Solved: High CPM on Facebook Ads Despite Good CTR

Hi there,

Thanks for reaching out. I've had a look at the situation with your Facebook ads and I'm happy to give you some initial thoughts and guidance. It sounds frustrating, especially when you see competitors seemingly doing better for less. The good news is, the problem probably isn't what you think it is, and there's a clear path forward.

You're focused on the high CPM, but with a 5% CTR and a 0.6 ROAS, your real problem is profitability, not a single upfront metric. We need to shift your focus from the cost of impressions to the value of a customer.

We'll need to look at... why obsessing over CPM is a mistake

Alright, let's get this out of the way first. Your fixation on the $40 CPM is holding you back. I know it feels high, and it is on the higher end, but it's not the actual villain in this story. In fact, in some situations, a high CPM can be a sign you're doing something right.

Here's the brutally honest truth: you're targeting the US market, which is one of the most expensive and competative advertising landscapes on the planet. On top of that, you're in the toys niche. That's a space crowded with massive brands with colossal budgets, especially if you were running this near any major holiday. You're paying a premium because you're competing for a very valuable audience: people willing to spend money on children.

Your competitor's $18 CPM doesn't tell you the whole story. Are they getting a 5% CTR like you are? I doubt it. A lower CPM often means Facebook is showing your ad to a lower-quality audience—the people who are cheap to reach because they never click, engage, or buy anything. You're paying $40 to get in front of an audience that is clearly interested (a 5% CTR is very strong), but they aren't converting. This isn't a CPM problem; it's a conversion problem. You're bringing the right horse to water, but it's refusing to drink. Why?

Think of it this way. Your campaign objective tells Facebook's algorithm what to do. If you optimise for 'Reach', it will find you the cheapest eyeballs, the digital window shoppers. You're optimising for conversions, which is correct. So Facebook is commanded to find people inside your audience who are most likely to buy. These people are in high demand from other advertisers. Their attention is expensive. Your high CPM, paired with that high CTR, tells me the algorithm is actually finding the right type of people. The breakdown is happening after the click.

The real issue is your 0.6 ROAS. You're spending $1 and getting $0.60 back. That's the metric that's killing your business, not the CPM. We could probably find a way to halve your CPM by targeting a bunch of low-income countries, but your ROAS would likely plummet even further. The goal isn't cheaper ads; it's profitable ads. And to get there, we need to stop looking at the top of the funnel and start diagnosing the real sickness further down.

I'd say you... need to define your customer's nightmare, not their demographic

This is probably the most important part of this whole letter. Your targeting is "1 interest, 1 broad". The interest is likely something generic like "Toys". This is next to useless. Who are you actually selling to? "People who like toys" isn't an audience; it's a vague category that includes everyone from a 10-year-old kid to a nostalgic grandparent to a serious adult collector.

Forget demographics for a moment. You need to define your customer by their specific, urgent problem. What is the nightmare you're solving? Your Ideal Customer Profile (ICP) isn't a person; it's a problem state.

Let's brainstorm a few potential nightmares for a toy product:

• The "Screen-Time Guilt" Parent: This parent is horrified by the hours their kid spends on an iPad. Their nightmare is raising a child with no imagination or social skills. They feel a constant, nagging guilt. They aren't looking for just a "toy"; they're desperately searching for an engaging, educational, offline activity that will make them feel like a good parent again. They read parenting blogs, follow child psychologists on Instagram, and are probably interested in things like "Montessori", "Waldorf education", or "STEM toys".
• The "Boredom Crisis" Grandparent: This grandparent has the grandkids coming over for the weekend. Their nightmare is a house full of bored, whining children and the disappointment of not being the "fun" grandparent. They want something that will captivate the kids instantly, make them a hero, and create a happy memory. They are probably in Facebook groups for grandparents and are searching for "activities for kids".
• The "Perfect Gift" Giver: This could be an aunt, uncle, or family friend. Their nightmare is showing up to a kid's birthday party with a lame, forgettable gift that gets tossed aside. They want to give the "wow" present that makes the child's eyes light up and makes the parents say, "Wow, where did you find this?". They are looking for unique, high-quality, and impressive-looking toys.

Do you see the difference? We're not talking about age or income. We're talking about pain. Once you know whose pain you're solving, your entire ad strategy changes. Your ad copy, your creative, and especially your targeting, can now be razor-sharp.

Your job, before you spend another dollar, is to become an expert on one of these nightmares. Who are these people? What podcasts do they listen to? What parenting influencers do they follow? What other brands do they buy? Are they in the "Moms of New York" Facebook group? Do they follow 'The Dad' or 'Scary Mommy'? This intelligence is the blueprint. Targeting "Toys" is lazy and expensive. Targeting parents who follow 'Big Little Feelings' and are also interested in 'Lovevery' subscription boxes is specific and intentional.

