Building a profitable brand hinges on one critical challenge: cost-effective customer acquisition. While many businesses rely on broad targeting for their paid social campaigns, this popular approach is leaving money on the table. In this article, we'll explore why combining broad and lookalike targeting strategies is crucial for sustainable growth, and how to implement this dual approach.
The Limits of Broad Targeting: Why Low CPMs Aren't Everything
Many e-commerce brands start with broad targeting on Meta, and for good reason. This approach typically delivers lower CPMs and higher ROAS, especially when paired with Meta's Conversion API to optimize for purchaser behavior.
The strategy seems sound: cast a wide net, let Meta's algorithm find buyers, and keep acquisition costs low.
But there's a significant flaw in this approach. In our experience, only 30-40% of customers acquired through broad targeting ever make a second purchase.
Take this example. A luxury brand with an AOV of over $500 found their new customers rarely made repeat purchases, despite increasing their ad spend and seeing a surge in sales since late 2023.
According to their layer cake analysis (a visual representation of how well a brand acquires and retains customers), each new cohort shows strong initial sales. But the repeat purchase behavior drops off significantly:
While they successfully acquired customers, their business became increasingly dependent on finding new ones. This cycle is costly and unsustainable.
The reality is that without strong repeat purchase rates, even successful customer acquisition can lead to declining profitability. Plus, investors typically look for customer lifetime value to reach 3X the initial purchase value within 36 months.
So, how can brands break this cycle and build a more sustainable acquisition strategy? The answer lies in a more nuanced approach to targeting.
The Ideal Strategy: Combining Broad and lookalike Targeting
Instead of choosing between broad targeting and lookalike audiences, it’s smart to run both of these strategies in parallel.
Each targeting method serves a specific purpose in your acquisition strategy. While broad targeting helps maintain volume and efficient acquisition costs, lookalike audiences based on your best customers help find those valuable repeat purchasers.
To implement this dual approach, let's dive into four key strategies to help you get the best results from broad and lookalike targeting.
1. Find Your Best Customers with RFM Analysis
RFM segmentation is the most reliable way to identify your highest-value customers. It looks at three critical dimensions of customer behavior:
- Recency: How recently a customer has purchased
- Frequency: How often they purchase
- Monetary: How much they spend
You can either calculate RFM scores manually by ranking customers on each dimension, or use Daasity to automate the process.
Daasity automatically calculates these scores using a formula that weighs each factor, breaking customers into deciles (10 groups) where score 1 represents your top 10% most valuable customers.
Customers with scores of 1 and 2 (your top 20%) often drive 65% or more of total customer lifetime value, and score 1 customers frequently spend 1.5x to 5x more than score 2 customers.
Once you've identified these high-value segments, you can push them to Meta automatically with Daasity Audiences.
Example: Craft Gin Club used Daasity Audiences to create 12+ customer segments, from eager subscribers awaiting their next gin selection to one-time gift purchasers. By automatically pushing these segments to Meta for more accurate targeting, they saw a substantial increase in ROI.
2. Set Strategic Performance Thresholds
Once you've identified your customer segments, you need to set different performance targets for each audience type.
For lookalike audiences based on your high value customers (RFM scores 1-2), you can afford to be more aggressive with your CPO or ROAS targets since these customers are likely to have a higher lifetime value. While these campaigns might have higher CPMs, the potential for repeat purchases justifies the increased acquisition cost.
For broad targeting, set more conservative CPO/ROAS targets that focus on making the first order profitable or breaking even with a second purchase.
3. Optimize Data Flow with Conversion APIs
Ensure your customer purchase data flows accurately back to Meta by implementing their Conversions API. This allows Meta to optimize within each audience type more effectively.
The API helps Meta's algorithm identify valuable customers within both your broad and lookalike audiences, improving targeting accuracy over time. When combined with your RFM segments from Daasity, this creates a powerful feedback loop that continuously refines your targeting.
4. Monitor and Adjust Based on Cohort Performance
Track how different customer cohorts perform over time using layer cake analysis. This helps you understand if your dual targeting strategy is working. You should see stronger repeat purchase behavior from customers acquired through your lookalike campaigns. Regular monitoring allows you to adjust your targeting mix and performance thresholds based on actual customer behavior, not just initial acquisition metrics.
Is It Time to Optimize Your Targeting Strategy?
By combining broad and lookalike targeting with smart customer segmentation, you can build a more sustainable and profitable acquisition strategy. The key is using data effectively to find and nurture your most valuable customers.
Ready to get started? Request a free Layer Cake Analysis to understand your acquisition vs. retention performance, or learn more about how Daasity Audiences can automatically push your best customer segments to Meta.
