A Guide to Facebook Advertising
Every Facebook advertiser should know these fundamentals to achieve effective campaign results. Without these basic ad metrics, you are pretty much running ads from a blind perspective because you will not understand cause and effect. When comparing between an experienced and inexperienced marketer, very often, the difference lies in the optimisation. In other words, it is the troubleshooting part and the troubleshooting skill is what we need as marketers. We do not necessarily need to get everything right at the start, but we need to identify which part is wrong and fix it. That is a skill worth mastering!
Charging Model in Facebook Advertising
Facebook’s charging model is well-documented – it is CPM (Cost per Mille) or cost per thousand impressions. An impression occurs when your ad is served; does not matter whether your ad is seen or not. For example, when a user scrolls past an ad even without him noticing, it is still considered an impression.
The price you pay is denoted in CPM. If it is $5 CPM, that means you pay $5 after a thousand impressions. An ad can also be charged $50 CPM, and that is the challenge of a CPM model because it changes the whole dynamics of your advertising efforts. It does not matter if anyone clicks on your ad or not; you still pay the same price because you are charged per one thousand impressions.
High CPM is not always bad and low CPM is not always good. One cannot look at a Facebook campaign based on CPM alone and it is a myth to think that a low CPM is great because marketing effectiveness is rarely binary. A common beginner’s mistake is to determine the success of a campaign based on cost alone instead of Return on Ad Spend (ROAS).
This is prevalent especially in lead generation campaigns where marketers typically frown at a high cost per lead and preferring a low cost per lead. For example, people would believe that a $5 Cost Per Lead (CPL) is better than a $20 CPL, which is not correct. Because, unless you can track all the way to the sale, you cannot conclude that the $5 CPL is more effective. What if you found out, based on your sales record, that more sales are coming from the $20 CPL? Would it change the way you market?
Likewise, you need to view CPM in the same way. And very often a high CPM can return higher quality prospects, although this is not always true. In other words, you typically pay for what you get. There is a reason why Facebook is charging $1 CPM for certain markets and $50 CPM for another market. It does not always mean that the $1 CPM is better than the $50 CPM, or vice versa. One must look at the Return on Ad Spend (ROAS), to be the ultimate decider.
Reach is the number of people an ad is shown to. You can choose “Reach” as a campaign objective, and Facebook will help you maximise your ad exposure to the greatest number of people at the lowest cost. Do not confuse this with the number of times an ad is shown.
Frequency is the number of times a person sees the same ad. By now we know:
- Reach – number of people an ad is shown to
- Impression – number of times an ad is shown
To get Frequency, we divide Impressions by Reach. Realistically, Impressions should exceed Reach and we get a Frequency that is higher than 1.0.
CTR stands for Click-through rate. To get CTR, we divide the number of clicks by the number of impressions. For example, if you get 1 click after 100 impressions, your CTR is 1/100 or 1%. It is good to know that the average CTR for Facebook Ads is 1%, and we use this as a benchmark to see whether our ads are underperforming. Knowing this is important because it tells you whether you need to take immediate action, or you are doing OK.
This CTR is the first measure of the acceptance of your ad by your audience. For example, if your CTR is 0.5%, it could mean you have a product-to-market-fit problem, or your offer is weak, or you have a targeting issue, or any of these combinations.
An increase of CTR from 1% to 4% will reduce Cost Per Click by 75%. In other words, CTR and Cost Per Click (CPC) are inversely proportional due to the CPM charging model.
CR stands for conversion rate. The average conversion rate for lead generation is 5% to 10%, and for sales (E-commerce) is 1% to 3%. Assuming a CTR of 1%, an improvement of CR from 1% to 2% can drop your Cost Per Sale by 50%.
About the Learning Phase
How many conversions do we need within a 7-day period for Facebook to complete its learning? The conversion action will vary depending on what you set. For example, in lead generation we need 50 submitted forms; and in E-commerce, we need 50 sales within a 7-day period to help Facebook with the learning. Take note that we are talking about 50 conversions at the Ad Set level!
If we do the maths, 50 conversions within a 7-day period will return 7.14 conversions per day, or to round it, we need 8 conversions per day to help Facebook “graduate” from its Learning mode. This learning must be uninterrupted, so avoid editing of Ads and Ad Sets until the learning phase is over.
When Facebook completes its learning, it has a fairly good idea on who is your target audience is and would help you find most similar customers within that audience that you define.
Is it Sustainable?
If we work backwards, assuming 1% CTR, we need to send 800 visitors to our website every single day at a Conversion Rate (CR) of 1% to achieve 8 conversions or 8 sales per day. Hypothetically, at $10 CPM, each Cost Per Click is $1 – meaning we need 800 clicks to result in 8 sales per day. That works out to $800 per day just to help Facebook with its learning!
If you are selling a high-ticket item, at 1% CTR, this can still be profitable during the learning phase at 8 sales per day (or 1 sale for every 100 clicks) – your Cost Per Sale is $100. That is your break-even point and you cannot sell a product or service below $100 to stay profitable.
It really depends on your product or service and your profit margin. If you get $200 in profit for every $100 spent or an ROAS of 2:1, it is a sustainable business, provided your competitors do not squeeze you in your margins.