This work is hard, but it's the foundation of every successful ad campaign I've ever run. Do this first, or you have no business running ads.

You probably should... restructure your campaigns completely

Your current structure of "1 CBO -> 1 interest, 1 broad" is too simplistic and isn't letting you learn anything. The broad ad set is likely burning money because your new pixel doesn't have enough data to work effectively. The interest ad set is too vague. We need to build a proper funnel structure.

I usually prioretise audiences in a specific order for my eCommerce clients. This ensures we're always going after the lowest-hanging fruit first, then expanding out. I remember one campaign for a subscription box client where getting this structure right led to a 1000% Return On Ad Spend. It's that powerful.

Your New Campaign Structure:

You'll have separate campaigns for each part of the funnel. Don't lump them all into one CBO just yet.

1. Top-of-Funnel (ToFu) - Prospecting Campaign:
This is for finding new customers who have never heard of you. Your objective is still conversions (e.g., Purchases). Here, we will test different ad sets against each other.

• Ad Set 1: Specific Interests. Based on your ICP nightmare work. Instead of "Toys", you test ad sets themed around things like:
  • -> Theme A (Educational): Interests in Montessori, STEM, KiwiCo, Lovevery, etc.
  • -> Theme B (Competitors): Interests in specific, direct competitor brands.
  • -> Theme C (Parenting Media): Interests in parenting blogs, magazines, influencers they follow.
  You need to get specific. Don't just target "Amazon". That includes everyone. But targeting people who are admins of a 'Retail Page' AND are interested in 'Shopify' gets you much closer to an eCommerce store owner. The same logic applies here.
• Ad Set 2: Lookalike Audiences (LALs). As soon as you have enough data (you need at least 100 people in a source audience, but more is much better), you build these. They are your most powerful tool. You would test them in this order of priority:
  1. LAL of Purchasers
  2. LAL of Initiated Checkouts
  3. LAL of Add to Carts
  4. LAL of 95% Video Viewers
  5. LAL of all Website Visitors
  Start with a 1% LAL in the US. If that works, you can test 1-3%, 3-5% etc. I've seen amazing results with LALs, as they effectively find new audiences who behave just like your best customers.

2. Middle/Bottom-of-Funnel (MoFu/BoFu) - Retargeting Campaign:
This is for people who have visited your site but didn't buy. They are warm leads. Your 0.6 ROAS tells me this is where your funnel is bleeding out. You need a dedicated campaign to bring them back.

• Ad Set 1: Website Visitors (Last 30 Days, exclude purchasers). Show them a different ad. Maybe a testimonial, user-generated content (UGC) of a kid loving the toy, or an ad that overcomes a common objection.
• Ad Set 2: Add to Cart / Initiated Checkout (Last 14 Days, exclude purchasers). These people were so close. They are your hottest audience. Hit them with an ad that reminds them what they left behind. Sometimes a small discount code ("Complete your order and get 10% off") can work wonders here. You can use Dynamic Product Ads for this.

By seperating your campaigns like this, you have full control. You can see exactly what's working and what isn't. You can allocate budget to your winning ToFu audiences and ensure you're spending enough to bring back those valuable abandoned carts. This structure provides clarity and puts you back in the driver's seat.

You'll need... a message they can't ignore

You said your ad creatives are better than your competitor's, and with a 5% CTR, they're certainly getting attention. But attention that doesn't lead to a sale is just expensive entertainment. Your messaging is likely the problem. It's probably focused on the features of the toy, not the transformation it provides for the buyer (the parent/grandparent).

We need to rewrite your ads to speak directly to the 'nightmare' we identified earlier. Let's use the Before-After-Bridge framework.

Before: Describe their current pain. The world as it is now.
After: Paint a picture of the world once they have your product.
Bridge: Introduce your product as the thing that gets them from Before to After.

Let's write an ad for the "Screen-Time Guilt" Parent:

--- Ad Copy Example ---

Headline: Finally, A Toy That Beats The iPad.

Primary Text: (Before) That feeling when you see them staring at a screen again? The guilt is real. You worry about their imagination, their development, their ability to just... play.

(After) Now, imagine them completely engrossed, building, creating, and problem-solving for hours, all on their own. Imagine the proud smile on their face when they show you what they've made. That's the peace of mind you've been looking for.

(Bridge) Our [Your Toy Name] is the bridge. It's a hands-on adventure designed by child development experts to spark curiosity and build critical skills, without a single screen in sight. Give them the gift of real play.

