Does advertising to existing customers actually increase sales?
As a test with a new client, we decided to shut off ads for half of their existing customers and keep ads running for the other half of their existing customers.
What happened was astonishing.
Facebook reported that we got a 4X return on ad spend for the client with our advertising efforts, but when we looked at the sales numbers, we only saw 7% more revenue generated to the audience we advertised to compared to the audience we didn’t.
Essentially, our 4X return on ad spend was actually a 0.4X return on ad spend! We were only seeing an incremental $0.40 on every dollar we spent advertising to existing customers.
The client was shocked. The performance they always thought was strong, was actually a money loser.
Why we’re the results so drastically different?
While marketing to existing customers is one of the lowest hanging fruits to drive revenue when advertising on Facebook (or any other channel), the numbers you see upfront can be extremely misleading.
Because these existing customers have experience with your products already, their likelihood to buy again unprompted is high. It’s very likely a majority of these customers were going to buy again anyways and the ads had no impact on their decision.
There are cases where a customer might need a gentle reminder, but because you know know the customer, you have email and SMS to rely on to communicate which cost a fraction of the price of an ad.
While you may read the above and think it’s worthwhile to shut off advertising to existing customers, there’s still a number of benefits to running ads to existing customers.
Some people need to be hit with multiple reminders to buy again. Some people don’t read their emails and need to be reached in a different medium like Facebook.
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Digital Marketing Attribution and Measurement Roadmap
We layout a roadmap of all the measurement and attribution tools direct response advertisers should use to better understand their media’s impact.
Instead of completely abandoning advertising to existing customers, consider the following tactics to ensure you’re driving incremental and not duplicative impact.
1. Make sure you don’t have a high frequency: At most you should be hitting users with ads 1-2 times per week. If your frequency is much larger than this, consider lowering your budgets as you’re most likely overspending against your existing customer base.
2. Make sure you’re not driving a large majority of view based conversions: Take a look at how people are converting on your ads. If a large percentage (over 50%) coming in on a 1-day view and a small percentage are coming in on a 1-day click, you probably are taking credit for orders being driven by another sales channel like email (especially if you had a big email push the day you look). Consider bidding on a 1-day click or 7-day view window instead to ensure Facebook doesn’t optimize for orders you might have got anyway.
3. Try to limit your audience to people who are harder to reach on email or SMS: If you have a highly converting email program, consider focusing your advertising efforts targeting existing customers who are harder to reach (e.g. non-email openers). This is another good way to ensure your efforts are additive and not duplicative.
While taking these additional steps marketing to existing customers will show a lower front-end return on ad spend, these changes will drive greater returns for what you actually care about – your business’s bottom line.
