Facebook Ads Metrics: What Matters and What Doesn't

In the mysterious world of Facebook Ads, deciphering which metrics hold true significance and which ones are merely vanity can be a daunting task for beginners.

Understanding metrics is the key to optimizing your ad campaigns for success.

I like to go divide the metrics into three categories of Facebook Ads metrics:

•  Important Metrics

•  Useful Metrics

•  Vanity Metrics

Facebook shows default metrics which mislead beginners into thinking that their campaigns are performing when they are just burning money.

Let me show you how I look at ad metrics and take you through my setup.

Important Metrics

These metrics can be found in the Ads Manager's Performance Metrics category. As the name indicates it shows the performance of your ad campaigns. When I set up ad campaigns these are settings I prioritize the campaign columns by.

1. Conversions (Results): The ultimate goal of any advertising campaign is to drive conversions, whether it's making a purchase, signing up for a newsletter, downloading an app or completing a lead form.

This is the most important metric as you can optimize your ad campaigns based on the conversion you desire. If you want to get purchases optimize your campaigns for purchases, and not for Link Clicks.

There are standard conversions offered by Facebook, such Sales, Complete Registrations, Downloads, which would suffice for any marketer to get started.

There are also custom conversions, which can be set up by you, but for starters the standard conversion events are more than enough. 

2. CPA (Cost Per Acquisition) or CPC (Cost Per Conversion): The average cost you pay to acquire a customer.

A lower CPA indicates more efficient advertising spend.

This metric has variations, such as Cost per Registration, Cost per Lead, Cost per Download which depends on the main conversions you are measuring and aiming for.

Back in the day (2014-2020) marketers were obsessed with this metric as it indicated efficiency.

However, this metric does not take into consideration Conversion Value, or Average Order Value (AOV), nor Lifetime Value (LTV) which makes it less important, but still it could be a Key Performance Indicator (KPI).

Example 1: An e-commerce store's conversion cost (CPC) might cost $100 which seems high, but if the AOV (average order value) is $400 then you have a 4x return on that single conversion. It really depends on the products you are selling.

Example 2: An app user costs $50 to sign-up for a subscription that costs $10/month. One might think your are crazy and that you are losing $40 on each conversion. What is not accounted for is the LTV of the subscriber. If a subscriber stays for 5 months your are at break even. If a subscriber generally stays for 12 months then you are making $70 per subscriber.

3. Conversion Value: The total value generated from conversions attributed to your ads. It helps measure the return on your advertising investment.

This value can be dynamically set up for an e-commerce store and Facebook will take the value of the cart directly from the store. Or it can be set up manually by you in case of a newsletter sign-up or app download. The important here is that you know the LTV or the AOV.

4. Average Order Value (AOV): It is the ratio of Conversion Value (Revenue) / Conversions (No. of orders).

5. Lifetime Value (LTV): Lifetime Value or CLTV (Customer Lifetime Value) is calculated differently for e-commerce, service or SaaS. This is very important metric for any business, and also a great metric to look at when it comes to marketing budget. If you calculate LTV another metric needs to be accounted for as LTV makes sense even more, that is metric is CAC (Cost per customer). 

CAC = Total Ad Expenses/No. of new customers

A good LTV/CAC ratio should be at least 3:1. 

Let me give you an example for en e-commerce store.

Example

LTV = AOV x  Frequency of purchase/year x Lifespan.

Let's see an LTV for a customer whose AOV is $30, buys from your store 5 times per year and stays loyal to you for 2 years.

Your CAC is $100. That's how much you spend to acquire a new customer, based on the above formula.

LTV = $30(AOV) x 5 (frequency/year) x 2 (years) = $300

LTV/CAC =  3:1 ratio

It means if you bring on a new customer for less than $100 then, you triple your initial cost.

Higher ratio, the better. Generally, 4:1 ratio means it's a healthy business model and can scale. 

6. ROAS (Return on Advertising Spend): The ratio of revenue generated to the cost of advertising.

ROAS helps determine the profitability of your campaigns. In the new era of paid ads this can be the ultimate metric.

It's easy for marketers and business owners to understand it.

For example: You spend X on ads and you get 2X. You spend $10 on Facebook Ads and you get $20 revenue. Basically, you get $2 for every $1 you invest in ads.

Important: ROI ≠ ROAS

Do not mistake ROI with ROAS! I see a lot of business owners include investment costs such as raw material costs, product acquisition cost and other fixed costs.

It's not Return On Investments!

ROAS shows AD COSTS to Revenue Generated via ads, that's why it's called Return On Ad Spend.

ROAS depends on a couple variables, like price of the product and AOV.

If you do not have product-market fit, price is too low, AOV is low then it's hard to get a positive ROAS (1<). 

Facebook Ads offer ROAS based conversions for advertisers. It's not available on all ad accounts, as you need quite a bit of data to have this performance goal.

