Facebook Ads are a vital marketing tool and if you’re not using them, you are missing out!
But if you are looking to use them for your small business, there are a few things you need to understand first.
The key thing to understand when assessing your success with Facebook Ads for any small business is your CPA. I know there are a lot of acronyms and jargon when it comes to digital marketing, but this is a key one to understand!
Here are a few more to take note of (incase you felt silly asking):
CPA – Cost per acquisition (how much it costs you to make a sale)
CPM – Cost per thousand views (how much it costs for you to show your ad to 1000 people)
CTR – Click through rate (% of people who are clicking through to your site)
CPC – Cost per click (how much it costs you to get someone to click through to your site)
Will Facebook ads work for me?
So, in order to understand if your ads are working, you need to know how much you can afford to spend acquiring that customer (be that a sale, sign up, registration etc)
This is something that will be particular to your company and will be based on your production costs and margins – it’s about working out how much you are happy to pay to make a sale.
Let’s take the following example of a subscription box:
Production cost: £2.50
Selling price: £10
So out of that £7.50 I need to decide on my target CPA.
I need to base this on a few things, one of which is understanding the industry average for e-com, which is 30% (£3.33 in this example).
But there is another calculation though that starts to make a bit more sense of the equation, which is AOV and LTV.
(More jargon!) 🙄
Ok, so AOV (average order value) is a term you should/ will be familiar with – its the amount your average customer spends and will be easily available on your Shopify/ Woocommerce dashboard. This is often referred to as ‘spend per head’ or ‘average basket’ and is a really important number to understand – it should be one of your key metrics that you look to increase.
But LTV is where I want you to really focus – LTV is the lifetime value of your customer.
Take the subscription box – while your individual box might be £10.00 per month, if your average subscriber stays for 6 months, then your LTV is £60.00 – that gives you much more to play around with to get that sale!
This is about acquiring customers, not one off sales
This isn’t just the case for subscription products (although if you don’t currently offer a subscription item within your business, I would definitely recommend giving it some consideration!)
Perhaps you have an art print which is part of a collection and you customers will want to collect them all, a product that people would need to use weekly/ monthly or a really great follow up system (email campaign/ discount codes in packages etc) that means you get a consistent flow of repeat customers.
If you don’t offer anything at the moment that increases your LTV, how about considering bundling some products together to increase your average order value.
If you sell greetings cards for example, bundle 10 together and sell them to people who always forget birthdays, increasing your AOV by 10. If you sell candles, do a summer BBQ collection of candles to have outside, think of ways to increase your customers life time value, because by doing that you will give yourself a much better chance of your ads working for you!
By having these numbers to hand, when you look at the results for your ads, you will see at a glance if they are working or not by checking the CPA against your business target cost.
Want to discuss FB ads for your business? Book in a FREE 20 minute call with me!
Are you currently using Facebook ads for your business? I would love to hear how you are getting on! Tell me below, or come and join us in my FREE Facebook group where we discuss all the latest updates and tactics!