Hey, Whenever I write about Facebook Ads people always respond with the same question. "How much should I pay for a click?" And there is only one honest answer to that. I don't bloody know. This isn't a dodge. A click might be worth more to me than it is to you. Or it might be worth less. I don't know, I can't know, because the value of a click varies from author to author. It's great to hear that some of you are finally having success with Facebook Ads by following these emails. (And for those coming late to the party, you can catch up on the first five episodes here.) Others are still finding their feet, of course, and the question about how much you should pay for a click comes up a lot. What should you be aiming for? What's… good? This topic generates a surprising amount of heat – surprising to me, at least, because there is only one person who can decide that. You. This sounds like a cheat, but I promise you it isn't. I'll break it down the thought process you need to go through in detail below, showing you various ways to calculate what a click is worth to you, so then you know your own threshold going forward. The Short VersionEach author has a different Amazon page with a distinct conversion rate, but also a diverse catalogue of books which readers will respond to at varying levels. As a result of that, and a number of other factors, a click is simply worth different amounts to each author. The basic thinking here is as follows:
Every single author is advertising from a different position, so each author needs to determine what a click is worth to them. There are several ways to do this. And for those of you who are math-averse, there is a less number-heavy option. It might not be as exact but it's certainly quicker and you won't need therapy afterwards. And for the number crunchers among you, you can get as deep into the calculations as you wish. But the quick version is as follows: you need to figure out what your baseline of sales is when you are not running ads, calculate how much extra revenue the ads are delivering – making sure to include all the sales your ads are driving, i.e. including things like any sellthrough above that baseline. And then for bonus points, once you have run a few campaigns and collected some data, you can then extrapolate your breakeven point with Facebook Ads. This will tell you exactly what level of CPC (cost per click) is your personal watermark – the point at which a profitable ad becomes a loss-maker. With that breakeven CPC, you can then instantly analyze your campaigns, making decisions on the fly like a pro… instead of staring at Facebook's confusing number-salad and wondering whether you are turning off winning ads and/or letting losers burn through your savings. As with all things Facebook, the reality is not quite that simple - but if you are experienced enough, the short version here might suffice. For everyone else, brace yourself for a rather lengthy detour through all the various things you must consider when determining if your ads are profitable. Not All Clicks Are EqualDiscussions about Facebook can be a little one-note. Authors can compare their CPC as if it is a source of bragging rights. It's understandable in one sense because we all want cheaper clicks, right? But it's silly in another because sometimes the very cheapest clickers are cheap for a reason: i.e. Facebook knows they are click-happy types but can be slow to get out their wallet. That's not to say that CPC isn't an important metric – it's critical – but it is only part of the picture. I'm fond of saying pretentious things like "conversion is the great unspoken variable in Facebook Ads." In other words, you must factor in whether all these clicks actually turn into sales. Because here's the thing: not all clicks are equal. I see a lot of models out there which assume all clicks convert at the same rate; it couldn't be further from the truth. I started working in digital advertising back in 2004 when my hair wasn't gray and I didn't put my back out for a week by using the wrong pillow; it was a simpler time. Anyway, back then we focused a lot on CPC too, for obvious reasons, but we always tried to keep the conversion rate in mind as well – i.e. the rate that clickers become buyers – because that can vary a lot. Conversion rate is typically expressed as a ratio, for example 1:6, or one in six clickers actually "converts" into a purchase. (Authors often express conversion rate as a percentage – i.e. "my conversion rate on that ad was 25%" – but a ratio is more traditional among marketers. Just in case you encounter both.) One sale for every six clicks would be a pretty good conversion rate for a Facebook Ad, by the way. And if an ad is really cooking, that ratio can improve to 1:4 or even 1:2, if the planets truly align and I'm dealing with a warm audience already primed to buy, like existing fans eagerly anticipating the latest book in a popular series. And if the ad isn't quite connecting with the audience – i.e. if I'm targeting an audience which isn't quite right, or if I'm breaking my own rules and advertising outside of News Feed – that conversion rate could slip to 1:10 or 1:20 or worse. There is a wide range, even without the ad totally stinking out the place. And that can happen too! Now you understand that not all clicks are equal, CPC is important but not the only thing which will determine success, and also that your conversion rate is critical in determining profitability – and that can vary a lot depending on a range of factors including how polished your Amazon product page is. Not only that, you now also understand that your profitability with any given ad will be affected by other things too – like what else you have for sale (and how likely a reader is to purchase it, because a Book 2 is more likely to sell to that reader than an unconnected standalone, or whatever). You have all the tools here to begin calculating the profitability of your ads, which will in turn tell you what kind of CPC you can tolerate without ending up in the