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High ROI Advertising on Facebook

(August 2014) posted on Wed Aug 20, 2014

Facebook allows you to find people likely to buy from you, target them with your advertising, and get a predictable return on your investment.


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By Mark A. Coudray

In the last issue of Screen Printing, I discussed using Facebook to build very precise target and custom audiences for your prospecting efforts. This month, I’ll expand on the potential of advertising to these precise audiences. But before I dive into the details of the different types of Facebook campaigns you can do, some background is in order. Digital marketing and advertising is fundamentally different than the traditional marketing and advertising most of you have done. The old joke among business owners is that half of their advertising budget is wasted—they just don’t know which half. This is a typical observation for traditional campaigns that lack feedback, metrics, or analytics. What makes Facebook advertising so incredibly enticing is the ability to test and know in advance the results you’ll be getting. This is also known as ROI (return on investment) advertising, and it’s a radical departure because advertising has traditionally been considered an expense. We all know that when things get tight, the first thing to do is cut expenses. With ROI-based campaigns, the concept is to create more sales than the advertising costs so that each dollar you invest delivers some multiple of traceable, trackable revenue. My goal is at least ten times the ad spend, so for every $100 I spend on advertising, my minimum acceptable return is $1000. Put another way, ROI advertising allows me to spend $1 to get $10 back. That may sound too good to be true, but it’s actually a very low rate of return. A recent test campaign delivered more than a 30:1 return. The cost of social media advertising is determined by competitive bidding to place ads in front of a defined audience. Google uses keywords for this; Facebook uses the Precise Target Audience and Custom Audience features described in my last column. For those new to digital advertising, the logic is very straightforward and can be defined in several layers, each with its own metrics. The key performance indicators fall into several categories. CPM (Cost per Thousand) This represents the cost to generate 1000 views or impressions (M) of your ad and it’s typically the starting point for a new campaign. You place bids using the CPM method to test the market and determine what type of response you can expect. CPM advertising isn’t priced on results, although Facebook offers an option called oCPM, or Optimized CPM, designed to deliver a higher ROI. Facebook carefully tracks each response based on the time of day, location of the user, and several other factors to determine when and where your ads are converting. Then it modifies how and where the ad is displayed to deliver the best possible conversion. CPC (Cost per Click) This represents the cost to generate a click to your website, landing page, or sales area. Typically, the more precise your audience targeting, the better the ratio between impressions and clicks and the lower your advertising costs will be. Clicks are the lowest level of engagement and usually represent only mild intent to purchase. Nothing has been sold at this point. The CPC is simply the cost for the number of exposures divided by the number of clicks to the destination. Once you have established the CPC, you can base your bids on clicks rather than impressions, and this is where it gets really interesting. Facebook will show your ad to your audience as many times as necessary to get them to click. If you are targeting an audience of less than 100,000, Facebook may show your ad to the same people multiple times. You can set the limit to once or twice per day, but the important thing is that you are telling Facebook how much you intend to spend for each click. Facebook will show the ad until the purchased number of clicks has been reached or your budget for the campaign has been exhausted. CTR (Click-Through Rate) This is the percentage of clicks that resulted from 1000 impressions of your advertising. For example, if your ad was viewed 1000 times and you received 120 clicks to your site, the CTR would be 12%. Depending on your ad and the competitive nature of your niche, the CTR can vary from below 1% to upwards of 50% for highly targeted, precise offers. A very good CTR will typically be in the 5-15% range to “cold” traffic and higher to audiences that know you and your brand. Facebook’s Precise Target Audiences will increase the CTR, which in turn lowers your CPC. Like Google, Facebook rewards advertisers that create relevant ads with which their viewers want to engage. EPC (Earnings per Click) The logical extension of someone viewing and then clicking on your ad is becoming a buyer. Only a small percentage of the people who land on your site will end up purchasing. Typically, for a non-optimized campaign, about 1-3% of the people who click will buy from you. Calculating EPC is a two-step