Podcast

Episode 106: How Much Can You Afford to Pay to Acquire a Customer?

By July 18, 2017 No Comments

Everything comes down to this one question. How much can you afford to pay to acquire a customer?

Knowing this will make it easier to generate a successful and profitable Facebook campaign. Use the five metrics the experts share to determine how much you can pay to get leads and customers and what a successful Facebook campaign looks like for your business, so you can quickly achieve a return on your Facebook ad spend.

IN THIS EPISODE YOU’LL LEARN:

  • The five metrics to determine what success is for your business or clients, so you’ll accurately know what is and isn’t working.
  • The most important metric you need to know to achieve your Facebook marketing goals (« This will give you accurate insight on what your business can attain).
  • The formula to determine the benchmarks your Facebook campaign must hit to quickly achieve a return on your Facebook ad spend (« Hint: You’ll have to do the math backwards).

LINKS AND RESOURCES MENTIONED IN THIS EPISODE:

Episode 54: 4 Facebook Ad Troubleshooting Tactics to Improve Conversions
Check out Molly’s FREE online mini-class to launch a PROFITABLE Facebook ad campaign in five days (or less).
Episode 106 Transcript (swipe the PDF version here):

Molly Pittman: Hello, everybody. Welcome to Episode 106. This week, you have myself, Molly Pittman and Mr. Ralph Burns.
Ralph Burns: Hello, Molly.
Molly Pittman: Hello, Ralph. How are you doing?
Ralph Burns: I’m very good. How are you?
Molly Pittman: I’m great. Just got back from DigitalMarketer Down Under. That’s why I wasn’t on last week’s episode, but Marcus Murphy, Justin Rondeau and myself went down to Australia and we held three events with our lovely certified partner, Sonya Keenan. We were in Sydney, Brisbane, Melbourne. We got to meet 800 DMers so thanks to everybody who came out. It was really, really fun and excuse my nasally voice. I caught an Australian winter bug. I think before we get into this episode, we have something to celebrate. By the time you guys hear this episode, we will hit 2 million downloads on the podcast, which is really exciting.
Ralph Burns: Did you say 2 million downloads?
Molly Pittman: That’s exactly what I said. Two years, 2 million downloads.
Ralph Burns: Wow.
Molly Pittman: Thank you everybody for listening.
Ralph Burns: Wow, thank you for all your downloads. That’s fantastic. That’s a lot of people listening to us, Molly.
Molly Pittman: That’s a lot of ear holes.
Ralph Burns: I know. It’s a lot of earbuds. Thank you so much for listening. We try to do our best to bring in every single week. Hopefully this episode will be no exception because I think this is a good one.
Molly Pittman: It’s a good one.
Ralph Burns: It’s a good.
Molly Pittman: As we say down here in Texas.
Ralph Burns: Today’s all about making money on the Facebook ads specifically.
Molly Pittman: Yeah.
Ralph Burns: Really in general, just if you’re spending money on any sort of advertising, this is sort of a critical concept that you need to understand if you’re a business owner or if you’re a marketing professional or a consultant. Whatever it happens to be, you’re working for another company, you need to know how much to pay for a customer.
Molly Pittman: Something that I found by creating the traffic workshop that we launched at DM a couple months ago, was really this concept of success metrics. Obviously, everything comes down to how much can you pay for a customer? You have to know that number or at least know the metrics that lead to that number, to know how much you can pay for a click or a video view or a lead, or to acquire a customer at a small dollar offering. You know how much you can pay to acquire someone at your core offering. What I hear a lot is this Facebook campaign or this Google campaign that just didn’t work. That’s something I hear from a lot of our students and the first thing that I ask is , “What do you mean it didn’t work?”, and they usually say, “Well, it didn’t make me any money.”, and that’s a valid concern to have. We definitely aren’t in the game of just giving Facebook money for fun.
Ralph Burns: No.
Molly Pittman: Obviously, you have to realize how much you can pay for a customer, but it also comes down to this idea of success metrics in terms of this system that we teach, that you do have multiple traffic campaigns in your business that are working together to acquire that customer so some campaigns that are at the beginning of the Journey, they might have different success metrics than your campaigns that are really built to retarget and to generate ROI.
