Profitably scaling campaigns is probably the main hurdle that every business that wants to grow has to clear. It’s one thing to spend $200 a day and stay in business, quite another to achieve the same returns spending $2000 or $4000. Here I’m going to take you through the metrics you need to pay attention to, the ‘early warning signs’ of a bad campaign, the key indicators of potential and the techniques for managing spend so you don’t empty your wallet chasing a unicorn.
How People Are Reacting To Your Ads
First, you need to know how users are reacting to your ads: are they visually appealing? Do they give enough information? Are they attractive propositions? The base metric for this is the CTR (link click-through rate). This shows what percentage of impressions result in a successful click. CTR is a great early indicator of the success of your ads, but be careful: a higher number doesn’t automatically mean your ads are kicking ass, just that they are engaging with users.
The distinction? The purchase conversion rate from those clicks. It would be far better to have a CTR of 1% and a conversion rate from those clicks of 5% than a CTR of 5% and a conversion rate of 1%. Trying to scale with such a minuscule rate of conversions is going to cost a fortune, and in the initial phases you are likely to see a drop in both CTR and the conversion rate from clicks anyway. Audience quality matters. So does website quality. A low conversion rate from clicks indicates several things, but the most likely are that your website does a bad job of completing the customer journey and that the audience you are delivering to the site is of a low quality.
Audience Quality and Ad Effect
This takes us to the second ‘early warning’ sign of your campaigns – the Add to Cart and Initiate Checkout metrics. These are useful as they can give an idea of audience quality and how effective your ads are before purchases start coming in. If users are converting well on these events it indicates a level of intent that goes beyond merely browsing. Furthermore, if users are adding to cart at a high rate but not following through with the purchase it may indicate an interruption or roadblock in the customer journey at either the cart or the checkout. The average cart abandonment rate for ecommerce is around 68%, so if your numbers are regularly exceeding this it may be time to analyse the final stages of your customer journey more closely. Maybe you’re charging too much for shipping or maybe you don’t have the right payment methods available? Keep an eye on these metrics as indicators of audience and website quality alongside the purchase conversion rate.
Cost Per Acquisition & Return on Ad Spend
Finally, we get to the meat: Cost per Acquisition and Return on Ad Spend (CPA and ROAS). Cost per Acquisition – how much you have to spend to make a sale – is probably your second-most-important metric, although this can depend on whether you have a single fixed product or sell multiple products which vary in price. Using your Average Order Value (AOV) as a guide, you can calculate what sort of CPA you need to break even and how much you need to spend to consider your campaigns worth your while. ROAS is the most popular metric – and for good reason! This is the return on your investment in one number. 1.5 means you get 50% of your investment back on top of the original amount, 2 means you’ve doubled the money spent and so on. It is the main reflection of the overall health of your campaigns.
The above metrics are the big boys when it comes to scaling. Keeping them within acceptable ranges while you increase spend is how you scale. Inevitably, an increase in spend is accompanied by bloating in some metrics – notably CPA – and contraction in others – like ROAS. It’s important to see consistent results at least 15-20% ahead of your breakeven numbers for around 48 hours before you begin scaling, and try not to increase the budget by more than 25% each time. This will provide you with a good ‘buffer’ to absorb the initial loss of efficiency and will prevent Facebook from spitting out all of your cash in a matter of hours. Another handy trick is to implement a cost control on your bidding strategy. Once you have audiences and creatives that you know work, and are ready to increase spend, begin with a cost control of 3 times your expected CPA. Once you see regular results coming in, slowly bring it down until you reach around 1.5 times your ideal CPA. This allows you to scale campaigns – especially CBO campaigns – without the worry that you’ll check your ads manager in a couple of hours and see a catastrophic overspend on clearly failing ad sets.
Audience Size & Quality
Two final metrics to consider are the Cost per Mille (CPM) – the cost per thousand impressions and Frequency. CPM varies depending on the value of the audience, its size and the quality and relevance of your ads. If your ads are solid but you’re seeing high CPMs, remember that this could indicate a smaller audience and therefore a limited scope for scaling your campaigns. A high CPM audience which converts at precisely the same rate as a low CPM audience will naturally have higher CPAs, so you will be able to piece this together from the metrics above – but looking to the future it’s important to know the value that Facebook places on your audiences before you start throwing money at them. CPM can grow very quickly if the audiences you are trying to reach are already saturated or if more advertisers are using the platform for a sales event like Black Friday or Cyber Monday.
Frequency is the average number of times each person sees your ad. If this number is too high (normally more than 3) then it’s possible that you’re saturating this audience and risk exhausting it if you spend more aggressively.
So there you have it. These are the metrics to watch to determine your ad quality, audience quality and potential and whether you’re scaling or slipping. If you want to chat and see if we can help grow your business, you can click below and see if you qualify for a call!