A compatriot in the pool industry, Matt Giovanisci, and I were chatting about Facebook marketing for an article he was prepping on Facebook advertising for pool businesses. His article came out well-targeted, but we covered a few more technical points that didn’t quite fit his audience that I thought I’d share here.
We hit upon a series of pretty good hypothetical questions during our discussion, which I’ll use to format this article.
How do you justify spending money on Facebook? How do you know you’re getting a return?
In my case, running an e-commerce site, we can track how many orders come from Facebook–and most of that is on coupon usage. So, we drive traffic from Facebook and Google’s ad networks to our like-gated coupon, the customer uses that coupon, and once we have orders tied to that marketing channel, it can justify a certain amount of spend.
So you pay for ads on Facebook and Google that direct traffic to your Facebook landing page?
Yes. The logic on the Google ads is that someone is searching for a coupon for my site, and they can either land on a coupon site for it, or find my Facebook page. If they like my page, then I have the opportunity to market to them again in the future. If they land on a coupon site, then I may never see them again, and if the coupon site belongs to our affiliate network, I may even have to pay them a commission for that sale. The click from AdWords is much cheaper for me.
How do you know that the Google path is ending up on your site and converting, if Facebook is relying on the coupon to get credit?
AdWords drops a cookie on the client, and the AdWords conversion tracker on the order confirmation page can recognize it.
You don’t seem to push products very hard on Facebook, how are you getting orders?
The ads are attracting buyers to like the page. After they buy, our posts show up in their newsfeeds from time to time. Matt quotes me in his article: “it’s like driving by your business every day on the way to work – even if they don’t buy that day, they know it’s there.” After that, when they do need something, they’re more likely to come back, and that funds the next generation of ads.
Do you have any suggestions for small businesses who want to use facebook?
Some businesses don’t see the reason to spend the money getting Likes unless it directly converts to sales.
Well, that’s a reasonable objection. If you don’t have the luxury of an e-commerce site, then you have to do a little thinking to determine what you’re actually trying to accomplish.
Your goal is not more Likes. Are you aiming to create more phone calls? More foot-traffic to your store? More leads? What ever your actual goal is should be something you can put a value on. For example, if you were hoping to generate more phone calls, then before you do anything, you should determine what a phone call is worth to you. Luckily, this is not a matter of guessing.
To determine the value of that call, first determine how much you make on a successful call. If a successful call generates $50 in profit, on average, then you need to know your Conversion Rate (CR) on those calls. If you take 100 calls per week, and those lead to 20 successes (booked appointments, or what ever your win-condition), then you have a 20% Conversion Rate. By virtue of the arithmetic, you can use this to directly determine how much a ringing phone is worth to you; multiply the amount of your profit you’re willing to spend on advertising by your conversion rate. For example, if you were willing to spend half of your profits driving new business ($25 per success), then 20% of this is your call value ($25 * 20% = $5).
In this example, the $25 is your CPA, or Cost Per Acquisition (sometimes Cost Per Action). Similarly, in this case, the $5 value is called your CPL, or Cost Per Lead.
CPA * CR = CPL
This formula is absolutely critical–be sure you understand it. The CR may change, of course, depending on the quality of your incoming leads, so keep an eye on it, and adjust your assumptions as you go.
With your CPL, you can now make reasonable decisions about how to attract those leads. For example, knowing that a lead is worth $5, you start looking at Facebook marketing. You set up a coupon, and set up some ads pointing to it. You determine that the ads drive a call about 1% of the time, so you know (using similar math to before) that you can spend 5 cents per click ($5 * 1% = $0.05)–this low a bid won’t drive much traffic.
So what are we doing wrong? There are two possibilities, and one mistake. The first possibility is that our product or service isn’t well suited for this kind of marketing. If you don’t have the margin to justify spending more per lead, then it might just not be a good fit. This is common, but don’t despair–there are other ways to market your business. The second possibility is that we need to work harder on the ads to make sure they’re attracting the right clicks, even if fewer of them. 10 excellent clicks will make you a lot more money than 100 cold ones, because of the quality of the leads they generate. What you’re doing here is manipulating your Conversion Rate by changing the variables upstream. Set you bids conservatively, target the ads carefully, and be patient. Remember, smart marketing is not going to be like pouring gasoline on a fire–it’s about making the right moves at the right times.