Ralph Burns: Yeah, totally.
Molly Pittman: Right, so sometimes you will be measuring things like cost per click or cost per view. In the middle, you might be measuring cost per lead, but yeah, today, we’re going to talk about what are these metrics? How do you decide these metrics in your business, and Ralph, I know you have a ton of experience with this, with all of the clients that you deal with. You know, figuring out what does success mean to them. Is that one of the first things you ask when you guys onboard a client?
Ralph Burns: Yeah, in fact it’s actually, we’ve now revised what we call our onboarding document around this very question because we realize that a lot of people come to us with a preconceived notion of what they can pay to acquire a customer, what they can pay for a lead and so many leads turn into customers. What we do is we end up forcing people, no, not forcing, but we give them an idea, sort of guide them through the process of are your assumptions on what you can pay to acquire a customer accurate because I think a lot of people that come to us say, “Hey, I can pay $4 for a lead you know, in the B2B space.” And sometimes that might be a challenge, depending on what type of market it is.
What the competition is like, all these other sorts of things so what we do is we have a part of our onboarding in the agency at Dominate Web Media, that actually helps people through this sort of step by step and say, all right, well, let’s start with this number and then sort of work backwards from what an ideal sort of cost per acquisition looks like and it’s very instructive. I mean some people have really got it together, really know their businesses well, know that number off the top of their head and they also know the value of time. That is just a huge part of this whole thing like how much pain you can put up with for what you’re paying for a lead before they actually turn into a customer. Turning that advertising dollar into dollars for you so time is actually a huge part of this whole thing so it’s really variable and we have so many different customers in our agency and so many different industries that it varies so widely.
It’s a great exercise to go through so it not only helps us as an agency to hit that, what you call the CPA KPI, is that a cost per acquisition key performance indicator, which is the most important number that we have for any customer who works with us. It really helps us achieve their goals, but also makes them maybe a little bit more aware of what their business actually is and maybe they can pay a little bit more, maybe they can do some things differently based upon how Facebook behaves with their offer.
Molly Pittman: Yeah.
Ralph Burns: Yeah, I think today is a core concept, I think we’re going to refer back to a lot here on the show.
Molly Pittman: Yeah, and I think if you can figure this out, right, if you can figure out what you can pay to acquire a customer, it makes everything easier because then you are asking questions like what’s a good cost per click? Every time someone ask me what’s a good cost per click? What’s a good cost per lead? I can give you ballpark numbers based off of what I’ve seen across different industries, but it really, really depends, right. It depends on your selling system. It depends on your funnel. It depends on how much a customer is worth to you like Dan Kennedy and then Ryan, and now I’m going to say he or she who can spin the most to acquire a customer wins, right. Well, the reason you can spin the most to acquire a customer is because you know each step of your funnel. You know the conversion rates and so you can do the math backwards as I like to call it, to figure out exactly what you can pay for a click based off of the lifetime value and what you can pay to acquire a customer.
Ralph Burns: Yeah, and a part of that is what you want to, and we’ll go through this in the sort of exercise and we’ll use DigitalMarketer as an example here, is what do you want for an ideal profit margin, which is a really variable figure. It really depends on the industry. It depends on your business.
Molly Pittman: Right.
Ralph Burns: You don’t want that number to be too high, otherwise you could sacrifice other parts to your business so there is sort of some personal preference here. There is another part to this that you don’t have to get this exactly, exactly right. I mean the more exactly right based on metrics and spreadsheets and everything you pull out of your QuickBooks or whatever it happens to be, the better, but I think you can start advertising and start marketing your company or your campaign without an exact figure.
Molly Pittman: Yes, yeah.
Ralph Burns: If you ballpark it and it’s kind of 80% or 70% close, that’s pretty good. That’s a good basis so don’t use this as a, “Oh I know, I listen to episode 106. Now I have to go back and go through three years of data to figure out what I can pay.” Well, no. Just give a kind of a ballpark range, look at the last month or so and take a little bit of a guess here.
