4.01 – Retargeting Turns Losing Campaigns Into Successes

Without Retargeting, the economics of advertising are working against you. We have a client where the Return on Ad Spend (ROAS) for initial traffic is negative.

Return on Ad Spend (ROAS) is a marketing metric in advertising to help you evaluate its effectiveness.

Here’s the formula:

Revenue / Cost = ROAS

A ROAS greater than 1 indicates a profit; a ROAS less than 1 indicates a loss.

Check out Figure 3-1 to see some numbers. For prospecting, this client is losing money. The ROAS is 0.261.

Another way to look at this is to understand how much it takes to make $1.00. On a losing campaign, you divide the Amount Spent by Revenue. Here you get 3.83. So, he is paying $3.83 to make $1.00.

However, with a Retargeting campaign (Nurturing), his ROAS is 3.696. Quite a solid return. Since this is a positive ROAS, that means he’s making $3.70 for every $1 he spends.

For the entire campaign then, he’s profitable with an ROAS of 2.667 ($53k/$20k) or making $2.67 for every $1 he spends as shown in Figure 3-1.

It’s also interesting to note that he is actually spending almost 2.5 times more on Nurturing (Retargeting) than he is on Prospecting because the return is so much greater.

The economics of this campaign are quite good. Although not shown, he is getting a first-time visitor to his site for around 45 cents, which is cheap. He knows that just a fraction of the 13K visitors will buy on their first visit because they don’t know him yet.

He knows that within 14 days, he can get a significant portion of those visitors to buy and he’s willing to invest more of his ad dollars to get these customers to convert.

The bottom line is that Retargeting makes Facebook Advertising profitable for this client. Without it, he’d go broke!