How to Reverse Engineer Your Funnel KPIs

How to Reverse Engineer Your Funnel KPIs

Check out the video below to see how to reverse engineer your funnel KPIs.

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Video Transcript:

How to Reverse Engineer Your Funnel KPIs

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Jordan: Now we’re going to talk about an incredibly common question and probably one of the most valuable things that you can learn because by understanding this, you’re going to be able to come across as just a wizard at Facebook ads. That’s really understanding how to reverse engineer your funnel KPIs so that you know, regardless of the funnel, regardless of the product, regardless of the industry, you know where you should be at, at each stage of that funnel in order to give you the best likelihood at achieving the end result that you want. Whether that’s breakeven ROI, whether it’s two X three X four X ROI, it’s going to give you the metrics that you need to make sure that you’re on pace for that.

David: Yeah, and this is really … I mean in a lot of ways this is really the guts of what this whole module is about because as we’ve talked about … We want to be Facebook advertisers, we want to be top 1% Facebook advertisers, but at the end of the day, clients do not pay for Facebook advertising. They pay for client acquisition. In order to be able to show and understand and prove your value in client acquisition, you can’t be limited to just understanding the metrics that exist inside of Facebook. This is really the crux of how do you understand the rest of the funnel and how do you use that understanding to work backwards to really inform great decision making. Jordan, to your point, it is kind of a little bit of wizardry. Most local entrepreneurs and even a lot of bigger business entrepreneurs don’t understand these things. As you start to to uncover these things and help them put this map together, they’ll be blown away by it and it will really increase the trust that they feel for you in terms of running their ads, but also advising them in other areas of their business.

Jordan: Yeah and so after you map out your funnel for your client, the next step that you’re going to take is to go in and reverse engineer your funnel KPIs at each step of your funnel. Before I get going, KPI stands for key performance indicator. Basically, it’s just the benchmark number that you’re shooting for, which says that, okay, if based on the goals that we set client, if I hit these lead numbers, these appointment numbers, whatever that number looks like, if I hit this, then I’ve upheld my side of the bargain. I’ve done what I need to do. The rest is in the hands of your sales team, your website, whatever that looks like, but it says, okay, I’ve done what I’ve committed to doing for you. Now obviously you client need to uphold your side of the funnel as well. What this will allow you to do is it will allow you to build a profitability roadmap along your funnel so that you know at every stage of your funnel, based on what your KPIs are, you know whether or not you’re on track to hitting your goals, you’re way off track.

Jordan: You need to make corrections accordingly. If your actual KPIs are underperforming, you’ll know the exact stage of your funnel that needs to be optimized. This is a really great point that I didn’t mention is let’s say you’ve been running a campaign for two weeks and it’s not profitable. There are 700 things that could be causing that funnel to not be profitable. If you don’t understand and know what your KPIs roughly need to be at each stage of the funnel, you’re not going to know where to start, right? The issue may be an ad to landing page problem, but if you don’t know, okay, roughly I need to be at a $7 cost per lead for this funnel to work and I’m actually at a $24 cost per lead that tells me immediately it’s either an ad problem or a landing page problem or a combination of both.

Jordan: It has nothing to do with the rest of the funnel, no matter how optimized this is. If I needed to be at $7 up here and I’m actually at $24 there’s just no chance it’s ever going to be profitable and so it helps you make sure problem solving decisions as well. Most importantly, when you understand how to do this, you’re going to have an instant realtime view into the projected profitability of a funnel as opposed to like in the example before running traffic for one week, two weeks, and then only after that two week period of time do you find out, oh, it turns out I actually lost a bunch of money. You’re going to be able to correct and optimize your funnel in near real time once you understand how to do this. Initially when David and I were putting this module together, we were going to whiteboard this all out. Then I realized that in the past, every time I’ve kind of walked through this white boarding exercise, everyone is like, their minds are blown. They’re like, “That’s amazing. Now how do I actually do that for my business, for my funnel?” Right?

Jordan: What David and I actually did was we went a step further and we just built you out a calculator that you can use for any funnel that you’re running traffic for. David, do you kind of want to give an overview of this calculator?

David: Yeah, for sure. The first thing that I want to say is like for those of you that are not spreadsheet people and you just saw this and you like, threw up a little bit in your mouth, we tried to really limit this so that the number of inputs that you have to focus on in this calculator are as limited as possible. All the math is already done. You’re not going to have to do calculations. You’re not really going to have to think about any of that stuff. You’re going to be able to match your funnel up, plug in a few of these numbers that are in gray, and it’s going to be able to tell you what your estimated costs are, what your costs need to be at every stage of the funnel. Let’s start with the first one.

