The Secret to Acquiring Profitable Customers on Facebook

1.         Facebook fan pages are not what they used to be.
As an advertiser on Facebook you have two choices. You can buy ads in the side bar or create an ad as a post and sponsor it. Only 16% of posts organically end up in your fans’ newsfeeds so if you don’t pay/sponsor your posts, they are not seen.  The advantage of sponsored posts is that the images are much larger and the ad is interspersed with content — so it is more likely to be read. The CPMs for sponsored ads are much higher than side bar ads: $3.50/ $4.50 CPM for the large format vs. the old sidebar format, which was about $.050 CPM, but the new format is performing better. Marc says he is seeing14% higher ROI, 3.3 click-through rate (CTR), and 46% lower costs overall.
2.         There are two ways to buy ads on Facebook
1.         API = Audience (native Facebook) which is based on the users defined interests. Using the API you can reach people who like yoga, organic gardening and are engaged to be married in the New York area. The API allows you to buy large target audiences when you clearly identify parameters.
2.         FBX = Facebook exchange. Real time bidding basis. FBX now makes up13% of the 15 billion dollar display ad market. Real time bidding is growing quickly, and is projected to grow to 28% by 2016  or a projected $7billion in revenues. The big difference is that FBX lets you buy impression by impression. If you have site level data or third party data, you can bid a specific CPM per user. However, FBX currently only works for sidebar (small format) ads.
3. CPA is not what you should be measuring.
Marc says most companies are focused on the cost-per-acquisition (CPA) of a customer instead of the life-time-value (LTV) of customers. His point is that there are different types of customers — and you should be willing to pay more for a customer who will yield more in the longterm for your company. The illustration he provided of this principle was a t-shirt store selling graphic Ts. A teenager who might buy a single shirt is worth less than a mom who might buy shirts for her family and friends. By understanding your customers and how they segment, you can afford to pay more for targeted acquisition, via API, and get more out of retargeting the most valuable subsets of potential customers.
Paying a flat CPA has other drawbacks, too.  In high demand times such as the last week of the quarter, during Thanksgiving, etc. , supply becomes constrained. If you pay flat CPA you are less competitive than if your budget is elastic.  Instead take a look at the revenue generated from each cohort of customers as related to the price you pay for them. How fast are your cohorts maturing? How much can you expect them to spend overall?  You may be able to afford higher CPAs than you thought for certain groups that are particularly good targets for your business offerings.
4. Re-targeting Facebook fans: API wins.
Marc did a study to find out what happens when you retarget Facebook fans visiting your site from different types of ads. It was a 4-month study that generated $4.2 million in revenue for the company in question, so it offered a robust data set. While only an N of 1, the company saw 89% higher revenue per user if the user originally discovered the company’s website via API then if they were converted from FBX. Once you know who they are, API lets you remarket to users that have significantly greater lifetime value for your site  than one time shoppers.
5. How to test.
Someone in the audience asked what the appropriate first test on a Facebook spend would be. Marc said it depends on how many segments you are trying to test. He suggests creating a three -phase plan for ads and running them to 95% confidence (there is a complicated equation buyers can use to figure out how many people this is per segment).

AMIT SINGH
PGDM 2nd Sem