If You Aren't Running Target ROAS, Your Meta Ads Are Suffering transcript

So, the implication of that is that there's an actual different behavior profile between highest value customers and lowest cost customers. That these are actually different behaviors, which means that if you are not bidding for highest value, you're very likely leaving those customers on the table. There are incremental customers that you are simply not reaching despite that your ads could reach those people. And that is the best counter argument to my media buying strategy.

All right, so I've made a big change to my media buying strategy. I should say an addition to it, an alteration of it, not necessarily a total and complete core change, but it's significant. It's a meaningful change, and uh it's because of some something that's happened the last couple weeks. And in some ways it's actually because of something I've been thinking about for a long time. Uh but I made a big change. Big change to my media buying strategy on Meta Ads, and I want to tell you about it today.

Um I've been running my clients' ads a little bit differently for the last couple weeks than I have for a while. Uh like I said, it's a significant change. I'll tell you what it is in a second. And the first thing I want to say is that normally actually I would I I thought about whether I wanted to even record this episode yet or not, or if I wanted to sort of prove out the idea more first and and have a larger data set to to tell you about.

Uh the reason that I ultimately decided that that wasn't what I wanted to do was because the results have been really really strong. In fact, strong enough that I think you, if you're going to test this, it's there's enough evidence in my ad accounts that this is a good idea that you ought to probably try it. So, um I'm going to tell you what that idea is first, but I want to first just remind you what the core of my media buying strategy is, and then I'm going to tell you what I think the best critiques of my media buying approach have been for a little while, and that will hopefully help us give some uh framework to this idea.

And then I'll lay out what the change was. I I think this will be really helpful, extremely practical for you as you are running your Meta Ads, okay? So, number one, um my the quick reminder of what my media buying strategy is. You probably know this, but in case you're new to my content, it is to overwhelmingly use manual bids in ad accounts. I'm using bid caps almost exclusively. I don't really care if you use cost caps versus bid caps.

I I prefer bid caps and have recorded some content about that, about why. But overwhelmingly that the idea is that you want to run manual bids so that you don't pay advertising dollars once a customer acquisition costs more money than you are willing to pay for that customer or than is profitable for your business, okay? And manual bids allow you to do that. In Meta ads, that means you launch all creative into manual bids.

You do not set up separate creative testing campaigns. You let manual bids scale you let Meta's cost caps or bid caps scale your spend for you. Works really, really well. People are always worried that you're going to spend less too little money doing this. I often find that actually increases your spend because it prioritizes your best ads, amplifies your best ads, suppresses your worst ads, which creates more value on every marginal dollar that you spend.

And this is how I run all my clients' ads, okay? So, so again, you probably have heard that. I'm not going to belabor this too much because if you want to go look into this, just go look at like a bunch of my older content including a lot of my interviews, a lot of my solo episodes. Like that we cover this topic a lot and and there's there's a lot you can go look at there to go check that out. The opening the books episodes are probably the best ones of those.

If you check out my Beardbrand opening the books, if you check out my Prettyboy opening the books, those two in particular do a really good job of this. You can go to openingbooks.com/beardbrand, excuse me, ajfgrowth.com/beardbrand or ajfgrowth.com/prettyboy and we'll get there. So, that's the that's the core idea. You also just may subscribe to this content or go just review some of to my old content and go poke around.

You'll you'll find a lot of stuff about this, okay? So, so you probably don't need me to belabor that too much more. Now, what I want to start with though is or or really get into is what I think the best critiques of this idea is, okay? I I hear lots from people who disagree with me. And there are a couple of arguments that I think are the strongest counter-arguments to my approach. And so, the first of those is that manual bids is a fundamentally short-sighted way to think about your ad account.

That actually it's better for you to deploy dollars over a longer period of time or over some period of time because the goal's to grow your business and the way you grow your business is to reach people with your advertisements and even if they don't purchase just today, they might purchase later and you should spend basically what you can afford to spend to keep growing your business. Instead of thinking in this sort of narrow way of of sort of the performance marketer who's thinking entirely about sort of squeezing out the best marginal CAC or just generating some profit right now.

If you do that, you'll you'll cinch the growth in your business, you know, you'll you'll curtail the growth in your business in a way that isn't good for the long term. That's I think a compelling counter-argument to my point. The reason I think it's compelling is because there's an obvious grain of truth in that. In the sense that I do think that many businesses or that it is possible to become short-sighted and and to not really recognize the value that your ads create beyond the first purchase.

