This is if you are here to make a profit with your own money or someone else’s money. This is not if you’re an employee. This is not if you are working based on a budget or being paid by the hour. Our goal here is to maximize profit using Facebook.
Here’s how we’re going to break it down:
CPM (cost per 1000 impressions).
How much are you paying for the base traffic?
CPC (cost per click).
Whether it’s on Facebook or Google, how much am I paying for that traffic? The more expensive the base traffic is, no matter what objective I choose, the more expensive the cost per click is going to be.
CPA (cost per conversion).
Let’s say I’m selling a product and I need to be able to get that CPA. If I’m being paid $150 per conversion, then I need to be able to acquire this for less than $150.
Let’s say that I drive a sale for $100 and I’m being paid $150 then I have the $50 profit, right?
So I’m always trying to maximize my profit.
Profit = clicks x margin per click
My profit is equal to the number of clicks times the margin per click.
If I have 100 clicks per day, and I’m making $2 a click, then I have $200 of profit per day. This could be true if I’m selling courses, if I’m selling a package, or if I’m an affiliate and being paid a commission. This is how I determine my profit.
I can increase my profit by having more clicks at the same margin per click. Or I can have the same number of clicks and I can increase my margin.
I could have 100 clicks and I make $5 per click. Now I’m making $500. A lot of times people will try to optimize for one or the other and they end up screwing themselves. They’ll say, “Oh, I was able to really increase my margin by 50%. I am now making $4 a click.”
Yeah, but you really should have increased this, because maybe it could have been 1000 clicks at $2 instead of 100 clicks at $4. (That would be $1,000 of profit instead of $400!)
I don’t care about how much revenue there is.
I hear a lot of people say, “Oh, I did $100,000 last month.” Where I see I did $20,000 yesterday. There are days I’ve done $100,000 of revenue. What matters is how much profit you’re able to make. So you’re always looking at the quality vs. quantity.
This is why we have counterbalancing metrics. You could have 10,000 clicks a day and maybe even lose money, right?
On the purchasing side, if you are the advertiser, you want to see what the cost of this traffic is. The more clicks you have, if you’re losing a penny per click, that’s not very good.
On the affiliate side, we want to see our earnings. So, if you are Facebook, for example, you’re looking at your ECPM. Or if you’re the affiliate, you want to see how much you’re earning per 1000 impressions. Then you want to see your EPC – your earnings per click.
Maybe your cost per click is $2 and your earnings per click is $3 – then that’s a good thing, right?
If you’re making a margin of a dollar per click, then you want to get as many of those as you can. But of course, there’s a demand curve.
This is the number of clicks you have and this is your margin per click. You’ll find that there’s a balance where maybe you’re doing 10 clicks per day and your margin is $5, and maybe you’re doing 100 clicks per day and your margin is $2. Or maybe you have point C, and it’s at 1000 clicks and you’re making 50 cents.
Which one is better? Would you rather be at point A, point B, or point C?
The question is which of these points makes the most profit?
C is better because you multiply this together and you have $500 a profit. At point B you have a 100 clicks at $2 you have $200 of profit, and at point A you have $50 of profit. It doesn’t necessarily mean that more volume means you have more profit. Just in this example, it’s the case.
You may have a situation where you have 10,000 clicks and you’ll actually minus. My axis, maybe even down here. The curve can actually go down here and below, right? Maybe you’re like minus the $2 or something like that, right? So you always want to be cognizant of where you are along this curve. The thing that’s going to decrease your margin is over here when your cost per click goes up.
Your cost per clicks can go up because you’ve saturated that audience and you’re a bit too high, which will reduce your CTR. We do see your relevance score, increase your CPM, and then cause all of these other factors to work against you. Meanwhile, your earnings per click is probably going to be about the same.
The number one factor that affects earnings per click is landing page conversion rate.
Let’s say that I get a $150 commission for every sale, or maybe I sell a $500 package and I can afford $150. So MCL less marketing costs of sale, whatever I can afford in terms of marketing costs to be able to drive a sale, right?
