Ecommerce Empire Builders

Many businesses rely on unprofitable Facebook ads to create their dropshipping business. However, this strategy doesn’t work. Facebook’s entire business is predicated on you buying ads from them. They will never give you the tools to be so successful you won’t need them anymore. They’d be damaging their own business, and they aren’t going to put you ahead of themselves.

You need to find a way to use unprofitable Facebook ads properly, and that means seeing them as a tool to create free traffic rather than relying on them to make a profit. This guide will give you a peek behind the scenes of Facebook and explain how the algorithm can keep you reliant on their ads instead of giving you the ability to break free and become successful.

Why You Can’t Use Unprofitable Facebook Ads to Make Money

Screen grab of Peter Pru discussing how Facebook is a business

Facebook is a business itself, and the money it makes comes from your ads. It’s challenging to balance the amount you are paying for your ads on Facebook and the profit they produce. If you are actually successful and make a fortune on your Facebook ads, you’ll be able to afford more effective ad spaces, and you’ll stop using Facebook. It isn’t in Facebook’s best interest to allow you to make the kind of profit where you will be as successful as you desire.

Facebook’s algorithm doesn’t try to make you successful. Instead, it keeps you reliant on their ad space for customers. Facebook ads should therefore not be used to make money but to gather data to monetize your information.

The Key to Your Success Is Free Traffic

As long as you are paying other businesses to funnel people to your site, you are not making the kind of profit that you need. The key to creating your own business is to use the algorithms that other businesses use to your advantage.

For example, gather data on your customers (just like social media sites do), so you don’t have to pay for ads on these sites. Instead, you can use the data directly and gain free traffic to your site. Any site that you buy ad space on needs to find a healthy balance between your success and their success. You will never come out on top in this balancing act.

Paid Advertising Can’t Be Your Only Way to Earn Money

Facebook optimizes its ads to meet whatever your cart value is, so you never quite get ahead of the algorithm. So, for example, if your average cart value is 20 dollars, Facebook will try to funnel you $20 customers. Still, as your business grows, instead of funneling you more customers, Facebook will optimize the ads so what your customer spends matches your new cart value.

With advertising as your main expense, you need Facebook to be sending you customers who have varying levels of spending — but they don’t. They’ll always match the type of customer they send you to your average cart value. They want to keep you dependent on their ads. That’s how they make money. They always try to balance your cart value with your average cost per purchase to keep you dependent on their ads.

Your Net Profit Will Not Increase by Spending More Money on Unprofitable Facebook Ads

Peter Pru discussing how Facebook ads can scale unprofitably

Facebook won’t help you get ahead to the point where you don’t need their platform anymore. They are going to continue to optimize your ads so as you make more money, you are also paying more per customer. They make their money off you purchasing their ads, and they will not prioritize you over themselves. It can feel like they’re keeping you on a treadmill.

As the customers you funnel into your business grow in value, the more you pay to attract those customers. It never ends. The more money you make, the more profitable businesses you will be facing when you bid for Facebook ads. Facebook ensures that everything scales in their favor so that you never make the profit you need to break out of your dependence on their platform.

The Secret Is to Do Your Own Optimization and Gather Your Own Data

If you are going to make real money on your dropshipping business, you need to get off this treadmill and make yourself some real money. You need to be able to control how much you spend on ads. Also, you need to decide how to use the information you get to make the ads work for you. The purpose of the ads will not be to make you money. The purpose of the ads is to gather valuable data instead. Then you can use it to funnel the type of customers you want to your site.

You want to be off of the Facebook treadmill as soon as you can. You might still use Facebook ads, but you won’t be using those ads as the entire marketing foundation for your dropshipping business. Instead, you’ll be using those ads to gather your own data and create your own audiences. It’s the only way you’ll ever get off the treadmill and make a decent profit.

How Ecommerce Empire Builders Can Help

Dropshipper using data from unprofitable Facebook ads to analyze traffic

Don’t use unprofitable Facebook ads as your only tool in starting your dropshipping business. Don’t set yourself up to fail! Use them to funnel sales to your website, but don’t rely on them for success. I have started businesses before, and I can help you start yours. Our team of eCommerce experts builds eCommerce websites with the right processes to streamline your conversions, traffic, and revenue.

We will teach you how to build your eCommerce empire by signing up for our training program taught by experts. When you have your own business and the insights to run it, you won’t constantly be stuck on a never-ending treadmill where your cart value always equals your cost per customer. If you want to know how to start and market your own business, click here to reserve a seat at our webinar. You can also subscribe to my YouTube channel for more insights and ad strategies.

Welcome back, Empire Builders! If you have a Shopify or sales funnel dropshipping store, but you’re struggling to make it profitable, then you’re in luck. That’s the topic we’ll be covering today. I asked my Lead Client Success Manager, Steve, to share some insights with you guys, and he was kind enough to agree to share these simple eCommerce hacks.