--- End Example ---

See how that's different? It doesn't say "Made from high-quality wood" or "Includes 52 pieces". It sells the emotional outcome. It sells them a solution to their guilt. This is what converts. You need to test different angles for different ICPs.

Also, what is your creative format? For toys, video is king. It's not even a debate. A simple, well-lit video of a child genuinely engaged and delighted with your toy will outperform a static image 9 times out of 10. It demonstrates the toy in action and proves the "After" state you're promising. Don't just tell them it's fun; show them it's fun. We launched a luxury brand and got over 10 million views on the videos; that's the kind of power well-made creative has.

We'll need to look at... the actual economics of your business

To stop you from making bad decisions based on surface-level metrics, you need to understand your numbers. The most important number you don't know right now is your allowable Cost Per Acquisition (CPA). How much can you afford to spend to get one customer and remain profitable?

The answer lies in its counterpart: Customer Lifetime Value (LTV). Even for a toy company, this is a vital calculation.

Let's do a hypothetical calculation. You need to plug in your real numbers here.

• Average Order Value (AOV): What's the average a customer spends in one purchase? Let's say it's $60.
• Gross Margin %: After the cost of the toy, shipping, packaging etc., what's your profit margin? Let's say it's 50%. So your profit per order is $30.
• Repeat Purchase Rate: What percentage of customers come back to buy another toy within, say, a year? This is key. Let's say 20% of customers buy one more time.

A simple LTV calculation would be:
LTV = (AOV * Gross Margin) * (1 + Repeat Purchase Rate)
LTV = ($60 * 0.50) * (1 + 0.20)
LTV = $30 * 1.2 = $36

In this scenerio, each new customer is worth $36 in gross margin to your business. Now you have a benchmark. A common rule of thumb is to aim for a 3:1 LTV to CPA ratio. This means you can afford to spend up to $12 to acquire a new customer ($36 / 3).

Now look at your numbers. Your CPC is $1.5. To get a $12 CPA, you'd need a conversion rate of 12.5% ($12 / $1.5). Your current conversion rate is much, much lower if your ROAS is 0.6. This math tells you exactly where to focus. Either you need to drastically improve your website's conversion rate, or you need to find a way to increase your LTV (by increasing prices, or improving your repeat purchase rate with email marketing).

This simple bit of maths changes everything. It stops you from panicking about a $40 CPM and forces you to focus on the real levers of growth: conversion rate and customer value.

You probably should... fix your offer and your website

This brings us to the final piece of the puzzle. You're getting a ton of clicks from seemingly interested people, but they are not buying. As I said before, the horse is at the water. This almost always points to one of two things: a problem with the offer, or a problem with the website experience.

The Offer: The "offer" isn't just the product. It's the entire package. Why should they buy from you, right now? Are you just selling one toy? Could you bundle it with another for a slight discount to increase AOV? Is there a first-time buyer discount? Free shipping is a powerful motivator. The "Request a Demo" button is the kiss of death in B2B, and the eCommerce equivalent is a bland, uninspired product page with no compelling reason to act now. You need to create some urgency and a clear value proposition.

The Website: I haven't seen your site, but I see the same mistakes over and over.

• -> Is it slow to load? Every second of delay kills conversions.
• -> Does it look trustworthy? Especially for a new brand selling toys, trust is everything. Do you have reviews prominently displayed? Trust badges (secure payment logos)? A clear returns policy? An 'About Us' story that connects with parents?
• -> Are your product photos high quality? Can people see the toy from all angles? Can they see its scale? Is there a video of it in action on the product page?
• -> Is your checkout process seamless? Or is it a clunky, multi-step nightmare that asks for their life story?

Your 5% CTR proves your ads are doing their job of getting people to the door. Your 0.6 ROAS proves the inside of your store is scaring them away. You need to put on your customer hat, go through the entire process from click to checkout, and be brutally honest about every single point of friction. Fix them.

I've detailed my main recommendations for you below:

As you can see, turning this around involves more than just tweaking an ad set. It's about building a proper, holistic advertising system. It's not just about setting up an ad and hoping for the best. It's about understanding your audience, optimising your targeting, creating compelling ads, and fine-tuning your landing page.

That's where professional help can make a huge difference. With years of experience and a deep understanding of this landscape, we can help you identify the best strategies to drive up your ROAS. We can provide insights that you might not have thought of and take over the implementation of this entire process for you, ensuring that every dollar you spend is working to grow your business.

If you'd like to discuss this further, we offer a free, no-obligation initial strategy session where we can dive deeper into your ad account and map out a precise plan. Let me know if that's something you'd be interested in.

Regards,

Team @ Lukas Holschuh