Molly Pittman: We’ve identified five success metrics that you can look at to say, “Is this campaign, is my media spend a success?”, right, because most of the people listening here don’t just have a set budget that they can throw at advertising without tracking. We understand that most people here need to realize this rev quickly and that’s one of the first things that you need to think about. Cash flow, so how much cash do you have to spend on advertising, and how quickly do you need to realize the revenue? For example, when I first started buying media DigitalMarketer, we were in a different financial situation and my directives were, we need to breakeven on ad spend, right. Our return on ad spend, we need to breakeven pretty much within a day, right, almost immediately because cash flow was a little tight. Now as the business has grown and we’re in a different financial situation, I can go 30 days, sometimes 40 days or 60 days, depending on the current state of the business before I need to breakeven on this ad spend, which obviously allows me to scale.
It allows me to pay a little bit more than our competitors so I really believe that’s the first thing you need to decide. How quickly do you need to realize this revenue because that’s going to decide a lot.
Ralph Burns: I think that is a good yard stick when you’re first starting out, you’re probably pretty intimidated by the fact that you’re spending money you might not see an immediate return. The vast majority of businesses, that is the case. They usually don’t see a return that day. I don’t care how great of an advertising agency that you’ve got, like that is a pretty tall task because that means that you’ve got a really well-oiled sales machine behind that click and that’s the reason why in our agency, we don’t take on customers who are just starting out because this is a start stop kind of thing. Like when you’re just starting out, you’re with a new offer, you’ve never run Facebook ads, you’ve never run any advertising, it’s going to be really challenging unless you have a million in cash sitting in the bank and you really think that at some point, people are going to buy your product. That’s a lot of what ifs.
The more mature the business typically, the more they realize that, “Hey, I can pay more for a customer and I can wait a little bit longer.”, and I think what you’re talking about with DM and how you guys have evolved over time is a really good example of that and you can actually wait 29 days or 30 days before you breakeven.
Molly Pittman: All of this comes down to your funnel, right.
Ralph Burns: Yeah.
Molly Pittman: The traditional five step funnel that we’ve always taught, you know a Lead Magnet, a Tripwire, a core offer, a profit maximizer, you know usually the benchmarks that we set are 40% of people that land on your Squeeze Page actually opt in for your Lead Magnet, right. 10% by your Tripwire, 10% by your core offer and those are the benchmarks that we set for ourselves. Now that doesn’t mean that number one, your funnel follows that same formula. You might just be generating leads that you then pick up the phone and call.
Ralph Burns: Sure.
Molly Pittman: This is just the acquisition funnel that we have used to build our businesses, but those are the benchmarks that we’ve set because we know if we can hit those numbers, we can immediately see a return on our ad spend. If you put this into a dollar amount, imagine that you buy a thousand clicks and a dollar a piece so you give Facebook a thousand dollars and all 1,000 of those people are heading over to your Squeeze Page. Well, following this formula, 40% of them opt in, so at 40%, you would have generated 400 leads at $2.50 a piece. Okay?
Ralph Burns: Yup.
Molly Pittman: Move on to the Tripwire, which might be a $7 offer, might be 29, might be $97. It really depends on your business and how much you’re selling that product for. At DigitalMarketer, it’s usually $7, sometimes $47, but if 10% of those people convert, you’ve now acquired 40 customers at $25 a piece. That’s pretty darn good if you have a good backend. To move on to the next step, if 10% of those people convert on your core offer, you’ve now acquired four core offer customers at $250 a piece. We know the lifetime value of a customer at DigitalMarketer is around $350. Well, we just acquired 40 customers, right, because we sold 40 Tripwires at $25 a piece, which means I have a lot of wiggle room to scale a campaign of these were my initial results, but also keeping in mind, what if your landing page only converted at 20% and you only generated 200 leads. You paid $5 a lead, but for some reason, your Tripwire converted it 20% instead of 10%?
The math would still work out the same so if you’re looking at your funnel and you’re not hitting a 40, 10, 10, that’s okay, right. It might be 20, 20, 10. Those are just benchmarks, but this is what we mean by doing the math backwards. If you can really figure out what is your lifetime value of your customer, and then of course you have to factor in things like refunds, cost of goods sold, what profit margin you’re really wanting to run on in your business, you can do the math backwards if you know even some pretty vague conversion rates in your funnel to figure out what you can pay for a lead or what you can pay for a click. Is this a similar method that you guys use with your clients, Ralph?
