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Right now, Facebook is one of the hottest advertising platforms on the planet.
With over 1.7 billion active users as of the third quarter of 2016 and sophisticated targeting capabilities – an increasing number of companies are looking to tap into Facebook’s powers in order to reach their target markets.
In the third quarter of 2016 alone, Facebook generated $6.8 billion in advertising revenue – a 59% year-on-year increase.
However, as the economics of supply-and-demand kick in, advertisers will have to continue to battle rising advertising costs on the Facebook platform as competition increases.
The Problem Will Only Get Worse
There are only a limited number of ads Facebook can display to its user base.
This ratio is designed to maximize advertising revenue without hurting it’s most precious asset: its users.
During Facebook’s second quarter earnings call, CFO David Wehner confirmed to investors that the company expected to hit ‘max ad load’ (the point at which there would be more advertisements than spaces to display them) in the middle of 2017.
So while advertising costs on Facebook have already increased significantly since its early days, it is expected to increase significantly in the near future and make operating conditions more challenging for advertisers.
What You Can Do To Protect Your Business
Fortunately, if are relying on Facebook advertising to acquire new business, there are a few options at your disposal to battle rising advertising costs.
Option 1. Improve your Facebook Ad Campaign Performance
This one is simple but important.
Few businesses advertising on Facebook are using it to their full advantage.
Implementing a few key optimization strategies can help keep Facebook a viable and profitable advertising channel even as advertising costs rise significantly.
Here are 4 ways to improve your Facebook ad campaigns:
A. Add Specificity To Your Ad Copy
Adding specificity to your ad copy can significantly increase interest, engagement and believability.
For example, if your current ad says:
“How to lose weight quickly and easily”
You could improve its performance by adding more specificity:
E.g. “How women in their 40’s can drop up to 4 sizes in 8 weeks without giving up any of the foods they love like chocolate.”
Adding specificity to any or all of the who, what, when, where, why, and how elements inside your ad copy is a powerful way of lifting the performance of your ad campaign.
B. Segmenting Audiences And Testing Which Ones Convert The Best
You can also improve the performance of your Facebook ad campaign by ensuring it is shown to people who are most likely to respond the best.
When you create an ad campaign, make sure you test different interests, age groups, genders and behaviors.
For example, you may find that women aged 30-39 respond better than women aged 40-49.
Or you may find that people interested in ‘Robert Kiyosaki’ respond better than people interested in ‘Real Estate.’
You will not know these things until you test.
But once you do test it, you’ll often find segments with your audience that convert 5 – 10x better than the rest, which will greatly increasing the profitability of your ad campaign.
C. Testing Multiple Placements
Similar to testing different audiences, testing multiple ad placements can yield significant differences in ad performance.
When running a Facebook ad campaign, test desktop newsfeed, desktop right hand column, mobile newsfeed and audience network placements.
You may find that one placement significantly outperforms the rest.
D. Testing Multiple Acquisition Strategies
Experimenting with different strategies can also yield sizeable increases in campaign profitability.
For example, if you are currently driving traffic to a squeeze page in order to get them on an email list so you can convert them via an autoresponder sequence, you may like to test driving traffic straight to a sales page or getting them to enter their phone number so you can follow up and convert them with a phone call.
Of course, different conversion processes and strategies will suit different kinds of businesses.
But testing different strategies could help you find one that outperforms others significantly.
Option 2. Extend The Lifetime Value Of A Customer
There are two ways to increase the amount of profit you generate from a Facebook Ad campaign.
One is to decrease how much you pay for each new sale of customer you acquire. This can be done by improving the performance of your Facebook ad campaign (as we outlined previously).
The second way is to simply increase the lifetime value of each new customer. You can do this by reducing your churn rate, making your offerings more valuable so you can raise the price and increase your profits, or by finding complementary products and services to sell to your customers on the back end.
For example, let’s say you sell a service that yields $200 profit per new customer per month and each new customer uses your service for an average of 5 months.
Therefore, each new customer is worth $1,000 in profit. Now, let’s say you pay $200 in advertising to acquire each new customer – netting you $800 per customer after advertising costs.
Let’s say you work on reducing your churn rate and now each new customer stays an average of 6 months.
And let’s say you find 2 additional products to sell to new customers on the backend and this yields an extra $500 in profit per new customer.
You have now gone from netting $800 per new customer to $1500 profit per new customer!
As you can see, this is an incredibly powerful way to protect your business from rising advertising costs.
Remember it is difficult and expensive to acquire new customers and far easier and cheaper to sell to people who have already bought from you.
So take full advantage of this fact and figure out ways of extending the lifetime value of each new customer you acquire.
Option 3. Explore New Channels
Another way to protect your business from rising advertising costs on Facebook is to simply move your advertising dollars to other channels.
Yes, Facebook is a great advertising channel with incredible reach and targeting capabilities.
But there are many other advertising networks and channels which you may find are under-exploited by your competition, cheaper to advertise on and yield a better return on investment.
So don’t blindly follow the crowd and think that Facebook is the only place to put your advertising dollars.
Explore other media channels that could be used to reach your target market and test them out for yourself.
You may find some of them to be far more profitable than Facebook.