When talking about ads, we normally talk about performance. When we talk about performance we talk about ROI also known as ROAS. If you are not yet familiar with the term, here is the definition by Facebook:
“The total return on ad spend (ROAS) from website purchases. This is based on the value of all conversions recorded by the Facebook pixel on your website.”
You inevitably focus on other metrics whilst discussing your return on ad spends last. This is because ever since Facebook started tracking your actual ROI directly in ads manager, all other metrics have been pushed aside in terms of their weight and value. If two decades ago CPC (cost per click) was the MVP and last decade CPA (cost per action) was the MVP, then now it’s all about ROI.
It makes sense though, who cares about how much a “Like”, click or conversion costs you as long as your ROI is amazing. What difference does it make?
Making ROI the most valuable metric of the campaigns is undebatable, but the question of how to best impact and get the best ROI remains controversial among advertisers. Some advertisers believe that the secret to the success of maximum ROI lays in the foundation and structure of the ads. Others believe it is strictly related to your bidding and budgets. They believe that if you don’t have the best strategy for your bidding, your campaigns won’t maximize their ROI potential. Then, you have advertisers like myself who believe that to maximize your return on investment, you must first identify your “areas of impact” as an advertiser.
Why you need to comprehend Facebook’s machine learning
Understanding that Facebook’s machine learning can automate setting and bidding for you means your best bet is to invest all of your time in improving your CTR (click-through rate of your ads) and CRV (conversion rate on the website), and here are the reasons why.
- Facebook’s machine learning. Probably one of the main reasons Facebook Ads are so effective is their evolving machine learning with powerful capabilities. Without getting into specific details, Facebook’s machine learning takes all of the manual targeting and campaign creation work from advertisers and automates it in a way that maximizes performance. The use of serial algorithms and predictive analytics helps Facebook’s machine learning tool help find you the most relevant audience for each impression. This means that your campaigns will perform best when they are as simple and broad as possible. There are no secret funnels that can outperform the machine learning tool and, the more restrictions you use, the worse your campaigns will perform. There is no need to change your budgets and bids daily as it will only make performance suffer. If you want to maximize your performance, you should create simple campaigns and set your desired bids and budgets and refrain from touching your campaigns daily. Let the algorithm do the work.
- Automated cost per impression. Unlike what many advertisers think, we have no control over the cost per impression we pay. In most available campaign objectives on Facebook, you are billed based on 1000 impressions served to your audience. Some bidding options allow you to pay for results such as video view or page like, but these are also regulated based on the market price of impressions. The price for impressions is based on a bidding system between advertisers and it mostly depends on who you want to target. The more prime audience you are targeting, the higher cost per impression. It wouldn’t make sense to manually bid on the cost per impression as Facebook would simply shift your targeting towards a lower quality audience that has less competition thus will cost less. Instead, you optimize towards your goal which is conversions and Facebook bids based on when Facebook predicts it will be able to get you conversions at the best price. Whether you get conversions or not, you will still pay for those impressions. A higher cost per impression doesn’t always mean a higher cost per result. If the quality and relevancy of the audience will also increase, you will get more results and will require fewer impressions for a conversion. Facebook aims to find you the most relevant audience yet reach them at the most optimal time to ensure the most cost-effective results. As advertisers, we have to have a lot of trust in the system. When we monitor our account, we see a vast shift from time to time in the amount we pay for 1000 impressions, but if done right, actual results tend to stay steady. When cost per ad served is fully automated by Facebook, we are only left with maximizing the opportunity for conversion from each one of those impressions.
- Changing your bids and budgets daily will harm performance. Another important factor to consider is bid and budget management. Many advertisers believe that if they take full control of the daily management of bids and campaign budgets, they will outsmart the system. We know that to be false because Facebook’s machine learning relies on heavy data feedback from previous days to effectively optimize and maximize performance. This means that your bids and budgets are not going to have a direct impact on today’s performance as much as they would have on the weekly performance of your ads. In other words, when you tell Facebook how much you want to pay for a conversion, they assume the weekly average, meaning in some days you might have a higher cost per result and on other days it might be lower. Changing your bids and budgets daily might reset or impact the learning phase of your ads which can harm performance. Facebook recommends setting bids and budgets that you are comfortable with and not altering daily so the ads will have a stable performance.
