Last week I wrote about how we’re discovering more about our customers in Facebook. Today, I want to talk about acquiring leads and email subscribers, from Facebook advertising, for free.
We’ve got a few new Facebook campaigns running and I always want to know 2 things with any new campaign.
- Can it scale?
- Is it profitable?
There’s no point in spending $10 000 on traffic if it doesn’t amount to anything. We all of course want subscribers and sales for our advertising spend.
However there is a paradox that occurs when spending money on traffic and advertising. Traffic is often the key metric quoted by Facebook advertisers and marketers. Cost per click is used as a measure of how successful an advert is, but it’s not the number I’m interested in.
Cost per click is a useful indicator of success, but it isn’t the be all and end all.
What I want to measure is cost per sale and cost per lead. I want to know that if I spend $10 000, that I’ll get 5000 leads or optins in return.
I also want to know that the advertising spend is AT LEAST at break even. That’s why we create traffic tests to see if a campaign can scale. I want to know that if I spend $100 and make $100 in return, it’s more likely that $10 000 will also create a return.
In the good old days, I’d have to spend $10 000 on an advert and just HOPE that it generated that in return. I remember a radio media executive trying to sell me ad space on a radio station. The cost was £10 000 GBP for a quarter’s worth of ad time. 3 times a week, for 12 weeks. I was hesitant because I couldn’t trust the return on the ad spend. Even if I sold just 1 site, the advert would have paid for itself.
When I told him I had reservations, he told me “we’ve got confidence in our adverts, so maybe you don’t have confidence in your product?”
After I slapped his bitch ass, I reminded him that if he can’t sell his own fucking advertising platform, why would I trust him to sell my products?
Anywho. The beauty of paid online traffic means that we can test, adjust and scale adverts much better than before.
What scaling and testing does, is prevent us from “buying debt”.
Here’s what used to happen.
- We spend $1000 on paid traffic and generate $600 in return
- Technically, the advert worked. We generated $600 from a $1000 spend
- As we scale the advert though, the gulf gets larger
- We ACTUALLY spent $400 ($1000 spend- $600 revenue = $400 cost)
- So that means as we increase our advertising cost, our expenses actually go UP!
- Spending $10 000 on advertising COSTS us $4000
- No matter how much we spend, it’ll always result in a loss.
Can you see how traditional and lazy advertising method don’t work? Yes, you could argue that at least you’re acquiring customers and you’ll make up the $400 in a future sale. However that means that your next $400 income, from your customer, is just going on the cost of acquisition. You’re taking longer to generate profit.
Instead, we can generate revenue earlier in the process and pay for the cost of lead and customer acquisition. I want to find adverts that DO scale and allow me to create profit faster.
- We spend $1000 on paid traffic and GENERATE $1000+ in return
- As I scale the advert, the costs always negate or even pay a profit
- Instead of looking for a $1000 sale from a $1000 spent, I look for $10 sale for $10 spent
- That means that instead of trying to sell a $1000 product to all new leads, I instead sell a tripwire or splinter product at $10
- $10 products are easier to sell and have a higher conversion rate
- I can then sell a $1000 product to customers who have bought a $10 product
The model above closely follows the Ryan Deiss CVO (customer value optimisation) funnel. It’s designed to get leads and customers to pay for themselves.
So how do we create this model in Facebook with Facebook adverts using REAL numbers? I’ll show you.
I’m going to show you how we’re scaling our adverts using real examples and maths from OUR campaigns.
First, we work backwards
The first thing I want to do, is look at my initial product. The first product I position in front of customers is a $19 email series.
To keep the maths simple, in £GBP, that’s around £14. So I have a £14 product that I sell to all my new leads.
I’m willing to spend up to £14 per new customer. That’s the key fact you MUST drill into your head. How much are you willing to spend per customer?
I’m willing to acquire customers at £14 each. I know that this first product WILL lead to future sales. So, I’m happy spending £14 per customer.
“But Mike, doesn’t that mean you’re not making profit?”
Technically, you’re correct. At first, I won’t make a profit. However, I have other products and services to sell. If I only have one product, I’d have to lower that cost per acquisition. But I know for ever 10 people that spend £14 on my email series, roughly 1 will buy $100+ of course products.