poorhouse. OK, let's show you how to actually do it. Warning: contains math… but a good chunk of it is optional. Different Approaches To Calculating ProfitThere are a variety of ways to calculate your profit while advertising. Most of them are math-heavy… but share the same fatal flaw. Which means even the most eager number-crunchers might be tempted to slum it with the rowdy reckoners in the corner. I kid. (Partly.) Trying to get a clear picture of your profits and losses is very important and I think it's good to familiarize yourself with the various ways to do that – even if you ultimately decide to wing it a bit more in practice and trust your gut. This guest post on my site from Nicholas Erik is a good intro to these types of calculations – which can look at things like ad spend, cost-per-download, return on investment (aka ROI), and so on. Even if you don't want to get into the numbers to that extent every time you run a campaign, I think it's useful to dabble in these concepts and get a feel for your own numbers. Also, if you own Robert Ryan's excellent book on Amazon Ads, it contains probably the best discussion I've seen in Authorland on the various ways to calculate your profit – and what CPC your nascent publishing empire can afford without completely destroying your precious budget for fine Iberian hams. Robert Ryan's approach works well for beginners while also throwing plenty of red meat to more experienced book advertisers also. Check them both out, pick your favourite approach… or not. Because there's another way – cruder, for sure, but also much quicker and needing far less math and/or spreadsheets. I mean, is that a come-on in 2022, or what? The method I'm about to share might be less precise, but you know what? None of the above two methods are that precise anyway when it comes to Facebook Ads, for one rather inconvenient reason. You never know exactly how many sales your Facebook Ads have delivered. Yeah. Let's talk about that because this will be a rude surprise to Amazon Ads veterans in particular. But for those of greasing the wheel with Facebook (or, say, BookBub Ads), we can never be truly sure just how many sales are ads are driving. People try various ways to plug that data-gap. Either they use Amazon affiliate links in their Facebook Ads (which is not permitted by Amazon), or they use redirect links (which also might not be permitted by Facebook – at least, some authors have started getting dinged for this recently and Facebook doesn't exactly give authors many chances before nuking them from space). Others try and get around this issue by sending readers to a landing page on their site instead (where Amazon affiliate links are certainly allowed), but putting in this extra step often causes you to lose lots of sales so it's a step many are loath to take. But even if any of these solutions was without issue, there's another, killer problem: phones. The Dreaded Decision DeviceA well-established phenomenon in digital marketing is the phone as a "decision device." By this we mean that some people – probably more graying types like myself – encounter an ad for a product on their phone, but move to their computer before completing the purchase. This might be because old fogeys like me haven't stored card details on their phone, or perhaps aren't signed into Amazon on their mobile device, or only have their passwords stored on their computer, or they hate hen-pecking the itsy bitsy phone keyboard, or searching on a small screen. The exact reason doesn't matter so much. What does matter is that this phenomenon is prevalent enough to throw most tracking systems for a loop – especially if a significant chunk of the campaign is served to mobile devices. And that describes most Facebook Ads in 2022. That's a lot of words to say this: you're going to have to reckon it. The Great ReckoningThis is a flying-by-the-seat-of-your-pants guide to figuring out if your ads are working or not – one which makes no claims to mathematical purity. But after years and years of wrangling digital ads, and calculating ROI in every way possible, I can tell you that's it's generally good enough for our purposes. First thing you need to do is establish your baseline sales level for the book and series you want to advertise – let's assume we are advertising the opening book in your primary series, which is generally the most promising candidate to advertise anyway. Whether this Book 1 is normally selling five copies a day, or fifty, or even nothing at all… that's your baseline. And for our purposes here, let's say our baseline is five copies a day of Book 1 – on Amazon USA-only. And let's also so that when you turn on your Facebook Ads, Book 1's sales jump to 15 a day. We can simply say that the Facebook campaign is delivering around 10 sales a day – with reasonable confidence. While we are pinning random number-tails on contrived math-donkeys, let's also assume the Book 1 in question retails for $2.99 (and the next two books in the trilogy go for $3.99 and $4.99 respectively). 10 sales a day above your baseline will add around $20 a day to your royalty checks, so if you are spending less than $20 a day on your Facebook Ads… congratulations, you're turning a profit. (I'm sure some will quibble with a few aspects of this, but it's supposed to be a quick-and-dirty calculation – see the methods above if you wish to be more exacting.) Of course, it's much more likely that your ads won't display such an obvious, immediate profit – especially outside of a new release to existing readers, and particularly when you are still learning the ropes, or haven't yet nailed your blurb, etc. For example, you might be advertising a 99¢ Countdown Deal, or a perma-cheap Book 1. You could be pushing a freebie, or it's entirely possible that getting 10 sales above your baseline might cost you $25 a day, or even $40 a day – and still only generate around $20 in additional royalties above your baseline. Does this mean you have lost money? Well… maybe not. You need to zoom back a little and take in the full picture.
