Catherine Langman:

Well, hello there. It’s Catherine Langman here, back with another episode of the Productpreneur Success Podcast. And today, it’s actually Saturday, and I’m doing something that I never normally do, which I’m laughing at myself here. Yesterday, I was trying to recommend to one of our coaching students to try not to be a perfectionist about the way she was going about implementing a strategy. And here am I, on a Saturday morning, re-recording a podcast because I just wasn’t happy with it. But here’s the thing, I guess, this morning I was up super early. I took my two boys to their swimming training. It’s a bit brutal, really, on a Saturday. They were up in the pool at 5:15 AM, and then I came home and had my own coffee, and then went off to the gym myself. But it’s a funny thing about being up really early, you have a lot of time to think. And I realized that I missed out some really important information from the episode that I had recorded yesterday.

And so, I just couldn’t help myself. I wanted to sit down at the desk, pull out my podcast microphone, and go again. So here we are. I have had two coffees now. Hopefully, I won’t be talking at a million miles an hour. Anyhow, so the subject matter of this episode is continuing the theme of Facebook ads. So last week on the show, I had one of our senior Facebook media buyers on the show, Sally Bingham. Sally and I have worked together for many, many years. And last week on the show… If you haven’t listened to it, it’s definitely worth listening to. Not just for people running Facebook ads, but for your marketing in general. We were really talking about how important it is to really consider and put thought and planning into the creative aspect of your advertising goals for all of your marketing really. But really dialing that in to appeal to your ideal customer and where they’re at in their buyer journey, and how you can really get the messaging and the creative right for the different stages of that buyer journey for your ideal customers.

So that definitely is worth listening to, if you haven’t already listened to that one. And at the end of the day, the front end of your marketing, so what the customer or the consumer is going to see when they’re scrolling their newsfeed, or they’re opening an email, or they’re opening a magazine, or whatever media they’re consuming, the messaging side of your marketing is definitely a crucial part of the piece or the recipe. But the other side of things is the behind the scenes. And so the top topic of today’s episode is, I want to talk about a couple of really crucial, really important factors that contribute to the success or failure of your Facebook ads that are often forgotten.

And almost every single client that starts to work with us in our agency has not really considered these at least one of these factors, usually more than one. And it’s not necessarily because they totally forgot. It’s, I guess, an ignorance, not willful ignorance. If you aren’t trained in this area, it’s understandable that you don’t know to do these things, right? So I want to share this stuff with you because this is really worth learning, it’s really worth getting your head around this information. And I’m going to be talking about it in the context of your Facebook ads, but you can definitely apply this theory and this information to your other marketing as well. So I’m going to share a couple of stories to lead into what I’m talking about today. And the first story is about a student of ours. It’s a few years ago now. But this is a common scenario that I’ve definitely seen over and over again with many startups and small online store owners who are trying to learn the ropes with paid advertising.

And so what had happened is, she had set up her Facebook ads and then she’d just let them run for several months. I want to say six months. I can’t remember how long, but it was quite a significant period of time. And after a while, she, I guess, sat down and thought, “I wonder how much money I’ve spent on those ads.” And so she sat down and felt… She must’ve felt a little bit sick in the stomach to find that she spent over $4,000, which was a lot of money to her. And obviously depending on what stage of business you’re at, that might be a lot of money on ads for you as well. As you grow you’ll happily spend that money if you’re making suitable returns on it. But for this woman’s stage of business, that was a lot of money.

And I guess, she wasn’t necessarily worried so much about spending the money, but she didn’t know was how to tell if it had the desired effect. She didn’t know how to tell whether she had made suitable returns. She didn’t know how to work that out. And so, she was contacting us to, I guess, help her to figure that out and do a little of an audit, and see what the lay of the land was. And I truthfully, I don’t actually remember what the outcome of that was. Like I said, it was a couple of years ago, but it is a story that is very common. And I totally understand how people get into that situation. It’s really easy to set up ads. If you download the Facebook ad app on your mobile phone, it’s super easy to just set up some ads and let them run.

And even if you are trying to learn things, a more thorough Facebook ad set up strategy through the desktop Facebook ads manager. It’s still quite easy to set things up to spend without necessarily knowing how to understand and interpret the results. So that was that particular story. And then I want to tell you another story about a client of ours in our agency who had a fashion accessories brand. And when I started working with them to run their ads, they just didn’t really know. They weren’t necessarily spending a lot of money, but they didn’t… And look, this woman was super duper ambitious. She was ready… She had funding ready to invest. She was super duper ambitious, and she was gunning to scale up fast. And obviously if you’re going to do that, you need to know that you’ve got the right strategy, a. But, b, how much you should invest in the different growth strategies that you’re going to employ.