And that's if you sort of pin everything on the first purchase and on the purchase you get at acquisition for a customer, then you'll end up you'll end up sort of not thinking long-term enough. Now, many brands actually probably depends a little bit about where you are. Most brands I think are are probably overspending on bad ads that are not going to pan out for their business. Like a lot of brands do actually need to cut back ad spend.

They also need to leverage machine learning more, take their spend to its maximal potential efficiency. There's a couple of reasons why that would be the case, but there's there's a grain of truth, like I said, in this idea that you actually might need to think longer-term about your brand and about your business and about how you spend your money and sometimes a full manual bid focused meta media buying strategy can harm that.

I'm going to say two things in response to that. The first is even for that person, there is some threshold at which you would rather not pay for the customer anymore. Like the customer is too expensive. At some point, even if you are aiming at a longer term return on your dollars, like at some point it your the customer goes from being profit center to a cost center. There is clearly again, you could make this absurd, right?

If you paid a million dollars for one customer, there is no long-term justification for that for an e-commerce business, right? So, if you sort of take this out to the extreme ends, you can sort of clearly see that there's some threshold. There's some point at which you wouldn't do that anymore. And so, what I would say is that argument actually is just an argument for okay, then just raise your cost cap, raise your bid cap.

In some ways, the whole counter argument there is just another way of saying that that you just need to be more aggressive with your spend, in which case you can raise your cost cap, raise your bid cap, and still go on doing the exact same strategy. So, cuz people will people will give me that idea a lot and and this is sort of always my response. It's fine. I don't I mean, where you set your cost cap or bid cap is a question about your business's strategy.

That's really hard to say what your business's strategy should be in the aggregate. I mean, besides generally to pursue the maximal amount of profit because that's the way enterprise value is created in your business. That that should probably be the general goal of your business, but how you carry out that strategy is really up to you. And and there could be a number of different ways to get there. And what I mean is like on the on the aggregate, right?

So, like like maybe you raise money, maybe you don't. That would be like a really obvious version of how this might change in different businesses or you know, how much you put into influencer deals versus not, etc. There's There's a lot of different approaches to that and you might be willing to pay some larger upfront costs for some longer term impact. That seems reasonable to me. All that really is is an argument for cost caps and bid caps just being set higher.

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So, if you're generating high-quality creative that is that's really performing for your brand, manual bids have a way of very quickly scaling them that automated bidding does not. There's There's a lot of other things you could say, including the day of the week effect, etc. But, those are a couple of the main points, which is why I think that point has a uh, that argument against my media buying approach is um, actually a helpful thought experiment for a brand to work through and think through the strategy, especially when you consider that the alternative use of your money, if you're really generating a lot of profit.

You know, if you're generating tons of profit and you're not trying to cash out yet, let's say you put $2 million on the bottom line this year, but you're not really trying to take money out of the business yet. You want to keep growing the business, and that's the best place to invest it. Well, like, you're going to pay a huge amount of tax dollars on that $2 million, and so may make sense to actually spend more money in your ad account at uh, lower return, rather than just like giving 35 to 40% of it or whatever away, depending on where you live and all those things.

Let me tell you though the other best counter argument to my media buying strategy, and it's actually one no one has ever told me, but it's one that I've thought about for a while, and uh, and leads into the main point actually of this episode. By spending the vast majority of my clients' money on bid caps and cost caps, I am too leveraged. I am or I'm ignoring the opportunity to spend on value optimized audiences on Meta.

This is, I think, the very best counter argument to my media buying strategy. And it's really not an argument against my media buying strategy, so much as a way of saying that it's incomplete, okay? Um, in to to understand what I'm saying here, you need to understand something really crucial in the way that Meta ads is set up. When you run bid caps or cost caps, you are running lowest cost ads. And now, the language gets confusing, cuz lots of people will refer to, quote, auto bidding as lowest cost.

They say, "Well, I I spent all this money on on lowest cost, you know, that's that's how my ad account was set up. It was on lowest cost." And what they really mean by that is automated lowest cost. So, they are running lowest cost ads. It's actually called highest volume now in the ad account. Uh, but lowest cost ads, i.e., ads that and and well, this is the crucial thing. Lowest cost, highest volume optimization is when you optimize for the lowest possible CAC, okay?

