It's a numbers game.

### Free Book Preview No BS Guide to Direct Response Social Media Marketing

The ultimate guide to - producing measurable, monetizable results with social media marketing.
Guest Writer
Lead Generation Expert & CEO of Overflow Marketing Solutions
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Running a profitable Facebook Ads campaign is simple. Not always easy, but simple.

There is a formula that can guarantee a profitable Facebook Ad campaign. Once you know the formula and the values to plug in, you’ll never sink money into a losing digital ad campaign again. I know it sounds too good to be true, but stick with me…

## The Guaranteed Growth Formula

Here’s the entire formula: CPA < AP

Were you expecting coefficients, remainders and dividing by polynomials? Nope, there are only two values that matter when assessing your digital marketing funnel.

1. CPA - Cost Per Acquisition

2. AP - Average Profit Per Client

If your Cost Per Acquisition, the amount you pay to generate a paying customer using Facebook Ads, is less than the Average Profit you make from each new customer you’re guaranteed a profitable campaign.

Related: 5 Critical Marketing Metrics to Follow

## Calculating Average Profit

To get average profit per client, sum your total revenue from new clients and subtract what you spent to serve them. Divide the result by the total new clients. For example, if you made \$75,000 from 10 new clients over the past year and it cost you \$40,000 to serve them, your average profit is:

(\$75,000 - \$40,000) / 10 = \$3500 Average Profit Per Client

If your average acquisition cost for similar future clients is less than \$3500, your campaign will technically be profitable.

Of course most businesses won't want to spend all of their profit on acquistion. An average business can expect to invest at least 7 percent but no more than 15 percent of revenue in sales and marketing. If Cost of Goods accounts for 60 percent or more of total revenue, your low profit margin may make it difficult to afford successful advertising. Decrease operating costs by increasing efficiency or adjust your margin by raising prices.

Don’t make the mistake of calculating Average Profit based on revenue only from the first sale. Use at least six months of revenue or your lifetime client value as the basis for your calculation, or you risk underfunding your marketing and sales budget.

Related: How Much Did That New Customer Cost You?

## Calculating Cost Per Acquisition

Let’s assume you’ve considered all of your marketing and sales costs and determined you can spend \$350 per new client on Facebook Ads. Let's reverse engineer your ad campaign to see if a \$350 cost of acquisition is reasonable.

The simplest Facebook ads funnel includes four metrics that build upon each other to determine your acquisition cost. I’ve included standard benchmarks for use as a starting point, but your results may differ:

1. Click-Through Rate (CTR) - Percentage of people clicking on your ad. Your CTR should be near or above 1 percent.

2. Cost Per Click (CPC) - The cost of one website visit. CPC should generally be below \$3.

3. Lead Conversion Rate - The percentage of site traffic that becomes qualified leads. This value should be 20 percent or above.

4. Sales Conversion Rate - The percentage of leads that convert to a sale. Aim for sales conversion at or above 5 percent. (Ecommerce companies often skip the Lead Conversion stage and have a Sales Conversion Rate of 1 percent or greater.)

If 10,000 people view your ad at a 1 percent CTR, you’ll get about 100 website visits. At a \$3 CPC, you’ve spent \$300. Since 20 percent of your traffic will become leads and 5 percent of those leads become closed sales, we can calculate that you’ll generate approximately 20 leads and one new customer.

Your estimated acquisition cost using Facebook Ads is \$300 per client, which is within your budget of \$350. This cost may rise as you scale and target less optimal prospects, but as long as your acquisition cost is less than \$350 you’ll make an acceptable profit.

Complex funnels can include several ads and conversion points, but the Guaranteed Growth Formula of CPA < AP still applies. There’s no immediate reason for concern if your metrics differ from the benchmarks. You can and should split test ideas for improvement if your numbers are far from what you expect, but don’t mess up a good thing until you’ve got a better one.

Related: How to Calculate the Lifetime Value of a Customer

## Optimizing Your Guaranteed Growth Funnel

### Click-Through Rate Too Low or Cost Per Click Too High

Refine your audience. Tailor your copy, images and call-to-action to the audience you’ve selected and ensure that your audience has the desire and means to act.

### Sales Conversion Too Low

If you’re an Ecommerce brand with sales conversion below 1 percent your shopping cart or sales process may have too much friction. Simplify the sales process to decrease clutter, or increase trust by adding testimonials and trust signals near important calls to action.

Your sales process may need improvement, but that is beyond this article. In the meantime, you can still increase revenue by cross-selling and upselling those who convert. You may also improve client retention with recurring contracts. Yes, that’s why many software companies are switching to cloud-based subscription models.

When used properly, The Guaranteed Growth Formula of CPA < AP makes Facebook Ad marketing an investment, not an expense. Using the formula, the most you should ever risk is a small initial budget to test whether your estimated calculations hold true in practice.

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