Indeed, if your ads are good and your promotion is well set-up all those things should happen to at least some extent. And if they wouldn't have happened without you running those ads… well then I think it's sensible to attribute those results to the ads as well when calculating your true profit. However, let's balance our inner Pollyanna here with some hard truths:
Okay. So we… zoom out but ignore some of the stuff? Thanks a bunch, Dave. What we need here is some hard data – for sure – but to use our gut a little as well. Because we do have to guess at some of this stuff. And there's something else too: you also need some profit for yourself. Even if you had all the data in the world, and every sale perfectly tracked, and every follow-on sale exactly counted, you still need to be careful. Because let's say you do that and figure out that your break-even point with Facebook Ads on your main series is a CPC of 47¢. Anything more, you are making a loss. Anything less, you are in profit… over time. And let's say you do keep your ads ticking over nicely at 45¢ or less. That doesn't leave much profit for you, and you need to get paid as well! Not only that, you need to leave something in your calculations/reckonings to cover the inevitable glitches, drops in performance, or other ointment-flies that can creep in over time. So I recommend discovering your break-even point with Facebook Ads, and then adding a little padding to the numbers – which will cover you if something goes wrong, or if some of your assumptions were off, or if your ad performance or conversion rate doesn't hold up over time. To summarise, when determining your own break-even point you need to consider the following:
But that's not all you need to throw into the mix, especially for KU authors. The nature of Amazon is such that books can enjoy increased visibility (and sales) for weeks afterwards, especially if you ride the KU wave. These are sales that almost certainly would not have happened without your advertising campaign so they need to be factored into your thinking. However, it is exceptionally difficult to account for this in any accurate or responsible way, so I do urge caution on that front. Just keep it in mind when assessing ad performance. As with much of this, you are going to have to do a fair bit of thinking on your own here, and my aim is to make sure you consider all the factors when determining profitability. Some of you will be very keen to flesh all this out with exact numbers and formulas and calculations – and I totally get that, I used to take that approach. For those of an analytical bent, I do recommend scrolling back up and checking out Nicholas Erik's guest post I linked to above, as that will walk you through some basic caculations for figuring out things like conversion rates, sellthrough numbers, and return on investment. I know from experience that some authors simply won't want to get into the numbers to that extent, though, and might prefer making some estimates, and then adjusting after the fact if they are a little off. I think an example would help before we wrap things up. Example: Determining Ad Profit On A TrilogyLet's say I'm the author of an epic fantasy trilogy, which has a cheap Book 1, priced competitively at 99¢ – with the logic being the usual, i.e. that you really make money on the higher priced Books 2 and 3, which are priced at $4.99. Pretty standard stuff, but let's look at how the numbers might play out with Facebook Ads. Selling a 99¢ book on Amazon only brings me around 35¢ in royalties, but I do make $3.49 from sales of each of the next two books, and my sellthrough rate is pretty decent from Book 1 to Book 2, and is superb from Book 2 to Book 3, so that's a realistic proposition. When I advertise Book 1 properly, the sales of Books 2 and 3 should jump – and that increase should be attributed to my advertising campaign as it almost certainly wouldn't have happened otherwise. In this hypothetical exercise, my baseline in sales – in terms of dollars and cents I receive from Amazon – is $1000 a month for that trilogy. For the sake of simplicity, let's say I run a Facebook campaign for 10 days with a budget of $50 a day – ads solely focusing on that cheap entrypoint, the 99¢ Book 1, and only pointing to Amazon US. The total cost of the ad campaign is $500. If you were to do a "straight" profit-and-loss calculation, only looking at the increase in sales on Book 1, you would call this campaign a huge bust. However, look at the month as a whole, and factor in the increase in those much-more-lucrative sales on Books 2 and 3, and