So, I don’t mind acquiring initial tripwire and splinter customers at cost, because the next time they buy WILL be profitable.
Rather than still paying for the cost of acquisition over the 2nd and 3rd product sale. I’m generating profit faster.
I also know that the rate at which cold leads by our flagship product (~$1200 – $1497) is less than 0.5%. For one sale, I have to generate 200 leads.
I also know that roughly 10% of tripwire customers will buy our flagship product. So selling them a small products actually INCREASES the conversion rate of a more expensive product. Therefor, I’d rather sell them a small tripwire first and then position the larger cost products later.
How much per customer?
We ran a Facebook campaign over the last month and generated 4 tripwire sales. That’s 4 sales of £14 each, for a total of £56.
The same advert generated 25 optins. Meaning for every 25 optins, we generated 4 sales. I measured this using my ActiveCampaign tag system. I know FB pixels can do it, but I haven’t got that far yet.
This gives me a sales conversion rate of 16%, which is pretty high. Now I’m aware that 4 sales, 25 optins isn’t enough data to make definitive statements. But it’s an indication that we’re moving in the right direction.
- I’m willing to pay £14 per sale
- I’m willing to pay £56 for 4 sales
- It took 25 optins to generate 4 sales
- Therefor I’m willing to pay £56 for 25 optins
- Which means I’ll happily pay £2.24 per optin
- £56/24 optins = £2.24 per optin
So our first scale indicator is that we want to keep our spend BELOW £2.24 per optin.
Below is a spreadsheet for our campaign.
On the left, we have 4 key interests that we’re targeting. It shows the number of optins per interest and the total (25).
So far, on the advert, we’ve spent £51.23.
£51.23 / 25 optins = £2.05 per optin. Which is BELOW our “willing to pay” cost of £2.24.
The reason we split our adverts up by interest, is so I can see the cost per optin in more detail. I can see above that 3 adverts are below our target of £2.24 per optin.
However one, the advert with Russell Brunson as an interest, is £2.84. So that means, using our current conversion rates, every time we make an optin using Russell Brunson as an interest, we’re likely to lose money.
Russell as an interest is £0.60 over what I want to pay. So I’ll switch that advert off.
Now in reality, I haven’t had enough data go through our system to determine whether I should turn the advert off. But as this is a test, I’ll turn it off and try to drive more from the other adverts and interests.
This means, we’re slowly creating adverts and optins which are SCALABLE. If I pump more money into the other 3 interests, the profit scales. I keep making profit PER optin and PER sale. Rather than paying per customer and lead.
Next, I keep tweaking the adverts and interests. I keep an eye on the optin rates and sales rates. If my costs soar for each optin, I’ll switch it off and start again.
I’m looking to spend $1000 profitably on one advert. As soon as I create that campaign and it works, I’ll scale the advert set and increase the reach.
Next, I’d identify my “willing to pay” for my clicks. I know that I have a roughly 11% optin rate. So for every 100 clicks, I’ll get 11 optins.
Or, for 1 optin, I need 9 clicks. If I’m willing to pay £2.24 per optin, that’s £0.24 per click.
£2.24/9 clicks = £0.24
So I can keep an eye on my costs per click to see if they’re not too high. Again, I’m not that interested in cost per click as long as the optin and sale conversions measure out.
It could be that I have a cost per click of £1.12, but at a 50% optin rate, that evens out.
- 1 click = £1.12
- 2 clicks = £2.24
- 50% optin = 1/2 optins per click
- =£2.24 per optin
What to look out for
Ideally, I want to know the sales optin rates for all the interests too. There are ways of measuring this and I’ll be experimenting in the coming weeks.
For example, it could be that the optin rate for the interest Ryan Deiss stays at 50%. Giving me 100 leads for every 200 clicks.
However, the sales rate could be much much lower. 5% sales would give me 5 customers for those 100 leads.
On the other hand Russell Brunson might have a lower optin rate, but a far higher sales conversion rate. Which could balance out the overall cost per customer.
I don’t want to be too hasty in turning adverts off or keeping them on, if it means that one interest converts at a different rate.
Are you trying Facebook advertising? What costs and tips do you know that keep you profitable? Let me know in the comments below.