David: We’ve got a webinar funnel and this is a five step funnel. The first step that we’re talking about is, okay, we’re going to run an ad. The second step of the funnel is the number of people that are opted in or what’s our opt in rate? Step three is going to be web attendance. The number of people that actually show up and watch that webinar. In this funnel, the next stage after watching the webinar is to schedule a call with a salesperson, so that’s step four. Then step five is the number of people that are actually purchasing the product. Okay, so those are the five steps of the funnel. Then we’ve got a couple of things out to the side as variables. The first variable would be the product price. We’ve got to know that, right?

David: Because there’s a big difference between a $3,000 product and a $300 product. In this example, we’re using a $3,000 product. Then the other variable is CTAC and that’s cost to acquire a customer. There’s really two different ways to look at this number. It’s also sometimes called return on ad spend. It just depends on which way you do the math, but CTAC is basically what, what does a client willing to pay to acquire a customer? We’re entering this as a percentage, not as a dollar amount. The important thing here is that regardless of whether it’s a $3,000 product or a $300 product, there is an acceptable cost that every business is willing and able to pay to acquire a new customer. Interestingly, we’ve listed all of these at 100% and that is not on accident at all. A lot of times customers, when they want to start running Facebook ads, they have a dream that’s not necessarily realistic, which is, okay, I’m doing, let’s say a local business is doing $300,000 in business a year and they spend $0 on marketing.

David: Well, they look at that and they go, well, it basically cost me nothing to get these customers. Now if I’m going to go on Facebook, I’m going to start running ads, I should be able to make a 10 times return on ad spend, right? Or for every dollar I put in, I want to get $10 out because they have unrealistic expectations. What I want to lay out for you at this point is that a good starting point for all of your conversations related to cost to acquire a customer is one-to-one. It’s 100%. Most businesses that are mature businesses in mature industries should both be willing and are probably going to be required to be able to spend up to a 100% of the first sell to get a new client. Okay, so with that Jordan, I’m going to stop and let you kind of take the next pass at this in terms of like, okay, webinar funnel.

David: We’ve talked through what the different steps are. Of course you’re going to map that to your own funnel. Now let’s talk about how we actually take this through and do the math.

Jordan: Yeah, totally. So you know, just to, to touch on this cost to acquire a customer number again, so this percentage here is the percentage of the product price that your client is willing to spend. In this case, this is 100% which also is 100% return on ad spend. The client is willing to spend 2,997 to get a 2,997 purchase. Assuming the client wanted to be at, let’s say a 200% ROI, that would mean that the clients were willing to spend up to 50% of that order value, so you’d drop in 50% here and you can see that all of these numbers change. These gray numbers are the inputs that you’re going to want to fill in for your funnel. For the sake of this, we’re just going to say, “Hey, we’re fine being breakeven on acquiring that customer because we know that we’re going to be able to sell them additional things down the road.” That’s how most businesses are run. In fact, many businesses, especially in the eCommerce space are willing to spend upwards of 200% to actually acquire that customer just because the long tail is so important there. That’s cost to acquire a customer.

Jordan: Now for these steps, we’ve put in some general benchmarks here. You’re going to want to have a conversation with your client around what these benchmarks look like. If your client has no idea what these look like, that’s a red flag. If your client doesn’t have a funnel in place, that’s probably almost a deal breaker. We’ll get into that later, but ultimately your client should have a decent idea at what these benchmarks look like for them.


They should have some sense of, you know, if they’ve ever run a webinar in the past, they should have a sense of, okay, how many people on your webinars actually scheduled calls? How many of those people actually purchase the product? We put in those benchmarks here. Really what you do is you work your way backwards. We started this to $2,997 product. Then if 25% of those people purchase that 2,997 products. If 25% of the people who get on a call actually purchase, that means that we can afford to spend up to $450 per call scheduled, right? If 15% of the people who attend the webinar actually schedule a call, that means that we can afford to spend $135 per webinar attendee. If 30% of the people who opt in actually attend the webinar, that means that we can afford to spend $40 per opt in.

