Facebook ads can generate visits and sales on your e-commerce website. To do better with Facebook ads and “make more” you first need to understand how well your campaigns are performing currently.
When I am asked to look over a Facebook ad account my first question to the owner is “how is it working for you?”.
Normally the answers are vague – even evasive. At best I might be told about total sales the previous month.
Sales are good, but if you are running Facebook Ad campaigns ask yourself a few questions:
- What is the cost of these sales?
- What return are you getting for your Facebook Ad spend?
- Are you making a profit?
- Is it enough to justify continued spending or should you shift your budget to Google Ads or Youtube?
Some of these questions can be answered easily from your Facebook Ads Manager – but only if you have the Facebook or Meta Pixel set up on your website. That should be a priority before you spend even 1c on advertising.
The pixel allows you to track visitor behaviour on your website – visitors who have come from Facebook Ads. When correctly set-up, you can measure link clicks, “adds to cart”, purchases made (and so abandonment rate too), cost per purchase, purchase revenue and ROAS (return on advertising spend).
If I spend $1000 a month on Facebook ads and I make 20 sales as a direct result, is that good?
Your Facebook Ads manager has around 100 columns to select from. Select “custom” in the dropdown and you can set-up your dashboard to display the data you want. With a properly set-up pixel you will see at a glance your volume of sales, the total cost of your advertising, the cost per sale, total revenue and the Return on Ad Spend (ROAS).
It is easy to fixate on only one figure, but sales volume alone doesn’t tell me enough. If the item I’m selling is a $25 plant pot then my 20 sales have brought me only $500 revenue for my $1000 ad cost. If instead I was selling online courses at $200 each then my revenue would be 20x$200 = $4000 so then I’d be happy, right? Well yes, $4000 revenue from $1000 ad spent sounds great but what is my margin on the online courses? If I only make $50 on each one then the profit from selling 20 is $1000 and is wiped out by the cost of the advertising. Conversely, if for my $1000 ad budget I sell 20 subscriptions to online editing software at $10/month and the profit margin is 50%, the first month revenue is $200 and first month profit is only $100. This looks like a poor campaign. However the “lifetime value” of these clients is at least 12 months @ $5 per client, so my $1000 single month ad spend will generate ($5x20x12months) $1200 profit over the year – maybe worth doing.
Facebook and the pixel know nothing about your profit margins so measures such as cost per sale, in general, are best to be as low as possible and lower than the unit profit made from the item you are selling (unless lifetime value is higher than initial purchase value). Return on Ad Spend (ROAS) is useful only if you understand your profit margin. If your profit margin is only 20% then you need an ROAS of over 5.0 to cover your ad spend and make money. A simple way to work this out is to express your profit margin as a fraction. For example if you are lucky enough to have a 50% profit margin then that is 1/2. The ROAS required to break-even is the reciprocal of that, ie 2/1 = 2.0. If your profit margin is 25% or 1/4 the breakeven ROAS is 4/1 or 4.0.
So now you know how to measure Facebook campaign performance, is it working for you?
In my next blog post I will guide you through the simple changes you can make to your campaigns to improve performance.
Online Marketing Consultant