Determine max CPA for products on Facebook

1. Calculate the profit margin of the product you plan to advertise on Facebook.

Your profit is the price of the sale minus taxes, cost of goods sold, and other expenses, such as shipping. Net Profit Margin = (Revenue - Cost) / Revenue For example, if revenue from a sale is \$20 and costs are \$5, then the profit margin is 75%.

2. Estimate a typical customer's lifetime value by multiplying your average sale by the average number of visits by a single customer, or by dividing your revenue by your number of customers.

For example, if your average sale is \$20, and the average customer buys once a month for six months, then the CLV (customer lifetime value) is \$120. Alternatively, use this formula: Customer Lifetime Value = Revenue / Customers So if you have \$1 million in revenue over the past 12 months and 7,500 customers, then the lifetime value would be \$1,000,000 / 7,500 = \$133.33.

3. Look at your profit margin and customer lifetime value to determine what you can afford to spend to acquire a customer.

The simple option is to look at the profit margin you calculated earlier, plus a buffer for defective products and returns. For example, if a sale yields \$15 in profit and you allow a 10% buffer, you could spend \$13.50 to acquire a customer and still break even. Decide whether you’re comfortable acquiring customers at break-even or if you’d prefer to make money from the start. For example, if you want to pocket at least \$5 from each transaction in the example above, then you could spend \$8.50 to acquire a customer. Alternatively, look at your customer lifetime value: how much of it do you need to be profit? If most customers make multiple purchases, you could make a net loss on the first purchase but make it back on subsequent ones.