The ROI of Facebook Ads

With over 3 million monthly users, no wonder small businesses are running to Facebook to reach their target audience and convert new customers. In particular, businesses are compelled to invest in Facebook ad campaigns to get their message across to as many potential customers as possible with Facebook giving advertisers the chance to reach a total potential audience of 2.249 billion users. Businesses big or small can achieve major growth through Facebook advertising. That’s if they optimize their marketing campaigns to get a return on investment from their ad spend.

So what do Facebook ads managers, digital marketing experts, and business teams need to know to use Facebook advertising to grow their reach and revenue?

Benefits of Investing In Facebook Ads

Like any other social media platform or digital marketing channel that provides businesses with access to a large number of users, there is a paradigm. There are a lot of potential customers businesses can reach. But there are also a lot of other businesses trying to reach and convert users as well. It’s easy to get lost in the noise. However, it is well worth investing in a marketing strategy for Facebook ads because of the difference it can make and the profitability it can create.

1. Access Your Target Audience on a Large Scale

With the large user base Facebook offers, there’s a lot of potential for sales through effective Facebook campaigns. Even better, Facebook advertising allows advertisers to narrow down the users they want their ads to be shown to according to the key characteristics of their target audience. Ad targeting maximizes the results of Facebook campaigns because businesses are only paying for their ad to be shown to people who have a chance of converting. For example, it’s a waste of ad spend to show an ad for a retirement home to students in their 20s so this ad would be set up to only be shown to Facebook users of a certain age.

2. Grow Your Brand Awareness Quickly

Small businesses and start-ups can feel like they are on the back foot when it comes to reaching, nurturing, and selling to customers compared to bigger and well-known brands. Other digital marketing methods such as organic social media marketing and SEO rankings can take time to generate results – usually months and months. Facebook ads don’t have any time restrictions for sharing a business message with their users, creating an interaction that builds brand familiarity. Set up your advertising campaign and off you go.

3. Improve Your Lead Generation Efforts

Before businesses can make sales, they need to nurture leads, guiding them to the point where they believe in their product enough to buy it. That’s why businesses offer free value in exchange for contact details like email newsletters that give expert advice. Facebook ads can be used for lead generation purposes by switching up the ad copy and call to action. The CTA could drive traffic to the company website, email newsletter, blog, podcast, or another valuable resource that captures interest and lead details for follow-up. Welcome your target audience to your world so they can get to know you enough to buy from you.

4. Room for Experimentation

The granular data Facebook insights provide about the key metrics of ad campaigns such as the conversion rate allows advertisers to optimize their efforts for better ad performance. In the highly competitive environment businesses are operating in, they need to maximize the cost per click as much as possible so these insights are highly valuable. Businesses can adapt their ads, A/B testing different ads to see what works best for each customer segment. Improving KPIs, especially the all-important CPC doesn’t have to be a mystery.

The way Facebook ads are set up leaves room for experimentation because of its scalability. Advertisers can start small with a minimal daily spending budget and then commit to a higher ad spend to build their reach as they gain confidence in their campaigns.

5. Get Creative

Facebook marketing includes various ad formats which gives marketing teams plenty of opportunities to get creative and experiment with different ways to make their ads compelling to their target audience. Some of these ad formats are displayed within the Facebook feed including single image, video, carousel, and collection ads. Others pop up elsewhere like message ads which are displayed in Messenger chats and stories ads which appear in between stories from accounts users are connected with.

For example, instead of a static visual that directs users to the caption, the ad format of a short-form video may more effectively capture the attention of a customer segment and drive the click-through rate. Or how could embedding customer reviews in your ads improve their impact? Meta has highlighted the importance of creativity in paid advertising.

6. Strengthen Relationships

Facebook ads aren’t just good for reaching new customers. It can be used to reconnect with warm leads or past customers. Retargeting ads allow businesses to advertise directly to users who have already demonstrated interest in the business such as by visiting the company website. Not all customers are impulse buyers and not all businesses sell products and services that people impulse buy. There needs to be multiple positive interactions between the business and the customer to result in a sale. Facebook ads can create multiple positive interactions.

