How to Rig Facebook Advertising For Profitability
In 2015, our first consulting “facebook advertising campaign” went live, and we were off to the races. I was doing my own agency and Chris was doing consulting for a few clients… but this was the first ad we ran together for what would become Traffic and Funnels.
We spent roughly $4,000 and earned approximately $15,000 in that first month. We will spend time in the next section about how we run our campaigns — but I want to warn you: this is not something you should get completely lost and absorbed in.
If you have done the work of creating a GREAT offer, and you have gotten on a few consultations — you’ve probably already gotten your first client or close to it. This article is designed to be a roadmap for you, not a full soup-to-nuts “consulting program.” We can’t guarantee results nor would we.
Go at your own pace.
Go at your own pace and reach out for help if you get stuck!
This original $4,000 facebook advertising investment was the spark that later turned into Traffic and Funnels, $2,000,000 in monthly revenues, and hundreds of thousands of people on our roster receiving our information and training each month. Right now, all over the world, there are hundreds of millions of people who need what you can do for them. They don’t know who you are, and they don’t know anybody you are currently working with. You won’t reach them through referrals, and you won’t reach them through word of mouth.
Some clients will only be accessible to you via advertising and nurturing. This is “attraction marketing,” and it is the process of putting out quality concepts and quality information — and attracting your target market to your brand.
So let’s talk about numbers…
“If you can spend $1 on an ad, and make $2 back, you’ll never have to worry about money again.”
This quote started it all for Chris and me, back in the day. Coming from the real estate world, you think of “ROI” and “cash flows” differently. I want to transfer this way of thinking to you in this chapter. Some of the most successful marketing names in the internet marketing space come to us for mentorship — simply to access our unique way of thinking about cash, economics, and ADVERTISING numbers.
We’ll use real estate as an example here, because it’s the oldest investment class around, and there are more millionaires in real estate than any other field. If you’re wondering why I’m talking about real estate in an article about facebook advertising — just stay with me. I want you to understand the “investment” portion of advertising first, because the only way to win here is if you know and understand your numbers. We also run a large real estate company, so we’re very familiar with the game and it relates perfectly with advertising.
If you want to win in real estate, here are the terms you need to know:
- ROI: return on investment (how much you’re getting for your money)
- COC: cash on cash (limits ‘ROI’ to just the cash you have in the deal)
- NOI: net operating income (all income minus expenses)
- Cap rate: income divided by purchase price
- Leverage: getting more than what you had to actually pay for
Let’s just start there. Let’s use an example… pretend you are going to invest $185,000 for a piece of rental property in Charlotte, NC. This is an investment property, not your primary residence. You are not going to be putting $185,000 cash down, you are going to use “LEVERAGE.” You will put 20% down which is going to be around $37,000. You’ll have some closing costs which are the fees you must pay the brokers and agents involved to get you this deal. Let’s estimate the closing costs to be $5,500.
All-in, you will give up around $42,500 to get this piece of real estate. Now, here’s where all the terms come into play. Let’s assume there is a renter in the property paying $1,700 per month (that’s $20,400 per year).
Your basic ROI is going to be 11% (which is $20,400 divided by the purchase price of $185,000). To get the cash on cash and net operating income, which are your two most important factors, we have to calculate all of the expenses:
- Mortgage: $850 per month (which is $10,200 per year)
- Insurance & taxes: $175 per month (which is $2,100 per year)
- Maintenance & vacancy: $85 per month average (which is $1,020 per year)
- Property management: $175 per month (which is $2,100 per year)
- Total expenses: $1,285 per month (which is $15,420 per year)
- Total income: $1,700 per month (which is $20,400 per year)
Your cash on cash (COC) is going to be 11.7%
Your net operating income (NOI) is going to be $4,980.
Your cap rate (CAP) is going to be 11%
This example is to be used as a baseline, to explain the economics of why advertising is so powerful as an income stream. You are going to put in your pocket (profit) $415-ish per month from this property, while also getting someone else to pay down the debt for you (which is really the main draw for real estate like this). That’s $4,980 per year for your $42,500 investment which is a 9.7% annual return.
Now, if you had 100 of these properties, you’d be looking at $35,000 per month in profit but you would need to put $4.2 million cash down to do this. We are very familiar with all of these numbers because we are acquiring 20-50 houses per month right now in several big markets in the USA. But none of it compares to the investments we are making into paid advertising.
Nothing Compares To Paid Advertising
Last month for ONE of our companies, we invested $430,000 into advertising and that produced a return of $1,300,000 for us. In one month, that is a 300% RETURN, in just one month! You have to look at advertising as an investment that you will get a rate of return from. People say, “well what about the risk?” Risk comes only from lack of knowledge. The way we look at advertising is similar to how a real estate mogul looks at deals… except the returns are higher, and the game is constantly evolving.
