Updated: Feb 16, 2019
Determining the Utility Behind Facebook Ads
When making any business decision, you have to weigh the options. Facebook Ads are no different. Businesses are flooding the digital space, and for good reasons, but it's important to understand the total effect digital marketing may have on your business, both short and long term.
By viewing marketing from an investment perspective, you'll get a better understanding of the important cost/benefit relationship and make better strategic decisions because of it.
Before we begin, I would like to state that I am a huge advocate for Facebook Ads.
They give businesses the ability to connect with their audience like never before, but it's important to view them from a realistic perspective.
Factors Effecting Short and Long-Term ROI of Facebook Ads
You can expect different effects of running Facebook Ads on different companies for a number of reasons. Factors that determine what your short-term ROI is going to look like include:
Established companies will be able to leverage more data on existing customers, which is highly beneficial to the bottom line. Using this data for remarketing and look-alike audiences will enable them to connect with high quality audiences and produce higher ROI's in generally shorter amounts of time.
In the short term, around 3-6 months, you should expect an increase in revenue. This can be used to support and expand on your future digital marketing efforts.
New companies should expect a longer turn around time on ROI due to lack of awareness and data. Focus on building a highly qualified audience by finding people interested in your product/service before you try to convert complete strangers into customers.
You should see some results as a sign that you're on the right track with your message, audience, and targeting——but you should focus more on testing what message and creative resonates with your audience.
In this scenario you would expect to operate on a tighter budget while in the beginning stages of your Facebook Ad campaigns, and mentally prepare yourself to spend money. Focus on the objective strategy and reaching your goals for each campaign instead of ROI.
Those in industries with high ticket sales on large margins will see the highest ROI in the short term. These could be auto dealerships, real estate agents, healthcare, loan/financing companies, lawyers, etc.. A single customer brings them much higher utility, and could pay for their entire campaign that month, plus profit.
If you compare this to, let's say a bakery—who's ticket sales are much lower than a lawyers—you can see how their short-term ROI will differ. The key lies in developing the correct strategy for respective industries.
As you can expect, running a campaign aimed at getting clients to straight up buy your product/service will provide a higher ROI in the short compared to a campaign designed to drive traffic and brand awareness.
You may choose the best route for your marketing objective is to build your email list for drip campaigns or customer loyalty programs. This would lead to an ROI potentially realized at a later date. Keep in mind this requires enough capital to fund the campaign to fruition.
Your expenditure will also determine the short and long-term effects of running Facebook Ads. Spending more money doesn't correlate with a more successful campaign, however a larger ad spend will enable you to reach a larger amount of people. A larger audience will increase the data you collect and give you more accurate test results.
This is beneficial for optimization down the road.
Factors that play a role in your long-term ROI of Facebook Ads include:
Facebook Ad results generally improve overtime due to collection of data regarding your target audience. As you continue running campaigns and gathering data, you can optimize for certain actions your audience is likely to take on your ads.
The more data you collect, the more you'll be able to leverage it and boost ROI in the long-term.
The utility of Facebook Ads is influenced by how dependent you are on it's function within your company. If Facebook is the sole source of client acquisition or lead generation for your company, the utility is greater than if you're using multiple platforms to acquire business.
If you use multiple platforms, how does Facebook stack up in terms of performance?
Compare your ROI per dollar spent against multiple platforms to determine utility.
Use data from a period of 6-12 months to make an accurate decision.
Just like any business activity or investment, there is some risk associated with using Facebook Ads. You can reduce your risk by developing a well thought-out strategy and considering all the possible options to grow your business. By clearly laying out your risks and benefits, you give yourself a better idea of the long-term benefits.
Any entrepreneur or business owner should have a clear understanding of the direction their company is headed. The long-term ROI of Facebook Ads will be determined by their direct contribution to your goals. What are you looking to accomplish in the next year? How will Facebook Ads help you contribute to these goals?
By laying out a clear path, you'll enable yourself to determine how well Facebook Ads will fit your overall strategy.
Some Questions to Ask Before Running Facebook Ads
What is my goal? How will Facebook Ads help me accomplish my goal?
Facebook Ads are cheap, but they aren't as cheap as they used to be. Can I afford Facebook Ads? Should I consider other marketing techniques?
Do I have enough capital necessary to see a campaign through or long enough to provide meaningful results?
What do I lose by spending this money here? What do I gain?
What are my alternatives?
Is another platform better for reaching my audience or campaign objectives?
Facebook Ads are highly beneficial to businesses and entrepreneurs, view them as an investment.
You should expect to see the best results later on with optimization.