Lookalike Audiences: What They Are and How to Build Them

Think of your ideal customer. It’s that person who perfectly aligns with your brand, values, and offerings. It’s the one who has not only a genuine need for your product but the means and the willingness to purchase it. And you have a thorough understanding of their interests, behaviors, and pain points — a crucial component of success.

Now imagine you had a way to build a pool of similar customers based on that ideal customer. Each of them would have the same characteristics, preferences, and purchasing behaviors as your ideal customer. With a clear understanding of their needs, you could easily tailor your messaging and marketing campaigns to resonate with them perfectly.

The customer database created through this marketing technology is known as a lookalike audience — a group of people who share similar characteristics to your ideal customer.

Let’s discover how using lookalike audiences can be a cost-effective way to find potential targets and expand your customer base by capitalizing on the customer data that’s already right at your fingertips.

What you’ll learn:

• What are lookalike audiences?
• Why are lookalike audiences important for marketers?
• How do I create lookalike audiences?
• How do lookalike audiences work in social media?
• How do I guarantee the best results from my lookalike audiences?

Using a lookalike audience is a powerful targeting technique that helps you reach new customers whose behaviors and traits reflect those of your existing customer base. The method uses advanced algorithms and machine learning to analyze the data of your current customers — their demographics, interests, and behaviors — and creates an audience that mirrors them. By identifying and focusing on consumers who are more likely to be interested in your product or service, using a lookalike audience increases the likelihood of conversion.

An important factor to consider when you create your lookalike audience is the percentage, which indicates how closely you want your lookalike audience (the new audience) to match your source audience (your current customers that you use for comparison). In general, a smaller percentage means the lookalike audience will closely match your source audience, while a larger percentage results in a broader lookalike audience. Let’s compare examples and explore the pros and cons.

A 1% lookalike audience typically comprises the top 1% of individuals who closely match the source audience's profile. Targeting this 1% lookalike audience allows businesses to reach a highly relevant and responsive group of potential customers.

Pros: A higher level of similarity to the source audience, resulting in a more targeted and precise audience selection. This increases the odds of reaching individuals who are likely to be interested in your products or services, leading to higher conversion rates and better return on investment (ROI). It also allows for more personalized and tailored marketing campaigns, for improved engagement and customer satisfaction.

Cons: a smaller pool of potential customers, which may limit your marketing campaign’s reach and scalability. This can be a disadvantage if you’re looking to expand your customer base or increase brand awareness on a larger scale. Plus, it could result in higher competition and potentially higher advertising costs, because other businesses may be targeting the same audience segment.

To illustrate using a 1% lookalike audience, let’s imagine a clothing retailer that wants to expand its customer base. By analyzing the traits and behaviors of its existing customers, the retailer creates a 1% lookalike audience that closely resembles its most valuable customers. It then targets this audience with personalized marketing campaigns, showcasing relevant products and offers. This approach increases the chances of acquiring new customers who are highly likely to be interested in the retailer's clothing, leading to improved conversion rates and business growth.

A 10% lookalike audience represents the top 10% of individuals who closely match the source audience's profile. Targeting this 10% lookalike audience allows businesses to reach a broader group of potential customers compared to a 1% lookalike audience.

Pros: A larger pool of potential customers, allowing for broader reach and scalability of marketing campaigns. This can be an advantage if you’re aiming to expand your customer base and increase brand awareness. It can capture a diverse set of potential customers and increase the chances of reaching potential customers.

Cons: A lower level of similarity to the source audience, which may result in less precise audience selection. This can lead to lower conversion rates and potentially lower ROI. It can also mean wasted advertising spend by allocating resources to individuals who are less likely to be interested in your offerings.

Here's an example of a 10% lookalike audience in practice. A company that offers solar panel installation uses data such as location, household income, and environmental interests to create a 10% lookalike audience. The company can then target this lookalike audience with tailored marketing campaigns, promoting the benefits of solar energy, cost savings, and environmental sustainability. They increase brand awareness and generate qualified leads in a market that may not have been traditionally associated with adopting solar energy.

There are many ways using a lookalike audience can help make your business more successful.