So, if you're optimizing for the lowest possible CAC, then, you know, let's say there's a $100 AOV, and you are trying to get the lowest possible CAC on your product, well, then, you know, maybe you set it for $50, and you set your cap for $50, and you're trying to get roughly a two-to-one ROAS, and so, $50 CAC on $100 AOV, it's two-to-one ROAS, that's great. But, there's a an initial problem here, which is that if you actually have a decent amount of different kinds of customers that come into the business, and you optimize everything for lowest cost, it creates a problem because for example, and this is this is the obvious example, right?

Some Let's say some customers who are buying product, especially for like a browse browse business, right? Uh what I mean by that is like an apparel business, where a customer's going to want to click around, look at a lot of different stuff, and and buy something, you know, maybe they're going to browse around an apparel brand, they're going to say like, "Oh, I want a jacket," okay? And the jacket costs $200, versus a couple pairs of pants for $100, okay?

Well, a two-to-one ROAS on that jacket customer is a $100 CAC. A two-to-one ROAS for your two pairs of pants for $100, for that customer, is uh is $50. And so, if you only bid lowest cost, you are going to as long as you are, you know, getting those same people in the same ad sets, you're going to leave basically all those jacket customers on the table. Now, there's some ways to get around that by separating out products, and this is typically what I do for my brands right now, where uh you know, if I'm running ads to different products, I never include the same product in two different, or excuse me, different products in the same ad set, unless they have like the exact same margin profile, because you know, uh uh you set your bid cap at the ad set level, and so, one of the ways that I sort of handled this in the past is by running my uh bid caps uh at uh you know, adjusting them at the ad set level, and keeping products all together in one campaign, and that allows me to sort of make sure that like, in in the case that I mentioned before, my jacket customer has got a higher bid cap than my pairs of pants customer.

And so, that's part of the way to solve that. But, that still all goes within this framework of lowest cost, where Meta is just bidding on trying to get the CAC as low as possible. But Meta also tells you there's another option. And that is to target the highest value. And for highest value, and you you probably have seen this, but I want you to really think and consider um what this means for the business. Meta is saying you can target lowest cost.

But what if you instead targeted customers specifically who we think are going to spend more money? And we'll you will go up in our uh in our bidding for those customers. pay more for those customers. And that will be good for you ultimately because you'll get customers who pay more money along the way. And so the implication of that is that there is an actual different behavior profile between highest value customers and lowest cost customers.

Um again, it's highest value and highest volume in the ad account. But that's just such a mouthful that I I still call highest volume lowest cost, okay? But these are actually different behaviors. Which means in turn that if you are not bidding for highest value, you are very likely leaving those customers on the table. There are incremental customers that you are simply not reaching despite that your ads could reach those people.

And that is the best counter argument to my media buying strategy. That I'm leaving too many customers on the table by focusing all of my attention on bid caps. I'm just not using the tool for everything that it could be used for. And that uh is something I've been thinking about for a little while. So there's actually an older episode I did of this show where I talked about some media buying principles that I kind of considered like I don't know, deeper dive important clarifications.

And one of the points that I made in this episode is a long time ago and and um I'll put a link in the show notes to it. Highest value is not lowest cost. And and the whole idea was you should be targeting both. And so I've played with this a little bit in the past, right? Um I've taken an ad account and just taken the same ads and run some of them highest value and some of them lowest cost to see what would happen. And it didn't make a huge difference for the clients I I it with.

And so I just didn't do it for very long and kind of left it aside, even though I think it there was theoretically true. So, I've tried in the past and but then kind of left it aside, even though I believed that it was theoretically true. And then, I I saw Taylor Holiday mention, maybe it was on Twitter, maybe it was in a conversation somewhere else, this thing that really intrigued me, which was that he said that Meta has an internal about 9% of their ad spend, I think that was the number, that that could be wrong, but somewhere around there. 9% of total e-commerce advertisers spend was on highest value ads.

And all all all the rest of it was on lowest cost, basically, for conversion optimized spend. So, he said that and he said they have an internal goal to get it to to get that highest value number to 30. And that suggested to me, that internal goal suggested to me that Meta views that as customers who really are incremental, who who advertisers are not reaching. They do not care about that goal unless it gets them more money.

