Are Facebook Ads Worth It?

February 2, 2020

Wondering how to determine whether Facebook Ads are worth the cost? Let's take the case of a service-based business running lead ads for the first time.

You can gain clarity by understanding a metric called "Customer Lifetime Value" and by setting time-based revenue targets.

First, let's set the scene.

facebook ads roi

Facebook Lead Ads

A former client received a pitch from a Facebook Ads marketer. The marketer offered to run lead ads for him for a month for free. "Free" means you pay nothing for the advertiser's work; you do pay for the ads themselves. The client asked me for my take on the pitch.

I don't provide a service that vets individual marketers, however I explained that this pitch is common in the industry.

The idea is that the marketer wants to prove that they can produce leads for you within that time period. They're confident that once you see the leads coming in, you'll sign up for their service.

The marketer isn't going to deliver sales, of course. Once the leads come in, it's your job to handle the sales process.

Let data lead

I also explained that some successful Facebook Ads marketers will decline a client if the client hasn't been experiencing regular growth.

These marketers contend that Facebook lead ads work best for scaling up growth not for sparking growth from zero.

What's Your Average Customer Lifetime Value?

Facebook Lead Ads professionals commonly charge fees based on the average customer lifetime value (CLV) of your clients.

Average Customer Lifetime Value (CLV) is an important metric to wrap your head around. In this scenario, it's going to help you assess:

  • whether your Facebook Lead ads are worth the money, and
  • whether you're getting a good deal from the marketer.

Don't know what your CLV is? The good news is you can download a CLV calculator and quickly get your number.

The former client of mine quickly determined that his average CLV is $35,000.

The Results of the Ad Campaign

Intead of 4 free weeks, the client chose 2 free weeks. He paid $200 for the ads.

He got 16 leads and 1 sale. Is that good or bad?

First, realize that 2 weeks is not a long enough time frame to judge whether that number of leads will come in consistently. But in order to focus on the ROI aspect, let's assume for this article, a business scenario where a Facebook marketer had produced such results consistently over a long time frame.

Let's look at the results through 2 different lenses: one of disappointment and one of data.

The Disappointment Lens

The business owner — a solopreneur — had to follow up with leads via email and phone. There was phone tag, he had to send reminder emails, and people were difficult to get ahold of. A minority actually made an appointment for the free consultation for his service. One was a no-show.

It helps to know that this process is a real slog. Most business owners I know don't enjoy this process but they stay motivated by keeping their eye on the goal.

To keep disappointment at bay:

  • Remember that the majority of leads don't convert and that's the norm.
  • Know that most business owners go through multiple iterations of lead generation processes to find what works best for them. And the best engage in continual experiments, often via small tweaks, in order to get optimal results.
  • Keep your eye on the near-term goal — developing a repeatable lead generation and sales process that works.
  • Keep your utlimate goal in mind: such as growing revenue and potentially selling your business at a good profit in the future.
  • Keep notes on what you dislike about the process and what processes you think need to change as your business scales. (This will be helpful in the future when you're in conversations with other Facebook Ads marketers you're considering hiring.)

The Data Lens

Now let's dial in the data from your CLV. This is where you get true clarity.

The business owner paid $200 to get a client worth significantly more.

With data at the center, we get some clarity.

But wait . . .

Now, as mentioned above, two or four weeks is simply not enough time to get an idea of average conversion rate or to determine whether the marketer can deliver leads regularly.

To learn more about how to assess campaigns, let's assume a hypothetical scenario: that the business owner continues to obtain an average of 2 sales every month. In that scenario, how do we determine whether that conversion rate is good or bad?

First, we need perspective:

  • Ask: What is the average lead conversion rate for my business niche?
  • What rates are my peers in the same field getting?

A colleague of mine in the financial industry makes one sale per 100 leads from his Facebook ads. He'd be beyond thrilled to get 1 sale out of 16.

