Three Steps to Using Customer Lifetime Value to Boost Conversions

Every small business knows the pain of running Facebook ads only to get zero leads from the investment. It’s frustrating, but most businesses decide to keep doing it because it is currently the cheapest PPC channel on the market now. What these businesses may not know is that there is a better way to target ads. It involves using Custom Audiences with Customer Lifetime Value. Let’s break this down. A custom audience is a manually curated audience that you target with your ads.

This differs from the audiences suggested by Facebook. Customer Lifetime Value or CLV is how much you will potentially make from a customer over the time they remain your customer. We’ll go deeper into these two below.

1. Calculate Your CLV

Before getting to custom audiences, we first need to know how much each lead you get is worth to you. If you have been in business for a while, then you have a database of past customers. You need to dig this up and look up a couple of details:

1. How much is an average transaction?

2. What is the annual purchase frequency?

3. About how long do customers stick with you?

By multiplying these three values, you arrive at the CLV for each customer. This value matters because it will help find similar or lookalike audiences on Facebook, which is explained in the next section.

2. Create a Custom Facebook Audience

The next step is to upload this data to Facebook as a custom audience. You will need a custom spreadsheet with all the required columns, which, thankfully, Facebook provides. Add all your customer data to this document including a column with CLV data for each customer. On upload, what you are telling Facebook is to look for people like those you have uploaded and serve them your ads. That’s a huge thing because people with certain things in common with your typical customers tend to be ideal candidates to become your customers. Once your list is uploaded and you have picked this as your custom audience, the next thing you will need to do is schedule your ads and set a budget.

3. Schedule Your Ads and Set a Budget

As much as this is a highly effective way of running ads, you do not want to blow all your ad dollars on the first run. My suggestion is to start with a small budget and see how your ads perform. If they perform well and you see some leads coming in, then it may be time to crank up the ad dollars. If not, try and fine-tune your ads further to see if this improves lead generation. As far as timeframes go, testing ads for a week to two weeks is best. This gives Facebook time to normalize your ad distribution and reach appropriate audiences.

Conclusion

CLV is not only a powerful way of telling Facebook who to serve your ads to but can also help you understand how your ad spend compares to the money coming in. If your old customers are paying for your ads, then there is a problem. CLV should show you whether newly acquired customers are paying for ongoing ads or whether you are just throwing money down the advertising drain. In either case, using custom audiences with CLV will give you a better shot at reaching potential customer compared to just running ads and hoping to find someone interested in your business.