How Much Money Should You Spend On Your Facebook Ads?

The online space is dynamic, and it is difficult to predict the behaviour of this system. If Facebook had a geographic space, then it would be the most populous in the world. We are sure you get the p

The online space is dynamic, and it is difficult to predict the behaviour of this system. If Facebook had a geographic space, then it would be the most populous in the world. We are sure you get the picture.

When it comes to spending money on Facebook advertisements, many people find themselves facing a dilemma. You are probably confused as to whether it calls for minimal spending or does one need to spend big bucks? The good news is that Facebook advertising is not budget-centric. Even a sum as small as a hundred dollars can work for you. But you need to be prepared for the fact that this may not work right away and that whatever money you do decide to use for your test you might never get back.

Spend too little and you may miss the amount of revenue you need to generate, spend too much, and you might be cutting into the profit you wanted to make. It’s all about knowing your numbers and finding that ideal balance.  If the question as to how much money you need to spend towards Facebook advertising is troubling you, here are a few pointers to keep in mind.

1. Start small

It is best to start with a small testing budget, because a successful Facebook advertising campaign calls for a lot of testing before you get to see results. Starting a campaign with a big budget means that Facebook will inflate to that budget, causing you to pay more for your clicks and conversions. Once you start with a small testing budget, you can scale the spending upwards on reaching a conversion cost that works for you. The closest analogy would be to compare your spending to a tap. When you want more leads, increase the spending and when you can't take anyone else on, reduce spending. Also, the first step would be to find out the lifetime value of your client or how much a customer would be worth to you. In other words, the average amount of money a customer would typically spend with you in total.

Thus, starting small will enable you to test out the different parts of your funnel until you find something that works – and you don’t have to spend an arm and a leg to get the best results. The vital thing is that you start.

2. Determine your advertising budget

It's essential to determine the maximum amount your business can set aside towards advertising. This is important because advertising strategy varies depending on the budget. A thousand-dollar ad strategy will be greatly different from a ten thousand dollar one. So, the first step is to understand the figures connected to the marketing and sales of your business.

It's obvious that anyone running Faacebook ads wants to make money. This implies that they have their goal set on getting leads and making sales. By and large, a business usually spends 5-12% of its revenue on marketing. In the case of startups, the proportion might be closer to 12%, in keeping with their desire for rapid growth. But in the case of companies that have been established for a while and have good revenue coming in, the budget might be closer to 5% just for maintenance or incremental growth. The following are the numbers that need to be kept in mind:

a. Cost per core event

This is the most essential number to focus on. If your business cannot proceed to a sale before conversation, make an estimate as to how much you can profitably afford to spend on that event. When you start advertising on Facebook, you might find a discrepancy between the lowest cost per lead ad campaign and the lowest cost per event. So, if you sell a low-cost product or service, you need to estimate the maximum amount you can spend to remain profitable. On the other hand, if you are selling a high-price item, you will have some elbow room, so long as the conversion rates are good.

b. Cost per lead

It is important to figure out an appropriate cost per lead for your business. Even though a lead is not a sale, it is important to get a lead before making a sale. This is a great option to choose to get more traffic to your site or landing page.

c. Cost per customer acquisition

What can be considered a strong cost per customer acquisition for your business? What did it cost you to acquire this new customer? These are some questions to which the answers vary depending on the nature of the business. If you are dealing with various products and services, your cost per customer acquisition may vary for different products and services.

d. Conversion rate

Irrespective of whether you have a sales team or are selling something directly online, it is useful to determine how many leads you need to get on the phone or get an appointment to make the sale. If your business has an overall marketing budget, it is highly recommended that you set aside a fraction of that for Facebook ads. It also helps to have a flexible budget. For instance, a good Facebook ad campaign is bound to see the profits coming in. In such a case, you might not want to restrict the amount being spent on advertising.

3. Distribution of Facebook ad spend

After deciding the monthly amount to be spent on advertising, the next step is to systematically distribute it based on the type of Facebook ads you need to run to get results. These can be divided into three categories. Very often, business owners focus only on lead generation focused ads or content focused ads. Eventually, both are needed to succeed.

So, twenty percent of your Facebook ad budget should be dedicated to engagement, education, and audience building. That twenty percent is essential to create an audience you can leverage long term in order to prevent your results from either drying up or skyrocketing in terms of cost.

Next, approximately sixty percent of your budget should directly target offer promotion and generation of those conversions.

The last twenty percent can be allocated for retargeting efforts, that is, making your money work for you.

However, if that is all you focus on, you run the risk of having an audience so small that the financial results are bound to be practically nil. For a Facebook ad to work and produce maximum output, all these components need to come together in a cohesive manner.

Many businesses become frustrated with the lackluster results they see. They are sometimes unsure if the money is being spent by the ad agency in an effective manner. Unfortunately, it is quite common for agencies to mishandle Facebook ad spend budgets.