And you absolutely want to know that the money that you do invest is going to produce profitable results. And so in that particular scenario, she really didn’t know the numbers side of the business to be able to figure that out. So that was the first piece of the puzzle there. So what we’re going to talk about today are these really crucial, important steps that so many people forget with their advertising or just don’t know to do. And I’m going to share these steps with you today. And I want to start on the numbers side of things. So it’s one thing to learn how to interpret the results and understand the performance metrics of your ads. That’s all well and good. But if you don’t know if those results are profitable for your particular business or not, then you’re still kind of a bit screwed.

So it’s really understanding the numbers side in your business is the first step in this backend part of your advertising efforts. So there’s a couple of really important numbers. I mean, obviously you want to know some basic things your average order value, you want to know your website conversion rate, the average conversion rate for your website, that sort of thing. If you know those numbers, you can definitely work out… You can reverse engineer how much traffic you need to your website in order to achieve any revenue goals that you have. And that’s certainly part of the planning process that we go through with our clients, and also with our students in our programs. So that’s certainly part of it. So average order value and your website conversion rate, and then you can definitely figure out how much traffic you need to achieve your sales targets.

So that’s part of it. But then additionally to that, there’s a couple of numbers that you really, really need to know so that you can work out how much you can profitably invest in your advertising. And so one figure that you need to try and work out is your customer lifetime value. Now, this is sometimes… If you’re brand new in business and this is like a standing start, you don’t have any historical data, then you’re guessing there. And all I can say to you is you have to have a guess initially and use some logic to try and predict what people might do as a starting point, and then keep track of what actually happens as you progress so that you can collect that data. And then, down the track, maybe six to 12 months, you can start to revise and use actual data to put into the formula.

But a lifetime value, basically, you need as much data as you’ve got here. So it might be that you can work out how many repeat purchases and how much a customer spends in 12 months. It might be a longer period of time than that. Certainly for myself in my last business, which was a modern cloth nappy brand, typically we would keep customers for about, on average, two years. And sometimes it was longer, certainly. But I can tell you just as an aside, parents who have kids in cloth nappies, typically toilet train earlier. So it’s not like with disposable nappies and the kids are still wearing them at school, tongue and cheek there. But anyhow, so that was the average lifetime of the customer repeat purchasing.

And they would buy several times a year typically, because we had some consumables as well as the reusable products. Off the top of my head, I can’t remember now what the total lifetime value was for customers in that business. It’s few years ago now. But it was a figure that we worked at, and it was also a figure that we worked hard to improve and increase as well. Obviously, if you can get more frequent and more total repeat purchases from a customer, they become a way more profitable customer in your business. And to that end, if you want to hear a strategy to help with that and how to help improve and increase the repeat purchase rate of your customers, I did record a podcast episode a couple of weeks ago about how to grow your business around your most profitable customers. I have a feeling it might be episode 65, potentially. I’m going to link to it in the show notes for this episode anyway.

And if you haven’t listened to that particular episode, then definitely go and give it a listen. So anyway, lifetime value, basically what you need to know is the average order value and the number of purchases in a particular period of time. And so, obviously your time’s in one by the other, and you end up with the total. And you do need to work this out on an average basis, obviously. Because we are working on laws of averages when we’re trying to calculate the total ad spend that you should invest in your business. So customer lifetime value. And I guess where this comes into your ad strategy, it’s super tempting to think that you should be making a minimum return on investment on a first time purchase from a new customer. And at the end of the day, basic factor business that everyone, all of us, needs to get our head around, and certainly this is something that I definitely had to learn the hard way as well, is that the first purchase that a customer makes with you is never going to be massively profitable.

Obviously, it takes very, very deep pockets to fund making a loss on a first time purchase with customers. That’s businesses like Amazon, and I believe the Iconic also was able to launch with that sort of a loss leader strategy. But most of us smaller businesses don’t have the investment to fund that. But at the same time, you should never expect to be making all your profits on that first purchase. What we need to therefore know is, well, what is the potential, total revenue and profit for a customer? If I’m going to win a customer over how many times are they going to go on to order from me again. And there’s multitude reasons why you want to encourage that repeat purchase rate.

