How To Figure Out What Your Facebook Ads Budget Should Be
Facebook ads are a fantastic way to market your products and services. Business Insider reported that Facebook gets nearly one full hour of your attention every single day. This means that no matter who your clients are, you can almost certainly get their attention on Facebook.
The range of targeting options on Facebook are endless. If you know what movies your clients like, you can reach them. If you know who your competitors are, you can reach potential clients. If you know the demographics of your client – like their age, gender, work environment, income and net worth – you can put your ads in front of them.
And that’s not to mention the vast array of retargeting and engagement options!
Relatively speaking, despite its rapid growth, Facebook ads is still an emerging platform for marketers. This means that their ads are a much less expensive way to reach your clients than other advertising methods available today.
Yet many business owners forego advertising on Facebook because it can be overwhelming and confusing. Most advertising methods allow you to see what the cost per thousand impressions (CPM) is – making comparison and buying decisions relatively simple.
The cost of your Facebook ads, however, depends on a huge number of factors including (but not limited to):
- How relevant your targeting is
- How good and persuasive your copy is
- How attention-grabbing your image is
- And how many other advertisers are competing for that space in the Newsfeed
This can make budgeting for ads more difficult.
Another thing that many business owners struggle with is how to measure their ads. With so many metrics to look at it can be easy to get lost inside the analytics. Many of my consulting clients come to me fed up with ads – thinking that advertising on Facebook can’t and won’t work for them when in reality they just don’t know what to look for.
So in this article I’m going to lay out for you the most popular type of targeting objectives and how to use them effectively. Plus I will walk you through step-by-step how to figure out what you should budget for your Facebook ads campaign.
What Should I Budget for My Facebook Ads Campaign?
Well this is a loaded question and I’m going to give you a loaded answer: it depends.
It depends on your objective. It depends on your market. It depends on your product. It depends on whether you’re looking to do a loss-leader campaign or to turn a profit directly from social (the latter being more difficult, but doable).
Let’s start off with the objective of the campaign. I’ll cover here just the most common campaign types.
Facebook Fans – Many people will tell you that you should not run a Facebook Fan objective campaign. I tend to disagree. If done well this type of campaign will bring in qualified leads who you can warm up by creating and sharing valuable content related to your niche.
Now if your page is full of ads, pictures of your product, and tutorials on how to use your product, then this is fruitless.
The point of growing your Fan base is not to reach more people organically with your content. Given Facebook’s extremely low organic reach numbers this is simply very unlikely to happen.
Instead, think of this more like a pre-qualification of a potential buyer. When someone takes the time to “Like” your page, they’re telling you that they’re potentially interested in what you have to offer, but don’t have quite enough trust in you or haven’t seen enough value from you to actually head over to your website and pull the trigger on a purchase.
As you continue to provide more value and appear in their newsfeed over time (by running ads to fans – again don’t count on this to happen organically), you will build up goodwill, trust, and value which could eventually lead to a sale.
Further, targeting fans typically results in a higher conversion rate and a lower cost per lead down the line. So the investment you make in growing your fan base now will only help to lower the cost of your fan base in the future.
As far as budget goes when starting your Facebook Fans campaign I’ll say this again: it depends.
It depends on which country you’re in. It depends on how competitive your market is in the space.
Advanced Facebook Marketer Jon Loomer suggests that you should budget $1 per fan.
Can you get Fans for less? Absolutely. In India you can often get fans for as little as a penny.
But will those fans be quality (ie – will they actually eventually buy from you)? Likely not.
So if your objective is to gather quality fans who may eventually turn into customers, budget for higher quality at about $1 per fan.
If, however, your only objective is driving up your Fan number to make it appear that you have more authority – because the majority of your advertising will be done outside of Facebook and your company is not invested in Social Media – target Third-World countries and budget around $0.10 per fan.
Website Traffic – Aside from the quality of your ad itself, the cost of driving someone to your website will be dependent on how attractive the content is and whether you’re marketing to a cold or warm fan base (if you’re unsure what that means check out this article by DigitalMarketer).
In general I recommend warming up an audience by running free content that is highly related to what you will be eventually selling to them before you ask them to click through to your website.
In addition, the website landing page itself needs to be compelling. What do they get on the other side of that click? (Remember, you’re taking them away from socializing with their friends on Facebook. It needs to be worth it).
In general, $0.10 per website click would be what I consider great and I wouldn’t pay anymore than $0.50 in most market segments.
Website Conversion (Lead) – A website conversion could be the collection of an email address or it could be collection of payment.
In general you’re going to want to funnel leads by collecting their email address through a tempting freebie before attempting to sell to a new client. Remember, they’re still learning to know, like and trust you. You wouldn’t propose marriage on the first date (or even the second or third date).
Let them get to know you first showing them how much value you have to bring to the relationship – and then you will have earned the right to ask them to open their wallet.
Now this is where things get tricky.
Inside her course Webinars That Convert, Amy Porterfield states that the average cost of an opt in conversion through Facebook Ads is around $1 to $5.
Jon Loomer suggests $1 per email conversion. On her blog, Claire Pelletreau states $2.50. Mike Dillard on a webinar stated he paid over $8 per lead and made huge profits.
