Advertising on Facebook is hard. The number of factors that can impact your results and the paper-thin threshold struggle of keeping your campaigns profitable makes it hard to understand what really causes performance to change. The radical changes of being profitable one day to losing money the next day leave many advertisers clueless.
How can performance change overnight and what factors constituted the change? One of the biggest challenges I face is explaining to advertisers why their results are so volatile. They have a hard time accepting my explanation and my reasoning that the biggest cause of performance changing is because of supply and demand.
Most advertisers tend to look at the final metrics such as ROAS (return on ad spend) and CPA (cost per action/cost per result) and try to make sense out of the changes in these numbers. They then go on to hypothesizing, suggesting different theories and sometimes even conspiracies as to why results have changed. They say things like “Facebook hates us”, “Ads don’t work anymore”, “My market became saturated” and so on…
Looking at your final metrics (CPA and ROAS) and expecting to realize what changed or went wrong, is like analyzing your favorite NBA team’s stats of wins and losses without looking at what caused them to play better or worse. How many points they scored each game, field goal percentages, three points field goals made, number of rebounds, etc. Without breaking down and analyzing the stats of the game, knowing the final result won’t tell you much.
Facebook is not a black box. Literally every relevant detail can be measured and tracked on Facebook Ads. The problem is that many advertisers are either not aware that these metrics are visible and that’s why they treat Facebook Ads as a mysterious box.
For every great day or bad day on Facebook Ads, you can easily breakdown the metrics and see what caused the change. Although every metric on Facebook Ads makes a difference, in this article I will cover the top 4 that I think requires the most of your attention.
Before I do, it’s important that you note that in order to not overwhelm advertisers with data, Facebook, by default, only shows you what they consider the most relevant metrics. You can, however, customize the data to literally see any engagement and every action a user took with your ads.
Anything from clicks, to the level of engagement, to actions users took on your website or app, everything can be tracked on ads manager. Simply customize columns and use the breakdown tool.
Below are 4 important metrics that can impact your performance and which you should pay close attention to.
CPM – Cost per 1000 impressions.
Most advertisers are well aware of the CPM metric. After all, advertisers understand that they are billed based on impressions. Even if they use a setting of bidding per click or page like, the cost will still be based on the market CPM, which is regulated by the supply and demand of ad space and the number of advertisers.
The cost of CPM is not something that you can change as it is determined by the audience that you are targeting. However, monitoring the CPM gives you a better understanding of why performance changes.
On Facebook Ads, you can use the compare feature to examine your results:
In the screenshot, you will notice that the CPM cost increased by more than 20%. Assuming our click-through rate and conversion rate remained the same as it did in the previous day, we can expect our results to be 20% worse (ROAS -20%, CPA +20%). This is because we ended up paying 20% more for each impression.
In many cases, an increase in the CPM shouldn’t concern you as it is generally accompanied by a higher click-through rate as well as a higher conversion rate. This happens because your audience is becoming more targeted and of higher quality.
Campaigns normally start with a lower CPM and gradually increase when the campaigns are fined tuned to your niche’s audience. You want to monitor your CPM once your campaigns have been running for more than a day or two.
An increase or decrease in CPM on a daily basis is a direct effect of supply and demand. A decrease in CPM can mean that more ad space is available either because users spend more time on the platform or advertisers are spending less money on ads at the given moment. An increase in CPM will be the exact opposite.
When you monitor the CPM you’re watching the demand on the platform. When the overall CPM increases in all your campaigns, your ads are experiencing more competition on the platform. Tracking CPM will allow you to analyze what levels of competition your ads are experiencing and how it impacts your ROAS and cost per result.
Similar to CPM, click-through rate can impact your performance and is an important metric to measure. Assume that your CPM remained steady, changes in the click-through rate will impact the cost you pay to get a visitor to your website.
If you pay $1 for 1000 impressions, and your click-through rate drops from 2% to 1% it means that instead of getting 20 people to your website for those 1000 impressions, now you will be getting only 10. This means you will be paying more for each user as you are getting fewer visitors to your website for the same amount of impressions.
Generally, there is a correlation between the change in CPM and change in CTR rate. In many cases, they decrease and increase at similar levels as a decrease in CPM can signal a lower audience quality, therefore you might get fewer people clicking through to your website. If, for example, the CPM stays the same and CTR decreases, your overall cost per result will increase (ROI will decrease) as you will be paying more money for each website visitor.
Website conversion rate (CVR) is the ratio of total conversions on your website divided by total visitors.
In the same way that CTR can impact your performance, conversion rate works in the exact same way. CTR is the conversion rate of impressions to ads to the website (first leg), and conversion rate measures the visitors who get to the website and convert. Because of this, they both have an equal impact on performance.
If CTR drops by 50% and CVR increases by 50% you will still get the same amount of conversions and vice versa. It’s important to mention that the conversion rate is calculated based on all visitors who come to your website, and doesn’t just measure the visitors who came from Facebook ads. This could potentially cause discrepancies in reporting as you have another traffic channel that brings really low-quality users, it can impact your website’s conversion rate. When this happens, it’s better to segment traffic based on traffic source in analytics.
Result rate is probably the most overlooked metric as a lot of advertisers are not familiar with this metric.
The result rate measures the percentage of results you received out of all the views of your ads. Essentially it is total conversions divided by total impressions. It’s usually a very small percentage that’s overlooked or disregarded. I think it’s important because it gives you an idea of how many of those impressions actually turn into a conversion.
Yes, the cost and number of impressions can fluctuate but, over time, you will be able to see if your results are steady, going up or going down. The smaller your result rate, the less relevant your product will be to the platform as it will mean that you will continuously need more and more impressions to generate a purchase.
Click to conversion rate (custom metric)
Another metric that I like to analyze regularly is the click to purchase conversion rate or the ad conversion rate.
Unlike the conversion rate on the website that measures all website visitors and divides them by the number of conversions, click to conversion refers specifically to the number of clicks coming from the ads and the number of conversions those ads have generated.
Click to conversion rate metrics allow you to analyze the efficiency of your campaigns as it shows you how many of the users who clicked to your website or app converted. In order to view this metric, you will need to create it under advanced ad reporting.
Advanced reporting enables you to create metrics that are not available in the ads manager. The conversion rate is just one metric you can create, but the options are endless. I use click to conversion rate to measure the conversion rate of the ads directly in ads manager instead of having to check my website analytics directly. This allows me to see the change in the conversion rate of my ads alongside all other important metrics on the same dashboard.
Some companies think that Facebook and other platforms control the effectiveness of the ads run on the platforms. This is just a conspiracy theory created by those who struggle to get results from their ads.
The key to running successful ad campaigns is to look at the most relevant metrics. There are literally countless amounts of data that you can look at. However, the main ones that any business should be analysing are CPM, CTR, Conversion Rate and Result Rate. These four metrics give you insight into how effective your ads are in converting your audience. That end result is the golden nugget of online advertising and having a high ROAS.