Jordan: Now, as a Facebook advertiser, primarily in most client relationships, you are going to be responsible for the lead gen. It’s important to be able to speak to these other metrics that’s going to separate you from everyone else. But unless you’re having a higher ticket, more engaging client relationship, you’re typically going to be responsible for steps one and two of any given funnel, which means you’re going to walk through this process with your client and you’re going to get them to agree to these numbers. If that’s the case and they agreed to this, then you are responsible as a Facebook advertiser for driving leads that are less than $40.

David: Yep.

Jordan: I mean I’ve run into this scenario, I’m sure you can speak to this as well, David. There will be times when you’re driving leads at significantly less than $40 a lead. Maybe it’s $10 a lead and it turns out that the client is actually extremely over confident in how well they can actually close those clients.

David: For sure.

Jordan: [crosstalk 00:11:34] are going to get pissed at you, but this gives you insurance that allows you to say, okay, if we need to reevaluate this funnel, that’s fine. We can, but just understand that I am delivering on what we agreed upon.

David: Yep. This can be just super powerful to walk your clients through, so let’s just play with some of these numbers, Jordan, just so that people can get a sense of it. Let’s say, okay, right now based on this funnel, $3,000 price point and these opt in and attendance rates, we can spend about $40 per opt in, right?

Jordan: Yep.

David: What if we work on our opt in rate and we get that up to 40% how does that change? Okay, we went from 30 to 40 now we can spend $54 per opt in, right? What if the client comes back and says, “I can’t sell this product. I’m going to cut the price down to 1997.” Well you just went from being able to spend $54 to now you can only spend $36, right? You can just get a real fast sense just using this calculator coming in here and you know also start to realize how stinking important the rest of the funnel is to you as an advertiser, you’ve got to have an understanding of the rest of this funnel.

David: You’re going to at least speak intelligently to it because there’s a lot we can do to change that opt in rate and that costs upfront, but so much of that is based on what are they willing to spend CTAC. Another thing here would be like it is a really common thing is what if a client says, “Well, I only want to spend … I want a five to one return on ad spend.”

David: You would put 20% in CTAC. Okay, well now we can spend $7 okay? You may be able to buy leads for $7 but you may also not even be able to buy $7 leads, in which case you would basically tell somebody if this is all you’re willing to spend, if your CTAC has to be 20% I don’t think I can get you results because I don’t think I can buy leads in your industry for $7, right? That’s why this can be a super powerful conversation.

Jordan: Yeah, exactly. I mean that’s a webinar funnel. Let’s drill down into some other funnels. We can take a look at a gym funnel here. This is a gym funnel where it’s an ad to an opt in for some sort of free personal training session with the intent to have someone have a great personal training session and ultimately enroll them into the gym for a year long membership.

Jordan: Now it’s really important here that for a gym specifically or really most subscription products you’re never going to be … I shouldn’t say never. You will almost never be profitable on the first month. Really what you need to understand is that if this company, whether it’s a gym, software product, whatever, if they want to drive traffic via ads, they have to be willing to at least look at a one year LTB because there’s really just no way to subscribe people into a low ticket monthly offer, subscribe cold traffic into a [inaudible 00:14:29] to get monthly offer via ads profitably, just not possible. What we have for the product price here is the gym one year value. Obviously if the individual remains a member for longer than a year, then that’s pure profit and pure upside, right? We’re assuming that the gym is fine being breakeven over the first year of a membership.

Jordan: We just did same thing as the webinar up above. We assume that of the people who click on the ad, 30% opt in. Of those people, 20% actually show up and of the people who actually show up and go through the personal training, 45% sign on to be members in the gym. You can see what that does to … You can afford to pay $113 per show up, $564 per membership signup, which is the same as the one year value, and you can pay $34 per lead. Now let’s say the gym really sucks at converting people from a free personal training to members and they’re only closing at 20%, then-

David: Google sheet did not update.

Jordan: Google sheet did not update, so we’ll take a look at that. You are able to spend significantly less as an opt in.

David: Yep, for sure. Then this is really … I just got to say one more thing before you jump into the econ funnel. This is really exciting to me. One of the things that I love about seeing these numbers is it actually shows you how big the levers are down funnel, and so you can really end up becoming a trusted advisor for your clients. Even though you’re running Facebook ads, you can be like, “Hey guys, do you realize that every in-person show up that comes into your gym is worth $113? Do you think it might be worth staffing just a little extra during your busy hours? Because I’m sending you five people a day, and some of those … ” It’s like when you help a business understand every person that walks in is worth $113, that can actually create business operations change, not just advertising change.