Anything below that is profit. Anything above that, I’m losing money. That’s the breakeven. That’s marginal costs that I can allow. If my earnings per click is $3 and I’m being paid $150, then that means I have a 1 in 50 conversion rate.
You see that? You see the relationship between CPC and CPA or EPC and earnings.
Use your conversion rate, which one in 50 is 2%. What you’ll typically find is 1% to 3% is average. If it’s less than $10 you might even have a 5% or 10% conversion rate. If it’s over $1000 even a 1% conversion rate is going to be really high like lead gen or 1% conversion rate to something that’s over a few hundred dollars is going to be really high.
The way you increase your EPC is by increasing the conversion rate. Let’s say that my payoff is still the same.
I’m still willing to pay $150 for any kind of sale. This is highly unlikely, but let’s just say that I’m able to increase this landing page conversion rate to 3%. So I’m always balancing between these two.
Now the way it’s going to work on Facebook is that I’m going to be looking at the difference between these two. The EPC I’m going to get, in the case of affiliates, I’m going to get out of my affiliate portal. If I’m being compensated on in funnel conversions only, meaning no view through conversions. View through conversions that Facebook reports are why people say, “Oh, Facebook’s reporting more than the affiliate or Shopify or whatever’s reporting is.” They’re reporting when people see the ad but they don’t click on it, and they later convert. So a view through conversion means they saw it on Facebook and then they may or may not have bought it later.
Because of this, there’s going to be a difference between these. If Facebook shows I have a $2 cost per click, and Ticketmaster or Shopify affiliate portal shows $3, it doesn’t necessarily mean profitable.
For this to be apples to apples, I need to look at how many visits there actually are here. If I look at link clicks, maybe my cost per link click is 75 cents, but then I know my landing page bounce rate could be 50%. If you look at link clicks to landing page, often we see 50% of that stuff being dropped.
So the 75 cents is actually costing me $1.50. Then, maybe some of that traffic’s being dropped. Or maybe, for whatever reason, it’s just not being tracked, or people abandon, or there’s a funnel that has multiple steps in it. It might end up actually costing $2. So I have to be really careful about these.
How to Make Ads (That Don’t Look Like Ads)
Alright, so I’m trying to drive people to the site to buy.
If I’m an affiliate, I don’t really care about building too many stages in the funnel. I mean, I still want to drive awareness, consideration, and conversion.
If I’m the brand myself and it’s my product, I’m willing to invest one third each of these steps. But if I’m an affiliate and I’m being paid only on the conversion, then I’m probably going to spend two thirds of my traffic here and then I’ll do like one sixth and one sixth because I can’t really afford to invest in a brand. I’m being paid only on the sale
And you eat what you kill.
I’m going to do it off of a public figure page (a page that looks like a profile). So it’ll say Mark Wagner, and it’s not Mark Wagner’s profile, but it will look just like it.
We’re trying to make ads that don’t look like ads. And I’m going to create a video each. It doesn’t even have to be a video necessarily, but ideally: Why, How and What.
The why is some kind of story. You get these people to tell a story about who they are because we’re trying to match the persona of who we’re trying to sell to. If we’re trying to sell to Bob the Boomer, and he’s 45 years old, and he likes guns, then I’m going to find someone else who shares the same why. He doesn’t have to tell a gun story, he just has to tell a story about who he is. We’re identifying with that person because the customer we’re trying to reach is going to fit one or multiple of these public figure pages that fit this why.
Then the how – they talk about how they do something. This is how I go fishing, this is how I tune up my jet skis. This is how I cook a steak. This is how… Just some something where they have some kind of expertise that will also further resonate from the fact that I can identify with this person.
Now that they have a hobby, they have some kind of expertise. So I can tell that they’re an intelligent person and then I’m going to come in and say, “And therefore you need to sign up for life insurance,” or “therefore you need to buy this particular kind of product.” Right? And that’s how the why, how and what work together. The thing that we’re selling does not have to be reflected back in the how and the why. Because what we’re trying to do is build know, like and trust.