He made a video taking you behind the scenes, not only to show you why so many businesses are struggling to make a profit but, more importantly, how you can overcome these issues. This article will cover some highlights of his presentation, but make sure to watch the video to get the full scoop. Let’s jump right in!

The 3 Keys to Increased Profitability

It’s important to evaluate your core business practices to make your dropshipping business more profitable. To do this, there are three key points we’re going to cover:

Understanding Your Gross Margin
Knowing Your Key Performance Indicators (KPIs)
Funnel and Ad Optimization

Let’s dig into each of them individually and talk about simple eCommerce hacks to become more profitable.

1. Understanding Your Gross Margin

Dropshipper analyzing spreadsheets to find his gross profit margins

Basically, your gross margin is just the revenue from your total sales minus your cost of goods sold (COGS). For example, if you make $30 selling a product that costs you $7.50, your gross margin would be $22.50. From that, you can calculate your gross margin percentage.

Your gross margin percentage describes the percentage of your revenue that’s made up only of profit. To calculate that, you just divide your gross margin, $22.50, by the sales revenue, $30, which gives you 0.75 or 75%. The higher your gross margin is, the more profit you’re making. Higher profits make your business more competitive.

It’s important not to mix up your gross margin and your net margin. Remember, your gross margin is just revenue minus cost. It doesn’t account for other business expenses like payroll or ads. Those things would factor into your net margin, which we won’t be covering today.

2. Knowing Your Key Performance Indicators (KPIs)

Key performance indicators (KPIs) are important metrics for understanding how your business is doing. One of the most vital eCommerce KPIs is how much you can afford to pay to acquire a customer, like the amount you could afford to spend on Facebook ads to get a sale, for example.

The reason this is so important is that whoever can afford to spend more on customer acquisition will win more auctions, get more views, and ultimately, make more sales. So, the more you can afford to raise your customer acquisition cost, the faster you can scale your business.

To calculate this, subtract your average COGS from your average order value (AOV). This will be a pretty accurate measure of the upfront ad costs you can afford to acquire a customer. Your AOV only includes the average value of initial orders, not including subscriptions or other subsequent purchases. Further down the line as your business grows, you’ll calculate your customer lifetime value (LTV) which will include those things.

3. Funnel and Ad Optimization

Screen grab of Steve discussing ways to assess ad creative

Optimizing your ads is also a critical factor if you’re going to make your dropshipping business more profitable. To do this, you’ll want to start by testing the creative of your Facebook ads. There are different types of creative, including things like showing products in use, user-generated content, and product reviews.

The next important thing to test is the first three seconds of the ad. If you don’t hook the customer in those first few seconds, they’ll likely just keep scrolling. That’s how long you have to get their attention to have any chance at a sale. Keep testing until you find a hook that works.

After that, test out your images or thumbnails. How well the images work will depend on the product and the audience. Some products can do really well with just static images. Other product ads will need a video to really work, though, so test different images, videos, and thumbnails to find out.

The following thing you should optimize is your sales angle. How you style your offer is important and will change how effective the ad is. Common tactics include discounts, BOGO sales, and free shipping. Test them all thoroughly to make sure you’re getting the best results.

Finally, test the audiences for the ads. I recommend testing 20-30. Once your ads are optimized, you’ll also want to optimize your funnel. There are two main things to test here. First, test your hero image. I prefer a lifestyle image of the product in use. Then, test out different headline types.

Get Started Incorporating These Simple eCommerce Hacks

Screen grab of Steve discussing funnel optimization

Assessing these things is important because you have to stay on top of how the business is doing. When dropshipping businesses don’t know their gross margin or the customer acquisition cost they can afford, there’s no way to know if they’re making money or spending the right amount. Some businesses don’t check these consistently and suddenly realize they’re losing a lot of money. If you can keep up with them, it’s a very profitable habit.

Once you know what you can afford to spend on ads, you have to optimize them. There’s no use spending money on ads that don’t work. The same goes for your funnel. If you’re creating effective ads that get clicks, the money is still wasted if they leave as soon as they hit your funnel landing page. But if you keep on top of these profitability keys and ensure everything’s working together, you’ll get the most out of your business and start increasing profits.

If you follow Steve’s simple eCommerce hacks, it should really help you make your business more profitable. I hope you enjoyed this article and get a lot out of it. If you’d like to take the next step down the road to making your business a success, check out my FREE webinar to learn about how I started making a full-time income online without needing to build a website or touch a product! Also, subscribe to my YouTube channel for even more simple eCommerce hacks and insights.

Tagged : dropshipping business growth / finances / how to make ads / how to start a business / profit