How We Found $20,000 Worth Of Wasted Ad Spend
Don’t you hate it when you find one of those recurring charges on your credit card statement for something you haven’t used in months? They’re usually small enough to not notice, but annoying nonetheless—especially when you find out how long it’s been going on.
The same thing can happen with your paid advertising campaigns, except these are typically not small expenses and could cost you thousands of dollars. Proper conversion tracking and knowing your numbers are both crucial tactics to a successful online advertising campaign. We’ll walk through an example below.
How We Determined The Benchmark KPIs
Imagine this: You’re running a live event in your local market and using Facebook and Google ads to generate the event registrations. You want a 5:1 return on your ad spend (for every $1 that’s spent, $5 is generated in revenue). Based on previous results (or industry average), you know that the average attendance rate from when someone registered to actually showing up is 25% (also applies to most online webinars).
Knowing your sales process at these events, your close rate is about 30% as a rolling average. And you also know your lifetime value for each new customer acquired through these live events is $5,000. So, what cost per registration do you need in order to hit the 5:1 return?
This is what we know:
- Average LTV is $5,000 for a new customer
- ROI goal is 5:1 from advertising spend
- Close rate to become a new customer at the event is 30%
- Attendance rate from registration to attendee is 25%
Now let’s work backward.$5,000 average LTV per new customer and a 5:1 return is $1,000 cost per new customer acquired. A 30% close rate brings us to a $300 per “butt in seat.” Finally, with a 25% attendance rate, our cost per event registration can’t exceed $75.
Here are our campaign goals:
- Cost per registration: $75
- Cost per attendee: $300
- Cost per new customer: $1,000
Whew, that’s a lot of math. Basic math, but still… math. Great! Now we have our numbers.
Finding The $20,000 In Ad Spend Waste
In our paid ad campaigns, we track both creatives and audiences. You should be doing this as well. This tracking information is attached to a registrant’s profile in the CRM (Infusionsoft, HubSpot, ActiveContact, etc.). Tags are then created based on where the lead is in the sales cycle. With this detailed and quite basic conversion tracking, we can determine which audiences and creatives are performing and which aren’t.
Even if we have an audience with a great cost per registration (using the example above) around $20 and at great volume, it’s worthless if they don’t purchase. This is exactly what happened with a client account of ours. We found an audience that had a great cost per registration, but this audience wouldn’t convert to buyers. By the time we found this audience was underperforming, it had spent $20,000. It would have been great to find this audience sooner, but the sales cycle is about two months so we caught it as soon as we could.
CPL isn’t the end all be all. It’s best to look at the entire picture when determining a winning audience.
We nixed it completely and focused efforts on audiences that performed well on the back end, ultimately increasing sales and lowering or removing altogether wasted ad spend.
Not All Online Audiences Are Created Equally
It’s important to note that some audiences will still perform on the back end, but not as well as others. These audiences can still run but will need a lower cost per registration in order to meet the desired ROI goal. Others will perform better than average and thus are allowed to have a higher cost per acquisition.
We do this sort of tracking for every client. It’s extremely invaluable to be able to measure the success of not only audiences but also creatives. Some creatives get people to show up more because it sets their expectations when visiting the site and registering.
Make sure you know your numbers and track in depth so you keep wasted ad spend to a minimum. Or hire an online advertising agency like ours to handle it for you!