What's considered amazing or below average varies across business niches. But don't overlook a comparison with your own business: how many leads and sales per month were you getting before hiring the ad professional?

ROI and goals

To really get a handle on ROI we need to have a goal in mind. (See this on prepping goals first.) We need to assess the results in the context of this goal.

Let's assume the owner's goal is to add $100,000 to his annual revenue.

If he continues to make 2 sales a month via his Facebook Lead Ads campaigns, how long will it take him to add $100k of revenue to his business?

Since each client pays $500/month, and he's made 1 sale, he's $6,000 towards his $100k goal. That means he needs only 16 more sales to add $100k to his revenue. Sixteen divided by 2 (sales per month) = 8 months to his target.

What if he increased his ad spend in order to double his sales amount? He could potentially hit his revenue target in 4 months. Since he has near-perfect retention rates, once he hits his revenue goal, Facebook Ads would be an occasional, not recurring cost.

The calculation above is basic. The client would need to account for advertising and Facebook marketer costs when calculating ROI and how fast he'd attain his goals. He could then determine whether he wanted to speed the process up.

Running a few numbers can open our eyes our options.

Remember, this scenario assumes you are using a Facebook marketer who delivers quality leads month-over-month, and that you've got your lead qualification / sales process down. You will also have to factor in the cost of your time.

Decide by data

Your data will tell you what your next action step should or can be. For example, that might be:

  • Continue to let campaigns runs in order to determine the ability of the Facebook ad marketer to generate quality leads on a regular basis.
  • Fire the Facebook Ads pro. Get a better one.
  • Tweak your landing page to filter out tirekickers.
  • Save time by setting up automated email follow-ups.
  • Create a secondary product: something you can easily sell if the lead doesn't qualify for your higher-cost main product. (This secondary product can even be a service or downloadable that you are an affiliate marketer for.)
  • Experiment with other lead generation techniques.
  • Experiment with other ad platforms, like YouTube.

A Few Additional Considerations

The purpose of this article was to underscore the importance of having a goal for your campaigns before they launch, having useful metrics by which to judge the outcomes, and letting data lead.

Here are a few additional considerations.

  1. Anything can be done well or poorly and that includes Facebook campaigns. If you're not getting results, choose a different Facebook Ads marketer.
  2. Before you hire a Facebook ad marketer, first verify results they've achieved for others. This is your best indicator that they will be able to deliver qualified leads to you on a continuing basis.
  3. It's important for you to acquire at least a basic knowledge of this ad platform to know what to look for. Take one or two free online tutorials to educate yourself.
  4. Do give your marketer adequate time. The campaign is occuring in a live digital ecosystem of thousands of individuals responding to your ad's copy, creative, placement, format, landing page, and offer. Any of these factors, in addition to the ad targeting, may need to be adjusted to improve results.
  5. When it comes to the free trial, opt for 4 weeks, not 2 weeks. The marketer will need to calibrate the campaign as it goes along. And don't expect to see the totality of what's possible in the first weeks. Indeed, it will be difficult to judge the marketer in such a short time period. (Refer to #2 above.)
  6. Read and listen to podcasts about sales and prospecting to stay motivated.
  7. Seek out a community of business owners in your niche. This can be online. You'll be surprised what you learn. What are they doing to get their conversion rates? What are they paying to get those rates? Are they handling their own Facebook Ads? Who handles their sales? What's their cost-per-acquisition? What's yours?
  8. Remember that no single tactic, tool, or property delivers business success. They work in tandem. At the core of a business's operations are a quality desired product, a system for generating quality leads on a regular basis, a good sales process for closing/converting, and careful tracking of meaningful KPIs.
  9. If you're not responding to your inbound leads immediately, you're going to lose sales.
  10. With digital, it's important to always be experimenting. Often slight modifications have outsized impact.

Summary

When you assess the results of your own ad campaigns, I hope you'll put your "data glasses" on first.

Doing so will prevent you from mistaking success for failure and vice versa. More importantly, you can use that data to shape your next action steps.



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