Jordan: That is really how you become more sticky and how you really embed yourself with a client is being able to offer those little insights. Because those little insights, you can’t sell those as standalone. It’s like, “Oh, I’m going to give you all sorts of little insights throughout our working relationship.” That’s never going to close a client, but that will maintain the relationship with the client over the long term and I know that’s something that really differentiates you and your agency, David, and that’s something that you’re really good at.

Jordan: Taking a look at the eCommerce funnel, this is a very simple funnel, right? Low ticket product for 150 bucks, so someone sees an ad of the people who click the ad, 15% of the people who see the landing page are actually going to add that to their cart. Typically, in the average eCommerce sales funnel, you get a 60% cart abandonment rate and so 40% of the people actually complete the purchase. Based on that, again, we’re assuming we’re fine being break even. That means that we can afford to pay $23 per add to cart and $150 per purchase.

Jordan: Now, this is actually a really important metric if you’re running eCommerce ads because typically when you’re just starting out, that first optimization you’re going to make is for an add to cart. If you don’t do this math ahead of time, you’re going to have no idea whether or not your add to cart numbers is within KPI or not. This is really powerful for any eCommerce funnel that you decide to run.

David: You can take this and we wanted to make sure that we give you a five step example, a four step example and a three step example with the hope that you can use this and you’ll be able to match that to your funnel. All you got to do is go in and change okay, is it an opt in, is it a web attendee or whatever, but you don’t actually even have to change the math. You really literally can change the labels to match whether you’re working a one or a three step, a four step or a five step funnel. You come in, you’re able to fill in just simply the numbers in gray, which is four, five, six numbers, and you’ll have a very accurate picture of how your funnel needs to perform and how you fit into the overall funnel with the traffic and the ads that you’re driving.


Managing Ad Spend: Cold Traffic vs. Warm Retargeting

Managing Ad Spend: Cold Traffic vs. Warm Retargeting

Watch the video below to learn all about managing ad spend on Facebook.

Video Transcript:

Managing Ad Spend: Cold Traffic Vs. Warm Retargeting

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Jordan: What is up everyone here with my business partner and co-founder in Automate & Convert Academy and the owner of Automate & Convert the agency, David Nadler. In our Facebook agency blueprint program, we had a question from one of our students. Really great question around she has an existing account, she has $12,000 in ad spend that she can use, and she’s wondering, okay, what’s the best way to deploy this ad spend? Is it to put it all towards warm traffic? Is it to put it all towards cold traffic? This is just an incredibly common question that we get with clients. It questions that we ask ourselves. And it’s just the question that I see a lot. David does as well. So we just decided to shoot this training to really kind of cover this and answer it one and for all and wanted to shoot this training to just bring as much value to all of you. So David, you want to take it away?

David Nadler: Yeah, for sure. So like you said, managing ad spend and determining how much budget do we put toward cold traffic or warm traffic. Depending on how you talk about this, it could even be cold traffic versus warm versus hot versus retargeting. There are lots of different words that people use, and sometimes that can get a little bit overwhelming and a little bit confusing. It’s like, okay, I’m going to end up with two, three, four campaigns. How much of my budget do I put to each one of those campaigns? That can be kind of a stymieing question for people. I know it was for me when I first started, especially as retargeting became more of a thing. It’s like how much of my budget should I put into retargeting and how much should I put into cold traffic?

To your point, I have developed what I think is a very solid and very universal answer to this question, because I think a lot of people maybe assume that this question is dependent on their business, and it’s really not. So let me give you the easy answer. The easy answer to how much you should spend on cold versus warm is that you should spend as much as you profitably can on hot. Then you move your budget to warm, and then you move your budget to cold.

For all of you out there that are a little bit weirding out when I’m saying that, they’re like, “Yeah, but I love cold traffic, and we want to scale.” Yes, absolutely. As you are profitable with your hot traffic and your warm traffic, you take those profits and you reinvest those things into cold. That’s how you win the cold traffic game. You don’t win it by starting with cold traffic.

Jordan, what do you think about that? Am I right? Am I wrong? Is this how you manage ad campaigns? I mean, I know this is an easy answer to a complex question. What do you think?

Jordan: Yeah, I completely agree. I think that it’s a common mistake that most people make. It sounds really sexy to say, “Okay, cool. We’re just going to launch this ad to cold traffic, and we’re going to scale to the moon in cold traffic and scale,” right? Just sexy buzzwords.