• It helps you expand your reach by targeting individuals who share similar characteristics to your existing customer base and so are more likely to be interested in your products or services.
• It can lead to higher conversion rates, as a lookalike audience is more likely to have similar preferences and behaviors.
• It’s cost-effective, because it focuses your resources on individuals who are more likely to convert instead of wasting it on less relevant audiences.
• It’s a scalable solution if your objective is to expand your customer base, because it lets you quickly identify and target new potential customers.
• It increases brand awareness among a wider audience, which can improve brand recognition and loyalty.
• It enhances engagement and response rates by helping you personalize your campaigns to resonate with the specific characteristics and preferences of the target audience.

What would success look like using a lookalike audience? Let’s consider examples of two companies — one that used a 1% lookalike audience and the other that opted for 10%.

A Home Away (AHA), a global online marketplace for lodging and vacation rentals, faced the challenge of expanding its user base and attracting new hosts in various cities around the world. The company created a 1% lookalike audience by analyzing the data of their top-performing hosts, considering factors such as location, property type, and responsiveness of the host. The result was a significant increase in the number of hosts joining their platform in various cities worldwide. The 1% lookalike audience strategy allowed them to tap into untapped markets and attract hosts who were a great fit for their platform.

Myou-zic, a music streaming platform, used a 10% lookalike audience to expand its user base and increase engagement among its existing users. Myou-zic analyzed data such as listening habits, genre preferences, and user engagement. They were then able to target their lookalike audience with personalized recommendations, curated playlists, and exclusive content. By using this highly personalized approach, they significantly improved acquisition and engagement, as evidenced by metrics around subscription rates, user retention, and length of listening sessions.

Interested in creating a lookalike audience for your business? Here’s how to get started, step by step.

1. Define your source audience: Consider demographics, interests, behaviors, and other relevant factors that define your target audience. (More on that below.)
2. Gather and prepare your source audience data: Collect data from your existing customer base, website visitors, or other sources. Ensure the data is accurate, is up-to-date, and complies with privacy regulations.
3. Choose a platform: Select a marketing platform that offers lookalike audience creation capabilities. Popular platforms include Facebook, Instagram, Google Ads, and LinkedIn.
4. Upload your source audience data: Import your source audience data into the chosen platform by uploading customer lists, installing tracking pixels, or integrating with your customer relationship management (CRM) system.
5. Set the audience size: Use the percentage model provided by the platform. Remember — a smaller percentage creates a more precise match, while a larger percentage expands the reach but may include less similarity.
6. Create the lookalike audience: Using the platform's tools, specify the source audience you uploaded and select additional targeting parameters, such as location or interests.
7. Refine and optimize: Analyze key metrics like engagement, conversion rates, and ROI; then revise accordingly.

Selecting your source audience is an important first step. These best practices can help ensure that your lookalike audience gives you the best results possible.

• Use a high-quality source audience, ensuring that it’s large enough to provide meaningful data but not too broad that it dilutes the relevance.
• Segment your source audience based on specific criteria like demographics, purchase behavior, and engagement level. This allows you to create more-targeted lookalike audiences and tailor your marketing messages accordingly.
• Use recent and relevant data. Regularly refresh your source audience by removing inactive or outdated contacts and adding new ones. This helps maintain the accuracy and effectiveness of your lookalike audiences.
• Test different source audiences to find the ones that yield the best outcomes. Experiment with various segments, customer types, or engagement levels to identify the most effective source audience for your specific marketing goals.
• Monitor and optimize performance by tracking key metrics like click-through rates, conversion rates, and return on ad spend. Identify underperforming audiences and make adjustments, such as refining your targeting parameters or updating your source audience.
• Combine lookalike audiences with other targeting methods: Consider combining lookalike audiences with other targeting methods, such as interest-based targeting or demographic targeting. This can help refine your audience even further and increase the relevance of your marketing campaigns. (See more about this technique below.)
• Test different percentage models: Start with a smaller percentage (1% is ideal) for a more precise match, and gradually increase the percentage to expand your reach while maintaining relevance.

By following these steps and aligning with best practices, you can get the most value from your lookalike audiences, leading to more effective marketing campaigns and better results for your business.

