How We Helped An eCommerce Brand Drop Their Customer Acquisition Cost to $6 Using Video Ads

CLIENT BACKGROUND

The client was an eCommerce business selling products to professional hairstylists in the US, Canada, UK, Australia, New Zealand and Europe.

They had run Facebook ads for a few months but their cost of acquiring a new customer was too high and their revenue had dropped 61%.

They wanted to find a way to acquire a new customer at a profit, this meant that their target CPA (cost per acquisition) needed to be at $8 or less.

They also wanted to increase revenue without increasing their ad budget, which meant the overall conversion rate needed to improve significantly.

PROJECT SCOPE

Since this was not a new advertiser, we had quite a bit of data to work with and we could use what they had done before to find holes and problems in their funnels.

Our key metrics where:

  1. Target CPA of $8 (The Average CPA over the last 60 days was $16.21)
  2. Max Ad spend for the month of $5,000
  3. Increase revenue but maintain at same ad spend.

We also found out during discovery that they only had two products, one that they wanted us to launch and another that had sold well for the last 12 months.

Unfortunately, these were one time products, i.e., once a customer purchased one or both products she had no reason to buy more.

This meant that the business was acquiring customers but didn’t have a pipeline of products to offer those customers on the back-end.

In addition, because they were selling to a very small niche market, the total universe of available prospects was limited to about 2.5 million people (based on Facebook data) combined in US, Canada, UK, Australia, New Zealand.

This was an extremely limited market and without a recurring product (or a pipeline of products), the cost of acquiring new customers would eventually rise.

PROJECT DETAILS

Audiences

Because we were working with a limited audience we decided to slice up that audience into smaller tightly focused groups so that we could get as much penetration as possible.

This would give us better reach on Facebook and also help me quickly determine losing age groups, demographics, and interests.

We began by building 30 audience groups based on gender, age, interests and demographics.

We also tested lookalike audiences based on past buyers, but because the products only made sense to professional hairstylists, these audiences didn’t work well. The only alternative was interest-based targeting.

Facebook Ads Funnel

With the audiences built we decided to use video ads as our front-end acquisition ads, the main reason was that videos were able to effectively demonstrate the uniqueness of the products better than images.

Also, videos currently have much higher engagement on Facebook when compared to images and since the majority of the past purchasers were on mobile, we wanted to take advantage of video ad recall rates, even if the prospect doesn’t make the purchase the first time.

A Nielson showed that cumulative ad recall increased 74% after just 15 seconds of a video ad, and purchase intent increased 72% after just 10 seconds of viewing

Lastly, it was important for the hairstylist to see the product in use, so she can understand how revolutionary the product was.

example of the hair stylist ads

Since the products were priced at under $40 and made sense to a professional hairstylist at first glance, there was no need to pre-sell prospects on why they needed it.

Once the prospect watched the video it made sense, this meant we were able to use a very simple funnel for customer acquisition.

hair stylist ecommerce funnel

Retargeting

We built the following retargeting audiences:

75% video views (less 95%) – these were people who had watched at least 75% of the video ads but not 95% AND had not landed on the store page. Those people were retargeting and sent to the store page.

95 % video views (less 75%) – these were people who had watched at least 95% of the video ads but had not landed on the store page, in this case, they were sent directly to the product offer page.

Store page (not product page) – since we were sending traffic to the store page, visitors who landed on that page but didn’t go on to the product were retargeted back to the store page.

Product page (not ATC) – visitors who had gone to the product page but not added the product to cart were sent back to the product page.

Add to cart (not purchase) – visitors who had added the product to the cart but didn’t checkout were sent back to the product page. There was also an abandoned cart sequence sent on Shopify for this group too.

RESULTS

We were able to meet or exceed all the targets set at the beginning of the project. Here are the final numbers:

  • Ad Spend: $4,698.64 (budget was $5,000 or less)
  • CPA: $6.01 (target CPA: $8, previous CPA: $16.21)

Revenues increased by 174% for an almost identical ad spend while the CPA dropped from $16.21 per new customer to $6.01 per new customer.

CONCLUSION

Although we were able to meet the project targets, we believe that in time the CPA will eventually rise because the client’s business contains a limited number of products sold to a very small market.

They were also not effectively leveraging email marketing and weren’t enthusiastic about the idea of building out pre-purchase email funnels and post-purchase email funnels.

Unfortunately, a business that depends on 100% of customer acquisition will eventually find it difficult/more expensive to acquire customers as the market changes or competitors enter, especially if the target market is small, to begin with.

Lastly, the true value of any business is in its customers, and increasing the lifetime value of those customers should be the number 1 priority.

With a high enough lifetime value, you can weather an increasing CPA and still grow the business.

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