Don’t want to waste money and hard work showing ads to the wrong people? Use custom audiences and segmentation.

So, you’ve run an advertising campaign to promote your big product, putting out digital ads on social media and search engines. These new high-quality ads have been created by an award-winning digital agency, and you’re hoping you’ve made the right investment and will finally see a boost in sales. But alas, the report is out, and it shows that your conversion rates... are still low.

Your first instinct might be to conclude that the agency’s creative work has been inadequate, or that the advertising platform—Facebook, Google or other—just isn’t a good medium for promoting your product. However, from our years of experience managing vast amounts of lead-to-sale data and consulting clients in various verticals, we’ve noticed another, perhaps more probable cause; this gaping hole in so many businesses’ campaign strategies that inevitably lead to poor performance: Not targeting custom audiences.

Custom audiences are a fundamental component of any digital and social media marketer’s toolkit—especially in lead-to-sale industries like real estate and insurance, where the sales process relies on the successful acquisition of leads. Without custom audiences, advertising would be akin to machine-gun-firing shots in the dark, where every bullet is a costly expense but highly unlikely to hit a mark.

In this article, we’ll explore:

What custom audiences are and why you should care
How to segment audiences with the 3-tier heat system
How to use lookalike audiences to expand your targeted reach

What are custom audiences and why are they important?

Custom audiences are an ad targeting technique that enables you to target your ads specifically to people who would have a high chance of being interested in your product and responding positively to your ads. It’s a term most commonly used within Facebook’s ad management platform, but is also used on other platforms including Google Ads, as well as in general use as a versatile ad targeting tool.

Custom audiences go a long way in ensuring that your ads are actually effective, and not just being shown to people who have zero interest in your product—which would be a waste of all the money and hard work you’ve put into the campaign. Instead, you can target the ads to people who have shown interest in your product before, including your past and existing customers, and people who share similarities with your known customers.

You can create and implement custom audiences manually, or by using the built-in tools in Facebook Ads Manager and Google Ads. With the right information sources, these tools can use software algorithms to generate new custom audiences based on the input data and your chosen campaign goals.

Custom audiences can be broad (e.g. everyone who has visited your website) or narrow (e.g. people who have visited your website and stayed for more than 10 minutes, or clicked on a specific button). Splitting a custom audience into smaller subgroups like this is called audience segmentation—which you’ll find incredibly useful when developing your campaign messaging and strategy.

How to segment audiences: A 3-tier heat system

So, how do you decide what custom audiences to create? Should you target past customers, or people who don’t know of your brand yet? To answer these questions, we need to first look at your objectives. What are you trying to achieve with your ad campaign?

To keep things simple, let’s say your campaign has a single, immediate objective of eliciting the highest amount of sales for the lowest cost. To achieve this, the best consumers to target are the ones who are most likely to spend the most money on your products.

Tier 1: Hot

In most cases, the most promising prospects are your existing or past customers. They have shown high interest, purchase intent, and purchasing power in the past—making them more likely than anyone else to buy your products again now. We call this your hot audience, referring to how close they are to buying your product. You can further segment your hot audience into subgroups by demographic, income group, past purchases and other parameters, so that you can target specific products at specific price ranges to each subgroup, and tailor your ad messaging according to their specific needs and expectations. For example, if you are promoting an insurance product with a new luxury travel policy for people under the age of 55, you might want to target a custom audience of customers who have purchased some of your more expensive policies, and who are no older than 54.

Now, what if you don’t have a lot of existing customers (you should have at least 600 email addresses in your customer list)? Perhaps your product is new, or you just haven’t collected enough customer data yet?

Tier 2: Warm

If you don’t have a large enough hot audience, who’s the next group of people most likely to buy your product? Your leads. Leads generated by people submitting enquiries and lead forms are essentially official declarations of interest. These consumers have practically told you that they are interested in your product or company and want to learn more. They are your warm audience, and a great candidate for creating custom audiences to show your ads to.

Lead generation is a crucial part of not only custom audience management, but also more generally in a thriving, data-driven marketing-to-sales ecosystem. Contact us if you’d like to know more.

Tier 3: Lukewarm

If you’ve never done lead generation before, you may not yet have a lead database. There are other signals of interest you can identify in online users, which manifest mainly in various forms and degrees of digital engagement, such as visiting your website, viewing a specific product page, following your social media page, and watching multiple videos posted on your page. Some engagements are more meaningful than others (e.g. liking a picture may not relate to product interest whatsoever), but there are some that you can use to create very valuable custom audiences to develop a powerful campaign around.

A great example of this is the abandoned cart, where a user has added items to their cart on an e-commerce site, but has left the site without following through with the purchase. Shrewd businesses take advantage of this by reaching out to these users with enticing offers (e.g. free shipping for a limited time) to persuade them to take that final step in the purchase journey.

So as you can see, using a tier system to define and prioritise custom audiences extends to segmentation within each heat tier as well. You can break it all down into a flow/funnel to help you visualise a kind of path of targeting accuracy, at some point along which each custom audience would fall:

Lookalike audiences

While targeting people who have previously interacted with your brand is a great place to start creating custom audiences, you can also effectively target audience segments among people who have not interacted with your brand before (cold audience). To do so, you can turn to what Facebook calls lookalike audiences, which are generated by inputting a ‘seed’ (i.e. any of the custom audiences you previously created of your existing users) into Ads Manager, to find other users within the Facebook who share similarities with the users in the seed.

This can be very useful in several circumstances. For one, if your product has a long lifespan, as would be the case in certain industries like real estate, it is possible that your existing audience may actually be less likely to repurchase anytime soon. But more generally, it helps you reach high-potential customers who would otherwise have been hard to identify. So, to enlarge your audience, but in a calculated and targeted way, you can turn to lookalike audiences.

Lookalike audiences are also useful if you don’t have vast numbers of hot, warm and lukewarm audiences—which is likely the case if you’re only just starting out with ad targeting and custom audiences. With lookalike audiences, you can run targeted ads to more people than those in your existing database. That being said, to generate a high-quality lookalike audience, you will still need a sufficient amount of ‘seed’ data, whose shared traits (or homogeneity) are what the lookalike audiences will be based on. The minimum number of users for a seed that Facebook accepts is 100, but the recommended size is at least 1,000 and ideally more. The more data you feed into the system, the more accurate your lookalike audience will be.

On the other hand, the size of your lookalike audience shouldn’t be too large. When the algorithm searches for users to build the lookalike audience, it will select the users who are most alike to your seed. The more users it has to search for, the less similar the users selected will become. In Facebook Ads Manager, you can select the lookalike audience size based on the degree of similarity (1-10%) between the lookalike audience and the seed audience. The smallest degree (1%) is always the best, but if you need to reach more people, you can increase it slightly.

Once you start using custom audiences to drastically improve your ad targeting performance, you’ll also open up a lot of new possibilities for your campaign and contact strategies. When you’re able to identify the specific needs of each custom audience, you’ll be better able to adapt your messaging and ads’ creative content to better appeal to them.

Next, want to find out just how well your ads are performing? Sales numbers and engagement rates don’t always tell you the whole story, and you’ll need more information to properly assess your digital agency’s performance. Read more here or contact us to learn more about SalesCandy’s ad performance attribution today.

How to target the right people and close more sales with custom audiences