Watch the video, or read the Blog Post below.
When you're reviewing your Facebook Ads manager, you need to know exactly what Ad Sets you are making money on, and what ones you're losing out on.
The absolute WORST thing I see happen is that people continue to run their ads because they are getting "sales"... But, are these sales profitable? And how do you find out what Ad Sets are profitable when you've got lots of Ad Sets running in your Ads Manager?
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You set your ROAS goals. That is, your Return on Ad Spend you need to be profitable.
In this video, I show you how to calculate your ROAS, and also I go deep into how your margins on a product dramatically affect your ROAS and why you can't just aim for the same ROAS goals for all products. Different products have different margins, and as you'll see, this affects your ROAS. Hope you like the video! Let me know in the comments below what ROAS you'll be aiming for with your products.
Calculating Your ROAS and Optimizing for Facebook Ads
Before we go any further into the topic, I just want to point out that there are two things that we are going to focus in: one is, of course, calculating our ROAS, and the other one is setting up the appropriate prices for our products to be able to get to where we want to be in our business.
Now, why are we discussing this in the first place? This goes out to all the dropshippers who are
Just a bit of a background before we get started: when I am faced with a $5 product (or something that is relatively low priced), I usually try to optimize my Facebook Ads for a 2.00 or higher ROAS, and so I set the price to around $24.95 and an additional $5.00 for shipping:
So, for a $6.00 product, if we are to charge $24.95 and $4.95 shipping, we would be given a total profit of $23.90. Now, how much are we going to spend on Facebook Ads to promote this product?
The image above also shows a variety of scenarios for different ad spends, with our budgets ranging from $10.00 to $17.00. If you don't know how to calculate your ROAS (return on ad spend), it is simply the ratio of your total revenue and your ad spend. For a $10.00 budget, we would be getting a 2.99 ROAS and a net profit of almost $14.00. For a $12.00 budget, we would get a 2.49 ROAS and an $11.90 net profit. What this means is that basically, the less money we invest on our ads, the more profit we get to take home and put in our pockets. However, the negative side of this is that the less money we pay Facebook to boost our ads, the less likely the platform will do its job the way we want it to.
Don't take this the wrong way, though. With a measly $10.00 budget, Facebook can still show your ads to your target audience, but as you may already know, marketing on the social media platform is a game of bids -- the advertiser with the highest bid in terms of ad budget will get the top prize, which is the opportunity for his or her ad to be shown the most to the right people, and on the right time.
So yes, you can put in as much money on Facebook's table as you want, but if you go too far, you might end up losing a lot more. Sure, that one specific ad you might have might be for a product that is highly profitable and is guaranteed to make you money, but what if it eventually backfires? What if one day, people just start to ignore your ad and decide that what you are offering is not a great fit for their tastes?
Moreover, you are not just investing on a single ad; the most probable scenario is that you are running a multitude of ads to increase brand awareness and to target people from various niches or interests. Chances are, not all of those ads are working well for you, and you still have to take these losses into account.
That said, with which ROAS and margins should you be playing around?
The Ideal ROAS
My suggestion would be for you to run and optimize your ads for a 2.00 ROAS or higher. If I am not launching ads too fast, or am not in a hurry to scale up to greater lengths, this is where I usually find myself to be profitable. Actually, 2.30 has a very special place in my heart, because when I optimize for this number, everything just really works.
So, 2.30 with a $10.90 profit and a $13.00 budget for our $6.00 product. Not too bad, if I may say so myself. Even if I have a few ad sets that don't work, as long as they don't go over a hundred dollars, I would still be able to make up for the losses AND take away a few bucks for my other expenses.
Here is an overview of my Facebook Ads account. As you can see, my ROAS is a little well above 2.30, so my team and I would still allow these ads to run. Otherwise, we would temporarily turn them off and see how the others would perform over a given period of time.
One thing to take note of is that when you start to work with higher-priced products, you don't have to work within the 2.0 to 2.3 walls -- you can still afford to work with lower margins and still have higher profits.
If we have a $15 product and we are selling it for $54.95 (+ $4.95 shipping) with a $15.00 cost per acquisition (CPA, or basically the ad budget), we would have almost a 4.00 ROAS and a $30.00 profit. As the price goes up, your CPA will obviously rise -- you could still increase it to $25.00 and have a 2.40 ROAS with a $20.00 profit!
Let's Wrap It Up!
Learning where to work with in Facebook Ads in terms of your ROAS is a very important step to becoming profitable with your business. Do not just waste your money away on the platform without fully knowing what to do or where to properly invest your money in; otherwise, you could be losing more money than what you are currently making!
If you have any more questions about your ROAS and how you can better optimize your ads to increase profitability, creating the most profitable dropshipping stores, dropshipping in Australia or anything regarding this video, feel free to personally contact me via the Contact Form HERE. You can also leave your comments and feedback below, and our team over at WagePirate will definitely get back to you with a response. For more reviews, news and updates, do not forget to subscribe to my YouTube channel!