score – (is your ads ‘check engine light’)
- Impressions – number of times ad was viewed
- Reach – number of people who saw ad at least once
- Frequency – how many times the same peep saw the ad
- Cost per result
- Cost per registration (CPA)
- Add to cart – if applicable
- View content – if applicable
Landing page metrics to monitor
- Visitors landing on the page
- Exits from the page
- People taking the desired action
Product page metrics to monitor
- Visitors landing on the page
- Exits from the page
- Number of add to cart
Checkout page metrics to monitor
- Exits = abandonment
If your funnel is new, then before you scale up your ad spend, test everything with smallish budgets. Test your targeting, messages, images, offers, landing pages, OTOs, and your thank you pages.
Also don’t forget to test you email autoresponder sequences!
Facebook Ads Spend Calculator + Download!
Watch the video, download the calculator.
I want to share a calculator I use in my own ads tracking. Fairly sure you also will find it useful.
Watch the video as I demo the sheet, however, you enter numbers from your own funnel and the calculator displays the ads spend numbers and profits.
Watch the video as I explain what I wrote above. Then see the big button under the video to download the spreadsheet.