Pamela SapioOften when working with paid advertising clients, it helps to provide a visual picture of key performance metrics so they can better understand where to allocate their budget moving forward—and why.
In this video, Solutions 8 Account Manager Nick Ewing walks viewers through a simple way to identify hidden bottlenecks in your clients’ Meta Ads and Google Ads accounts and help them determine where to spend their money to hit their revenue goals.
He developed a chart (with different versions) that viewers can use to make the necessary calculations. Ready to dive in and get started?
Version 1 calculates spend based on CPA
Using metrics from the previous two years to make projections for the current year, Version 1 of the chart calculates spend based on the CPA for new versus returning customers.
In this first example, Nick starts with a revenue goal that is given to him by the client. In this case, they want to see 10% growth from 2024. This is fairly easy to calculate, and the first step is understanding what the customer breakdown needs to be. (Nick says this is pretty specific to Meta Ads but it also pertains to Google Ads.)
Essentially, you need to figure out the benefit of a first-time customer versus a returning customer, and what percentage of the budget should be allocated to each.
“Being that their AOV is a little bit lower and their cost is a bit higher for new users, we’re going to have a lower percentage of first-time customers,” he explains. “We always want to remember that we need the first-time customers, but depending on a client’s goal at any particular time, we need to work with them on what that percentage equals out to.”
Thirty percent seems reasonable for this client, because that is where they have been for the last two years.
Version 2 uses a set budget
At this point in the video, Nick explains that Version 2 uses a set budget to calculate the cost required for you.
For example, say a client comes to you and says, “I need to increase my revenue by 10% this quarter, and I also only have X number to spend extra.” Knowing that you do not have any wiggle room in the budget, the question now becomes, How do you break that down to become as efficient as possible and land at the revenue goal the client wants?
What this version of the chart does is help determine what percentage of each customer type to target. Nick explains that, in this case, the client gave us $290,000 to spend over Q1. If you break that up across three months, you can figure out the cost you will need to be at in order to hit that number.
This version is a bit more simplistic than Version 1, which uses the AOV for both new and returning customers to hit the desired revenue goal—and, as a result, helps you understand how much actual revenue can be generated from a specific customer type.
Focus on required cost per acquisition
“For us specifically as paid media managers, the cost required per new customer versus returning customer is where it’s going to be incredibly important,” says Nick.
He says AOV is what it is, and while there are things you can change here and there (e.g., bundling, upselling, increasing prices), the required CPA for new and returning customers is likely the most important metric to help us understand where to allocate budget.
Here, he explains how they used this breakdown for a client pretty recently to explain the customer split they needed. In that case, the AOV was a huge bottleneck, as was the CPA, so they focused on conversion value.
With returning customers, a big lever clients can pull is email marketing, which can make a “massive difference” in how much it is actually costing the client to acquire a customer.
The value of well-informed clients
Rather than simply trying to explain your strategy in words, the chart Nick created helps to provide a visual breakdown of how you think each issue can be solved.
He admits that it may look a little intimidating at first, but he has found that clients understand it better when they get to sit down and look at it and say, “Okay, this actually makes sense; I can see why you’re telling me that I need to spend 71% extra this year just to achieve that 10% revenue goal.”
Do you use visual aids for your paid advertising clients? Do you find it helps them better understand and get on board with your strategies? Stay tuned to our blog for more helpful tools and tips!
