Fetch Paid Social Media Manager, Dom Garaventa, breaks down the first step in setting up a successful Facebook ad campaign.
Selecting your campaign objective is one of the first decisions you make when you start advertising on Facebook, and surprisingly, it’s not always an easy choice. To achieve the best results possible, it’s good to take a step back and decide what specific business outcomes you’d like to achieve by advertising on Facebook. In this article, we’ll help you define key performance indicators (KPIs) that drive real results and then employ the correct campaign types to maximize growth.
Because our team at Fetch specializes in helping digital economy brands grow quickly, we’ll be exploring this topic from a lower-funnel, direct response point of view.
Cheaper is not always better
A common misconception in user acquisition advertising is that minimizing cost per acquisition (CPA) of a new customer is the holy grail. A low CPA is important when a company is in its early growth stages because it allows you to test creative strategy and fine tune audience mix. However, as a business matures, it becomes critical to understand audience mix and its impact on long term value. Driving down the cost of acquiring a new user does not always lead to the highest return. In the mobile app space, for example, focusing solely on minimizing cost per app installs (CPI) can lead to low retention rates and low-quality users.
Understanding what users bring the highest value is critical to successful Facebook ad campaigns. Consider that you are the marketing manager for a grocery delivery app. You are tasked with acquiring new users by running ads on Facebook. At first, you decide to cast a wide net to attract as many people to download the app, but you quickly learn that many of your newly acquired users never actually open the app or spend money on groceries. Unless instructed otherwise, the Facebook Ads Manager algorithm will optimize for the users most likely to download apps. Often those newly acquired customers do not become habitual users of app. In the end the advertiser has allocated precious ad budget towards channels and audiences that do not affect the bottom line.
Return on ad spend (ROAS) = revenue / media spend
Marketers should instead opt for KPIs that tie their advertising efforts to ROI to show the effectiveness of their marketing budget. Return on ad spend (ROAS) is a good starting point because of how simple it is to calculate and report. This is simply revenue divided by media spend, which shows the best return on the ad dollar.
LTV:CAC Ratio = lifetime value of a customer/customer acquisition cost
However, if you want to take things a step further, you can incorporate customer lifetime value calculations into your KPI. By dividing lifetime value by your customer acquisition cost, you’re able to identify your most valuable segments beyond the initial purchase or download. LTV:CAC ratio can be used by most businesses but is extremely relevant for SAAS and e-commerce companies looking to maximize recurring revenue.
Facebook can be an extremely effective channel in driving long-term growth if marketers can properly translate their business goals into in-platform execution. By shifting KPIs based on return on ad spend (ROAS) or lifetime value (LTV:CAC), marketers can look past small gains from cost reduction and focus on acquiring high-value customers. In part 2 of this article, we’ll cover how to set up your Facebook campaigns to optimize towards these KPIs.
Article by Dom Garaventa, Paid Social Media Manager