The advice and range are all over the board so I can see how this can be incredibly confusing.
So what benchmark should YOU use?
Instead of concerning yourself with industry standards and opinions around what a “good” conversion cost looks like, instead let’s take a look at what numbers would be profitable for you and your individual funnel.
Do you know how much you could pay for a lead in order to make a 2X’s return from your Facebook Ads?
Do you know how much your breakeven cost per lead is?
Those are the two numbers you need to find out – then you can ignore what everyone else says that you “should” be getting.
Now you may not like this, but there’s some basic math involved. Don’t worry, I’ll try to keep it simple and straightforward 😉
The first thing is to understand how your funnel works from the time they get on your list to the time that they convert into a client.
The typical sales funnel looks something like this:
Thank You Page with Upsell or Tripwire (The Collective has a good article on Tripwires)
Email Welcome Sequence
Email Sales Sequence
Product or Service Sale
Let’s break down the steps to discovering your profit and break-even Facebook Ad metrics using this funnel (don’t be discouraged if your own funnel looks different. You’ll be able to work the numbers backwards in the same way to get to your metrics).
To work backwards from this we are going to flip the funnel on it’s head so that it looks like this:
Product or Service Sale
Email Sequences with CTA to Sales Page
Opt In with Thank-You Page
(You’ll notice that I combined steps that were similar or went together. The thank-you page and opt in are part of the same transaction. The welcome email sequence will not typically include a CTA so we can combine that with the sales sequence for the sake of simplicity).
What we need to figure out first is:
- How many people do I need to hit the email sequence in order to get one sale (sales conversion rate)
- How many people do I need to hit the opt in landing page in order to get one opt in (landing page conversion rate)
STEP 1: Figure out your sales conversion rate
If you’ve already received your first sale through your funnel then you’ll be able to measure what your actual sales conversion rate (SCR) is:
[# of sales] / [# of people on your email list] = SCR
For example, if you had 100 people in your email list which generated 4 sales:
[4 sales] / [100 email subscribers] = 0.04
Your SCR is 4%
If you have not made your first sale already then you’ll need to aim for industry standard conversion rates. This will vary depending on the price point of your product. In general, I like to use 5% for products under $150 and 2.5% for products over $150.
STEP 2: Figure out how many email opt ins you need to get one sale
Here’s the formula:
[1 sale] / SCR% = Number of subscribers
So using our 4% SCR from above we would have:
1 / 0.04 = 25 subscribers
STEP 3: Figure out your landing page conversion rate
We could stop here to figure out our breakeven costs, however I like to go a bit further so that we have a second metric to monitor and measure in case we need to make adjustments to targeting or the ad copy (which we almost certainly will).
So next we need to figure out the percentage of people who land on our opt in page and put in their email (landing page conversion rate).
Again, if you already have email opt ins you should use your own real data.
Let’s say that you had 500 people view your landing page and that 100 of them signed up.
To calculate your landing page conversion rate (LCR):
[# of people who opted in] / [# of people who viewed your landing page] = LCR
So in our example:
[100 people signed up] / [500 people viewed the landing page] = 0.20
Your LCR is 20%
Again if this is a new funnel and you don’t have data you can use an industry benchmark. 20% is a generally accepted number for landing page conversions.
STEP 4: Figure out how much traffic you need to send to your landing page in order to generate one sale
Now that we know our landing page conversion rate (LCR), we can continue working backwards to figure out how much traffic we need to send to that landing page.
Here’s the formula:
[# of opt ins needed] / [LCR] = [traffic needed to landing page]
Sticking with our example we needed 25 opt ins to generate one sale (result from step 2) and we have a 20% LCR (result from step 3):
[25 opt ins needed] / [0.20] = 125
So you’ll need to send 125 prospects to the landing page in order to generate one sale.
Step 5: Determine your breakeven Cost Per Lead and Cost Per Click
Now that we know how much traffic we need, we can figure out the cost per lead that we need to aim for in order to break even.
To calculate your breakeven cost-per-click (CPC):
[Price of your product] / [Traffic needed to landing page (from step 4)] = Breakeven CPC
Let’s say that your product or service that you sell at the end of your funnel costs $97:
[$97 product] / [125 (from step 4)] = $0.78
So you can spend up to $0.78 per click in order to make a profit
If you want to double your ad investment just divide your breakeven CPC by 2 ($0.78 / 2 = $0.39 per click to landing page).
To calculate your breakeven cost per lead (CPL):
[Price of your product] / [Number of leads required to make one sale (from step 2)] = Breakeven CPL
Plugging in our example:
[$97 product] / [25 opt ins (from step 2)] = $3.88
So you can spend up to $3.88 per opt in and be profitable
If you want to double your ad investment, just divide your breakeven CPL by 2 ($3.88 / 2 = $1.94).
STEP 6: Monitor and Optimize Your Ad
Now given your conversion rates remain stable, you’ll only need to look at your CPC and your Cost Per Lead to know whether or not your funnel will be profitable.
This method is far more effective as it allows you to plug in your actual numbers instead of generic numbers that people “think” are good. It will allow you to venture into the profitable world of Facebook marketing without fear (because you’ll know for sure whether your ads will drive profit right from day one).
Best of luck on your Facebook Ads voyage!
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