FB Ads Manager can be confusing. This confusion can be made even worse when performance is pointing down, and you aren’t entirely sure what changes will have a positive impact. Below, we will look at my top 5 favorite indicators for evaluating poor performance and how to optimize them.
What is it?
ROAS, or Return On Ad Spend, is a ratio of your revenue vs. spend that shows how profitable your ads are. We will be using this as our benchmark to optimize towards in this example because ROAS is the guiding light for most eCommerce brands.
If you are in the SaaS/B2B space, this might look like Cost Per Lead, but the fundamental principle remains: how much did I get back for my money spent?
Of course, there is an elephant in the room – this metric (ROAS) is likely wrong. Yes, you heard me correctly. Unfortunately, with all of the issues surrounding attribution, especially lately, it’s tough to understand what your ROAS actually is.
For your own performance measurement, you could look at your MER (Marketing Efficiency Ratio) to determine whether or not advertising is sustainable. However, that is separate from today’s exercise.
Another method you can use for the time being is creating a new ROAS column in your dashboard that will consider FB’s modeled data. This method won’t be a fix-all forever but should help in the meantime. You can learn more about that here.
What am I looking for?
With that out of the way, let’s look at ROAS. Something to keep in mind is that ROAS at different stages of the sales funnel SHOULD look different. For example, in a typical eCommerce funnel, it’s usually okay for ROAS in prospecting to be somewhere around a 1x.
In contrast, ROAS in the bottom of the funnel retargeting could be around 3x at a minimum. ROAS goals are entirely dependent on each company’s goals, margins, etc., but this is an excellent place to start.
The reason for this is purchase intent. Those at the top of the funnel are cold and have lower purchase intent, meaning that they will likely cost more to convert right away, whereas those in the bottom of the funnel are higher in purchase intent, it making it cheaper to convert them as they’ve already been exposed to the brand/product a few times.
It’s also usually okay to take a slight loss on prospecting (ROAS of around 0.8x, for example) as the initial acquisition is the most expensive part. If your lifetime value is substantial, you can make up that money over time.
This won’t be true of single SKU impulse purchase shops; however, if you have a strong retention strategy, this may be a tactic you can use.
That said, the closer you get to breaking even or above with a 1.0x ROAS, the better off you’ll be in prospecting.
How do I optimize this?
This is a broad question, unfortunately. Usually, ROAS is the first indicator that I look at in determining if a campaign/ad set/ad is working, and if it’s not meeting my goal benchmarks, I will dig into the ‘why’ further by looking at other metrics.
To figure out how to improve ROAS, we have to look at some other metrics and see what issues we can uncover and resolve.
So, without further adieu, here are the top 5 steps I take to figure out why ROAS is low and what I do to resolve it.
While I don’t use Cost Caps/Bid Caps on all campaigns, I will use them depending on the situation. For this reason, if the campaign is not using Lowest Cost as its bidding optimization, I will look at the cap’s performance.
There are a few things to look at, but what I use as my primary indicator for cap health is how it is spending vs. ROAS. Take a look at how ad spend looked yesterday compared to the daily budget.
Did it spend through its budget? Did it spend under its daily budget?
This can mean one of two things, assuming performance is below your goal ROAS:
The key here is to find the sweet spot. Start with a cap at 200% of your Average Order Value, and slowly decrease it by 10% every day until you see it stop spending through your daily budget.
Once you find that point, increase it slightly so that it spends through its daily budget while being exactly as low as it can get to spend efficiently.
It’s worth noting that caps are not a guarantee for success. As with all things in FB Ads Manager, there is no saying that it will or won’t work for sure. Each case is unique, but it’s certainly worth testing, especially if Lowest Cost hasn’t worked efficiently for you.
CPMs are a tough one. CPMs sit right at the top of the ‘waterfall,‘ where a high CPM will cause all other metrics to be more expensive.
Typically, if you see a high Cost Per Purchase, you see a high Cost Per Add To Cart, Per Click, etc.
For that reason, monitoring your CPMs is essential. The hard part here is that CPMs are mostly outside of your control, with a few exceptions. First, take a look at your CPMs. Are they higher than average? If so, here are some things to consider:
Click-Through-Rate is pretty straightforward. CTR is how often your ad was clicked vs. how many people saw it. Naturally, if your CTR is low, your Cost Per Click is higher, and so is every ‘cost per’ metric below that in the funnel.
Typically, what best defines performance is how aligned your ad creative is with the audience seeing it, so making sure that your ad and audience are synced is very important.
Every account is different, so take a look at performance and figure out your benchmark for this. Typically, if your CTR is below 1% at the top of the funnel, there is room for improvement.
Unfortunately, this can be a big game of reiterating upon creative until you find something that hits.
You can cycle audiences all day long, but in my experience, the brunt of the responsibility towards performance lies in creative.
If your creative has a less than desirable CTR without any meaningful conversion performance, turn it off. Did it gain some traction, but the results weren’t exactly what you hoped for?
Iterate upon it with different variations until you find something that moves the needle closer to success. Find something with a good CTR? Make more variations of that and scale them.
I would be remiss if I did not mention that CTR does not directly correlate with ROAS. In many cases, I’ve found my best ROAS ads to have average CTRs, and some of my highest CTR ads have had poor ROAS.
While this is not an exact measurement of how to tell if an ad will be successful, it can help determine if an ad can be successful when it’s early, and data is still trickling in.
Balancing spending is a big one in many accounts, in my experience. Typically, when performance is pointing down on an ad set, the system has determined that one ad is the winner among the rest, and it focuses all budget there, despite performance being worse on that ad than the others.
Facebook uses a method for deciding where spend goes that predicts and relies on long-tail performance, but most businesses don’t have the time or money to wait for a ‘maybe.’ So, what can you do to be more proactive?
Well, there are a few things:
When you think of a conversion rate, you typically think about the purchase as the key indicator, but to get a better idea of the whole picture, we can bring that concept to other metrics further up the funnel.
For example, how many people saw the ad viewed a product page (View Content)? How many people who Viewed Content also Added To Cart? Monitoring fluctuations in these metrics can be telling about both the health of your website and the alignment between your target audience’s expectations vs. reality.
To help better understand, you can create a few custom metrics in your dashboard that show your conversion rate (represented as a percentage, by the way) between different metrics, such as:
Monitoring these metrics over time and paying attention to how they change can tell you how buyer behaviour is changing, if new website updates are positively or negatively affecting performance, etc.
Don’t forget that you can add a Cost Per column for each metric to your dashboard. I use this a LOT. If you put Add To Cart in your dashboard, include Cost Per Add To Cart, and monitor that over time. Like Cost Per Purchase, this can indicate that something in the funnel isn’t working and requires action.
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