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Marketing | Jul 2
Dann Albright on October 15, 2018 (last modified on October 17, 2018) • 16 minute read
Even as ad spend on Facebook continues to climb (after a tumultuous first quarter in 2018, ad spend on Facebook was still up 50% year-over-year, totaling $11.7 billion), our latest research shows that many marketers are still driving acquisition at reasonable costs on Facebook.
After polling dozens of advertisers, including ad agencies specializing in Facebook, we learned that 28% of respondents report a customer acquisition cost (CAC) of less than $5.
Another 28% report a CAC between $6-$10.
That means roughly half of respondents report a Facebook CAC of less than $10. That’s impressive any way you slice it.
On the other end of the scale, 7% of respondents report a CAC greater than $100, not unusual for service industries (both b2c and b2b) as well as higher-end consumer goods.
Now, there’s nuance to these numbers that can only be explained by the practitioners themselves. That’s why we also asked them to share the things that have worked for them in driving engagement up and acquisition costs down.
Here’s what we learned.
Editor’s note: Want to quickly measure overall ad performance as well as the performance of individual campaigns? Grab this free Facebook Ads dashboard and track the performance of multiple campaigns in one place.
“Getting the best CAC on Facebook boils down to the science of your audience,” says James Robinson, executive creative director at Iconic Genius.
“Who are they, what are their behaviors, what are they interested in, what are their desires and pain points[?] The better you can understand your audience, the lower your CAC.”
Here are the steps Robinson recommends:
“Social media is always changing but two things will always remain the same,” adds Robinson. “First, no matter the platform, the goal of these social sites is to keep people on the platform for as long as possible. So do not use external links. Do not run an ad that leads people off of the site. You will be charged more for it.”
“Second, social will always be centered around engagement. Find out how to make your ads engaging and I promise you will see the lowest CAC you’ve ever seen.”
Active Web Group creative strategist Michael Lewis also emphasized the importance of your audience:
“The only way to truly succeed with Facebook Ad Campaigns is by running various tests and optimizing your audiences based on the results you find,” said Lewis. “This involves having a start audience (we think of it as clay) and make small, single adjustments with each test. Testing one change at a time helps you attribute the change in results to the change you made. This avoids any ambiguity.”
“I’ve found it helps to start by brainstorming a large list of Facebook audiences,” says SEO consultant Stacy Caprio. “You may find it helpful to use the native Facebook audience search auto-fill feature to help spur more ideas and thought. You can also use Google and Amazon auto-complete to give you more search ideas to choose from. Once you have a large list, narrow it down so you’re only looking at the most relevant audiences of your product or service.”
Adds Caprio, “Then, set up identical ad sets, each pointing to the handful of different audiences, and let each run for at least a week. Once you have that data, you can cut the underperforming audiences, and brainstorm more audiences that are similar to the high-performing audiences.”
“To reduce your CAC on Facebook Ads I’d recommend narrowing down your target market as much as possible,” says Michael J Schiemer, owner of Bootstrap Business.
You don’t want to exclude potential customers, says Schiemer, but “the more specific your target audience is, the better. When in doubt, targeting accounts that are interested in your competitors’ pages usually gets strong results for a reduced price.”
Of course, there are many ways to better target your audience.
Co-founder Zach Hendrix shared some great results from GreenPal’s Facebook ad campaign.
“In a recent campaign we ran in Nashville, TN, we ran our Facebook campaign with one ad targeting the entire metro Nashville area,” said Hendrix. “The headline read ‘Local Lawn Pros in Nashville are a click away. And I thought the performance of the ad was good with a clickthrough rate of over 1% and conversion rate of over 10 % on the Nashville landing page, but we needed to improve on it.”
Adds Hendrix, “We researched census data, looking at the average income and home values throughout the Nashville area. We found that East Nashville, an up-and-coming neighborhood, was populated with more working class, and a creative class, demographic and we hypothesized this customer segment would be price-sensitive but still not want to cut their own lawns. So we segmented those ZIP codes and only ran a specific ad for them with a headline ‘The Cheapest Lawn Mowing in Nashville. Lawn mowing from $20. We then created a matching landing page. After running the ad for one month, on-page analytics proved the guess to be true. We saw over 200% lift in clickthrough rate and 30% lift in on-page conversion.”
Sunlight Media founder Angelo Frisina also emphasized the importance of geotargeting for local businesses.
“If you’re a local business you should narrow down your target audience to a specific geolocation. Targeting users outside of your service area would be a huge waste of ad spend. It will also increase your CAC.”
Don’t underestimate the capabilities of geotargeting. According to Rune Bromer, CEO of Tamoco, “The best [suppliers] have device-level information that is accurate and have a methodology that can provide genuine interest-based segments based on device movement.”
Amy Bishop, owner of Cultivative Marketing, recommends interest and behavioral groups for targeting:
“Any interest targets that are overly broad can be segmented further by layering additional audiences to allow for further segmentation,” said Bishop. “Furthermore, ensure that your ad sets are segmented by device, by platform, and by placement.”