7. Make Money

Whether you are a brick-and-mortar store or an e-commerce business, whether you are using Facebook ads as a brand awareness, lead generation, or sales tool, Facebook advertising makes businesses money. It is a vehicle for businesses to reach, nurture, and convert customers. This is easy to track with a buy-now CTA on a paid ad. It can also be tracked if the CTA isn’t a direct sell and there are more steps involved in the buying process using Facebook pixel. This allows you to add code to your website to track what Facebook leads do after seeing your ad.

Facebook ads are a powerful tool in the digital marketing toolkit that businesses of different sizes, industries, and target audiences can use to reach their objectives. At the end of the day, all marketing campaigns have to be profitable. So, how do you tell if your Facebook ads are working?

How to Calculate the ROI of Facebook Ads

Few businesses can afford to spend money on a digital marketing strategy that isn’t generating revenue. With all the metrics and insights available on digital marketing platforms, particularly Facebook insights, it is possible to calculate the profitability of running a Facebook ad campaign.

If you are running different ads and targeting multiple customer segments, you may find it helpful to calculate the ROI of each Facebook ad and each segment in this way to measure what is working and highlight where improvements need to be made.

Step #1 – The Time Period

Determine the period you are measuring the ROI from. Metrics can vary over time, especially if ads are amended to improve effectiveness or the ad spend is increased. Make sure you are drawing all numbers of a set period such as the past 6 months or the calendar year to get an accurate result.

Step #2 – The Investment

Calculate your expenses from the set period. Collect the exact numbers of the money you have spent on running Facebook ads. This is mainly your ad spend. Remember while you set a daily budget, you might not spend your whole budget each day so double-check what has been spent.

Include other expenses that enable you to run ad campaigns. Have you hired a Facebook ads manager? Have you paid influencers to create videos with your products? What are their fees for this period? For a true ROI, you need to take into account these costs too.

Step #3 – The Return

Calculate the revenue that has been produced from Facebook ads during the set time. Some of the revenue will be direct from ads. The customer can be tracked by seeing the ad, clicking on the call to action button, arriving on the landing page, and completing the purchase transaction.

Other revenue requires tracking more interactions. From seeing your ad, a customer could follow your Facebook page and then make a purchase from a post there. Or maybe the CTA on the ad is to join your email newsletter and after receiving emails from you, Facebook ad leads have made purchases. Take the time to collect all the data that reflects the real revenue from the stated period.

Step #4 – The Formula

With all the cost of investment and financial return calculated, use this formula to measure the ROI of Facebook ads. Subtract the total expenses from the total revenue to calculate the net gain. Then divide the net gain by the total expenses and multiply that number by 100 to come up with a percentage that reflects the return on investment.

Keep in mind that while financial return is a popular and achievable outcome of Facebook ads, other outcomes are worth tracking to see the full picture of the impact of Facebook advertising on a business. Key metrics that businesses using Facebook advertising can track include growth in website traffic, email subscribers, social media followers, and inquiries.

What is a Good ROI for Facebook?

This is a difficult question to answer because there are so many factors that impact whether a Facebook ad leads to a sale. First, consider the business industry, niche, and promoted products and services. It may require a customer to see an ad more times (racking up a higher ad spend) to buy a brand-new car compared to a budget-friendly piece of jewelry. Second, consider the customer’s perspective. The number of interactions (and so ads and so ad spend) a target audience requires to trust a business enough to buy from it varies widely even within the customer base of a business.

It also depends on the sales funnel the Facebook ad is part of. Different ad formats and placements create different results. The landing page users are sent to via the ad influences conversion. As a quick tip for boosting conversion, introduce a webchat function to the landing page so leads can ask questions and overcome objections to following through with the call to action. Generally, a large ad spend leads to better results. It’s useful to look into your industry benchmarks and start plotting your benchmarks of what a good result from a Facebook ad looks like for your business.

For some guidance, studies have found that a good Facebook ad ROI ranges from 2:1 to 5:1. That means that every $1 spent on advertising results in $2-$5 in revenue. Generating this level of ROI does take time as you go through the learning curve of figuring out your audience segments, ad copy and formats, and calls to action.

Facebook advertising holds a lot of potential for small businesses looking to expand their reach, build their list of warm leads, and exceed their sales targets. With the insights Facebook provides on ad performance, businesses can optimize their marketing campaigns to break through the noise of everything else demanding the attention of online users, better resonate with their target audience, and produce profitable outcomes.

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