Facebook allows you to aim for Maximize value of Conversions rather the Maximize number of Conversions, and optionally add a ROAS goal. If you have this option on your ad account, you should definitely test it.

You can set this up at the Ad Set level where you choose the conversion goal.

Open the dropdown list select Maximize value of Conversions. Under Conversion Event a new field with ROAS will appear.

See image below for reference.

Useful Metrics

These metrics can be found in the Performance & Delivery categories in the Facebook Ads Manager. Some of these metrics are not defaults settings in Ads manager, so you need to create them.

Don't worry I got you covered on how to calculate and set these up below. 

These metrics will help you figure out what might be a problem if the main metrics do not add up and you need to further investigate a campaign. 

1. CTR (Click-Through Rate): The percentage of users who clicked on your ad after seeing it. A higher CTR indicates better ad engagement. 

If CTR is low, it could mean that your ad is of poor quality or that you are not targeting the right audience.

2. CTRL (Click-Through Rate Link): The percentage of users who clicked on your ad's link a.k.a. CTA button (Call to Action) after seeing it.

A higher CTRL indicates better ad engagement.

3. CPM (Cost Per Mille): The cost per 1000 impressions. It helps you evaluate the efficiency of your ad spend.

4. CPC (Cost Per Click): The average cost you pay for each click on your ad.

CPC used to be crucial for understanding the cost-effectiveness of your campaigns, however this metric fell down the pecking order when more important metrics became available to marketers, such as conversion value and ROAS.

5. Link Clicks: The number of clicks on links within your ad. It measures the effectiveness of your call-to-action. Basically it indicates if your ad creative and copy are making users stop and click on your ad.

6. Frequency: The average number of times each person saw your ad. Monitoring frequency helps prevent ad fatigue.

7. Video Hook Rate: Calculated as follows: 3-second video views/impressions x 100%.

This gives you a percentage which should be at least 20%. This means every 2 user out of 10 whom your video was shown, has stopped and watched the first 3 seconds of your video. 

If it's below you should test more hooks as you cannot stop the scroll and get the attention of the users. 

8. Video Hold Rate: The formula is: 15-second video views/3-second video views x 100%. It should be around 30% or more. It determines if you can hold the attention of users who viewed the first 3 seconds of your video.

These metrics give you and impression of the quality of your actuals ads.

If your important metrics do not add up, you should look at useful metrics and decide if your ads are quality or not.

How to Set Up Custom Metrics in Facebook Ads Manager

Open the Columns dropdown menu in Ads Manager and select Customize Columns.

In the pop-up window, click Create Custom Metric. A new window pops up (yes, another one) where you can setup the above metrics using the formulas I mentioned. 

Take a look at the image below and see I how set up the Video Hook Rate metric.

Vanity Metrics

These metrics can be found in the Delivery & Engagement category in the Ads Maanger.

These metrics bring little to nothing when it comes to performance marketing. Usually, business owners fall into this trap of monitoring these metrics as these are the most visible ones.

However, they need to understand that these metrics only matter to their ego and have almost nothing to do with the performance of paid ad campaigns.

1. Impressions: The total number of times your ad is displayed. While impressions indicate reach, they don't necessarily correlate with engagement or conversions.

2. Reach: The number of unique users who saw your ad. While reach is important for brand awareness, it doesn't guarantee action.

3. Likes: The number of likes your ad receives. While likes can signify audience interest, they may not translate into meaningful actions.

4. Followers: The number of users who follow your page. While followers indicate brand loyalty, they don't necessarily equate to revenue.

5. Views: The number of times your video ad was viewed. While views are indicative of engagement, they may not lead to conversions.

6. Engagement: The number users who engage with your ad. It includes the post views, image opens, reading,  shares, clicking the "see more" link in texts and probably even more actions.

However, vanity metrics can be useful! For example, you can create custom audiences for re-marketing purposes.

You can create an audience that viewed 90% of a certain video, create an audience from users that engaged with your ads or pages and target them with a special offer.

Ad Account Metrics Columns Setup

For me, this is how the metrics columns look after I customize it in Ads Manager.

I always save the setup for each ad account.

If you have multiple goals for the ad account, e.g. purchases and newsletter signup, then create separate Custom Columns for each goal.

Example 1: E-commerce store Facebook Ads Metrics Setup

Conversions | CPA | Conversions Value | ROAS | Initiated Checkouts | ATC | Spend | CPC | CTR | CPM | Frequency | Reach

Example 2: Registrations Facebook Ads Metrics Setup

Registrations | Cost per Registration | Registration Value | Spend | CPC | CTR | CPM | Frequency | Reach

Summary

Remember, it's not just about the numbers on the surface (likes, shares, comments, views) but about the actions they inspire and the value they bring to your business goals.

If you understand the distinctions between Important Metrics, Useful Metrics, and Vanity Metrics you can focus your efforts on tracking and optimizing the metrics that truly matter for your Facebook Ads campaigns.