And the only way it gets them more money is if it's putting ads on feeds that are not currently getting those ads or or running up the cost of ads on feeds that were not currently getting those ads. And so, that suggested to me that the tool works. The tool works really, really well and actually reaches people that I otherwise couldn't work couldn't reach. And so, I started playing with it. I relaunched some ads. I just took some ads that weren't spending much on lowest cost and launched them instead um into a highest value campaign, right?

So, now again, when I say lowest cost, what I still mean is a bid cap campaign. It is lowest cost, it just has a bid cap on it. And this is the thing, there are manual bids that you can run with highest value and that is target ROAS. And so, you can't run the true equivalent like a you can't run minimum ROAS the same way you can like bid cap, which is like a a maximum CAC, right? Uh but that's okay. You can still get a lot of value out of a a tool a tool that's giving you an average like uh like cost caps, right?

And so, I went and started running some target ROAS ads. So, now when you look at my accounts, or as I started to do this, I started to take some ads and just move them over, duplicate them. And first the way I did it was I I paused ads in uh I paused them in the lowest cost campaigns. They weren't spending that much anyway, and just kicked them into a target ROAS campaign to see if they would get any different juice, you know?

I just thought, "We'll see how it goes, okay?" And to my astonishment, they worked great. Uh they they didn't oh completely overhaul my account, but but they started to work very well. Like one brand one client of mine spent like 40% more day over day after doing that, and I wasn't even using my best ads at that level. And since then, I've been increasing each day my investment in target ROAS ads all kinds of ways. To where now, here is the basic way I am setting up campaigns.

And and I'm going to tell you a couple more details of this that will matter in a second, okay? The way that I'm now doing this is I'm actually taking ads and launching them as both target ROAS and bid cap ads for multiple for for the clients that I'm running. There are I still have some details to work out on what I think is the ideal setup. One thing I'm kind of working through is should you run one of them one day one day click and the other one seven day click or something like that.

Right now, I don't have a very strong opinion about that. Uh and and I think either way, whatever the answer is long term, if I come up with anything, I'll I'll publish it, of course. But in the meantime, you can do this very quickly. Just take the current ads that are currently winning, duplicate them into the kind of in the campaign type you are not running, and set your target ROAS uh if you're not running any highest value right now, set your target ROAS to reach different uh or wherever it needs to be to be profitable for you, just like you would with your bid cap or your cost cap, okay?

And what I have found is that as that some brands in particular are spending much much more money going this way uh than they were before. And like it's it's really working. It's possible that I've doubled some spends in my accounts without making another single piece of creative. Like entirely just by changing over my bidding to to do this. And to where I I'm continuing to build in this investment all the time. Now, here's the actual telltale sign though that this is real.

The way that you would think this wouldn't work very well like earlier the thing that would make me dismayed about this strategy is if I was doing that, and then all of the average order values were the same in both campaigns. Because theoretically, what should be happening here is I should be reaching cheaper customers to convert, but those who spend less with my lowest cost ads, my bid cap ads, but then I should be reaching uh more expensive customers to convert, so my CAC should go up actually in my highest ROAS ads, but my AOV should go up with it.

And therefore, if you see that sign in the account, you can see that it's working. Now, to build AOV into your Meta Ads dashboard, you have to build a custom column, so go do that if you're going to do this. And what I have found is that in each client account that I have done this in so far, this is exactly what has happened. And the difference is driven often by massive increases in CPM in your highest value accounts, and which also means massive increases in click price.

Okay, this is part of why click price and CPM, CPC and CPM are just not very helpful metrics in in algorithmic advertising uh because they just the conversion optimized algorithmic advertising, they're just not the metrics that matter the most. I'm actively telling Meta to go spend more for certain customers, and it's worth doing because those customers are worth a lot more, and so you get what you pay for. So, what I have found is I have at least one client where the CPM on my highest value, my target ROAS campaigns, same exact ads, same exact creative.

That's where I've gotten to, right? I'm I'm now running the same creative for both. My target ROAS uh customers are twice as expensive to reach. The CPM is that much higher, and yet my uh CPC is going up 40 or 50% They're not going It's not going up 2x. It's not going up quite as high. And my um ROAS is the same in both, but my AOV is going up 30 or 40% or whatever. And And if you just play out the math that I just gave you, like don't hold me to those specific numbers.