But the reality is, if you’re not maxing out your, then your warm … We’re going to map all this out to make sense and make it concrete kind of what we’re saying. But if you’re not maxing out your budgets to your hot traffic and then your warm traffic, you’re literally lighting money on fire. It’s so easy as marketers and entrepreneurs to just forget about that. It’s kind of almost like if you were walking along a road, and there’s a sign that says $100,000 this way, and all along the road at every step is a hundred dollar bill, and you’re just forgetting about the $100 bills, you’re just laser-focused on that $100,000 down the road. So incredibly important. Completely agree.

David Nadler: Awesome. Okay, so let’s get into the detailed answer. So the easy answer is you just basically work your way through hot and then warm and then cold. More specifically, you’re going to kind of do this in four phases. We’re going to do funnel retargeting, then we’re going to do hot traffic targets, then we’re going to do warm traffic targets, and then we’re going to do cold traffic targets. Basically, you’re going to flow your budget down through these things until your budget runs out.

You may be in a situation where if you’re just getting started, to do funnel retargeting well, that’s all the budget you have, right? Until that works and you create a return on ad spend and, all of a sudden, you have no more money. Once that starts working, you have revenues coming in, then you bring in some more hot traffic. Once that is up and running and working, then you’d basically just flow your budget down. But basically, you should not be doing cold traffic targeting until you’ve maxed out your funnel, your hot, and your warm.

Okay, so what does this look like? I’m going to give an example of funnel retargeting for a webinar. So this would be a pretty typical webinar funnel. Left hand side, and I apologize for my handwriting, it’s just not that great. I should’ve been a doctor. On the far left hand side, you’ve got a landing page, right, your landing page for your webinar. Then you’ve got a confirmation page, that page people see after they enter their email address and register for the webinar.

Then in a typical webinar funnel, you’re going to have a live room, which is where people actually watch the webinar, whether it’s a real live or a simulated live, doesn’t really matter. There’s going to be some form of a live room. Then you’re going to have a sales page, which is where the details of your offer. So on your webinar you’re saying, “Hey, go to this page to buy our product.”

David Nadler: Then the last step of this funnel is going to be the thank you page after someone’s given you money, right? So this is the money thank you page. Okay. So if these are our steps, then we start to overlay on top of this, we’ve got some audiences. So anytime you map out a funnel and you map out your steps, between each step, you’re going to in essence be … An audience is basically created, a discreet audience is being created. Now that does not mean that you always retarget every one of them individually, but it is a good practice to go through to take a look at this and go, okay, here are my funnel steps. Between every step, I have an audience that’s been built based on people who have not taken the next action.

So let’s say we start driving cold traffic into the landing page. Well, some of those people are going to do what we want. They’re going to register, but some of those people are going to hit the landing page and not register, right? So that’s that second blue circle there, which is basically hit, no registration. That’s the list that people that have hit the page but didn’t register.

Next bucket there, people that do confirm. So they do register, but they don’t make it to the live room. These are people who reg, no attend. The next one, people that attend but don’t hit the sales page. That’s another bucket. And then we’ve got people who hit the sales page but don’t buy. 

Jordan: Makes perfect sense. And David, real quick, just because I know we’re going to get this question is, obviously this is a webinar funnel, but does this same process apply for any funnel in any industry?

David Nadler: Yes, absolutely. This is going to apply to really any funnel that you build, whether it’s a webinar funnel or a free plus shipping funnel. Whatever funnel you have set up, there’s always going to be people as they move through the funnel, there’s going to be drop-off, right? There’s going to be people that take the first action you want, but don’t take the second. That’s going to create these subsets. This is what we want to do is identify those so that we can spend money to try to get those people to take the next step. This funnel retargeting is typically going to be where your highest return on ad spend ads can be placed.

Okay, so now that we’ve got these discreet groups, let’s take a look at like real money, right? So how would this actually look if we’re spending real money? Again, the question came in, somebody said, “Hey, I’ve got a budget of $12,000. Where do I put this?” So that’s kind of where we’re starting.

David Nadler: If you see down below in red, I kind of made some assumptions based on maybe some best practices, what I see in funnels. Let’s say we’re spending $12,000, and we’re getting $2 clicks. Now some of you might freak out and say, “We should be able to get clicks for way less than that.” Yes, but if you’re using conversion optimization, there’s going to be a good chance that Facebook knows what they’re doing, and you’re going to see higher than 50 cent clicks. So let’s say we get $2 clicks, it means we’ve got 6,000 clicks, right?

