How To Maximize ROAS for eCommerce (…Before You Start Running Ads!)

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So, you’re an eCommerce business owner. 

Perhaps you’re about to start running Facebook Ads for the first time, or perhaps you’ve dabbled with it in the past and not had quite the results you expected. 

Either way, you’d like to find out how to crack the Facebook Ads code so you can watch the money roll in like Scrooge McDuck. 

Before you dive into that pile of gold though, allow me to hit you with four big truth bombs, that most eCommerce business owners unfortunately learn too late: 

  1. The actual ‘Facebook Ads’ themselves, are a very small part of the equation. Profitability mostly depends on what’s going on under the hood in your business. If these conditions aren’t optimal, the best Facebook Ad Expert in the world won’t be able to make you profitable. (This is what we’ll discuss in this article at length)
  2. Depending on your business model, achieving breakeven is a worthy goal for eCommerce Facebook Ads. eCommerce is by nature, a business that operates on low-margins. When you factor in the cost of manufacturing or importing, packaging, shipping, returns, warehousing, operations, and then add Facebook Advertising spend on top, it’s quite difficult to make this highly profitable. So…why bother with Facebook Ads? Well, smart business owners understand that the goal of the ads should simply be customer acquisition and to breakeven. If your product is good, your customers will be back to buy again (and tell others about your product!) at a profit for your business. 
  3. If you’re brand new, expect to wait 3-6 months minimum before you see your first sale through Facebook Ads. Think about it: would you buy a product the first time you see an ad from a brand you’ve never heard of before? It usually takes me months to finally bite the bullet and buy something after I’ve been retargeted by multiple ads for months. I would also highly recommend getting about 100 organic sales first before spending a penny on ads. You want to make sure your product actually has demand and is priced right i.e. do people actually want to buy it?
  4. You better bring your A-Game. eCommerce is an extremely competitive space, so if your product photography and videography is not exceptional, if your social media is not bursting with activity, if your website is not a beautiful experience, don’t expect good results. Customers have become spoiled with a plethora of high quality A+ brands online, and if yours feels like a B or C, it won’t last. 

Phew, that was fun wasn’t it?

I know the truth bombs can be a little heartbreaking, but understand that you’re now already ahead of most naive eCommerce business owners who think Facebook Ads are a magic bullet. 

But now that we’re on the same page, let’s talk about what YOU as the business owner can do to set yourself up for success with Facebook Ads. 

1. Determine Your Breakeven Point 

Before you approach a digital marketer or take on ads yourself, you have to figure out how much you’re willing to spend on Facebook to acquire a single customer. 

For example, let’s say Widget X retails for $20

First, outline the costs of Widget X:

  • Cost to produce Widget X: $5
  • Fulfillment & shipping: $5
  • Total cost = $10 

This means that you will make $10 for every sale.

The cost of Facebook Advertising therefore, must not be higher than $10 per sale. 

Now, this is very simplistic math, but it’s just to help you start thinking along the right lines. If your customers are just buying one item at a time for $20 at a $10 margin, your ability to be profitable with Facebook Advertising is slim. (Note: If you are also an existing brand that sells in retail and there’s retailers who can deep discount your products and further eat away at your potential margins, you will need to factor this in.)

However, if you have higher priced items with higher margins, or if your customers are buying multiple items at a time or making frequent repeat purchases, then there’s a lot more room to be profitable with Facebook Ads. 

Which brings me to my next point… 

2. Improve your Average Order Value

Average Order Value is what a customer spends (on average) per order at your online store. Instead of spending $20 on average (as in the example below), let’s see what happens when a customer spends $90 on average. 

Instead of just purchasing Widget X, a customer also buys Widget Y ($30) and Z ($50): 

  • Cost to produce Widget X: $10
  • Cost to produce Widget Y: $12
  • Cost to produce Widget Z: $15
  • Fulfillment & shipping: $5
  • Total cost = $42
  • Total revenue = $90
  • Total (potential) profit = $48

Do you see how that creates more room for profit with your Facebook Ads? I know these numbers are made up and may look different for your business, but it’s to illustrate the importance of increasing your AOV as much as possible. 

Here are some ways to increase AOV:

  • Create ‘bundles’ or ‘kits’ that group together complementary products
  • Ensure you have a wide variety of products that encourages people to shop more (think about the big online fashion retailers, do you ever walk away with just one item?) 
  • Use apps on your store to encourage ‘upsells’
  • Use apps on your store to encourage ‘cross-sells’, or related items
  • Create a minimum spend requirement for free shipping

3. Ensure Your Website UX is Flawless

Ever been on an online store to find that the ‘add to cart’ button isn’t working? Or the load time is too long? Or the checkout process is so long that you simply give up?

