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Max I should spend on advertising per $ of ad-acquired revenue?


#1

I ran a Facebook ad for two weeks. It cost me €64. I got an estimated €625 in sales from it. The margin seems good, so I’ll run the ad again.

Another ad, aimed at a different country, cost me €35 and got me an estimated €95 in sales. I’m wondering whether that’s enough margin to increase the ad spend.

Is there any rule of thumb or general advice as to how much is too much to pay for advertising to acquire, say, €100 (or $100) in revenue?


#2

The margin seems fantastic. If that’s $625 in sales immediately (ie not lifetime value) I’d suggest upping the spend. I have heard of people finding the value decreases as they spend more so do be cautious of upping your spend too fast. For SaaS businesses I’ve seen (no source sorry) people quote LTV >= 3 * CAC as healthy.

I’d be interested to know more about what you’re doing with FB, is there a course or some blog posts you can recommend? Or did you just knock out some ads and it all seemed to work?


#3

I have heard a third as a rule of thumb and that feels about right to me. x10 is excellent. Of course, as you increase you spend on a channel (e.g. by bidding more or reaching people that are less well targetted for the same CPC) you will probably find that your ROI drops.

When I tried to advertise PerfectTablePlan some years back they suspended my account saying that only preferred partners are allowed to advertise downloadable software (e.g. BigCo). Are they allowing you to advertise your downloadable poker software?


#4

I’d be interested to know more about what you’re doing with FB, is there a course or some blog posts you can recommend? Or did you just knock out some ads and it all seemed to work?

I’m reluctant to post specifics, because I have competitors who could copy my approach and bid up my CPC. I mostly worked it out myself. In a vague nutshell,

  • I tried something, didn’t do very well, then tweaked the text, tracking, and targeting, and tried again with much better success.
  • My ad has a clear call to action describing the benefit to the potential client
  • My ad had a picture that shows the “PokerStars” software when it has my software integrated too. This would look uninteresting to most people but immediately interesting to my target audience
  • I targeted only people in countries where I know online poker is popular.
  • I targeted only people who have “liked” the PokerStars poker software.
  • I have a landing page that continues the message of the Facebook ad. It has a prominent Download button, a similar but different screenshot, and lots of text. I had spent some weeks honing this landing page.

#5

Yes. There seems to be no such restriction anymore.


#6

I might try FB again one day. My previous experience wasn’t positive, but that was back in 2010:


#7

Interesting - targeting people who like a X could be very targeted advertising. Only 950k of them though :wink:


#8

I’d definitely recommend trying again. I can give you some tips.


#9

Correction: You can give us all some tips!


#10

Congrats on the success!

I’m surprised that there’s hesitation here. Call me stupid, but even if I spend $100 and get back only 110 then isn't that worth it? (assuming other costs don't rise). I'd spend to make $ in that situation any way. Of course 3x - 10x is way better, but why be concerned if it’s less than that?


#11

No, because the $10 goes in payment processing fees. Then you are left providing tech support for free.

You can’t make up in volume what you lose on each sale!


#12

Hi,

we are doing “one-sales desktop” software. I think there are very few companies who actually make money in this segment through Facebook advertising. You see little desktop software advertising on FB… Retail clothing etc. seems to be great in terms of ROI. The problems in my experience:

  • Conversion rate is generally low in software
  • Many people focus on website clicks only - but cheap ones show little conversion
  • It is hard/impossible to accurately understand what lead to a sale

I think Facebook itself is the most powerful advertising channel that can generate LASTING revenue. However, no sales channel works on its own. People need to hear from you through different channels:

  • Forums
  • Magazines
  • Blogger
  • Get bombed with Google image ads
  • Facebook
  • Other relevant channels

You need all of them in our experience. Also: “Crossing the chasm” is true. Also: software needs about version 3 to cross the chasm ( Joel was simply right as well ). It takes time. We do spend a larger amount on FB (couple of thousand dollars per month) - for one product. The biggest challenge for software sales in our opinion is: you won’t find out how people found out about you and decided to buy from you / there are more than one channel responsible.

Tracking sales accurately is essentially impossible. Google Analytics records all transactions associated with a user flow for 4h if he is constantly busy on your page. So if a user sees your ad on Facebook, visits your homepage, downloads your software and tries it out, has lunch, returns to his desk and decides to purchase it will show as “don’t know where he came from”. With free trials covering several days/weeks that is even more complicated. Associating sales to a particular advertising campaign is essentially impossible. Also considering people may click multiple ads (e.g. Facebook, Google)

What we found to work for us is to focus on “downloads” as a metric for advertising spend. People decide within minutes whether they download and try our software - so it is rather easy to determine the “cost/download” for each campaign. Every Facebook/Google campaign should have it’s own URL (URL Builder). This way you can improve performance drastically. I think if you spend a couple of thousand dollars on FB, you will see a decent ROI. The question is: how can you spend 1, 5, 10k every month and have a 300, 500, 1000% ROI for longer periods… That’s a tough one. I would say that in the beginning (when relatively few people know your software and you may not exactly know your market) up to 50% advertising spend (% of revenue) is acceptable, but it should decrease over time to about 20-30% (20% would be really good in software IMHO). Also: it really matters where you are in the life cycle. Crossing the Chasm is simply amazing as a book.