Ralph Burns: Absolutely and the premise is the same, is that all things being equal, I mean we do use these same benchmarks so we get asked all the time, I’ve got a Lead Magnet and it’s converting on its sales page for every 200 clicks that I get, 20 people opt in. Is that good or is that bad? Well, doing the quick math, that tells me that if that’s a link click, remember in Facebook, it’s a link click not a click because a click could be a like, share, comment, click back to the page, any of that sort of stuff. It’s a link click or more specifically as my program always tell me, unique link click. If you’re paying a dollar per, you’re paying a thousand dollars, but if your conversion rate on your page is 10% then you’re paying $10 a lead right, which it depends on like is that good or is that bad. Well, you know $10 a lead is an expensive lead cost in most industries, but it might actually be really cheap in some of the more highly technical B2B space.
What we try to do is we try to figure out like where the weak spot is in a sales funnel and typically for a landing page that converts at 10%, that’s way below where we want to be. I think 40% is really is the standard. It’s the standard to shoot for. We don’t necessarily get it, but anything below a 20% conversion rate on a landing page, you might have actually identified part of your problem in this whole process. Each one of these individual numbers can get dissected and so you can troubleshoot where the sort of the whole in your sales funnel or your sales system is.
Molly Pittman: Right.
Ralph Burns: This really is reverse math.
Molly Pittman: Let’s use another example. I mean, imagine is that you’re a service based business and your funnel, right, and I’m doing quotation marks, “Your funnel is a landing page where you generate leads.” Then maybe those leads are routed to your assistant and they qualify the leads and then the ones that are qualified, you actually call on the phone.
Ralph Burns: Yeah.
Molly Pittman: Imagine that your landing page converts at 20% and then imagine that 10% of those people that opt in are actually qualified by your assistant, and then imagine that 10% of the people that you call on the phone on average, usually convert, right. They usually buy. You can do the same math even if it’s not an online funnel or if you’re not selling info products right, so don’t think this doesn’t work in my business because it absolutely does. I mean the same thing with store visits. How many people that actually click on my ad or maybe opt in for a coupon, actually visit my store? Out of the people that visit my store on average, how many of them buy? Just to apply this same concept to different types of businesses, every business can do the math backwards. Some B2B companies can pay $200, $300, $400, $500 for a lead because they’re selling $40,000 packages, right.
Ralph Burns: Exactly, yup.
Molly Pittman: That’s okay and maybe their landing page only converts at 10%.
Ralph Burns: Yup.
Molly Pittman: You know, and maybe only 10% of those leads are qualified. It doesn’t make their funnel bad, right. It doesn’t make their ads bad. You just have to figure out what this math is for you and your business and your clients so that you can judge what success is, right so you can say, “Yes, this is good,” or know this just isn’t working.
Ralph Burns: This is a really kind of simple example. I mean in the case of like what the lifetime customer value is for DigitalMarketer, it’s $350 so.
Molly Pittman: Yup.
Ralph Burns: You know that every one of those Tripwire offers in our hypothetical example, like $25 to produce $350, over time is sort of the question there. How long does that $350 actually manifest itself? Could be a month, could be two months, could be probably six to nine months, like I think you probably have to go back to your controller and actually sort of look at that, but the point is, is that if you understand what the long term value is and you have enough cash on hand to actually sustain your business so you’re not going broke while you wait for them to, you know customer value-wise themselves. Is that word, value-wise?
Molly Pittman: Yes. It is now.
Ralph Burns: It is now. We just make up terms here. We just make up vocabulary here on the Perpetual Traffic podcast, but my point is, is that there is a time factor to this and there is a pain element. If you don’t have much cash in the bank, you can’t wait much more than a month so you got to really push forward that sales cycle and get your sales people on the phone lickety-split or have a really good autoresponder message if they’re going into an email sequence or make sure your offers convert right after the click. You know just like DigitalMarketer’s offers do, so it’s going to really vary. It’s really hard to say unless we get into specific, specific numbers so let’s get into how we determine this and then sort of backend load it based on our original example.
Molly Pittman: Let’s do it.
