Facebook Audience Segmentation by LTV for Supercharged ROI
Published: January 17, 2017
Author: Molly McCarty
At 3Q Digital, we’re always pushing the innovation envelope; we believe this is an essential component of success in an industry that changes so frequently. This post is part of our inaugural Innovation Week – which we’ve stretched to two weeks to showcase all manner of innovations that have improved results for our clients and teammates.
On Facebook, it can be fairly easy to establish a CPA goal and ensure that all ad sets are either hitting that goal or are turned off. That said, it is more difficult to optimize towards quality on Facebook because LTV (user lifetime value) is not passed back within the UI. This is a limitation, since LTV is an extremely valuable optimization metric. I would be willing to pay more for a user who is going to end up purchasing $500 worth of products over 2 years, than a user who is going to make a $75 purchase just once.
In most Facebook accounts we’ve seen, advertisers haven’t been able to establish CPA goals by audiences defined by LTV. 3Q has a methodology that solves for that, though: target one audience per ad set and then establish specific CPA goals for those ad sets.
Every ad we build is tagged with UTMs that reference the device and audience that the ad came from. From there, we ask clients to continually send us back LTV data by UTM parameter. If they don’t have this data, we ask for average order value (when it makes sense given the product), or any other sort of data that will help distinguish a high-value user from lower-value users.
In the graphic above, we see that different audiences have different LTVs and that, when those are taken into account, even a high CPA audience can have a stronger ROI than a low CPA audience. Once we have this information, we can begin to create CPA goals based on the overall ROI we want to maintain for the account. At that point, we will begin to send over reports that show each audience’s LTV and CPA, while we report on an overall account ROI.
By implementing this strategy, we have been able to increase ROI for clients up to 20% within 6 months. It’s important to keep in mind, though, that as investment increases in an audience in Facebook, the quality of the users begins to deteriorate. As a result, it is important to continually measure LTVs.