After that, Bishop adds that it’s about analysis. “As data starts coming in, you’ll easily be able to determine what’s working and what isn’t. You can run reports to determine if further segmentation or exclusions need to occur for things like time of day and geography.”
Alistair Dodds, CEO of Smoking Chili Media, shared an entire interest-based workflow with us:
“This process takes users from being cold leads through to warm and then sales. The resulting CAC is lower than any other method we’ve tested (and we’ve tested a lot over the past 7 years of running Facebook ads).”
He went on to give an example of a spa that used this strategy, and the results are remarkable.
“We posted one news article related to health and well being per day,” Dodds. “Used ads to target the non-members. Those who engaged were then targeted by our second campaign with content from the client’s blog alternating with the curated content. When they engaged with the client’s content, we then targeted membership offers and free trial ads. We were able to obtain a cost per lead of £1.50—that is non-members of the club providing a name, phone number, and email for the sales team to contact based on the ad offer. Their closing rate was 1 in 10, leading to CAC of £150 and ROI of 873% (given the average lifetime membership of clients).”
“Aligning your Facebook Ads strategy with a traditional marketing funnel allows you to better allocate budget based on the area where your business is struggling the most,” says Ashley Baxter, founder of Modern Marketing School.
“By doing this, I’ve been able to double CTRs and drastically reduce CACs.”
It’s hard to argue with those results.
“When Lightning AI started working with Peloton, they were primarily focusing on broad and lookalike audiences for new user acquisition on Facebook,” says Lightning AI co-founder Colette Nataf. “They found that they weren’t able to scale, not just on Facebook, but on other channels as well—they didn’t know who their users were or really how to target them.”
Adds Nataf, “We ran more than 1,000 tests to try to find the perfect interest and behavioral targeting groups on Facebook for Peloton. And many of these groups outperformed broad and lookalike audiences! We managed 20% of ad spend on Facebook prospecting campaigns for new bike sales and drove 26% of total purchases from prospecting. This means that not only were we creating scale, the new audiences we found also had a lower CAC.”
Of course, not everyone can run 1,000 AI-assisted tests. Vivek Chugh, founder of Listables, recommends taking it one step at a time:
“Test one target, see how that does. Test another, see how that does, and so on,” said Chugh. “Once you have tested a few different target demographics compare against the others for which generated the lowest cost per conversion. Once you have that you can really go in and start optimizing. See if conversions are coming from mobile or desktop, what age range, male or female, etc.”
Using these tests and lookalike audiences, Chugh and the Listables team brought their app’s cost-per-download from $8 to below $1.
Think all of that testing sounds expensive? It doesn’t have to be, according to Alexander Sergeev, founder of Hygger.
“The best way is to test campaigns with a small budget at first. You should test the value hypotheses and audience hypotheses. Then analyze which of these hypotheses give you the best result.”
Once you’ve determined what works best, you can start scaling up.
“The greatest improvements to CAC across our campaigns have come from leveraging highly segmented lookalike lists,” says Josh Sturgeon, co-founder of EmberTribe. “We’ve seen CAC improvements that range from 50–70% by executing on this one component more effectively.”
But it’s easy to make mistakes with lookalike audiences.
“Consider an eCommerce store with wildly different categories of products,” adds Sturgeon. “The same store may sell a breastfeeding cover alongside a men’s health supplement. Using an export of all customers over the last 90 days does not give Facebook a cohesive look at the profile of customer you want to target. Mixing in men and women within the source list who have vastly different affinities and purchasing behaviors confuses Facebook’s ability to create accurate lookalike targets.”
“The goal should be to create a homogenous source list of similar customers.”
EmberTribe has experimented with source lists from less than 1,000 to over 1 million entries. Which ones are best?
“In our experience homogenous source lists between 1–5k have performed best.”
Ian Revling, copywriter at Evolve Digital Labs, also recommends lookalike audiences.
“We’d suggest that your organization create custom audiences of people who have visited your website in the last 30 to 90 days and who’ve spent the most time on your site,” said Revling. “Then, from those audiences, create specific lookalike audiences and narrow your targeting focus by interest-targeting ad sets.”
“By doing this, your organization will deliver personalized ads to users who are sure to consistently decrease CAC while increasing conversions.”
“Customers who have seen your brand before are more likely to convert,” says Jx Tan, principal consultant at Momentum Digital. “To get started, you can start by re-targeting people that have visited your landing page from previous ads and also contacts from your mailing list.”
Vilampara Media founder Jeneeit Jeyakanthan recommends this approach with video content:
“Facebook allows a brand to retarget the viewers of video content posted on a Facebook page. If a brand is regularly creating relevant video content, more target audiences are likely to view the videos. As a result, the ads are more likely to convert with a low customer acquisition cost (CAC).”
He also shared the results of a video and retargeting campaign aimed at the parents of students in primary schools: “During the admission time, we ran lead generation campaigns retargeting the video viewers and generated 200% of our target leads. Conversion ratio was 86%.”
Amy Hayward, inbound marketing specialist at Meticulosity, also uses video and retargeting.
Hayward’s campaigns retarget ads to viewers who have watched more than 10 seconds of a video.
