Your Customer Value - Facebook Ads Spend for that month is going to equal Net Profit.
Well, it can get a little more technical than that.
Break Even Point
Facebook normally charges us on a monthly bases. So to keep things simple lets measure things per month.
If you are spending $500 dollars per month on Facebook ads. Then If your customer value is roughly $250 dollars per month (that is what the customer pays you). Then it is going to take 2 clients to break even! ($250(1) +$250(1) = $500
Customer Lifetime Value
Lets say that your customers who sign up with you normally stay with you for only 6 months. On average their lifetime value is 6 months which equal to $1,500.
(Because $250 * 6 = $1,500)
So their lifetime value is $1,500.
Therefore lets pretend you are spending $500 a month in ads spend again for the month of March.
And you only acquire 1 client in March. So on the front end you lost money. But on the back end you acquired a client and broke even on the second month and started to make a profit on the third month.
Cost Per Customer
This is in fact the most important measurement. Cost Per Customer. As stated above, if we spend $500 bucks on Facebook ads. And we get 8 customers a month. Then our Cost Per Customer is $62.50.
That is not bad if our customer is paying us $250 a month. We are netting $187.5 per acquired customer.
Cost Per Registration
The second to the best is our Cost Per Registration. The way that is measured is if we have a application form for them to fill out to help us prequalify them to see if they are a good fit for the program. Depending on our application form lets say we close at least 80% of our customers who fill that form out. Then if we are paying $40 per registration then I know we have some leeway but if we are paying $200 per registration then we are cutting it close (because our Customer Value is $250).
Does that make sense?
Cost Per Leads
Ahhhhh, we're here! Your favorite! Well, I will tell you lead cost is great but again not most important as Customer Costs.
If we are closing our leads and lets say we close 20% of our leads upfront. Then I know for sure we'd better get a cheap cost per lead because if we don't when lead costs sky rocket! Then... We know we could be heading towards the hole!
100 clicks = 20 Leads
Cost per Lead $1.00
Every 10 leads we get 1 registration.
We have 2 registrations.
Cost per Registration: $10
Every 2 Registrations we get 1 Sale.
1 Sale Value = $250
Cost Per Sale = $20
Net Profit = $230
Long Term ROI Measurement
Most advertisers measure they ROI (return on investment) from the leads they convert into customers in the first phase.
And in some cases you are lucky and get a TON of clients with little effort.
You are only going after 5% of your revenue.
The other 95% of your sales are going to require a somewhat longer term strategy in place. It is going to require you to build a strong relationship with your leads and eventually close them into clients down the funnel.
Why? Well, some people are not really ready to commit with you yet! Some people are interested but the following things could affect their action:
1. Price... We've all heard this one. "I can't afford it!"
2. Location.... "You are just too far!"
3. Timing... "Not right now, maybe later. Have to get with my loved one and ask!"
And so on, right... We have probably heard every excuse in the book. But 9 times out of 10, not all of them are time wasters. Some of them are just not yet ready and comfortable yet to do this.
On your part it is going to require some case studies, testimonials, time and patience for them to get to know you a little more, and maybe even a few referrals or so. Hell, and some people it may require all the stars to align in the universe.
I am not telling you to chase after dead weight! But I am trying to impress upon you to create a more longer term relationship building strategy behind Facebook because they were not really trying to search for you to begin with. They just happen to "stubble" upon you from seeing you in the newsfeed and its your turn to get their attention!
A Technical Example
Lets say you use Infusionsoft, aweber or something like that. And you have an awesome email strategy where you on average close at least 20% of your leads from your email as customers.
So here is the breakdown of how it would look...
1. 1st Week: Initial Lead From Sign Up: 5%
2. 2nd Week: First 3 Emails Sent: 3%
3. 3rd Week: Next 2 Emails Sent: 8%
4. 4th Week: Next Email Sent: 0%
5. 6-9 Weeks: List Pushed to a Longer Term Funnel: 4%
So you could have gotten sales from leads who signed up 6-9 weeks ago. Crazy but sometimes people are waiting for that paycheck? Or that perfect moment in their life to take action. (Wedding, travel, or anything that they are back from... Who knows!)
But, still to this day Email Marketing is one of the best forms of marketing out there. It is indeed the strongest way to build that long term relationship that you want. So don't exclude it!
That's it in a nutshell. Hope you enjoyed it! Accounting 101... Ha!