I mean, there’s that old adage that says, it’s much easier to sell to existing customers than it is to sell to new customers. And that’s because they’re already familiar with your brand, with your business. They know how to find stuff on your website. They already trust you. They’ve had a good experience, presumably, shopping with you and using your products. So it is way easier to illicit those repeat purchases from your existing customers. But of course, that’s only going to happen if you do have some marketing in place to drive that backend revenue side of your marketing. So lifetime value. And then the second figure that you really need to know, and I’m sure accountants will cheer, is your profit margins. And this will come out differently for different people.

So we we’ve had clients and students who are retailers, they retail other people’s products. And many of our students are brand owners, distributors, or they’re designing and manufacturing their own brand, like I was. And if you’re a retailer, even retailers, depending on the category that you’re in, you’re going to have different margins. So if you are in fast moving consumer goods or you’re in food and beverages, your profit margins are going to be way lower, much slimmer margins than other product categories. But by the same token, your customers are going to be purchasing from you more frequently as well. Because presumably, they’re eating and drinking all of that stuff that they’ve bought. Whereas if you are the brand owner or distributor, or you are the manufacturer, you’ve got much, much bigger margins between your cost of goods and your retail price.

And obviously if you can set yourself with the best margins possible, you’re going to give yourself the best possible chance to build a really profitable business for yourself. So why do we need to know those figures? And at the end of the day, once you know what the average customer lifetime value is for your business and you know the margins that you’re operating within, then that gives you the figures that you need to calculate how much you can profitably invest in your paid traffic. And that will, therefore, to some extent, dictate the budget that you fund into your advertising. At the end of the day, we do also need to take into consideration the level of budget that it takes to actually generate some successful results. When we’re running paid ads on the Facebook and Instagram platforms now in 2021, it is more expensive than it was four years ago. That’s what happens when platforms mature.

It is still a cheaper and more profitable platform for the vast majority of businesses compared to other, even more mature platforms like Google, for instance, or YouTube. Your ads are going to cost a lot more on those platforms, which is not to say you shouldn’t run them. If you can run them in they’re profitable for you based on those figures that I’m talking about, you should probably do that too. Spreading the risk across different platforms is a good idea. So there you go. That’s the first part of the puzzle. And these are all questions that we work through with new clients and we need to take those figures into consideration when we’re setting budgets and we’re scaling a client’s ads up. Once you’ve got ads converting at a profitable price, because you know those figures, then you want to spend more money to make more money out the other end, but you don’t want to expend so much that it takes up all of those profit margins.

So that’s the first piece of the puzzle and the first really crucial step that I want to share in today’s episode. The second step, of course, harks back to that other story where I was talking about setting ads and letting them run, and then not understanding whether the ads are actually converting, and converting profitably, and not understanding how to read or interpret the performance metrics that you’re getting from your ads. And in past blogs and podcasts where I’ve talked about this part of the ad process, the advice has been all around understanding the event based metrics. And what I mean by this is in the past, we all had our Facebook pixel, which was a piece of tracking code or a cookie, whatever you want to call it, that you’d put on your website, and Facebook could therefore tap into that data that was being tracked every time a website visitor took an action on the website.

So we would therefore get all of that data. All of those events that were triggered on your website was reported back in your Facebook ads manager. Now, of course, the Apple iOS 14.5 update has finally rolled out, which has impacted every digital platform and drastically reduced. How much of that third party data can be recorded. It can still be tracked, of course, but it can’t be recorded or reported back. Some of it can, but a lot of it can’t. So we need to understand how, I guess, this works now and what it means for the ways that we can interpret the results of our efforts. So I heard this useful analogy for describing the way data is being tracked and recorded now.

So in the past, like I said, all these different platforms had their pixel, or their code, or their cookie, whatever you want to call it, that would be on your website. So Google would track, Facebook would track, et cetera. And so this was third party tracking. So the behavior was happening on your website, but a different app was recording and tracking that data. So now what’s happening is, we all have our own or each platform and your own website. We all have our own walled gardens, and all of the tracking and the data is owned within the walls of that garden. So on your website, on your own website, you can own all of the data that’s happening there. But in another platform like Facebook or another platform like YouTube, or Google, or whatever, or Pinterest, et cetera, can’t put its own code on your website and track that and report on it.

