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.

4. Run ads with your determined max CPA as your benchmark for profitability of your ads.

Facebook Ads Manager gives you the option to see your CPA for different campaigns, ad sets, and ads. As the algorithm does its job, you’ll be able to see if you’re achieving your target CPA. If not, optimize your ads or your targeting.

5. Set automated rules to keep your CPA within the required bounds.

In Facebook Ads Manager, select the campaign, ad set or ad for which you want to create an automated rule. Select Create a new rule from the More drop down. Select Turn off campaign from the Action drop down. Set a condition of CPA is greater than [your targeted value].

6. Use automated rules on new ads and new audiences to test new targeting and messages without overspending.

7. Add upsells and downsells to your initial offer to increase cart value and allow you to afford a higher CPA.