Monkey See, Monkey Do
People want to see people that are like them, that have similar beliefs:
- “I believe that everyone should have freedom.”
- “I believe that we should love our families.”
- “I believe that it’s important to keep growing and making your life better.”
- “I believe to take care of our kids…”
- “I believe…”
Whatever it is, we need a story that reflects that. Some kind of expertise that also shows that the step deeper from here. Then we can sell anything we want. So you could actually go why, how, and then interchangeably put whatever you want down in the what category.
And the cool thing is as a super affiliate, which I’ve been fortunate to be a few times, is that I can recycle these personas and swap out different products in here. So maybe I’m selling gun safes, maybe then I’m selling life insurance, maybe I’m selling RVs, maybe I’m selling USAA credit stuff. Whatever it is, I can sell through the same figureheads or spokespeople.
If you’re really pro, then what you’re going to do is you have your WHAT. The objects that you’re selling. And there could be multiple objects in here. And then there can be multiple topics as part of the topic wheel.
We like to choose six. And then we’ll have different people, and these are the personas. The cool thing is that if you have a persona which can be a lighthouse or figurehead or even just an ordinary person – it doesn’t have to be a CEO, author, speaker, or coach.
I can say that this is Phil Randazzo who is the head of American Dream University and he believes in educating our military. That the 20,000 soldiers that are 22, 23 years old that come out every month that need to get a job. And then he tells his why story and that sequences all the way through to drive sales of black rifle coffee.
Or this could be Michael Toothman and he is former air force, and he teaches in the colleges and he is here to help other students become pro at project management. Maybe this is for the University of San Bernardino or a textbook, or whatever it might be.
Maybe this is Heather Dopson. She’s a former police officer. She also served in the military. And we used this maybe for GoDaddy for domains because she’s also someone who believes in process and someone who believes in caring for the little guy, which aligns with GoDaddy’s values.
So you have all these different figureheads, all telling different stories and in the middle you get these different products.
So the beauty of doing this on Facebook, is that you can still do it with the why, how and what model. The difference is that you’re going to invest more down here in the bottom because you can’t afford to build. Or maybe you can, but as you’re getting going, you can’t afford as much on building that long-term brand. If you drive traffic through and you remarket all the way down, you’re loading up what your cost of the traffic is, because everything in the why and how has to be absorbed into this cost per click to drive people down into driving a sale.
And what we find is that even if you’re sequencing people multiple steps to a sale, where you have to drive awareness and consideration and then go to the conversion – if you add up the cost of these multiple steps, that still is probably cheaper than trying to take a cold audience, or even a look alike and driving it straight to a sale in one shot because this conversion rate is going to be so low off the cold traffic that when you build a relationship through multiple steps, your effective CPM is lower.
Like these stories that are being told by the public figures, vertical video, not things that look like professional ads. These will get maybe like a $2 or $3 CPM, cost per click down here is maybe 50 cents, maybe a dollar. Even if you added multiple touches, the cost of getting them down to the landing page all in it’s still only going to be a couple of dollars versus where you might even try to do it in one shot. CTR is the difference here by the way.
Your CTR is so low, your relevance score is so low, that this might end up being $5 or $10 a click. And then this, even if you add this whole thing, might end up being $3 a click. So it still works out. Then it’s a matter of just plotting what your performance looks like every day. And so you want to look at your profit.
Pi is a Greek symbol. P for profit and see how your profit trends and figure out, hey, what’s going on over here? What’s going on over here? And make adjustments. This is when you do MAA against your campaigns and you make your daily adjustments and you see what’s going on. That’s when you take your campaigns.
If a campaign’s doing really well, keep stacking, add more. And then you break this into two trends. You’re looking at the margin that you have, and you’re looking at how much volume you have. So you’re always looking at your margin and looking at your volume and seeing where you can increase either one of these. When you have something that’s winning, let’s say you have a winning ad and a winning landing page, then you’re going to take a 1% look alike, which is going to be huge and you’re going to run it all the way down.
