Facebook Ads – A Very True Story
Last week I was chatting with a new client and we got to talking about Facebook ads and then she sheepishly mentioned,
“I did a few Facebook ads; I spent $200, only got 20 signups. Lame, I know, so I stopped the campaign, didn’t seem worthwhile.”
Frequently, I hear this and some variations on this theme,
“My Facebook ads suck, I didn’t get very many clicks, my cost per action so freakin’ high, nothing is working…”
Hearing these type of remarks truly depress me because I know my clients and others are likely stifling their business growth without knowing the full facts.
Also shooting for a number that “sounds good” isn’t the best strategy for success. And when someone posts, “it costs me $.29” to acquire a lead on Facebook. You might get depressed and think,“My Facebook ads just aren’t working”
Before you determine that a “insert super high sounding number here” conversion stinks, I encourage you to follow your customer through the entire sales funnel. This will enable you to definitively decide if that “insert super high sounding number here” really does in fact stink.
Follow me down the Sales Funnel
Allow me to demonstrate how a number that sounds high might be surprisingly desirable.
(Warning, there is teensy bit of math here. However, I promise to make it super simple.)
Let’s say you create a Facebook ad. You spend $1,000 and receive 100 signups to your mailing list. You can spend more or less, the point is that it costs you $10 for each action (in this case it is a sign-up for your mailing list).
$1,000 campaign cost /100 actions = $10 cost per action
“Whooaa … that sounds super high. $10 to get someone to sign-up for my mailing list. I just saw someone post in a group that they are getting $1.89 per action. I’m so wasting my money.”
For now, let’s put on our blinders and forget about everyone else’s numbers or what you’ve seen about “good cost per actions, conversion rates etc”.
Now let’s take those 100 mailing list sign ups and remind ourselves that these are more than just “signups”. These are your potential customers Potential customers who are intrigued enough by your Facebook ad to signup so they can connect with you and learn more about you and your products & services.
You go about nurturing these potential customers and do everything in your power to live up to their expectations. You send these potential customers consistent emails, host a webinars, write blog posts, put a cool stuff on Instagram … all the things you need to do to stay engaged.
And your relationship grows so that week after week they look forward to hearing from you. You offer words of advice, peals of laughter, solace and comfort. I know, I know, I’m getting a bit corny here and it’s beginning to sound like a romance novel but I think you know what I’m talking about. Those 100 potential customers are on the path to being 100 raving fans.
And at some point you offer them a product to purchase.
Let’s assume 5% of the 100 potential customers on your list enthusiastically buy your product.
100 potential customers * 5% enthusiastically buy = 5 purchases
Now we can determine how much it costs to acquire 1 purchase:
$1,000 (original Facebook ad campaign price) / 5 purchase = $200 Campaign cost per purchaser
Are you cringing? “$200!!! I’m going to go bankrupt!” is likely blaring through your brain.
Actually, you don’t know if you are going to go bankrupt or if you can buy that house you’ve been eyeing until you account for another factor.
The price of your product.
In this case your product price is $225.
$225 (Product Price) – $200 (Costs to acquire a purchaser) = $25 profit
This means that every purchase gives you $25 to cover your expenses.
Those 5 extremely satisfied customers who bought your $225 product. They boosted your business bank account by $1,125 in revenue.
$1,125 (total revenue) – $1,000 (campaign costs) = Profit ($125)
Since you spent $1,000 to acquire them you now have $125 to cover all your expenses.
Are you thinking this is a disaster. $125 … that’s it? I’m going bankrupt for sure! Get me out of here!
However, what if you spent $10,000 on that same campaign.
$10,000 (Campaign) costs / $10 (cost for each signup) = 1,000 Mailing list Signups.
Take your 1,000 potential customers who you hug, woo and coddle.
1,000 excited potential customers x 5% who enthusiastically buy = 50 supremely satisfied customers
50 supremely satisfied customers x $225 purchase price = $10,125 (revenue)
And you didn’t have to do any additional work. You spent more on advertising. The exact opposite of what you thought at the beginning of this exercise.
Stay with me? Here’s the fun part? There’s even more money to be had.
Can you make them better?
Can you make your Facebook ads work harder for you? Can you improve them so that they are making you even more money?
- Can you adjust your ad’s target, refine the headline, spice up the image so instead of 100 potential customers, 200 decide they want to connect with you?
- Can you better communicate with your potential customers on your mailing list so that rather than 10% enthusiastically purchase your product rather than 5%?
- Can you raise your product prices to $300 with the same purchase rate?
Each of these changes increases your revenue and profit.
$1,000 campaign / 200 actions = $5.00 cost per action
200 * 10% purchase conversion = 20 purchasers
20 purchasers * 300 product price = $6,000 revenue
$6,000 Revenue – $1,000 Campaign = $5,000 profit
And voila – you’ve just increased your profit from $125 to $5,000. Happy dance in order.
Can you see that sticking with your “lame” campaign, making changes, and testing outcomes yields a lot of benefits.
Evaluating an advertising campaign requires knowledge of a few factors: how many people sign up for your list, how many lookers are converted to buyers and the price point of the product you are selling.
Don’t Worry about the Others
One more side note, er, rant
What other people are achieving (cost per action, cost per lead etc) simply doesn’t matter. The reason why it doesn’t matter is because their numbers don’t affect your numbers. Someone else can have the lowest cost per action and guess what, it doesn’t make your cost per action any lower or any higher.
In way, it’s like gossip. It might feel good in the moment but is it getting you any closer to your goals?
Sure, it’s nice to have benchmarks and a place of comparison. However, the downside is that hearing someone else’s campaign numbers, especially if they are killing it, can have the perverse effect of making you depressed, discouraged and prevent you from taking action – the very action you need to grow your business.
What matters are your numbers and then what you do about those numbers. Can you keep tweaking, making changes, evaluating outcomes so that you can push your own results higher?