“Taking a sales funnel approach to Facebook Ads can really help drive down CAC — I’m finding this particularly true using Facebook in-stream videos and paying $1 a day for impressions,” said Hayward. “Using this approach, you create three main campaigns — awareness, engagement, conversion — and pay $1 a day per video you use. We spend around $9 a day for 9 videos, with a CPM of less than $0.10 for awareness, then retargeting to those who have viewed more than 10 seconds of a video with ‘engagement’ pieces that tend to either be further content pieces or more information about us.
Adds Hayward, “The final stage of the funnel pushes the hard-sell, but only goes to those who have had at least two touch points already with our brand. We tend to limit this retargeting to 28 days but we are experimenting with longer catchments. Our sales cycle is not super fast, so we want to make sure we hit the right note when it comes to retargeting.”
“The most effective way for reducing your CAC on Facebook ads is by creating a custom landing page for that specific Facebook ad,” says Jonathan Aufray, co-founder of Growth Hackers.
“I see too many companies that create Facebook ads and direct all of them to the same landing page. From experience, the CAC is getting lower when the landing page is tailored to the Facebook ad.”
Rick Ramos, CMO of Healthjoy, agrees: “I think the best way to reduce your CAC on Facebook is actually always off of Facebook.”
“Yes, you can do lots to improve your CTR but the biggest factor for your CAC is how you’re positioning your product or service on the landing page and throughout your site.”
“For conversion campaigns, instead of sending people to a landing page hosted on something like Pardot/HubSpot, use the native Facebook ad format called Lead Ads,” says Kamil Rextin, GM at 42+. “Any action taken on Facebook will be a lower cost than off-Facebook ones.”
By combining this with audience segmentation, 42+ has “lowered costs for B2B SaaS clients for TOFU campaigns by up to 50%.”
“For example, a client in the financial SaaS industry was regularly seeing CPL of $40 and above at first, using lead ads and creating remarketing audiences, we lowered the cost to (on average over a 30-day period) $15–$10 CPL.”
John Huntinghouse, director of digital marketing at Epic Marketing, also recommends lead forms:
“We were able to drop our CAC from $150 to $36 by utilizing lead forms and the HDRE (Hypothesis Driven Rapid Experimentation) model.”
“By eliminating the need for a landing page (people don’t want to leave Facebook, they want to stay there), we were able to increase the conversion rate for our leads and decrease our CAC.”
“First things first, try to understand what a Relevance Score is because it directly affects CAC,” says Irina Maltseva from SEMgage. “The Relevance Score is the magic number that varies from 1 to 10 letting you know how relevant an ad is to its target audience. A Relevance Score of 1 is very bad; it means that your ads are not relevant to your audience. Facebook will only continue showing it if you pay more. On the other hand, a Relevance Score of 8 or higher means that your ad perfectly matches the audience you target.”
Maltseva also shared some things to keep in mind when you’re trying to increase your Relevance Score:
Hill Gaming Company founder Casey Hill also brought up Relevance Score.
“If you want to capture that moment of attention you have on Facebook, you need to have an ad with a high-quality image and concise, interest provoking copy. This will make for more relevant, cheaper ads.”
“In my early days, I tried to explain exactly why buying my product made complete sense, all in that ad copy. When I transitioned to short, concise copy with a beautiful image that then took them to a landing page with videos and a full, easy to navigate break-down of the product, I instantly cut down my CAC dramatically.”
Don’t just test your targeting and retargeting. Test your ads, too.
“The most effective way for reducing the CAC on Facebook Ads is to try different ad creative types in all different layers,” says Sanne Kruis, marketing manager at The Next Ad.
“Set the goal per campaign and its layer super clear, in order to know what content is best to promote. A video at an early stage and later on maybe a lead form to drive the contact through.”
Different campaigns and funnel stages require different content.
Marketing has moved beyond just driving awareness and demand. Your Facebook ads should, too.
“In my experience, the most effective way to reduce CAC is through a full-funnel approach that combines the best of paid, organic, and owned communication channels to craft a unique experience for the end consumer,” says John James, founder of Engine eCommerce.
“For example, during the growth phases of Country Outfitter, we often asked ourselves how we could reduce CAC. What we landed on that worked and helped us scale to a $100m run rate company was a very simple process. Our first interaction with a customer was a giveaway. For just your email we would sign you up for a chance to win a $300–600 dollar pair of boots every week. From there we would bring you to our site through personalized content. We would write articles on all things ‘country,’ and once you were on our site we would learn your interests through the products you browsed through.”
Adds James, “Then if you left our site without making a purchase we would serve you ads on Facebook and Google, as well as send you personalized flows via email. Doing all of these things sounds expensive, but when you optimize your ads properly, it costs around a dollar to collect someone’s email, another dollar to bring them back to the site with content, and maybe an additional $10 in retargeting to acquire them as a customer whether it be through email or paid retargeting.”
Calculating and reducing your CAC on Facebook ads can be difficult. But if you follow the best practices laid out in this article, you’re sure to see improvements.
Have you decreased your own Facebook CAC? Which strategies did you use? Share your advice in the comments below.
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