That’s when you’re able to significantly increase your volume. And that’s when you’re able to stack another layer on top of this. And you keep stacking layers on top of this. I was lucky a few years ago, I was doing $85,000 a day in gross, and $50,000 in profit because I use these techniques and I did it off of Facebook. I could have done $200,000 a day in revenue but made only $10,000 a day in profit. Or I could have done $20,000 a day of revenue and $18,000 in profit. But I found that there’s a sweet spot here. Anytime you increase the volume, you always decrease that margin and you’ve got to watch that every day. You can take this and you can break it down into single campaigns, campaign A, B, C, D and E.
If you have a team of people, you might have people that are in charge of different subsets here. So let’s say Google search, Facebook ads, and email. You’ll have different people that are each contributing a certain amount of the margin to each of this, that then stacks these particular components. And that’s how you’re able to build a team around driving the overall profit.
This is something I wish that I was taught when I was learning to be a digital marketer, because everything I’ve heard was from people who have never spent real money of their own. They’ve just been an employee. And that’s great if you’re a VP of marketing in some other company, nothing wrong with doing that, but if your goal is to maximize profit, you have to break the profit down into the components of your cost per click and your cost per acquisition.
Troubleshoot that back to your CTR, troubleshoot it back to what your stepwise conversion is off of the custom audiences that you’re building step-by-step. Go back to the particular stories and figure out which ones are the winners. Of the ones that you put out there, 1 in 10 will be winners. And you just put way more money against the winners and you figure out how those are driving in and you just go back to this every time.
The numbers that you see in Facebook are different than numbers you see in Shopify or Google analytics, on the affiliate portal. Make absolutely sure you understand what is being tracked as conversion, and you could be making a ton of passive income. This is the dream that everyone’s looking for. You only need to hit a home run one time.
That’s the beauty, that you can fail and fail and fail.
Spend a dollar a day as you’re doing this testing. I’ve been lucky to hit this home run maybe five or 10 times depending on how you count. For some people, $100,000 is a home run, other people, $1 million is not even a home run.
But whatever you define as a home run, the beauty is when you get it to work the first time, and you’re able to get it to scale, keep it going. This thing will provide for you. It will just generate so much revenue for you. If you’re selling courses, if you’re selling a product, you’re an affiliate, you’re a salesperson driving a commission, you’re going to find that this will work for you and create this ongoing revenue machine.
Those people you see that teach about the laptop lifestyle, about how they’re making so much money from the beach and it’s all passive income.
I think most of those guys are bogus because they’re not actually doing this, but the ones who actually are making profit, they follow this kind of system. And it works best right now on Facebook until the traffic gets too expensive, and then you’re going to copy what’s working here from the topic wheel to the other channels.
There you go- a look into something that I wish I had known and I’d love to get your feedback on that.
About the Author
Dennis Yu is the Chief Executive Officer of BlitzMetrics, a digital marketing company that partners with schools to train young adults. Dennis’s program centers around mentorship, helping students grow their expertise to manage social campaigns for enterprise clients like the Golden State Warriors, Nike, and Rosetta Stone.
He’s an internationally recognized lecturer in Facebook Marketing and has spoken in 17 countries, spanning 5 continents, including keynotes at L2E, Gultaggen, and Marketo Summit. Dennis has been featured in The Wall Street Journal, New York Times, LA Times, National Public Radio, TechCrunch, CNN, Fox News, and CBS Evening News.
He’s a regular contributor for Adweek’s SocialTimes column and has published in Social Media Examiner, Social Media Club, Tweak Your Biz, B2C, Social Fresh, and Heyo. He held leadership positions at Yahoo! and American Airlines and studied Finance and Economics at Southern Methodist University as well as the London School of Economics. He ran collegiate cross-country at SMU and has competed in over 20 marathons including a 70-mile ultramarathon.
Besides being a Facebook data and ad geek, you can find him eating chicken wings or playing Ultimate Frisbee in a city near you.
You can contact him at email@example.com