If your website experience isn’t fast, smooth, and easy, then you’ll find a lot of people either dropping off at the product pages, or abandoning their shopping cart. 

Here are some steps you can take to ensure a good user experience for customers: 

  1. Use Big Players like Shopify, Magento, or WooCommerce – These website platforms are dedicated towards building beautiful themes that cater to all types of eCommerce stores. Why try to build from scratch when someone has already done all the work for you? They’ve carefully thought about the UX, design, apps, integrations, reporting etc. Unless you have your own in-house development team with a strong background in eCommerce, I would stay away from custom coding. 
  2. Check website speed – I like to use to check the speed of any website. It gives a performance grade (hint hint, you want to aim for an ‘A’) and steps that need to be taken to fix site speed. If your speed isn’t where you would like it to be, I recommend hiring a freelancer from a site such as Upwork (that is well versed in the platform you are using), to improve your site speed. 
  3. Leverage eCommerce microcopy – if you haven’t heard of the term microcopy before, I suggest giving this article or this article a read. This is all the small text across an eCommerce website that help guides your customers, and when done right, improves your conversion rate. It tells them where to click next or what to do (e.g. continue to checkout), sets expectations (e.g. taxes and shipping calculated at checkout), and signals trust (e.g. safe & secure payment). 

    For example, a customer could feel a bit unsure of their purchase right before making their payment, but if they see small text that says ’14-day money back guarantee’, that’s likely to reduce their resistance and improve your odds of getting a conversion. 
  4. Use Professionally Shot Photographs – this one is quite self-explanatory. Hire a professional product photographer for your images, and try to capture multiple angles. For bonus points, shoot short demo videos of the products so that people can see how they work, or what they look like when tried on. 
  5. Ensure There’s Plenty of Reviews – I’m not sure about you, but I don’t purchase anything until I’ve read a handful of reviews first! Make sure the best testimonials are highlighted on your homepage, and that your product pages aren’t looking too sparse. If they are, you can always send some friends a gift card to purchase on your website and leave their honest review. 
  6. Allow Guest Checkouts – Ever abandoned a checkout because an online store wanted to know everything about you and may as well have asked about your favourite food? Long checkouts are frustrating, so always offer people the option to checkout as a guest and close the deal. Another tip is to have a progress bar at the top of your checkout to make it clear how many steps are involved. 

And last but not least, simply go through your website with your customer’s eyes and try to make purchases on mobile and desktop. See what works, and see what breaks. Ask strangers and friends to do the same for another perspective as well. 

4. Favourable Shipping Costs and Return Policies 

Up to 70% of all shopping carts are abandoned, but the biggest reason for an abandoned cart is shipping costs – up to 56% according to this article

Now, shipping costs are going to differ for each of you based on your product type, where you’re located and what’s available to you when it comes to couriers. But to help maximize your possible conversions from ads, try to ensure that your shipping costs and return policies are at par with your competitors. It doesn’t matter how great your brand or product is, if a customer finds a similar product at a similar price, but they have a 14-day refund policy or free shipping (whereas you have high shipping fees and no refunds allowed), your competitor is going to steal a lot of your traffic.

5. Increase Customer Lifetime Value

Customer Lifetime Value is the total revenue you expect to earn from a single customer over their lifetime, and as you may have guessed, the higher this number is the better!

So how do you bring this number up?

  1. Encourage frequent purchases via ongoing email marketing and a strong social media presence that keeps your customers engaged 
  2. Have a breadth of products to mitigate seasonality 
  3. Have a customer loyalty program in place
  4. Offer subscriptions if it makes sense for your business 
  5. Run sales at key times of the year e.g. Black Friday, Boxing Day to get each customer to spend more 

Having all of this in place will help ensure that the customers you acquire from Facebook Ads are more profitable for you in the months to come. 

Lastly, perhaps one of the biggest issues I’ve seen as an advertiser is trying to push products that are very seasonal in nature. For example, if you only sell winter clothing, then it’s only going to do well for a few months in the year. No amount of ‘flash sales’ or world-class Facebook Ads will push people to buy winter clothes at a time when it’s simply not the season to buy. 

Take an honest look at your product portfolio and identify your high and low seasons. Your ROAS will be reflective of this high and low season; it’s important to have realistic expectations with your ROAS based on the business that you’re in. If you’d like to aim for more consistent ROAS throughout the year, it’s time to beef up your product portfolio! 

Let’s Wrap It Up

As you can see, there’s a lot of pre-work that needs to be done on the  business side before you consider running ads on Facebook. Trying to jump right into running ads without a lot of the prep work is a surefire way to fail at Facebook Ads. Just like business and life, there’s no magic bullet with Facebook Ads, it’s all about the long game! 

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