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With increasing Facebook ad costs, it’s difficult for brands to stay competitive and generate revenue from paid advertising. Despite the competitive landscape, many brands rely on Facebook advertising for a large percentage of their revenue. Continuing to generate cash flow from Facebook has become a critical objective for marketers. As demand for attention continues to increase advertising rates, there is one metric that stands out to ensure long-term profitability: customer lifetime value (CLTV).
CLTV has become the difference between a flash in the pan and scalable long-term success in the paid traffic space. Focusing on CLTV will help you garner new leads and nurture your current customer base in dynamic ways.
Why are ad costs sky high?
Ad costs are like gravity; everybody tries to fight them, and the cost of ads are forced to keep going up with time. The more saturated the platform, the less inventory there is and demand continues to increase. It’s basic economics.
Consistent increases in costs have pushed less-skilled marketers out of the Facebook ad arena. Capitalizing on this shift in demand is going to be a game-changer for marketers who know how to navigate and win at paid advertising. The key is strategically planning your campaigns in a way that produces customers with the highest customer lifetime value.
Rethink your customer base
Most people are under the assumption that Facebook ads should primarily be used for selling your service or product to cold traffic. The problem is you’re leaving the ability to communicate with your current customers up to your other low engagement channels like email.
The key to capitalizing on Facebook ads is to run ads to existing customers. When done correctly, this has the potential to be the number one driver of CLTV, resulting in a cost-effective ad that yields a higher return on investment. If you have a holiday deal or product launch, hit your existing customers with those types of offers first. Offers like these can also help you develop assets to use on the front-end for cold customer acquisition. Selling to current customers allows you to dynamically cross-sell and up-sell them. You can also run thank you ads after they purchase to build brand loyalty.
Knowing your numbers
Not knowing your numbers is why most people don’t follow this model of breaking even or lose money to find customers. If you don’t know what the lifetime value of your customer is, you don’t know if you’re going to be profitable on the customer or how long it’s going to take.
Calculating CLTV is imperative for brands before beginning any advertising. Once you know these numbers, work backward and understand precisely what you can afford to pay to acquire a customer. Start at the end of the customer lifecycle and work backward based on conversion rates and purchase rates, all the way down to what the cost per acquisition can be.
Why discounting doesn’t work
There is huge opportunity to reach your current customers through paid Facebook ads, but what about new customer acquisition? Standard practice for most marketers is to run a campaign where the first ad is a discount. Discounting is a crutch when it comes to acquiring new customers. You’re devaluing the product, and at the end of the day, you’re attracting the wrong type of customer.
All customers are not created equally. Getting a buyer is easy, but getting customers is not. To achieve this, retargeting with a deal should be considered as a last step approach. Lead with value and talk about why your product is unique. Once you start competing on price, not focusing on value and you don’t have a unique selling proposition, you’re a commodity product. Being a commodity business is one of the worst things you could do in today’s market.
Positioning your Facebook advertising strategy in a way that generates customers with the highest customer lifetime value should be at the center of your campaign planning. Know your numbers first and foremost, then lead with value. Ideally, you should also put an emphasis on prospects that you have already touched through other channels to drive engagement, cash flow and customers for life.