Ralph Burns: The first thing that you want to find out is how much is a customer worth? The first thing you want to do is you want to calculate your customer lifetime value, so what you need to do is to figure this out obviously, in the case of DigitalMarketer here, they’ve figured out that $350 is the lifetime customer value of anyone that they acquire. They found that out through I think one of your data guys actually pulled that. Was it the Grim Reaper that pulled that out for you guys?
Molly Pittman: Yes, Mr. John Grimshaw.
Ralph Burns: All right, way to go, grim. If you have somebody like John Grimshaw, you can just immediately just ask him and he’ll pull that data out, but for you as the individual business owner, maybe you don’t know this. The easiest way to do this is that there’s two different ways, I think based upon what we’ve seen inside the agency, but also sort of a more scientific way. If you can figure out how many customers you’ve acquired or how many customers bought your products in the last, let’s say year or maybe a shorter timeframe, maybe the last three months or maybe even a month. Then you divide it by your sales for those customers, you’ll get pretty quickly a ballpark figure of what your lifetime customer value is, so you might have multiple orders from the same customer, which is fine, which is exactly what you want. You want to find out on average, how much does a customer actually buy of our stuff? Easiest thing to do, go back 12 months, figure out how many customers you have, active customers maybe within that 12 months who actually did purchase something and then figure out that value.
For us inside the agency, typically, this is a longer process sometimes for some of our customers so we just try to get them to ballpark it or we tell them to sort of reverse their math, but in most cases, we give them kind of an estimate. Anywhere between, just to keep the math easy, let’s say it’s a $25 product and they have multiple products that, that particular customer might purchase over time. If they don’t know what that total sales is divided by total customers for that particular year, the last 12 months, we might estimate maybe between two to 10, maybe two to six times what the initial purchase price is for their product. Most of their products in this case are at $25 so let’s say anywhere between two to eight times that is a good way to kind of look at what lifetime customer value is.
Molly Pittman: Yeah.
Ralph Burns: In that case, we do about five times 25, which would be about $125 thereabouts.
Molly Pittman: Right, and again just to benchmark, this comes from the Ready, Fire, Aim book by Michael Masterson, which is I think a favorite of all of ours. It’s a great benchmark if you’re just getting started and you just don’t know, right because when you’re just getting started, you just don’t know the lifetime value of your customer.
Ralph Burns: Especially if you have a recurring product, I mean it really depends on your product. I mean for somebody like the cable company. I mean, I don’t know what my lifetime customer value is to Comcast, but it’s in the thousands of dollars between all the bills we pay to Comcast, so for them, probably a lot more of my lifetime customer value as opposed to my lifetime customer value for the hardware store down the street, where I go there like once every three months. It really depends on your business model, so think about that even if you do, like I said at the beginning of the show, if you just sort of benchmark it, you eyeball it, even if it’s close, you’ve got a starting point, so two to 10, two to eight thereabouts of your initial purchase price or your initial conversion value of your initial product is typically an okay benchmark to start with.
Okay, so the next step is that you want to figure out a couple pieces of math here, so your next step is you want to figure out what are your refunds, your cancels, maybe your bad debt maybe in some cases. In most cases, it’s refunds because if you’re an online business, that’s typically the case so you have to figure out what that is and this is going to be one that you’re going to have to go back and look inside a CRM, but in most cases, let’s say just for the sake of argument, you use anywhere between 10% to 20%. 20% is probably high so maybe we’ll just use 10% just as a benchmark here. 10% of people who buy ask for a refund. That’s one in 10. That’s fairly high so I think it’s good to probably go err on the conservative when it comes to this so we’re going to add in $12.50. We’ve got $25 initial price. We’ve got $125 sort of overall conversion value in this fictitious company of ours, and then we want to figure out the third factor.
The third factor is what are your costs of goods sold, and if you have a physical product, this is fairly straightforward. It’s really, it’s just whatever it is that it takes to manufacture or put your product on the market. In some cases it’s, in a lot of cases, for a customer of ours, it’s digital. You produce it once and then all it is is ones and zeroes.
Molly Pittman: Right.
Ralph Burns: They just consume the content online and all you’re really paying for is like the servers to house the data.
Molly Pittman: Right.
Ralph Burns: That’s why digital products are so awesome, but for costs of goods sold for a physical product, it might be considerably higher.