I want to have as many streams of wealth coming in from advertising as possible — so long as they are not extremely risky and my bases are covered. The difference between something like real estate and advertising is advertising can pump out 300-1,000% ROI on a monthly basis… which is much, much higher than any real estate portfolio I’ve ever seen.
If you have a business that does a consistent profit margin of 15% a year, and you have an advertising system to profitably acquire new customers, you can have a line of equity groups out of the door ready to hand over a big pile of cash to BUY that business from you — likely in cash payment.
So why are entrepreneurs sleeping on this?
Answer: They perceive advertising as a cost/risk VERSUS an investment/return that can create new income streams at will. Their perception is incorrect.
When you realize the power and the potential of direct response advertising it will change your business and change your life. You’ll enjoy the benefits of higher profits and so much opportunity coming at you, you’ll have to turn people away or expand your business (even in a down or “retracting” economy).
It doesn’t matter what industry you’re in. The principles we’re about to discuss will work for you. “Okay guys… teach me. The student is ready, I want what you’re talking about. HOW?” The primary thing that we must start with — that YOU must ask before your pen ever hits paper to create your first advertising stream — is this:
“Do people need, desire and want what I am going to be offering them?”
The good news for you is this: the answer is YES. How do I know this? Because, you’ve been following along with what we teach here at Traffic and Funnels. Check out our video training on creating your offer if you haven’t already done that.
I can’t tell you how many people begin running advertising and they don’t have an offer people want; they have no idea how to sell to people once they do talk to them; and they don’t know what they are even trying to offer people. These people are WASTING MONEY. You’re ahead of the curve, so congrats to you.
“FLIPPING” ATTENTION FOR PROFITS
You might’ve just noticed another real estate reference. When I started out in the housing market, we would “flip” houses for quick cash. It worked like this:
Find a house that is underpriced for its value (say, a home that’s $100k, but with $20k in repairs it could appraise for $150k)
Put $20k into it, list it for $150k
Keep the $30,000 difference as PROFIT
If you know what you’re doing, a lot of times you can “flip” a house in less than 60 days. Well, it is similar when it comes to how to use facebook advertising profitably, with the difference being the following:
Instead of buying underpriced LAND, we are buying underpriced ATTENTION.
Successful facebook advertising means the ability to get the attention of your market, and then “flip” that attention for a profit. Before you go thinking I'm just an ice cold savage that only values a person for their money – let me assure you that is not the case. David Ogilvy, one of the greatest advertisers who ever lived, once said:
“The customer is not a moron… she’s your wife!”
What did he mean by this? I believe what he was saying was to not disrespect your customer. We treat the attention we generate through advertising with great respect… these are real people, with real problems, and we aim to make their lives easier by the products and services we are selling to them. I respect and value the people more than I respect their money… as you get good at this, remember that your honesty, and your integrity, is the cornerstone of everything in business.
“Whoever renders service to many puts himself in line for greatness – great wealth, great return, great satisfaction, great reputation, and great joy.” – Jim Rohn
That said, it’s not enough to be a courteous person with high integrity. You can be kind and respectful, but you also need to KNOW YOUR NUMBERS.
I see experienced business owners fail all the time simply because they lack clarity on what their numbers are. They also lack clarity on what their numbers should be. I’ll never forget one time during a call with a private client…
We were going over their numbers, and they were very frustrated. They were expecting different numbers than what they were currently getting. As we dug through the data together, I realized something crazy. I paused all of us and said, “Your numbers are better than ours are!” They were earning a 600% return on ad spend.
The truth of the matter was, them hitting their financial goals was simply a matter of knowing what their numbers should have been, and then acquiring enough attention to hit the big goals they had.
In this article, I’m going to arm you with the ability to understand your advertising to the depths of a professional. At the end, you’ll know how to take your facebook advertising down to the “studs” (so-to-speak) and fix whatever is broken.
THREE PILLARS TO PROFITABLE ADVERTISING
There are only 3 factors inside of this idea of “profitable advertising,” which we’ll cover now:
- Attention (Eyeballs of your prospects)
- Cost to get that attention (How much are you spending per 1000 views)
- Profit per unit of attention (How much are you making from that attention)
We live in an unprecedented day and age of direct access to the people we advertise to. Back in the “old days,” if you wanted to advertise to someone, it was costly and time consuming. Planning and launching a campaign took months, and a TON of money.
The advertising channels were not versatile, and they all required lots of moving parts and people to run them:
- Direct Mail
- TV (more recent)
- Fax machines (believe it or not, they used to have cold fax campaigns like they have cold calling campaigns today!)
