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.
While you may be concerned about wasting money or getting disappointing returns, it's also possible to entirely miss the success of your ad campaigns.
You can avoid this pitfall by understanding a metric called "Customer Lifetime Value" and by setting time-based revenue targets.
Sometimes, with Facebook Ads, as in life, you're much closer to success than you realize.
First, let's set the scene.
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 explained that while I don't provide a service that vets individual marketers, this pitch is common and accepted 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.
Readers please note: leads are not the same as sales, right? The marketer isn't going to deliver sales. Once the leads come in, it's your job to handle the sales process.
You may be closer to success than you realize.
I also explained that some successful Facebook 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 in a healthy business, not for sparking growth from zero. (The thinking is that zero growth could indicate a problem with the core business model, something that Facebook Lead Ads can't fix.)
I also informed the client that 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:
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.
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?
Let's look at the results through 2 different lenses: one of disappointment and one of data.
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.
One way to look at this is to focus on the frustration (and number) of boring follow-up tasks. Whether one chooses the disappointment lens has a lot to do with one's expectations.
If you don't realize the intense amount of work that needs to be done to generate leads and sales, then you may think this feels "off" and things shouldn't be this difficult.
But if you know this uphill climb is normal, then you'll gladly put your shoulder to the wheel, expecting that results will come, but your goals won't be achieved in 2 weeks.
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 $35,000.
With data at the center, any disappointment over no-shows or boring follow-up work should fade immediately.
Now, two weeks isn't enough time to get an idea of average conversion rate. But let's assume for the sake of this article, that the business owner continues to obtain an average of 2 sales every month. Is that conversion rate good or bad?
First, get some perspective. Find out what the average lead conversion rate is for your industry. Look for anecdotal figures from friends. A colleague of mine makes one sale per 100 leads. He'd be beyond thrilled to get 1 sale out of 16.
To really get a handle on ROI we need to have a goal in mind. 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 measly 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 to how close we are to acheiving our business goals.
The purpose of this article was to underscore the importance of having a goal for your campaigns before they launch and of having useful metrics by which to judge the outcomes. But I want to leave you with a few additional considerations.
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.