Molly Pittman: When we sit in on meetings at Survival Life or some of our sister companies, it’s a different conversation, and Ralph’s helping us with some ads over at Survival Life right now too. It’s not just about selling the product and the return on ad spend but we’re also having to calculate things like shipping and the cost of the good, which makes things a little bit more complicated but if you don’t factor that in, you’re going to find yourself in a pickle.
Ralph Burns: The numbers are really, really important. Back those numbers out because you know at the end of the line, this is what my average customer is going to purchase, what their lifetime customer value is but it really depends on how good of a deal you can get. In the case of Survival Life, how great of a deal can we get for this particular item and how much is it going to cost to ship? Cost of shipping is another part that you have to factor in to this as well, so it’s really going to vary based upon the business but in the case of digital businesses, the reason why those businesses are so great is that the cost of goods sold is very little.
Let’s say in the case of our fictitious product here, 10% of the total customer value or long-term customer value is your cost of goods sold, so the cost of goods sold 10%, so that will be $12.50. Then you want to calculate your overhead costs here. Overhead costs are different than your cost of goods sold. This is something like your payroll, your utilities, your accounting services, your legal, maybe software that you have to pay, travel and entertainment.
Molly Pittman: People.
Ralph Burns: People, people costs are your overhead costs.
Molly Pittman: Yeah, I mean that’s a huge part of our expenses at DigitalMarketer, especially because a lot of our people are products so if you look at our percentage of costs that we spend on people, it looks high versus different companies but that’s because most of us are the product, so that does have to be a part of the calculation when we go to look at how much can we pay for a customer.
Ralph Burns: Let’s say for our fictitious digital product, 30% is our overhead, so in this case, it would be $37.50 on $125 customer lifetime value. Okay, so far, what you’ve got is you’ve got your refund percentage at 10%. You’ve got your cost of goods sold at 10%. You’ve got your overhead costs, which we just went through, which is 30%, which is $37.50, so now you have to figure out your desired profitability. This is based upon our original calculations, so it’s really starting to look like a digital product. You’ve got a relatively low refund rate. You’ve got a very low cost of goods sold. You’ve got an overhead, which is normal I think in a lot of businesses, maybe a little bit on the low end. Maybe this is a virtual product in some way, shape or form, so if you take out all those costs at $12.50 from refunds, $12.50 from cost of goods sold, $37.50 for overhead, you’ve got $62.50 left. This is where you want to figure out your desired profit margin. In the digital products space, you could probably go anywhere between a 20% margin on the low end, maybe to a 40% margin on the high end, and that will change your numbers. It depends on what your business is, what kind of cash flow you have, all sorts of other factors that are factored in to the equation here.
If you wanted a 40% profit margin, it would be $50. That’s pretty healthy. It wouldn’t give you a whole lot of customer acquisition costs left over, which is the problem so you might want to shoot a little bit more realistically here, so maybe in the 3% or 20% range. Let’s just be conservative here and say that you want a 20% profit margin after all is said and done. What that would do is that would then take out $25 from your overall costs, so you’ve got $62.50 left, so if you are looking for a 20% profit margin, you’ll take out $25 from that and if you do all your math correctly, and hopefully we’ve done our math correctly here Molly, is that you would then have what your customer acquisition cost would be left over.
Once again, $125 minus refund rate 10% at $12.50, minus cost of goods sold 10%, which is $12.50, your overhead, which is 30%, which is $37.50 and then you take out your desired profitability at 20%. We’re being a little bit conservative here and you take out $25. What you’d have left over is $37.50 and that would be your customer acquisition cost, your tolerable customer acquisition cost. For every customer that comes in, you can pay that amount. In our case of DigitalMarketer, a good model for this I think is that every lead that comes in the door through cold traffic, about one in 10 or so purchased the next product, which in their case many times is a Tripwire product. Maybe it’s a low priced product but then they end up buying other products later on down the line. 10% is realistic here, so maybe one in 10 of your leads convert into a sale.
If you can pay $37.50 for a customer, all you would do is you would divide $37.50 by 10 to come out what your tolerable cost per lead is. All things being equal in our case here for this hypothetical business, it would be $3.75 is what you could pay for a lead. It’s probably a little bit lower than what the allowable lead cost is for DigitalMarketer and maybe a little bit lower than many of our customers for sure, but nonetheless, $3.75 for a lead for cold traffic, depending on what kind of space it is, is realistic inside Facebook.