Attention was expensive. Attention was hard to get… and the process of measuring and managing whether the marketing was effective, was laborious. It simply wasn’t possible for most business owners and entrepreneurs to place their goods and services in front of a large group of people, QUICKLY. Nowadays, any business can get into the game quickly and start testing their way to a successful advertising campaign within a few clicks of a mouse.
So back to the process: we want to purchase this underpriced “attention.” This is the basis for becoming profitable in any market (REI, Stocks, and the like): buy something that is undervalued/underpriced.
We might be able to buy a “click” – for instance – on Facebook, for $1.50; but our business then generates $5.50 per click to our website because of what we are selling. That means the $1.50 click is less than THREE TIMES cheaper than it’s true value.
This would equate to a 3.6x (or 360%) return on investment — if you’re like most of our clients, we can “rig” that process so that you’re earning your return within the first 30 days of buying that attention. That is impossible to do with any other class of investment. And this isn’t just with Facebook. We have clients spending hundreds of thousands of dollars on YouTube, LinkedIn, Twitter, Google, and Facebook advertising.
PS: you might be wondering where I got that math. I was just using an example, but let me break it down for you really quickly. If you pay $1.50 per click, and you get 1,000 clicks, that will cost you $1,500. Remember, selling consulting allows you to charge a higher price than selling, say, t-shirts… so they may click on your ad, and let’s say out of those 1,000 clicks 10 of them book a calendar to have a conversation with you. Out of those 10 people, you use the material you learned in this article to sell them your offer. Let’s say you sell 1 client, out of the 10 conversations, and you charge $5,500.
That means, you essentially earned $5.50 per click ($5,500 divided by 1,000 clicks = $5.50). Like magic… (and by the way, $5,500 is a low price compared to our standard client, and 10% is a low close rate compared to our standard client… these numbers, while not guaranteed, are not super difficult either).
Right now, I believe the marketplace for attention, especially online, is undervalued and underpriced as a whole. Some folks would disagree with me and that’s okay. The reason I think this is because of how many of our clients are scooping up thousands of “units” of attention and then making more than they’re paying for it.
Here’s another way to think about the math (remember, advertising, the way we teach it, is a lot of math). If you can get your ad displayed to 100,000 people, and if you can get 3% of those folks to click your ad (3,000 clicks) and then, out of those 3,000 clicks you can get 30% of those to turn into leads…
That would be 900 “warm” prospects that have shown interest in what you have to offer. This is when it starts getting really exciting! Because — on average — a typical lead for us generates between $50 and $150 in REVENUE. Let’s do the math on this example:
- 100,000 ‘views’
- 3,000 ‘clicks’ for $1.50 each
- 900 leads or prospects
- Total cost: $4,500
- Total revenue: $45,000 – $135,000
At this point, you are starting to build an asset – the asset is? PEOPLE WHO ARE INTERESTED IN WHATEVER YOU ARE OFFERING THEM! All roads to wealth begin with assets. When you’re looking at the math, the question is not, “how cheaply can I acquire this attention for?” It is “How much can I afford to pay for this attention based on what I know I will earn on the backend?”
I know you are probably dying to get into some tactical things, but we are not finished laying the groundwork quite yet. This all sounds amazing, but the truth is, not all “units” of attention are created equal.
LEVELS OF ATTENTION
Tactically speaking, there are 5 different levels of attention and they vary in value to you, as an investor:
- Impression (this is how many times your ad is being displayed to someone; if it says 1,000 impressions, that means your ad has been shown 1,000 times to consumers)
- Clicks (this is when someone clicks on your ad from an impression)
- Cookies (this is when your ‘tracking pixel’ runs some code on someone’s browser because they viewed your website; this allows you to continue showing ads to people who have seen your material)
- Leads (someone liked your ad and your page enough to give you their contact information; this means you can communicate with them directly)
- Buyers (someone gave you money in exchange for value in return; these are your highest-value people)
With these levels, we can now construct different plans to reach as many people as possible, as affordably as possible, while extracting the maximum (ethical) return in the process. If this sounds sketchy, think of one good purchase you have made in the last 90 days that you are GLAD you purchased.
100% of the things that will come to mind were advertised at some point. You might not have seen an ad on Facebook for it, but guaranteed, it is being advertised somewhere either via branding, or direct response. There are no good things that anyone knows about that were not first advertised.
Level 1 — Impressions
The cost basis of your advertising will always start at what’s called “CPM,” or cost per 1000 impressions. The CPM is essentially the ad network telling me how much it will cost to show 1,000 people my ad. Based on our numbers I usually shoot to pay less than $40 per 1,000 impressions.
