Audience segmentation in paid advertising: How it works

If you're just starting out with paid advertising, you may find yourself asking: "How do I make sure I'm using my limited budget effectively?"

The answer is audience segmentation, a key strategy that gets your ads in front of the people who are most likely to engage with your business.

This blog explores the concept of audience segmentation and gives you some actionable tips on how to make it work for your small business – even when your budget is small.

What is audience segmentation in paid advertising?

Audience segmentation is the process of dividing your potential buyers into various groups based on shared attributes.

These groups – or "segments" – are subsequently targeted with ads designed specifically with their interests, demographics, behaviour or location in mind.

Imagine running a fitness studio in Exeter. Instead of advertising to all adults in the UK, you'd do better to reach residents who live locally and are interested in fitness classes.

This targeted method not only saves money but is also better at converting ad viewers into paying customers.

The main platforms like Google Ads, Facebook (Meta) Ads and LinkedIn Ads all have built-in functionality that lets you segment audiences. How effectively you use these tools will be essential to your success.

Why you should care about audience segmentation

Chances are you're a small business with a limited budget, so it's vital that you get the biggest possible return on every pound you invest. Here's why segmentation is so important:

• Stops you wasting money: Casting a wide net means you're paying for clicks from people who won't buy your product or service.

• Gets greater engagement: Meaningful messaging speaks to your audience's interests and needs – which translates to your ads performing better.

• Gives you a competitive edge: Large businesses might have greater budgets, but small businesses can level the playing field by creating hyper-relevant ads for a particular audience.

Key types of audience segmentation for paid ads

Knowing the different ways to segment your audience is the first step. Let's look at the best ways to do it:

Demographic segmentation

Segment by characteristics such as age, gender, education and income. Most ad platforms let you filter like this.

• Example: If you sell handmade jewellery, you could target women aged 25 to 45 with disposable income.

Geographic segmentation

Targets individuals based on where they are. Ideal if your small business serves a specific local area (for example, a coffee shop or dentist).

• Example: Launching a Google Ads campaign of "Best coffee shop near me" and aiming to reach users within a five-mile radius of your location.

Behavioural segmentation

Based on what people do when they're online, like their web browsing habits, purchase history or use of apps.

• Example: Retargeting users who have visited your website but didn't buy anything.

Psychographic segmentation

Highlights values, interests and lifestyles. This approach helps form deeper connections with your audience by lining up your brand values with theirs.

• Example: An eco-friendly clothing brand targeting environmentally conscious consumers.

Practical ad segmentation tips for limited budgets

You don't have to break the bank to begin using segmentation. Here's how to get the most out of your campaigns:

As always, begin small!

Start by targeting one or two primary audience segments to test effectiveness.

For example, you could set up two different campaigns – one targeting young professionals and another for parents – and then compare results.

Make use of free tools

Use findings from free tools like Google Analytics and Meta's Audience Insights to identify your most successful audience segments.

For example, you could examine website traffic data to find out who's already engaging with your business.

Test lookalike audiences

Platforms like Facebook Ads allow you to create lookalike audiences based on the people already buying from you.

These "audiences" are lists of people who share characteristics with your most valuable customers.

Focus on retargeting

Retargeting lets you re-engage people who have already demonstrated interest in your business by visiting your website or interacting with your social media pages.

For example, you could display an offer of "20% off" for visitors who abandoned their basket.

Use A/B testing

Test different ad creatives (text and images) and audience segments to determine what works best.

For example, you can post two ads with different images at the same target audience, and see which one performs better.

Common pitfalls and how to avoid them

Despite good intentions, small businesses can sometimes fall short when putting their audience segmentation in place. Look out for these potential issues:

Targeting too broadly

Trying to reach everyone will often dilute your marketing messages and waste money.

• Solution: Target only your ideal customers.

Forgetting mobile users

Many users interact with ads on mobile devices.

• Solution: Optimise landing pages and ads for mobile.

Failing to monitor performance

Launching campaigns without keeping an eye on results is a sure-fire way to squander your budget.

• Solution: Monitor metrics like click-through rates (CTR), cost-per-click (CPC) and conversions regularly. Adjust your targeting in response.

Tools that make audience targeting simpler

There's no need for targeting and segmentation to be complicated. Here are some affordable, user-friendly tools you can put to work:

• Google Ads Audience Manager: Helps identify and manage audiences based on website activity and CRM data.

• Meta Ads Manager (formerly Facebook Ads Manager): Offers advanced targeting options, including lookalike audiences and interest-based filters.

• HubSpot: Combines CRM data with ad targeting, perfect for small businesses using email marketing alongside paid ads.

• Semrush: Offers keyword research and audience insights to refine your targeting strategy.

Why audience segmentation matters

When done correctly, audience segmentation can bring about substantial benefits:

1. Bigger ROI: Using your ad budget to reach high-value segments makes conversions more likely.

2. More engaged audiences: Personalised ads get their message across more effectively, meaning higher engagement.

3. Deeper understanding of your customers: Over time, segmentation helps you learn more about your audience and their needs and interests.

As an example, a small bakery in Leeds used geographic segmentation to target people in the neighbourhood and retargeted visitors with offers. The result? More traffic and a noticeable rise in sales.

Final thoughts

Segmentation is the secret to making sure your paid ads campaigns pay out. Target the right segments using the tools and guidance outlined here, and even the smallest businesses can compete.

Start slowly, examine your results and refine your approach to make every pound count.

Relevant resources

• What is paid advertising? A brief guide

• How to set up a paid advertising campaign

• Paid ads: How to make them effective – on a budget