Using Lookalike Audiences to Scale Facebook Advertising

Headline Image Facebook Lookalike Audiences

Facebook has become one of the most effective advertising channels thanks to the amount of data it has on its users. This data allows for a wide array of targeting methods for advertisers on Facebook. On one hand, the variety of options can be a blessing since it allows Facebook marketers to get more granular with targeting than they can anywhere else. For marketers who know exactly who they want to target, this is great.

On the other hand, the large number of options can also be a curse, since it’s very easy to waste ad spend testing various targeting combinations in an attempt to arrive at the best-performing audience segments.

Lookalike audiences allow marketers to take advantage of the incredible amounts of data Facebook has to arrive at those best-performing audiences without excessive trial and error.

What is a Lookalike Audience?

Lookalike audience targeting is based on the idea that people who are most similar to your existing users are most likely to convert.

Facebook’s algorithm for building Lookalike audiences sifts through its data on an input audience (called a seed audience) to find patterns between the seed audience and the overall Facebook user base.

This algorithm takes into account many facets of information that Facebook has on its users, information which transcends simple user input data and includes inferred attributes. Facebook doesn’t go into detail about what exactly is included in its Lookalike modeling, but it’s fairly safe to assume it includes likes, post interactions and other observed online behaviors of a given seed audience.

Facebook then extrapolates patterns to build a larger Lookalike audience of users that most resemble the patterns inferred from the seed audience. Fair warning: since the Lookalike algorithm is mostly black box, it requires you to give up some control over who ends up in your target audience as you have less ability to explicitly choose the targeting parameters for each audience.

At Growth Pilots, we’ve spent millions of dollars testing different targeting methods on Facebook and found that for most companies doing performance-driven advertising, Lookalike audience targeting works far better than anything else both in terms of ROI (efficiency) and audience reach (scalability).

How it works

The first step in building a Lookalike is to set up a seed audience. This is the set of people you want the audience for your campaign to resemble.

To do this, first create a custom audience.

Create a Custom Audience

You can build this audience by uploading your database of customers, or on the basis of traffic to your website or app.

Custom Audience Source Window

Keep in mind that in order for a custom audience to serve as the basis of a Lookalike, it has to include more than 100 people from the same country who have Facebook accounts that match the uploaded data (see below for an explanation of match rates).

Once you’ve created your seed audience, input it in the “source” field of your new Lookalike audience.

Create a Lookalike Audience

From there, Facebook will get to work crunching data to find the users most similar to your seed audience.

Maximizing Results with Lookalike Audiences

While the process of setting up a Lookalike audience is pretty simple, there are some key strategies that can help maximize results with Lookalikes.

Choosing Your Source

The first thing to decide is where to source the people for your seed audience. As previously discussed, there are a few ways to do this: you can upload a Customer List of email addresses or phone numbers, build a website custom audience (WCA) based on a Facebook pixel that tracks a user’s behavior on your website, or build an audience using events in your mobile app.

For Customer Lists, Facebook will automatically match the e-mails and phone numbers you upload to the corresponding Facebook profiles. It’s important to note that the match rate – the percentage of your contact list that Facebook is able to link to a corresponding Facebook account – will never be 100%, since not everyone has a Facebook account and those that do often have more than one e-mail. So you’ll need to ensure you upload a large enough list to account for a match rate of less than 100%.

Typically, the match rates for B2C companies are usually higher than for B2B – we’ve seen as high as 95% match rates in the former case and as low as 20% in the latter. And as mentioned before, you need at least 100 customers who have matched to build a viable seed audience (although, as we’ll discuss shortly, you should aim for much more).

Using the Facebook pixel or mobile app events as a source for your audience has both advantages and disadvantages compared to uploading a Customer List.  On the plus side, an audience based on the Facebook pixel or app events will update your seed audience automatically. It also allows you to specifically define the event you count as a conversion, whether that be an actual purchase/subscription or some event higher in the funnel.  

But a major drawback of using the pixel or app events as your source is that this will only capture customer information after it’s built into your site, meaning it will take some time to build an audience if you don’t already have a pixel on your site or mobile app (depending on your sales volume). So if you don’t have any history of advertising on Facebook, using the pixel or app events to build your audience might not be a viable option at first.

Seed audience Size

The next thing to think about is how large you want your seed audience to be. As mentioned before, the minimum size is 100, but you should aim for much more than that. The reason for this is that Facebook will be able to build a more similar and higher quality Lookalike audience if you feed it more data points.

However, too many data points can actually lead to pattern degradation. Facebook identifies the optimal audience size to be 10,000 – 50,000, but here at Growth Pilots we have had greater success with higher quality audiences in the 2,000-5,000 range.

Seed Audience Segmentation

You might think that you should just create a master list of all of your customer email addresses and phone numbers, use this as your seed audience and be done with it – but you’ll be leaving a lot on the table by doing so. Quality is just as important as quantity when it comes to seed audiences, and segmenting can help you achieve both higher quality audiences and greater reach.