And then just as we work through the funnel, just doing some quick math, let’s say we get 20% of those people to confirm, to actually opt in for our webinar. That means we’ve got 1,200 people in that group. 35% of those people show up. That means we’ve got 420 people in the live room. 50% of those people click through to the sales page. That means we’ve got 210 people that hit our sales page. 5% of those people actually buy. That means we’ve got 10 buyers.

Okay, so what does that look like then in terms of our retargeting lists? Well, again, keeping on with the simple math, we add in the green numbers, and really these are each of the prior two numbers just subtracted, right? So we start with 6,000 hits and 1,200 of those people actually did the action. They actually registered. That means we have 4,800 people that didn’t take the next step. So we’ve got 4,800 people that hit the page didn’t register. We’ve got 780 people that registered but didn’t attend. We’ve got 210 people that attended but didn’t hit the sales page. And we’ve got 200 people that hit the sales page but didn’t buy. These are your groupings. These are your number one groupings that you want to make sure that you retarget. So this is funnel retargeting, going to that list of 200, then the list of 210, then the list of 780, and then the list of 480. Make sure that you have an ad that moves them through the funnel.

David Nadler: Jordan, what numbers would you put to these? I mean, just looking at these audience sizes, because I know that’s going to be a question that comes out of this, is like, “Okay, so I’ve got these four audiences. How much am I spending typically just based on audience size?”

Jordan: Yeah, great question. Looking at these audience sizes, if you have an audience of roughly 200 people, not much, right? So that’s probably 500 bucks a day. Or not 500 bucks a day, $5 a day.

David Nadler: I was like, whoa!

Jordan: We are going to make sure they see our ads. So $5 a day to those audiences of 200 people apiece for an audience of 780. I don’t know, $5 to $10 a day, probably still $5 a day. And then for that audience of 4,800, maybe 20 bucks a day, right around there. So yeah, it’s not going to take much to retarget these audiences. But the reality is that combined, call it $50 a day in ad spend, retargeting throughout this funnel may very well generate more revenue. Well, probably not $50, but it’s going to generate a significant amount of revenue. Assuming as you start pumping in more traffic and those numbers grow, your retargeting budget is also going to grow with it. There’s a good chance that within a couple weeks, that retargeting ads is going to generate more revenue than all of your cold traffic budget combined.

David Nadler: Exactly, and that’s why getting this in place from the beginning is so important. Even if these groups of people are small, as you go out and you start to pour fuel on the fire with cold ads, all of those cold ad people are going to drive through this, right? So once we start spending money on cold ads, all of a sudden, these populations go from 4,800 and 780 and 210, they start to double and double again. We want to make sure that we’ve got the baseline to make sure that we’re moving them through the conversion funnel.

Jordan: A couple of other things to note on this if you mind, David. I know we’re going to get a question around, “Okay, well how do we know what these benchmarks look like? How did you come up with these percentages?” So number one is just rely on past data, right? So if you’re working with a funnel, you’ve had other traffic move through it. Look at the past data, use those for benchmarks.

Jordan: If you’re looking for a generic rule of thumb, just call it 30% at every stage of the funnel, and that’ll be a good conservative number. Typically, it’s more than that. Typically, you’re looking at 20% at the opt-in stage, and then you’re looking at roughly, call it 30% to 50% every stage after the opt-in that happens. So that’s a generic rule of thumb; but honestly, at the end of the day, you as a marketer don’t really need to worry about this math as much. All you need to do, and really all this is designed to do, is to give you a sense of, okay, how many people are coming into this funnel at the top, and how many people are at each stage? You can just kind of gut check what that budget looks like based on how big that traffic is.

Jordan: So all this is telling me really is that, okay, I have relatively tiny audiences at the last two stages of the funnel, not going to spend much there. I’m going to start ramping up as it goes. Then as you’re managing these campaigns, you can look at the frequency in your business manager. If you have a frequency of 48 in a week, you know to scale that down. Really, we’re shooting for a frequency of no more than seven to 10 in a week. So you can kind of operate that way as well if you don’t actually know these numbers.

David Nadler: Absolutely. So we’ve got a budget of $12,000, and we’re saying, “Okay, based on our retargeting, we’ve given you 35 bucks a day or max 50 bucks a day. So we’ve spent 1,500 bucks of our $12,000.” And the question is, okay, where do we spend the next? So we’ve given you the tool to, this is how you make sure that you’re putting your money into the most profitable thing first. We’ve done that.