process. Building on the previous example, suppose your CPC is 25 cents and your conversion of clicks to sales is 4%. That means that for every 100 clicks to your site, you make four sales. Your cost per sale, then, is the CPC divided by the conversion percentage: 0.25 ÷ 0.04 = $6.25. That’s how much each sale cost you relative to what you spent on the advertising. Cost per sale is an important number, but the critical measurement is the revenue per sale. Let’s say you’re a T-shirt printer and the promotion you ran in the example above resulted in an average sale of $200. You can calculate your EPC by multiplying the number of sales by the average sale price, then dividing by the number of clicks: (4 sales x $200/sale) ÷ 100 Clicks = $8.00. Who wouldn’t want to spend 25 cents to create $8 of sales? Your actual results will vary based on your advertising skill and the type of offer and incentives you publicize, but this example is not an exaggeration at all. Facebook advertising strategies When you’re planning any type of advertising on Facebook, keep in mind that it’s a social setting. People aren’t there to shop or buy, although that mindset is changing. Instead of trying to sell, focus on bringing value and solutions to the viewer with your advertising. Some of the common approaches that have worked include offering tip sheets, short-cut lists, top ten methods, most common mistakes, quick fixes you can do easily, and so forth. People get tired of being bombarded with offers all of the time. Anything you can do to make their life easier, faster, or cheaper will usually get good engagement. Give them a taste of what they can expect when they do business with you. When they respond to the message or introductory offer, it’s a small step up to a purchase. Two types of advertising are available on Facebook. The first is the Newsfeed ad, which displays your advertising in the Newsfeed of targeted users. These are a good example of what’s known as contextual advertising, which means that the information in the ad is relevant to the interests of the viewers. The idea is to create the closest possible message-to-market match, akin to running a targeted ad in a special-interest magazine. Newsfeed ads can be incredibly powerful in driving traffic to either your Facebook page or your website. Facebook gives favorable consideration to ads that deliver viewers to another Facebook page instead of a different website—obviously, they want to keep users on Facebook as long as possible. My company has had a lot of success with Newsfeed ads and we continue to develop and refine our strategies. One approach that works well is asking a question or leading with a headline that requires the viewer to click through for the answer. Websites such as UpWorthy, ViralNova, and dozens more use the leading-question method to create content designed to be shared virally. Millions of people a month click through to these sites to learn the answer, watch a video, and so on. The sites are monetized through ads that are based around the content. The second ad format on Facebook is called Right Hand Column ads. These are great for building “likes” to your Facebook page and for general branding. They have not been that effective for us in the past and since we’re not Nike or another huge brand with a massive budget, we’ve stayed somewhat clear of them. The ads are much smaller in size and it’s difficult to create an engaging one that generates the same results as a Newsfeed ad. As I’m writing this column, Facebook is increasing the size of Right Hand Column ads, making them just slightly smaller than ones in the Newsfeed. It will be interesting to see if this increases conversion. They may be doing this in response to viewer complaints that too much of their Newsfeed is now being clogged with ads. With either type of ad, Facebook places a 20% text limit on the creative. This means that no more than 20% of the graphic area of the ad can be covered by text. Pictures of t-shirts or other products printed with text don’t count against this limit. With Newsfeed ads, you can write short copy that is displayed above the ad. Start paying attention to the ads in your Newsfeed. Which ones do you notice? You’ll quickly start to see what works on Facebook. Ads that keep showing up over time are there for a reason—they’re profitable for the advertiser. Getting started Facebook advertising is one of the most cost-effective, targeted ways to advertise your business. Don’t make the mistake of thinking that advertising on Facebook is just for consumers. It works equally well for B2B and amazingly well for B2C. Before you begin dabbling, spend some time looking at what other companies, including your competitors, are doing. You might not find much, which can be really good for you. We’re still in the early days of social-media marketing, but already many newcomers to our industry have disrupted markets where the old guard just wasn’t paying attention. The opportunity is yours for the taking, but you need to move now. Like all things digital, the window closes quickly and you don’t want to be left behind.


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