That’s how you figure it out. Now you have to figure all these things out all the way through your sales funnel but in essence, that’s how we would ballpark things. This is a really, really important thing to know. You got to know your CAC.
Molly Pittman: It also shows the relationship that your traffic campaigns have with your funnel or your selling system, whatever you want to call it. The success of your traffic campaigns solely relies on the system that you are sending traffic to, right?
Ralph Burns: Yup.
Molly Pittman: I use this example a lot but it’s really important. If you’re sending 100 clicks over to a landing page and it’s converting at 40% and say you’re paying a dollar a lead. If for some reason, the conversion rate goes down to 20%, now you’re paying $2 per lead. The pages and the selling systems that you’re sending traffic to directly affect the success of your traffic campaign and if you don’t have a high converting funnel, your traffic isn’t going to work, and if you optimize your funnel, if you optimize any step of your funnel, it’s only going to make your traffic campaign more successful. Running traffic and buying ads is not a lever that you’re going to pull to make a bunch of money. You have to have a real business or real product or service and a real fluid funnel that converts and you’re using traffic just like a water hose that you turn on and off when you want more people to go through it but you’re just using traffic to send quality eyeballs through your funnel.
Ralph Burns: When you’re first starting, you have to spend some money to figure out whether or not it works. I mean first off, buy any and all of DigitalMarketer’s products especially the recent traffic workshop at DigitalMarketer because this goes through all these different sales systems. I’m not even going to say funnels, sales systems starting from your front end strategy all the way through to selling your core product or whatever product it is that you want to sell and how to actually do it with regard to traffic on the front end. The point is is that you’ve got to start somewhere and you got to actually test if you’re just starting out. Put a landing page out there and figure out, “Hey, if I’m getting a 10% conversion rate or a 20% conversion rate or a 40% conversion rate on cold traffic to my Lead Magnet, the 40% is pretty good.” 30% is pretty good. 20%, you could probably maybe ado a little bit more work but you can also increase the value by getting cheaper clicks too. It’s one of the things we always look back to, it’s like why are we paying so much per lead.
Well, we’re paying too much per click. Even if I have a 50% conversion rate on my landing page from cold traffic but I’m paying $5 a click, then I’m getting a $10 lead. That’s an expensive lead in most cases so you have to kind of figure out what’s wrong with your phone. That’s how you sort of troubleshoot it. In the case that your cost per click is too high, then that probably means that your message to market match and your ad is incorrect. There’s something missing there. If they’re not purchasing after they opt in on your thank you page, where you have an offer, or maybe it’s 1% or less than 1%, then if you’re getting lots of leads but no sales, well you start working on that page, so you sort of troubleshoot every part of your entire sales process and on Episode 54, we go through a lot of those types of scenarios, like how you can troubleshoot your ad campaigns based upon the data that Facebook is giving you and based upon your conversion rates on your landing page and on your offer pages, so definitely go back to that episode with this in mind, with lifetime customer value and what you can pay for a customer, customer acquisition cost as we refer to it as CAC and you’ll be able to really get your funnels dialed in so you can make as much money as humanly possible through Facebook ads.
Molly Pittman: Well thank you for your smart and very wise words here, Mr. Ralph. I think the moral of the story is try to figure out your numbers. Obviously, if you’re just getting started, you probably don’t know lifetime value but the examples and the framework that we’ve given in this episode, hopefully it allows you to start thinking about traffic differently and what you can pay for a click and what you can pay for a lead and really just encouraging you to do the math backwards to figure out what this means for your business, so that you can pay more than your competition to acquire a customer.
Ralph Burns: Absolutely.
Molly Pittman: All right guys, we will see you next week. Again, this is Episode 106. Thanks for pushing us over the 2 million download mark. We really, really appreciate all of our listeners out there. For Show Notes or any resources that we mentioned in this episode, go to digitalmarketer.com/podcast and we will talk to you next week.
Ralph Burns: See you.

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Episode 105: The Facebook Ad Map: How to Know Which Facebook Ad Type to Use
Episode 107: 6 Facebook Ad Updates You Need to Know About