David Nadler: So now where do we go? Well, now we go with hot traffic and then warm traffic and then cold traffic. So again, here on the model up in the top left where you’ve got cold, I probably shouldn’t have even put cold there, because it should actually be hot then warm then cold. But the idea is that this is non-funnel traffic that we’re driving into it, right? So now we’re going to go hot, warm, and cold. Well, how do we decide what budget we put where? We still have that question. The key to this is the audience targeting grid. Again, in the training that we do, we talk really in detail about this, but you’ve got three basic levels of audiences.

David Nadler: You’ve got level three, which are primarily custom audiences. These are going to be what are typically your hottest audiences. Again, hot, warm, and cold. There’s no like Moses didn’t come down and put that in stone on tablets. Like this is exactly what hot traffic is and what warm traffic and what cold traffic is. This is something that you got to kind of know your funnel. But here are some benchmarks that you can say, you should be spending as much money as possible on your level three audiences. Once you’ve done that, then you move into your level two audiences. Once you’ve done that, then you move back into your level one audiences.

David Nadler:Couple of notes here on your level three audiences just to run through these. I think most people are really familiar with level one. So probably spend a little bit less time on that. But a couple of notes here on level three. First thing you want to do is you want to target your best customers, export your best customers from your database and target those people with a new offer. Cart abandons, if you’ve got people coming through any sort of a cart system that aren’t targeted for any other offer, pull those people in.

David Nadler: Then you’re going to see a couple of things, your one to three day visitors and your four to 30 day visitors in there. You can merge those two together, but the idea is that the more recently someone has been on your site, they’re far more likely to convert. So make sure that you start with like, okay, let’s start with one to three day visitors, and if those people convert, then okay, let’s move it out to 14 days and move it out to 28 days. Keep moving up until you’re starting to run out of profitability. So you’re trying to maximize scale and profitability, but start small with a small retargeting window, and work it up as you have profit.

David Nadler: All customers, your recent opt-in lists, your entire opt-in list. All of these things, I think, are pretty straightforward. But basically, you want to start on level three audiences before you start spending money on level two.

David Nadler: Jordan, thoughts or additions on that? And then maybe you can kind of take it into level two.

Jordan: Yeah, no, completely agree on all of that. Starting out with that, just the hottest customers first, the hottest prospects first. Then moving into level two audiences, which is really your lookalike audiences, right? So always whenever you start with a business with an ad account, whatever, you upload your level three audiences, and then you just create lookalikes based on all of them. That’s really all level two audiences are. So it’s starting with, again, first your customer lookalikes, then your email list lookalikes, your opt-in lookalikes, your unsubscribed lookalikes, which is actually, it sounds really weird, but you can actually see a lot of success targeting people who look like people who have unsubscribed from your email list. Then just other owned audiences. So it could be specific cohorts of an email list. Again, it’s going to depend on how big of an email list you have. Could be people who look like people who have engaged with your ads in the past, who’ve watched your videos in the past, etc. Kind of just working your way down the list.

David Nadler: For sure. Again, as we’re trying to get to this question of how much budget do you spend in one place versus another, as you go through and you build out these level three audiences, with the example of a $12,000 budget, well, I don’t know what these level three audiences make up. If you have an email subscriber audience of a million people, you may very well be able to spend the rest of that $12,000 just retargeting a level three audience, right? And if you can, you should, right? So if you can keep spending money on a warm list and be profitable at that, there really is no reason to move into a level two. The only reason you move into a level two is when you’re spending appropriately with your hot traffic and you basically run out of money. Like your frequency gets too high, your return on ad spend starts to come down. It’s like, okay, now we need to go find fresh traffic. That’s when you’d move into level two.

David Nadler: Not going to cover level one audiences at this point. That would be kind of moving more into some of the truly cold, and worst cold than level two. So get what you can with your hot audiences, then go to your lookalikes. That’s primarily where we’re going to scale.

David Nadler: So again, just to bring it back around, the answer to this question of where should I put my budget, whether it’s $1,200 or $12,000 or $120,000 a month, it doesn’t matter. The answer to this question is you spend as much as you profitably can on hot traffic. Remember, hot traffic starts with funnel retargeting and then your best lists, and then you move into your warm lists, and then you move into your cold.

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