Find out what a lead is worth to your business!
Do you know how much you can afford to spend acquiring new customers using Facebook and Instagram ads?
Follow the steps below to find out!
Whenever I speak to potential new clients we always have this conversation. It’s important to know exactly what your average lead cost tolerance is so you can set realistic budgets when it comes to your advertising spend.
For example, let’s say you are a bespoke kitchen designer company.
Your average order value for a new kitchen design and installation project is £30,000.
You convert, on average, 30% of leads that you visit in person.
You get 20 leads per month from Facebook ads, spending £900 per month on these ads (£30 per day).
Using the 30% conversion rate estimate, 6 of those leads become clients, spending around £30,000 each on their kitchen project with you.
Your income from your Facebook ads is therefore 6 x £30,000 = £180,000.
That’s £180,000 worth of sales from a £900 ad spend. The maths looks good, right?!
Using this information we can now calculate how much you can afford to acquire those customers going forward, using the formula below:
Total sales revenue / total leads = lead value
£180,000 / 20 leads = £9000 per lead
£9000 per lead is your max tolerance cost before your ads are actually costing you money. You could in-fact swap the total sales revenue for your total profit figure to give you an even clearer picture of how ads fit into your overall bottom line.
But in this example, remember we only spent £900 / 20 = £45 per lead. But it’s nice to know we could in fact spend up to £9000 to break even using these average conversion rates and average order value estimates.
What this tells us, is that if you are a company selling products or services with a high average order value, Facebook and Instagram ads can seriously work well for you. It’s a very fundamental and key point to make that allows you to make informed strategic marketing decisions.
We love Facebook and Instagram ads because everything is trackable and we can easily calculate return on ad spend (“ROAS”).
We’d be really curious to know how you are getting on with Facebook ads if you are business selling high value products or services?
An example client we are using this formula with right now:
Renovation / Home Improvement Company
- 16 leads generated from an ad spend of £550.
- 25% conversion rate with an average order value of £25,000.
- = £100,000 worth of sales generated from an ad spend of £500.
- Return on ad spend of X 181!
If you are looking to grow your business, Facebook Ads is a no brainer.
Get in touch to request your completely free and no obligation chat to see how Facebook and Instagram advertising could work for you.