How successful campaigns worked for us:

  • Upload customer list on FB, create custom audiences, 2% size (3+% is too big) - but you need many customers
  • Have high quality image material
  • Have good text
  • Change text / images regularly - e.g. once every 3-4 months
  • Try different campaigns, but always start a new one, never edit existing ones
  • Age, gender, country and interests are (at least for us) the most important success factors (if you don’t have enough customers yet)
  • Delete negative comments immediately (ideally blacklist all comments)
  • Be rigorous in deleting non-performing campaigns, but spend at least 250+ USD per campaign
  • REMARKETING is big on Facebook - you should do it
  • If you optimize for conversions, Facebook can achieve OUTSTANDING results consistently - e.g. .2$ ad spend on the 1$ of revenue… However, those are very conservative, they will use little budget and probably not boost your sales a lot…
  • Optimizing “page visits” and verifying the campaign through Google Analytics with “costs per download” worked best for us…

With Google its more difficult. We had little to no success with the ads leading sales… Image ads, Remarketing and building up reputation did work. Having Google optimize Ads for downloads etc. never really worked for us… Bing is just a waste of money… .05$ per click - but not a single DOWNLOAD…

It is an interesting topic, unfortunately there is too little good material out there. Most blogs talk non-sense a lot. A/B split tests also make very limited sense in many cases - the statistics are just wrong. There is too much variation.

On another note: we only look at sales on a weekly basis - also because our customers come from all over the world. The only thing that boosted our “download per page visit” conversion was putting the download link on the first page. Everything else (even if A/B tools showed that other changes we did were awesome) just “faded away over time”. There is too little reliable information - unless you are Google or Microsoft or Apple. Don’t trust mathematical models / statistics in small software companies. Data/noise ratio is bad.

So yeah: FB can work very nicely and sustainably for us, 20-30% ad spend would be great in the segment, scaling is hard, tracking sales is even harder - what are your suggestions?
Cheers

Jan


#13

Jan, thanks extremely detailed answer. Full of useful info.

I agree on deleting negative comments. But I engage positive comments, as I think Facebook is then likely to show the commenter the advert again, and possibly show it to anyone else who made a comment.

Do you mind telling us what your product is?


#14

True.

If I told you, I could not talk about the interesting stuff… :slight_smile: Competitors, customers etc. all find out too easily if product names pop up and I’d rather like to avoid that.


#15

What we found to work for us is to focus on “downloads” as a metric for advertising spend.

I’m not certain, but it seems to me that downloads I get from Facebook ads convert to sales at a much lower rate, compared to my organic Google traffic. However, as you mention, it is hard to track this.


#16

Oh, and operating systems matter if you have a “multiple OS” application. The conversion rates are very different Mac vs. Windows for us - also the ROI on advertising… You can select the primary OS (e.g. Primary OS is Mac OS) in the campaign as to optimize your ad spend. To me it seems that FB and Google ignore the operating system… But it may actually matter a lot. Geography, age and operating system may be the “most relevant” factors for a good advertising campaign (plus interests and of course search terms respectively).
If you view the statistics in Google Analytics you can find out about where the conversion rate is best and how old your customers are and what OS they are using (with FB its also possible, but maybe less reliable unless you have thousands of sales). Thats very valuable information to get to know your customers and tailoring the ads going forward (and the product)…


#17

… same here. The problem is: unless your customers convert immediately, you will never know… Google has some intrinsic motivation to keep the “tracking of sales” rather short. Why? Well, either your customer decides to google your product an buy it after testing (then it shows up as “google organic search traffic lead to a sales”) OR he remembers your url and directly buys it. In either case, if the lead came from FB - you will never know. I suspect that if Google kept the timeframes longer, the picture would be very different. However, this certainly does depend a lot on your FB spend, and unless you spend a couple of hundreds/thousands $ on FB advertising, you are probably looking at noise…

And again: just FB/google didn’t work for us (we also had to do forums, blogs magazines etc.). However, by tracking downloads on FB and google through Google Analytics, we were able to optimize our campaigns much better and lower advertising spend by 20-30% AND increase sales. Tracking downloads is the best solution for us. And I would even go as far as to say: probably for most software companies, as long as they do target similar audiences across their campaigns… Ads in forums/dedicated sites in the field made no sense for us. I think those times are gone - even if it is YOUR target group. Google gives better results… We would spend 1500 USD for a banner at a BIG site that was JUST OUR audience - and barely recover the spend. Cost per click is bad - really bad. And in software “quantity still matters” (IMHO). In an industry with conversion rates in the 5-10% range, “targeting specifically and aiming very accurately” may not be the best strategy. But quantity may be. Maybe conversion rates are different for other people, but I must admit that I would not believe it if you told me you saw 20-25% of conversion (as % of download). Maybe with very low sales - but not making 6-7 digits a year. Would be amazing - but maybe you could then just double your sales with a 10% conversion rate by attracting four times as many people (your ROI on ads may go down, but your profit should go up a lot).

Edit: I made a few edits in the last paragraph for clarification.
Edit: I know my language may be a little bit “loud” - but what I write is my honest experience and I take my own medicine…


#18

I advertise PerfectTablePlan on both Google Adwords and Bing Adcenter. Based on their reporting of sales conversion I get around £4 back for every £1 I spend. Because of the limitations on conversion tracking the number of sales is probably underreported.

A few observations:
-If I spend more per click the cost per conversion goes up significantly.
-I only run text ads for search, not image, video or remarketing ads. I don’t have content/display/adsense campaigns (on Adwords, you can’t seem to control this on Bing).
-I get a lot more sales through Adwords than Bing.
-Clicks on Bing are much cheaper but the click:sale ratio is also much lower. -Adwords has got much more competitive over the last 10 years.

How successful you are in PPC depends on lot on your market (are there suitable phrases people are searching on? how much competition is there?) and your knowledge of PPC (most PPC campaigns I have seen are quite badly set up). I have also tried to advertise my Hyper Plan product on Adwords and Bing, but despite 10 years experience with PPC I had much less success - too much competition.

It is a big subject. More here:
https://successfulsoftware.net/category/adwords/