What even is customer lifetime value anyways? Lookalike audiences on Facebook are key Using CLTV as a metric, you can create lookalike audiences on Facebook that target only the best of the best customers you currently have. To do this, they tested 1%, 5%, and 10% audience matching: With lookalike audiences, you can customize the audience size by % of the country/area you are targeting. Set up your custom audience To get started with using lifetime value to create a Facebook audience, head to your Facebook Business Manager dashboard and navigate to the “Audiences” section: In the audience manager, create a new custom audience, not a lookalike audience: While you can do it either way, I prefer creating a custom audience first, as you can select LTV right off the bat instead of after creating your audience. Next, select “Customer File” as the type of audience you want to create: Customer file simply means that you will upload a batched list of customer data on your current customers. Depending on what platforms and products you sell, this will either be very fast and easy or somewhat time-consuming. If you want, you can even test another ad. In the Ads Manager, you can create a new custom audience based on your lookalike audience. Depending on how you structured your ads in the lookalike audience campaign, you will choose how you want to create the new audience: One of my top ways to remarket on Facebook is by targeting people who engaged with my Facebook Ads in the past few days. But I’ve found a surefire way to drive sales on Facebook from all of that testing: Customer lifetime value audiences.
Facebook has been in hot water lately. If you’ve been keeping up with the latest news, you know what I’m talking about.
And it doesn’t help that 62% of small business advertisers on Facebook don’t find success. More specifically, they “miss their targets.”
Their audience targeting is flawed, and they can’t reach the right users to sell their products and services.
Facebook simply doesn’t work, right? Wrong.
I’d be willing to bet that the number one cause of failing or giving up on Facebook Ads is audience-related.
After all, you can’t sell PPC agency services to an audience that only cares about SEO.
Audience targeting is the bread and butter of Facebook. While that sounds like an enticing feature, your entire campaign will depend on it.
Even simple mistakes in targeting will throw your audience off, potentially targeting the wrong segment or users too early in the funnel for sales.
Thankfully, I’ve been there and done that. I wasted tons of money on Facebook Ads that never reached my targets.
But I also found a surefire way to reach the right audience on Facebook:
Customer lifetime value lists.
What is customer lifetime value and why should you care?
What even is customer lifetime value anyways? Does it matter? Why should you care?
Well, I am here to answer those for you.
Customer lifetime value is perhaps the most important metric you can ever track.
According to Google, it’s defined as the prediction of net profit associated with the entire relationship for a single customer.
In more simple terms:
Customer lifetime value is how much a single customer spends with you before leaving.
It’s that simple, but it’s of the utmost importance.
Lifetime value literally guides every decision you make in business.
Let me give you an example:
You run an online e-commerce store, and you sell relatively cheap products like discounted sunglasses and cheap style items like necklaces.
Your average product costs about $25.
So you begin advertising with PPC to drive some traffic and hopefully convert some sales.
You realize that the average cost per click for retail sales is $1.35. Doesn’t seem too bad at first, right?
But the cost per click doesn’t matter. It’s actually irrelevant.
Why? Just look at the conversion rate for retail advertising: 3.86%
That’s a pretty low conversion rate compared to other segments.
For the sake of this example, let’s round the conversion rate up to 4%.
It would take 25 clicks to drive a single conversion if your conversion rate is 4%.
Now multiply the clicks needed (based on the conversion rate) with the cost per click:
25 * $1.35 = $33.75
Oops.
Now you can’t expect to turn a profit because your average sale is just $25.
And this is where lifetime value comes into play.
This is why lifetime value is the most important metric in any campaign:
Doing the simple math on a single order, you can’t afford to bid on AdWords for what you sell.
But that’s not true if you have a good lifetime value. For instance, how many times a year does that customer return? Two? Three times? Ten times?
If they do, you’ve only paid $33.75 to acquire them one time. And if they spend $25 multiple times, you’ve quickly doubled, tripled or exploded your original acquisition costs.
And then it becomes easier and easier to sell to them. You’ve already acquired them, giving you tons of free ways to sell: email, phone, etc.
You can launch a new email campaign to existing customers for free in just minutes to increase sales and drive up their CLTVs.
Increasing the lifetime value of your current customers is the key to driving massive profits.
Once you’ve done that, you begin to see compounding effects in every other metric.
Increased lifetime values mean you can spend more on acquiring customers because you know that they will spend $XX over their lifetime with you.
And you can begin to ignore CPC.
When it’s all said and done, lifetime value reigns at the top and should always be your guiding metric.
But Neil, what does this have to do with Facebook audience targeting?
Let me show you.
Lookalike audiences on Facebook are key
Using CLTV as a metric, you can create lookalike audiences on Facebook that target only the best of the best customers you currently have.
Lookalike audiences are simple in nature, yet highly effective:
They utilize your current customer data to find new, alike targets on Facebook.
Matching demographic data with affinities, interests, and more, you can create whole new audiences with the same background as your current customers.
It’s one of the best ways to generate an audience quickly.
And they work.
AdEspresso conducted a $1500 test on Facebook to analyze the performance of lookalike audiences. To do this, they tested 1%, 5%, and 10% audience matching:
With lookalike audiences, you can customize the audience size by % of the country/area you are targeting.
For instance, selecting “1” would be 1% of the country you advertise in.
AdEspresso put these to the test, finding that 1% audiences, while obviously smaller in nature, converted best.
According to AdEspresso, the lookalike audience at 10% had a 70% higher cost per conversion than the 1% size audience.
Because of the extra costs, the 10% audience produced 40% fewer clicks, too.
The 1% audience drove 115 leads with just $500 in ad spend.
That’s a cost per lead of just under $4. That’s pretty cheap for high-quality leads.
One company found a 2x increase in conversions and an overall ROI of 186% using lookalike audiences to grow their sales.
By incorporating lookalike audiences, Andrew Hubbard was able to produce nearly $40,000 in revenue from $4,159 in ad spend, generating an 876% return on investment.
Simply put:
Lookalike audiences are amazing.
Here’s how you can set them up using lifetime value to increase their effectiveness and create a Facebook audience that finally converts.
Step 1. Set up your custom audience
To get started with using lifetime value to create a Facebook audience, head to your Facebook Business Manager dashboard and navigate to the “Audiences” section:
In the audience manager, create a new custom audience, not a lookalike audience:
While you can do it either way, I prefer creating a custom audience first, as you can select LTV right off the bat instead of after creating your audience.
Next, select “Customer File” as the type of audience you want to create:
Customer file simply means that you will upload a batched list of customer data on your current customers.
This is the file that Facebook will then take to match other customers and potential audiences for your campaign.
Next, select “Include LTV for better performing lookalikes.” This option will allow you to create a file with lifetime value metrics.
So, how does that work?
Essentially, you will be assigning each customer on your list a different value.
Depending on what platforms and products you sell, this will either be very fast and easy or somewhat…
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