For example, it’s common for the top 20% of a software company’s users to be responsible for 80% of total revenue. In this case it would be a good idea to create a Lookalike audience based on the top 20% of users (as opposed to creating a general audience based on all users, irrespective of their lifetime value). This will make it possible to specifically target people who look the most like top customers – people who will not only convert at higher rates, but are more likely to have high LTVs.

Segmenting by lifetime value, average order value and other indicators of customer quality is important when building seed audiences. You can allocate larger budgets and place higher bids for more valuable audiences, and proportionally less for segments that drive less revenue, which lets you optimize your cost per acquisition relative to user value.

Segmenting also allows you to have a much larger total audience reach than a single general seed audience. For example, a Lookalike audience with a seed audience of 10,000 will have a reach that is only a fraction of the size of four Lookalike audiences based on seed audiences of 2,500 (although those audiences will be somewhat less than four times as large because of audience overlap – see below for more).

Similarity vs. Reach

Once you have your seed audiences planned out, the next decision to make is whether you want to optimize for similarity or reach. Facebook allows you to choose a sliding scale of similarity from 1% to 10% when building Lookalike audiences.

Similarity vs. Reach Slider

The percentage chosen indicates the portion of Facebook users who are most similar to your seed audience, expressed as a percentage of total Facebook population (by country). A 1% Lookalike in the U.S., for example, typically has a reach of about 2 million people (20 million for a 10% Lookalike). Obviously, the lowest percentage audiences have the lowest reach, but they also have the highest degree of similarity to your seed audience.

The interesting thing about reach is that regardless of how large your seed audience is, the reach of the resulting Lookalike audience will be roughly the same size. This can mask the importance of optimizing seed audience size since a seed audience of 500 people will provide about the same reach as a seed audience of 5,000 people. However, even though the reach will be the same in both cases, the quality of the Lookalike audience will be much higher with a seed of 5,000.

Optimizing for similarity and reach takes some dialing in and you have to find the right balance for your business. When you’re mapping out your Lookalike strategy, always start with a 1% audience since it’s going to be the most relevant. Build towards higher percentage Lookalikes from there as each audience meets your efficiency goals.

Creating a Hierarchy: Nested Lookalikes

Once you have your Lookalike audiences built and you’re ready to start using them in your campaigns, you will want to make sure and exclude other Lookalike audiences so you can arrive at the marginal reach for each audience.

Because Lookalike audiences are so large, there’s a good chance that the same Facebook users will be in several different audiences, and you don’t want to unintentionally target the same user with more than one campaign or you’ll end up bidding against yourself.

Limited population makes audience overlap inevitable. This can happen when you create multiple Lookalikes from similar seed audiences. While segmenting seed audiences this way can give you greater reach than lumping them together, some of this effect will be canceled out by audience overlap, which is important to keep in mind.

You can see how much overlap exists between audiences using the Facebook Audience Overlap Tool. For example, here’s the overlap between two example audiences (1% US Lookalikes):

Lookalike Audience Overlap Tool

As you can see, about 50% of Audience 1 members are also in Audience 2.

The same idea applies when you are using incremental percentage audiences – a 2% audience also includes the people that are in the 1% audience, so make sure to exclude the 1% audience so you will get the marginal reach of the 2% audience.

While it’s common practice to tier Lookalikes on the basis of similarity, it’s also important to do so based on the quality of a source audience. We recommend establishing a hierarchy of Lookalike audience quality so that each subsequent audience after the initial audience is excluded from the ad set targeting the prior audience. This allows you to target each new audience on its own merit without competing with the audiences you know to be higher quality.

For example, if you have a Lookalike based on people who have completed registrations on your site, it’s important to exclude the Lookalike of paying customers (higher quality). That way, you can avoid competing against yourself for members of your highest quality Lookalike audiences and ensure that as you add more Lookalike audiences, all of the ad spend contributes net-new reach to your account.

A neat thing about audience exclusions is that they allow you to see how effective your seed audience segmentation was, which can give you an idea of how much opportunity there might be in further segmentation. However, it’s important to remember that at some point your new Lookalikes will start having less and less marginal reach due to audience overlap.

Summing Up

Facebook ad targeting has evolved significantly since the ad platform was introduced. While conventional performance marketing tells us it’s best to define and segment as much as possible to optimize at the most granular level, Facebook Lookalike audiences challenge that assumption.

The tradeoff is less visibility and control  for more audience relevance and scale. For performance marketers like ourselves looking to eek out every bit of efficiency this can be tough to swallow. At Growth Pilots, even while using Lookalike audiences, we still rely on segmentation to boost performance further (more to come on how to effectively combine Lookalikes with segmentation in a future post).

The overall takeaway is that Lookalike audiences are a great way to scale Facebook advertising much more efficiently and quickly than manually finding and testing various targeting combinations.