Look at these levels as dominos. If you have “success” on level 1 (you’re paying a good price for your impressions) then you can move on to the next level. Make sense? Then, let’s move on. The first formula you need to know:
CPM x 1,000 impressions ÷ CLICKS = COST PER CLICK (CPC)
Level 2 — Clicks
Your cost per click is completely dependent on these two things:
- How much you pay for CPM and…
- How many people out of that unit of 1,000 who click on your ad
Remember, CPM is simply how much it costs for people just to VIEW your ad. CPC is how much it costs to get someone to actually CLICK the ad. If you are paying a CPM of $200 it will be nearly impossible to be profitable. Remember I like to shoot for a CPM of less than $40. The lower the better. And on average, I’m trying to get .75-3% of my ‘impressions’ to actually CLICK on my ad. That means if I get 1,000 impressions, I need 10 to 30 people to click it, giving me a .75-3% CTR (click through rate).
Here is some math, to serve as an example:
- If my CPM is $40
- If my CTR is 3%
- My CPC (cost per click) is $1.33
- If my conversion to lead is 20%
- My CPL (cost per lead) is $6.65
The lower I can get my CPM’s the more I can tolerate a lower click through rate. The higher my CTR, the more flexibility I have to pay a higher CPM. Make sense? This is how you start to zoom out and manipulate the numbers for YOUR benefit. If the platform I’m running on is charging high CPM’s then I need to work my butt off to try to create a badass ad that people will want to click.
Understanding which lever to pull in your advertising is very important in becoming an intelligent advertiser.
Level 3 — Cookies
This might be more important than our next level because of email deliverability problems and consumption in today’s business environment. Having your prospect cookied is awesome because you’re able to transform someone from a cold prospect to a hot prospect very quickly and inexpensively.
Here’s how cookies work: when someone clicks on your ad, and they are taken to your website, you can create an audience on the ad platform of everybody who clicked that ad and viewed your website. This is known as a “retargeting list,” and it lets you show the same ad (or different ads) to that same group of people more than once. Cost Per Cookie will essentially be the same as a cost per click because it’s that physical action that your prospects take to engage with your brand.
This is the beginning of what we call Hyper-Organic (a “secret” strategy our clients are using to generate insane demand for their businesses without websites, funnels, or webinars). Clients ask me all the time: “How many audiences should I build on (insert ad platform of choice)?” I say: “As many as possible!”
You can build audiences and cookie lists two ways:
Engagement: How did they engage with your brand?
- Clicked an ad
- Watched a video (what % did they watch; 5%, 50%, 75%, and so on)
- Submitted information
- Purchased (became a customer)
Time Frame: How recent did they engage with your brand?
Recency is crucial to conversion (i.e. 30 – 90 days of brand contact). This is when we are trying to move as many people from initial contact to buyer. They are in problem solving mode and that’s what we do. They get excited about what you have to offer and if you’ve done a great job in your marketing they DESIRE to GIVE YOU MONEY.
The second formula I need you to know when it comes to how to use facebook advertising profitably is:
CPC (e.g. $1.33 ) x Number of Link Clicks (e.g. 5,000 = $6,650) ÷ Number of Leads (1,000) = COST PER LEAD = $6.65
Level 4 — Leads
Now that we know how much we’re paying per lead ($6.65), I need to figure out how many of those leads I can convert to a client (or customer). Most of our clients – as a worst case scenario – will convert 2-4 clients out of 1,000 leads (typically within 60 days). If a client charges $10,000 for their service or their coaching program, and they secure a minimum of 2-4 clients, then they can expect to generate $20,000 – $40,000 in revenue.
Total revenue is: $20,000 – $40,000
Total advertising investment is: $6,650
Profit: $13,350 – $33,350
That’s a 300-500% ROI. See why this is so cool? You have to have a good offer or a business with a good offer that you can support, but when you get these fundamentals — there is a fantastic opportunity for those willing to invest into advertising.
Before you start to get aggressive in your advertising you MUST start with the end in mind. I do this on every single offer we put to market. I work backwards:
- First start with your revenue goal: $50,000 in 30 days (for example)
- Then how many clients do you need: 5 if your offer is $10,000
- Then how many leads do you need: to be safe — 2,000 leads worst case scenario
- How much do you need to spend to get those leads: If your CPL is $6.65 you’d spend $13,300
Would you invest $13k to get $50,000? Hopefully, the answer is YES!
Now you have clarity based on math and economics on what you need to do to generate X amount of revenue every single month. It is one of the greatest feelings of control you’ll ever have to be able to predict how much revenue you’ll generate in your business every month. This is exactly how we’ve figured out how to get to $1,000,000 per month in revenue using facebook advertising profitably. The last formula I need you to know:
Total Revenue Generated – Total Ad Spend = NET PROFIT
Net profit is where the riches are made. That’s the money you get to keep after all the work is done and the revenue ticks in. The fastest way for you to become rich is to learn the numbers that we’re breaking down right here.
Want to learn more about our process for advertising? Check out our premium paid ads workshop, Ads to Clients.
In your service,
Taylor Welch and Chris Evans