- Improving click-through rate (CTR) will directly impact your cost per result and ROI. CTR indicates how many links clicks you’ve received on your ad compared to how many impressions your ad received. In simple terms, CTR is the percentage of people who clicked on your ads from all the impressions you had. Why is CTR such an important metric? It’s the only metric in the ads where you can make a strong impact. Yes, Facebook’s machine learning tool can help improve CTR by fine-tuning and automating targeting to show your ads to the most relevant audience, but once that happens, CTR will pretty much remain the same. Once CTR is stabilized, it’s all on you to make improvements and lift that number. Machine learning can do a lot of amazing things but when it comes to being creative and making ad creatives technology is not there yet. If you don’t understand what the big deal is here, below is an example of how great of an impact simply improving your CTR can have on your overall results.
As you can see in the illustration above, if you can double your click-through rate, it means that you are cutting the cost per conversion by 50%, simply by improving your click-through rate. You will pay the same amount for impressions, but improving your click-through rate will allow you to convert more of those impressions into visitors and more into customers which will bring down the cost per visitor, the cost per result, and increase your ROAS.
Tips on how to improve your CTR:
- The search for the best ad never ends. As long as you run ads on Facebook, you need to have a running streamline of new creatives to constantly improve your CTR.
- Examine your previous ads performance to understand what worked best in the past. Going through what succeeded based on your past data will allow you to better understand what works best and how to create similar creatives in the future.
- Follow your biggest competitors. Your big competitors that have large media budgets probably hire creative companies that have great ideas. If you can use their creatives as inspiration you can use those ideas to create your ads. It doesn’t only have to be direct competitors, it can be cross-industry competitors that target your audience as well. Feeding off their ideas to make your own can help you make better ads.
- Use Facebook’s Ad library to get ad creative ideas. Many advertisers aren’t aware of Facebook’s ad library which publicly shows all the ads of all advertisers on Facebook. You can browse and review every single ad on Facebook and use that as inspiration.
- Similar to CTR, CVR (website conversion rate) will also impact your cost per result.
CVR is defined as the Conversion Ratio, which shows you how effective your marketing campaigns are at converting clicks to sales. It’s essentially the number of clicks divided by the number of sales/conversions. Exactly like CTR, any improvements you make will directly impact the cost per result. See the illustration below
Exactly in the same way that CTR can impact your cost per result and ROAS, changes in CVR work in the same way. Many advertisers spend the majority of their time optimizing their actual ads and trying to figure out how to get as many clicks as possible, but not as many work on improving the “click to purchase” rate on their website. If you and your competitor are both advertising to the same audience and selling the same product, whoever has a better conversion rate will ultimately get better results. If you, for example, are converting 1% of your website visitors and your competitor is converting 2% of his website visitors, his cost per result will be half the cost as yours and his ROAS will be double.
Regardless of your industry, buying impressions for a quality audience is extremely expensive. If optimizing your conversion rate is not something that you do regularly on an ongoing basis, you are wasting money.
Here are some tips to improve your CVR.
- Change your price. If you are selling a product, the greatest factor that impacts the conversion rate is the price. Experimenting with pricing through small changes such as pricing an item $39.99 instead of $41.99 can make a massive difference in terms of conversion rate. Price changes can directly impact your cost per result dramatically, meaning that, even though you lower the price of your product by $2, you can still save $5 per purchase on the cost per result from your ads because it can boost your conversion rate which, in return, will lower the conversion cost of your ads.
- Creatives make a massive difference. Test different images or videos on the page as a single image can make a big difference in terms of your conversion rate. Don’t undermine the value of your product images or videos. Research shows that changing a product image or a landing page image can dramatically change the level of intent to make a purchase.
- Landing page text. Similar to creatives, the text you use on your landing page can also have an impact on the conversion rate. Experiment with different variations of text and continue to improve your results.
- Use a/b testing tools to test your experiments scientifically when wanting to get results with a statistically high confidence level. You can use Google Optimize, Optimizely, Convert, and hundreds of other a/b testing tools.
- Test everything and assume nothing. This principle doesn’t apply only to improving your CVR, but to your entire marketing efforts. To improve your CRV, don’t trust best practices, experiment on your own as each product/brand performs differently.
When it comes to online advertising, you want to get the greatest return on your spending and maximize the use of your budget. This can be achieved by considering how you can improve both your click-through and conversion rates. You can increase your CTR by constantly reviewing your ads and tweaking them whilst looking at the ads of your competitors and borrowing from their ideas. A higher CVR can result in looking at your price and improving your creatives.
Digital advertising is always evolving and that means that you need to regularly review the success of your campaigns and make the necessary changes so that you can get the highest ROAS.