It is working in both places. So, it it it's not uh it's about the same ROAS in both, and sorry if I just did the the quick mental math wrong. But you get the idea, right? The AOV is going way up. The uh CAC is going up. The CPM and the CPC are going up, but it's netting out to be a good spot. And I actually have one client for whom this is sort of revolutionary because they have a meaningful increase in value at the unit economic level when they when they convert more expensive customers or higher AOV customers.

Those higher AOVs are fine or whatever on their own. AOV is not a metric I actually care that much about in in sort of taken in isolation. But what I care about is the margin being better and for this client in particular they have the way their shipping dynamics work, really expensive product to ship that or at least the first couple products are expensive to ship. But once you add product four and five or whatever into the order, and that's what these are, they're they're larger bundles.

Once you do that, the shipping cost goes down dramatically which opens up significantly more margin for them and it's a really really big deal. So they not only get higher dollar amount customers on the front end and I have a theory that maybe those customers are also worth more over time. I don't know that yet. I can't validate that, but it's the hypothesis I have. You know, people like having higher AOVs for whatever reason, but in this case the the real value of it is the marginal value that you get from those higher AOVs.

And so it's a it's a really big deal in these accounts and I'm starting to push on it more. Another reason I had previously stayed away from Target ROAS and from highest value bidding is that you cannot run Meta Shops with it. Shops only works with lowest cost. That it turns out is not that big of a deal to me right now. I'm still getting plenty of volume at Target ROAS and so I first started running shops for brands it was a it's a really big part of their spends for brands that are on Facebook and Instagram Shop.

The lack of ability to have that in there was like a real negative for running any Target ROAS or highest value ads. But now there is volume at highest value. There's there's enough of it there to where it's it's making a big difference and and it's not a big deal it doesn't have shops. It would be great if it could also and could open up even more volume, but it it can't at least not right now. So so maybe it'll get there at some point.

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If you can do that, then you can make a whole bunch more money on the ads that you're already running, and it will work very, very well. This has not worked for every brand that I've run. I have one brand so far that I've not proven it out with yet. Um and and actually where more customers who spend less because their LTV is so good is actually better than customers buying more and maybe there's maybe a that might also not be true.

So, um but yeah, anyway, the the point is it it hasn't necessarily worked in every single case that I'm in, but it's worked enough that I'm going to keep trying it for even the ones that it's not working for because I believe so strongly in the basic concept. Uh and I think you should try it, too. That's really the point, actually. You should at some point try this in your ad account. And here's the reason, you know, um there are some things you should not worry about testing.

And I have made a big point of saying this recently that I think there's too much test everything advice out there. I also recorded an episode about this, etc. But, I also uh think that that one of the reasons that you should test something is if it is extremely low time or dollar cost for your business. And because you can set up target ROAS on highest value bidding, there's really very little risk. Set the ROAS at which is profitable for you, duplicate your ad set, and you can test this in 5 minutes.

Uh and so, there's just not a reason to really worry too much. If you're forecasting your business and you know what your spend you're hoping to have your spend be, you can set a threshold of spend and say, "Oh, if we beat the spend goal, then it's probably working, you know?" And And so, yeah. So, you should be able to test this very, very quickly and easily in your ad account to see if it'll work. And I think there's probably another layer down for this where you actually start building offers and plans and even creative where you're specifically thinking about this is going to be This is going to be creative that I'll I'll launch in both places and offers that I'll launch both lowest cost and highest value, but I is I'm especially thinking here about building the kinds of bundles that are going to work with highest value bidding.

So, that is I think that the next step in the next frontier of doing this where you're actually really thinking about that customer from the very beginning of the creative process as well and and and building your media buying around it. Remember, if this works for you, the telltale sign is massively increased CPMs from what you're at right now, from 30% more to 40 or 30 or 40% more to twice the CPMs, but also much higher AOVs to go along with it, and ultimately it pans out in the ROAS.

You should try it, and I think it will help you, as well. Thanks so much for watching or listening, wherever you are watching or listening, I hope that you will subscribe. I've got great content coming down the pipe uh including Nate Lagos from Original Grain, brilliant marketer who's who's been really helpful to me recently. I'm going to do an interview with him very soon. Don't miss that. Taylor Holiday is going to come back soon as well.

We're going to do another random show episode in the near future. So don't miss out on future episodes that are coming and of course if you have any thoughts or questions or want to disagree with me or anything like that, email me podcast@ajfgrowth.com or reach out to me on Twitter @andrewjfarris. Thanks again.