What you can do is to feed that data back the other way, or you can track it yourself in your own platforms, or setting up your own tracking mechanisms on your own website. So there’s variety of different ways that you can do it. One thing that is a super cool way to… And this is not necessarily tracking ad results specifically, but certainly this is a way of obtaining and keeping your own data, and that is to get Klaviyo installed and integrated within your Shopify website or your other platform website, because Klaviyo is a fantastic platform that really will help you to collect all of your own data. So it is your own data. You’re allowed to own that and keep that. And Klaviyo enables you to use that in some really useful and powerful ways in your marketing.

That’s not necessarily a topic for today’s episode. But what you can do, number one is to understand within the Facebook advertising platform, you can certainly do this on other ad platforms as well. But any engagement that happens on your ads within the Facebook or Instagram platform environment… So remember this is our walled garden. Anything that’s happening within the platform, you have full visibility over all of those metrics. So I really love to use the sorts of advertising that builds up the audience and the engagement builds up. The purchase intent builds up the desire for your products using advertising that is on the platform, and not just always sending traffic off the website. And one of the best reasons to do this is not just because you have full visibility over all of that engagement data on the platform. It’s super cheap to do this as well.

So, obviously, the first stage of any marketing or any advertising campaign has to be about building brand awareness. Gosh! I can’t get my words out. Maybe I need another coffee. So building brand awareness, building up the size of your audience, and really building the desire to buy your products. So that brand building, and desire, and education, and engagement, all of that is the first part of any marketing or advertising. And you can do that really powerfully, and effectively, and cheaply with engagement based ads on the platform. And of course, those ads do give you full visibility over all of the performance metrics because it is within the walled garden of the Facebook ad platform. So those sorts of ads are video views ads or page post engagement ads, where all of that interaction engagement is happening on the Facebook or Instagram platform.

Now beyond that, obviously you need to have ways to track the performance of the ads. There’s a couple of suggestions that I have for you that are pretty easy to achieve. And one is to start using UTM codes on your ads. So this is a way of putting a little bit of code on the ad itself in your Facebook ads manager that is then tracked through the Google analytics dashboard. And if you go into the actual ad part of your Facebook ads, so obviously when you’re setting up a campaign, you’ve got the campaign first and then the ad set, where you’re setting placements, and all of that, jazz, and demographics, et cetera, and interests, all of that targeting stuff happens in the ad set. And then of course, you move to the ad, which is where you’re putting in your images or your videos and your text, and you’re deciding what the buttons are going to be, blah-blah-blah.

At the bottom of the ad section, there’s some selections for how you’re going to track the ad. And one of them is to use a UTM code. There’s a link there, I’m pretty sure. And I don’t have it open in front of me, right this second, but there is a link there that will, I think, take you to Facebook’s UTM builder. Basically, you’re creating a piece of unique code that is going to track anything that happens from that particular ad. So there needs to be some identifier in that code that you create that so that you can figure out easily what ad the sales came from. But then what happens is, you’ll track that within the Google analytics dashboard, and you can see what traffic and sales and what revenue came from the ad.

Also, you can just Google UTM builder or free UTM builder, and you’ll come across some easy, easy calculators that will help you to create a UTM code. So that’s the first option. Another option that many of our clients are starting to use now is to use offline events. And this is about using an app called Zapier, which I’m never quite sure if it’s Zapier or Zapier. But Zapier is a cool app that will essentially pass source of data between two different apps that don’t necessarily integrate directly. And it’s super useful in so many different scenarios. Definitely worth checking out if you like to try and automate boring, repetitive tasks. And anyway, so what you can do is you can have a Zapier app installed on your Shopify website and you can pass… You can set up a Zap that basically passes purchase data back to Facebook.

And then in your Facebook ads manager, you can add a column. So you know how you can customize your reporting table. You can add a column that’s going to show you those offline events. So you can start to track some revenue that way. And that also gives, I guess, your ads manager some extra data to use in informing how to optimize your ads. So that’s a pretty cool upshot there as well. And then the last option that I want to give you is, it’s a bit more for those of you super data nerds, who love to have as much data as possible. And this is also a great option for those of you who are really ambitious and you’re gearing up to, or you are already scaling big. And what you want to look at there is to get a really good quality analytics app. So something that’s more accurate and all encompassing than your Google Analytics.

You’re not going to get anything for free. That is going to be super duper awesome. And so these are going to be paid options. The one that I think is tremendous is called Wicked Reports, is probably the most expensive one or one of the most expensive ones anyway. But it is really, really cool because it does pretty much tracks your customer through their entire buyer journey. And you can really keep an eye on all of the touch points that you have with customers and get full visibility through that entire start to end customer lifetime. So that’s an amazing app to go for. It’s not for the faint hearted, and it’s probably not the right thing for a startup business, especially if you are bootstrapping and you don’t have a big lump sum of investment cash to really push your business forward fast.

