Behavioural advertising and return on investment

Several months ago, I was helping a friend do some user interviews. His startup was killing it with Facebook ads but then his returns started to drop. At first it was okay because he was still making money on Facebook but then Facebook dried up. His growth metrics flattened out and he had no idea what to do. So, he asked for my help and I started contacting some of his customers.

While I spoke with them, I noticed a narrative like this coming up again and again:

I researched your company online and was going to sign up for an account but sort of forgot about it. Then I saw the ad on Facebook and it reminded me to sign up.

(Typical customer story)

Then, I started talking to people I know in other industries and sure enough, that was a fairly typical customer story. A Facebook ad wasn’t driving the sale, instead it was reminding people to make a purchase they already decided to make.

That got me thinking about return on investment. Do you count that as a conversion for your Facebook channel? Or did your website, user reviews and/or public relations convert the sale and did Facebook just encourage them to pull the trigger then?

This is an important distinction because it gets to the very heart of advertising spends. Ultimately, we want to put our advertising dollars into those channels that will noticeably move the needle. If Facebook is just a reminder, is that a good use of our ad money?

The best answer is ‘that depends’. It depends on your company, your product and the strategic situation within your industry. But if you want to find out for yourself, I have some steps you can follow:

  1. Talk to your customers. This is one of the best investments that any business owner can make. Talk to your existing customers. Figure out what they like, ask them for help solving the things they don’t like, and try to figure out how they became your customer. If your hear that kind of narrative, where they learned about your company, researched it and then started seeing Facebook or Google ads, consider running an experiment.
  2. Run an experiment. If you keep hearing that sort of narrative, where a customer says that she had already decided to go with your company when an ad spurred her to act, consider running an experiment. This sounds extreme because it is, but stop running those kinds of ads and watch what happens to your sales.
  3. Analyze the results. Do your sales stay the same? If so, those ads weren’t involved in the persuasion process. Do your sales drop? If so, those ads were more involved in the persuasion process than your customers were aware of. In this case, look at your website and all of your sales materials. There’s likely something in there that keeps people from pulling the trigger. Does your sales schedule change? This is where the analysis gets really complicated. Sometimes in SAAS, if you advertise on LinkedIn, you’ll see noticeable sales spikes around the end of a quarter. If you cut those ads, you’ll lose the sales spikes, but cut your churn in half. When you talk to exiting customers, you’ll often hear a narrative where someone just needed to spend budget, saw your ad, made a snap choice and chose the wrong product. When you follow the numbers, you’ll see that after you account for churn, you’re more profitable without running those ads.

Be careful with this and really think it through before you do anything. As with anything else, I wouldn’t recommend doing something this drastic unless you have a deep understanding of your business system. For example, if you cut ads, your sales might drop. Not because your website or other materials are lacking, but because in your particularly industry, those ads were an important part in user trust.

Or, if you carry this thought through to its end, you can wind up in some tricky strategic places. Consider the ads on Google Search. A common play is to advertise for searches on your brand name. It’s complicated to calculate this return on investment because chances are, if they’re searching you, they’ve already decided to do business with you. So, if you follow the path I outlined, it is likely fairly attractive to cut this advertising entirely. But what if in doing so, you give a competitor the opportunity to advertise a major sale to your customers? Is your brand strong enough?

This is a complicated decision that we can’t just leave up to numbers. But please leave a comment if you have any questions.

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