Lookalike audiences can be a powerful marketing tool, but there are some concerns and limitations to keep in mind to mitigate any potential risks on different social media platforms.

• Facebook: On this platform, be aware of the potential for audience overlap. If multiple lookalike audiences are created without careful audience exclusion, it can lead to ad fatigue and wasted ad spend as the same users may be targeted repeatedly.
• LinkedIn: Compared to platforms like Facebook, LinkedIn may have less user data available, which can make it challenging to create precise lookalike audiences.
• Instagram: There’s a potential for mismatch between the platform's visual-centric nature and the targeting precision of lookalike audiences. The audience may share similarities with your existing customers, but their visual preferences and engagement behavior on Instagram may differ.
• Twitter/X: Compared to other platforms, this one may have fewer data points to create accurate lookalike audiences, potentially leading to less precise targeting and poorer campaign performance.

It’s important to have an awareness of these caveats and carefully evaluate the suitability of lookalike audiences on each platform, keeping in mind factors like data availability, audience overlap, and platform-specific dynamics.

Lookalike audiences can be highly effective when they’re combined with other targeting methods, working as a force multiplier to enhance the precision and reach of your campaigns. By layering additional targeting options on top of lookalike audiences, you can refine your audience and maximize the impact of your marketing efforts. One way to accomplish this is by combining lookalike audiences with demographic targeting. Try narrowing down your lookalike audience based on specific demographic characteristics (such as age, gender, location, and income level) to reach the most relevant subset of potential customers.

Another example is interest-based targeting. By identifying the interests and preferences of your existing customers and creating a lookalike audience based on those traits, you can then layer interest-based targeting to narrow down your audience. This combination allows you to reach potential customers who not only share similarities with your existing customers but also have demonstrated interest in related topics or products, which increases the likelihood of engagement and conversion.

Using behavioral targeting can also be a powerful approach. By leveraging data on user behavior, such as past purchases, website visits, or app usage, you can create a lookalike audience that mirrors the behaviors of your most valuable customers.

To measure and analyze the performance of your lookalike audience, start by defining key performance indicators (KPIs) that align with your campaign objectives. These KPIs should be specific, measurable, and relevant to your marketing goals. For example, if your objective is to drive conversions, relevant KPIs could include conversion rate, cost per acquisition (CPA), or return on ad spend (ROAS).

Once the KPIs are established, you can use analytics tools provided by social media platforms or third-party solutions to monitor and analyze performance. These tools provide information on impressions, engagement, conversions, and other relevant metrics so you can see which lookalike audiences are driving the highest conversion rates or generating the most engagement. Allocate more budget toward the most successful segments and tailor your messaging to resonate with them.

You can also use your KPIs to understand why other segments aren’t performing as well. Then continuously iterate and test your marketing campaigns based on the insights you gain from that analysis. Experiment with different variations of your targeting, messaging, and creative elements to find the most effective combination. Remember to review and update your KPIs regularly to make sure they remain aligned with your campaign objectives as your goals evolve.

Marketing Cloud offers a unique suite of features and capabilities that can help make that iterative process easier. With a centralized dashboard that consolidates data from various channels, it enables you to easily monitor key metrics such as conversion rates, click-through rates (CTR), and ROI all in one place, and in real time.

Then, with Marketing Cloud’s advanced segmentation capabilities, you can segment your lookalike audiences based on KPI performance, and the platform's automation features redirect your resources toward the high-performing segments. Plus, Marketing Cloud's A/B testing capabilities allow you to experiment with variations of your campaigns so you can identify the most effective strategies based on KPI analysis.

As privacy regulations continue to place more and more limitations on tracking and targeting, relying on first-party data becomes increasingly important. But using a lookalike audience can help you address that by analyzing the patterns and traits in your existing customer data to find new potential customers. This approach can also be a scalable solution by offering an alternative that lets you still reach a wider audience while you remain in compliance with regulations and avoid subjecting your company to unnecessary risk.

Using lookalike audiences can continue to play a crucial role in helping you adapt and thrive in a privacy-conscious environment as the marketing landscape evolves.