Facebook ad campaigns are the number one way to grow and scale a business in today’s highly competitive digital market. Facebook ads produce success because Facebook has mastered two critical elements of digital marketing: reach and targeting. Facebook simply reaches a better audience though its laser-sharp targeting.
6 out of 10 persons you will sell this year will have a Facebook account.
80% of those are active on Facebook within any 28-day attribution window.
This means that with the right Facebook ad campaigns, you could present your brand to one half of the people on the planet within days. There has never been anything like this in the history of advertising.
How to Predict ROI from Facebook Ad Campaigns
Predicting campaign success is as much art as it is science. That’s because there are both objective (metrics) and subjective (persona interest, audience targeting, location targeting, ad quality, landing page quality, campaign linearity, A/B/C testing, number of competitors) that go into the process.
You can predict ROI success using the ad spend model below, or perhaps better, forecasting your Facebook™ marketing success using your KPIs.
However, IF you or the agency you’re working with has a good handle on all these elements (objective and subjective), running the numbers can give you an idea of what you might expect.
The secret to forecasting ROI is to work backwards. Most traditional agencies only work forward. They sell ad spend and impressions. Digital agencies who still have a traditional mindset, will add CPC (cost per click) to ad spend and impressions. CPC, according to Ad Espresso, is yet one more metric that, alone, is valueless.
If you’re used to dealing with the traditional agency mindset, it’s time for a mindset change. Because any of the above metrics alone, will cause you to spend money with no idea of the value you should receive.
Step 1) Profit
This step should be fun—really, it should be.
Step one requires you to determine how much revenue you want to generate—not sales, but profit. For example, if you want $50,0000 / month and your gross profit margin is 50%, you need to generate $100,000 in sales.
Step 2) LTV
What’s a new client worth to you? If they spend $100 on their first buy, how many repeat purchases would you expect? Divide LTV into sales revenue to arrive at the number of new clients you’ll need per month to make your goal.
Step 3) Close Ratio
Now, factor in your sales department’s close ratio or Lead Conversion Rate. If you need 10 new clients, and your close ratio is 50%, you’ll need your Facebook ad campaigns to generate 20 leads.
Additionally, you can factor in no-shows—people whom your sales team talks to but who never follow through. In e-comm, this is the “abandoned cart” or “bounce rate” metric—68% is the benchmark metric for e-comm.
Step 4) Landing Page CVR
Not everyone who clicks on your ad to your landing page or product page will follow through and become a lead. You need to know the bounce rate benchmark for this. If 10% of visitors convert on your landing page, you’ll now need 400 link clicks on your ad or ads.
Step 5) Benchmarks
Here’s where foreknowledge or research is required. You’ll need to know average CPC (cost per click) and ad CVR (conversion rate).
If, for example, you anticipate Ad CTR to be 1%, you now need a reach of 40,000 Facebook users. This metric is audience size. Audience size has nothing to do with audience quality.
Step 6) Ad Spend
Multiplying landing page CVR by CPC (cost per click) results in ad projected ad spend—how much money you need to pay Facebook to produce your desired results.
Step 7) ROI
Finally, calculating ROI is easy. For example, if your revenue goal is $10,000 and you spend $1,000 to achieve it, your ROI is 10X.
A massive driver of success or failure with Facebook ad campaigns relates to the audience choice. Choose wisely. Campaigns often are tremendously successful or equally horrific on this one factor alone.
Many get lost with the variables that need to be addressed to “crack” a Facebook funnel. These variables are: Aggressiveness of your competition, audience size, type of product, demographics—all these factors contribute to what makes a viable ad spend or not.
A great key to success with Facebook ads campaigns simply is testing. If you’re planning to be a successful Facebook marketer, it's important to see what will work for you before you sign on the dotted line.
We'd be delighted to help you with your marketing by running the numbers for you so you could see what works for you. Just click and book a call!