The other option that you can do is to set up a custom data platform. This is something that we’ve done. We’ve had a custom dashboard coded and developed for us that we can have similar sorts of visibility as what Wicked Reports does, but across all of our clients. Again, that’s not really for early startup businesses. But if you’re down the track and you really want to have all of this data and information, that’s another option that you can look into as well. Anyway, what you really want to be able to, to analyze and have visibility over is, of course, the purchase revenue that is coming from your ads. But further to that, you also want to be able to see how far through the shopping cart are your customers getting from your ads.

And again, you can track that behavior in your Google Analytics as well. But how far through the shopping cart is the traffic getting from your ads? Because sometimes what will happen is, the ads are getting fantastic click-through rates, they’re getting really great response on the ad side of things. But when they get to the website, maybe they go to the product page and then they just leave. And so, sometimes the data that you’re collecting will identify for you that there’s actually something that needs to be fixed or optimized on the website. So, it’s never about assuming you can set this sort of a thing up, an advertising campaign or a paid traffic funnel, or an email funnel. You never want to go into this marketing or advertising with the assumption that you can set it up and it will be perfect, and you don’t have to do anything ever again. That’s not how it is.

You definitely always need to have that testing mindset, but also that analytical mindset where you can track the data as it goes from the ad all the way through to your checkout, and equally doing the same, tracking data through your email funnels as well to see all where are people converting and where are people dropping off? And can I improve the steps along the way? And all of those little processes of tweaking and optimizing on your website, as well as in your advertising is going to gradually improve your overall conversion rate and your overall revenue. And then obviously, at the end of the day, you want to be fully aware of how much it is costing you to acquire a new customer. So this is why we need to have ways of tracking the performance of the ads now.

So we need to have an idea of how much is it costing me to acquire a new customer, and therefore, having already worked out those figures that we were talking about earlier in terms of your margins and your lifetime value, your average lifetime value for a new customer. You can work out, well, is this going to be profitable for me? Can I afford to scale this up? If it’s not at a profitable conversion rate yet, then you need to work out well, how can I improve that? Do I need to look at improving my targeting? Do I need to look at improving my messaging, the creative aspect, to really attract more of the right customers in. Or is the problem on the website? Do I need to improve my product pages?

Are the product descriptions really boring? Or is the add to cart button too far down the page? Or do I need to add some tabs in there with some extra information that people really need to know? Or are people dropping off when they find out that the shipping fees, there’s some information that’s missing, or do I need to find a better carrier price? Whatever the case may be. But it’s about following those numbers and figuring out where you can optimize and where you can improve so that you can get those ads dialed in at a profitable price. And then you can scale up. That was a bit of a rant, really. I hope you found that useful. It is full on, but it’s just maths at the end of the day.

Don’t be frightened of it, don’t be put off, and definitely don’t go into anything to do with e-commerce marketing, especially not paid advertising. You don’t want to go into it with just a fear of spending money and a fear of losing it all. You want to go into it with your eyes wide open, knowing that there’s an enormous opportunity to get in front of your ideal customers because they’re spending hours on these platforms. So there’s enormous an enormous opportunity there. But you don’t want to go in just chasing opportunity. You want to go in with your eyes wide open, knowing what your numbers are, knowing what you can afford to pay to acquire a customer, and having the plans in place to drive those repeat purchases and really keep customers around and shopping with you again and again, because they really love your stuff.

So it is that holistic way of viewing it and approaching it, but also just being really diligent about keeping track of the numbers and understanding how that all comes into, not just the planning side of things, but in the execution, and the optimizing, and the scaling as well. So I hope you’ve enjoyed that today. I better sign off. I got to go and take my boys back to the gym now. See what Happens when you have kids who decide they’re going to be professional swimmers. It takes over your life a tiny little bit. Meanwhile, if you are looking for some extra support and you’d love to find a community of e-commerce brand owners who are really gunning hard to learn how to run this sort of a business and to build their businesses up, if you are not already in our Rockstar Productpreneur group, you got to get your bum in there. It is the place to be. If this is your sort of business, you can join in there for free at catherinelangman.com/rockstar. And I look forward to catching you on the podcast again next week. Bye for now.