the increased visibility for the rest of the month, resulting in higher-than-normal sales overall, then you can see that the trilogy overall brought in $1850 in royalties for that month – leaving you with a clear profit of $350. This is why it's important to factor in everything related to your ad campaign – all the income that it generates. Because a straight profit-and-loss calculation would have you calling that campaign a failure, when it actually delivered substantial profit and would certainly be worth persisting with. However, the wins aren't always so clear – which is why it can be useful to determine your own breakeven CPC, so you can analyse things on the fly. Breakeven CPCAfter you run a few campaigns, you will start to get a better sense of your ads, their effect on your sales, and what kind of CPCs you can tolerate. But you can be more proactive as well about determining your breakeven CPC. For example, an experienced author running lead generation ads on Facebook might have a rough sense that each new sign-up to their list is worth $6 over time – because readers will invariably purchase a book or two, on average. They might ballpark the conversion rate on their sign-up page as 1:8, which means that their lead generation ads should be profitable (over time) if the clicks come in below 75c. And then deciding to be a little more cautious, they might add in a little of the padding I spoke to above and decide that 60¢ is their breakeven CPC for leadgen ads. This is a gross simplification, of course, but you get the idea. It's the same with book sales, just a little more complicated as we have to estimate the conversion rate, and then factor in all the other things I spoke about above. But you can make the same kind of calculation by looking at things like your sellthrough percentages, and how many additional sales your ads drive – things like audio and paperback. It's really up to you how deep you want to get into the weeds here. Some extremely successful authors can operate on what might seem like a very loose basis to those who like to crunch all the numbers – but it clearly works for them. For example, they might have figured out over time that if someone buys the 99¢ Book 1 from their five-book series, that they will make an average of $4 more dollars from that reader over time. Together with their usual 1:6 conversion rate, that gives them a break-even point – with some padding added – of around 55¢. Whether these "loose" calculations trigger waves of relief, or make you break out in hives, depends on your appetite for numerical analysis. My point is that either approach can work for you in practical terms, depending on your strengths and preferences. The general way of thinking is what's important here: calculating (or estimating) your conversion rate, accounting for spillover sales, and then calculating your breakeven CPC – while perhaps adding a little padding to so you can also enjoy some profit, and a little wiggle room in case your numbers are off. And then once you know your own breakeven CPC for your own books – for the sake of argument, let's say it's 40¢ – then your job of analysing your Facebook Ads gets a whole lot easier because as long as you keep your average CPC below 40¢, you're winning. Final ThoughtsI should point out that you don't need to determine these baselines and recalculate these breakeven CPCs every single time you run a campaign. They tend to be reasonably consistent, and I find that you just need to periodically check that nothing has changed dramatically, or tweak the numbers perhaps as your series grows in length, or if you improve your cover and that conversion rate jumps. And I should also mention that this stuff gets much easier over time – you develop an instinctive sense for it. This is how I like to run things, at least. I like to frontload the work/analysis, so I can make quick decisions on the fly – which is something you need to do when running major campaigns with considerable budgets. Before you get to that point though, you are likely to post some losses. You might follow one or more of the methods above and determine that your current CPC is way above your break-even point. Or maybe you don't need a calculator watch to figure out that your ads suck. What do you do then? How do you improve performance? More, next time. Dave P.S. Writing music this week starts off slow but wait for the turn three minutes in and you'll be pleasantly surprised – Plastic Mermaids with Saturn. |
Saturday, June 11, 2022
What should you pay for a click? 📐🤔
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