The mistake we made, however, is related to stacking the ad expenses with the coupon. If the coupon was worth $5, then the final profit of the order is $5 less, and your CPA should probably be $20, not $25. Finding the right balance between reserving money for the ads and giving it away with the coupon will be something you’ll have to experiment with. However, if you keep an eye on your Conversion Rates and your effective CPL, you shouldn’t burn too much money on those experiments.
How do I know if a customer walks into my store because of Facebook?
The easy answer is “ask.” The better answer is more complicated, of course. If you are running multiple types of marketing, then it’s difficult to tell whether that person is a Facebook customer or a Newspaper Ad customer, but as it turns out… that doesn’t end up mattering very much.
The fact is that individual shoppers coming into your store are not statistically relevant. If you are flipping two coins, and one gets three heads in a row while the other doesn’t, you can’t actually claim that there’s a difference in the way the coins flip–only that you collected six data points.
If you have a very predictable, stable amount of business, then you can compare the business before and after you implement a new channel. This, of course, doesn’t work if you’re trying out a bunch of things at once–there’s no way to tell what came from where!
If, however, your business fluctuates widely (some weeks you have 50 customers, other weeks 500, and this is normal for you), then you will have to rely on coupons and more traditional means for determining what foot traffic came from where.
Here’s another option, however, and that is related to clever budgeting. Say you expect 50 customers a week, and are willing to spend $500 on experimental advertising. Then you should allocate a percentage of all orders beyond that 50 per week to continuing to build that advertising channel. Using a percent of business, rather than a renewing fixed amount, to fund advertising allows your business to snowball good ideas, and chokes out bad ideas without risking the farm. If no new orders are generated, then the experiment runs out of money, and you pivot to try something else!
Do you think it’s stupid for a small business to pay money to obtain Likes?
In short, yes.
I don’t recommend spending money on anything that’s more than a step away from something you can pay a bill with. Sure, if you have a lot of likes, then you can use those to generate warm leads, and those can lead to an order, but unless you think you’ve mastered the lead generation step, climbing a step up the conversion funnel to go after likes is dangerous, and expensive.
Remember when I showed you how a $25 CPA might not be able to afford running ads? Likes are like buying ads for your ads! You add another Conversion Rate to the calculation, and end up with a per-like value of well under one cent.
There may be a point where it makes sense to use money to drive likes, but I recommend doing so in a context where you gain some other value, like a Like-Gated coupon, or similar. The Like, in that case, is a side-effect, not the main goal. The coupon use on an order is the goal.
So you’d recommend buying an email list instead?
Perhaps–that really depends on the quality of the list. Remember, the CPL you can afford goes down quickly if your Conversion Rate drops due to cold or low-quality leads. However, an email address is slightly closer to an order than a Like, so while I wouldn’t recommend it out of the blue, it might be less awful than buying Likes. Judging the quality of a list before purchase is pretty difficult, so I’d try to buy a sample, maybe a couple hundred, before I’d be willing to even consider buying a couple thousand. Otherwise, it’s way too risky.
If you were a small business and only had $100 to spend a month on gaining leads or foot traffic, how would you spend it?
Matt’s article was specifically about Facebook advertising, so that’s the answer he chose, and he got a pretty cool source for it, but my answer was different…
Geo-targeted AdWords. For a local business, Google has all but replaced the phone book as the method people use for satisfying a local need. If I had a toilet that was acting strangely, I’d Google “Sacramento Plumbers” to start my research. Lately, even mentioning the city isn’t required–Google knows where you are. It’ll pull up a map, show you where the local plumbers are, and even offer reviews (there aren’t quite as many as Yelp, but it’s still a pretty convenient resource). Be sure you have your business set up in Google’s maps index, and then set up AdWords. At the Campaign level, you can do things like “target searches with 15 miles of this address, except Roseville”. Their Geo-targeting is fantastic, and fairly easy to use.
Start out simple, skipping most of the fancy features (click to call, sitelinks, product extensions, etc.) to start with, and bid conservatively. Under normal conditions, you’ll see a much higher conversion rate and total volume from this than you will from any Facebook alternative.
I really enjoyed this chat with Matt, mostly because I love talking shop. If you’d like to continue the conversation, I encourage you to ask questions here, or contact me at the top of the page! Happy hunting!