Usually, the problem is because Facebook advertising is still relatively new and though people may claim to be experts, they are not really so. Moreover, many of the agencies that know how to channel some amount of profit, don't have the requisite level of knowledge to maximize the spend every campaign. The key to the problem lies in recognizing the fact that Facebook is a data powerhouse. People need to understand that Facebook ads are also all about data, specifically their data as a business.

An agency handling Facebook ads for a client needs to have the following questions answered:

  • What are the goals the company hopes to achieve with its Facebook ad campaign?

  • Are these goals realistic?

  • Does the client have the required budget?

  • Is the client aware of the overall revenue target and the average order value?

  • What is the conversion rate of the website?

The answers to these questions can be found with the help of the e-commerce Facebook ad calculator. The calculator can tell you exactly how much you need to spend in order to see profitable returns, so if you are an e-commerce company, you will be able to look in Google analytics for example and understand a site's conversion rate. If it is not at 2% or better, you need to check your all conversion rate optimization and figure out what is going on with your site. This in turn will tell you what exactly your cost per sale should be.

Problems usually arise when clients pick numbers out of the sky instead of relying on actual data. Though there is no harm in spending larger amounts of money, it would be wise to have a strategy and scale up accordingly.

To get the bang for your buck, it is important to avoid certain mistakes that most local or online business owners tend to make when it comes to their Facebook advertising campaigns:

i. Limited spending

If you want to see results in terms of cost per lead, you need to comprehend that audience size and product cost is the ultimate determining factors. If the money you spend per month is insufficient, Facebook will spread that meager budget so thinly that you may end up not being able to generate even a single lead per day. If on the other hand, you boost your budget, you could witness terrific results.

ii. Time

Time is essential not just to get initial data but also to analyze the import of that data and make the necessary tweaks. What else would be useful is going back and revisiting that customer buying cycle and the time duration it takes to traverse from an initial lead to a sale. So, it would be a mistake to not give your ad campaign enough time. If your business is one that has a very short buying cycle, you can track data faster and adjust your budget based on it. If an average customer takes six months to close, you need to give it at least six months in order to see the returns on the money spent on advertising.

iii. Misreading data

One of the biggest Facebook ad mistakes is misinterpreting the data in the ads manager. However, you can select the customize columns option in ads manager to rearrange and organize the columns you see in your reporting. This helps you add or remove pieces of data so that your report shows only the vitally important information needed to make decisions. Now you are in a better position to see which campaigns are producing leads, scheduled appointments, scheduled calls, and which are not.

Also, read the comments that people leave on your ads to see what people are saying about it. If there are no comments, in most cases, that’s an indication that people were not very interested. That goes for the ad’s relevance score and interaction rate as well. So, if your failed campaign had little to no social interaction that in itself is telling and a good indication of what may have gone wrong. At the end of the day, if you do this long enough you are going to win some and lose some and you will begin to intuitively get a feel for what works and what does not. So, use the advice we have given you here to test smarter. Be willing to take the time to understand your failures and you will do well.

iv. The wrong choice of campaign type

Many businesses choose the wrong types of campaigns and objectives. The ultimate aim is to correlate to the three types of ads mentioned earlier but if leads are what you are looking for, don't focus only on a brand awareness objective or reach. You must make sure that Facebook is being told exactly what you want to see so that they can help you achieve those goals.

The above-mentioned steps will help in determining the right Facebook advertising budget for your business. What is especially important is to comprehend industry data, your goals and numbers, and your own personal business conversion data. Follow this up by planning how to distribute that budget among us ads for promoting your offer, building your audience, and retargeting.

4. Conversion rate

Before starting an ad campaign, it is important to have some notion of the number of website visits/ leads/inquiries you need in order to convert someone into a customer. The following points should be kept in mind:

  • The amount that can be spent to acquire a lead

  • The amount that can be spent to acquire a customer

  • The lifetime value of a customer

  • The average number of leads needed to make a sale

Once you have the answers, you can spend money on Facebook and decide whether or not you are profitable. If you are running losses, you can start looking at the possible reasons such as "Are enough sales being converted?" or "Are enough leads being generated?". This kind of data helps you figure out how much you have to spend in order to get returns on investment.

5. Be creative when creating ads

Being creative with FB Ads ultimately will drive down the costs of your ads. When people find certain content more relevant and engaging, the cost of getting that ad shown more times becomes less, because your ad performs so well in the marketplace. The power of creativity in each ad gives you the opportunity to spend less on every result you’re trying to get.

6. Be clear about your overall revenue target and the average order value

If you are an e-commerce company, you need to know what is the revenue you want to generate and what your average order value is because that will give you an idea of the quantity that you need to sell.

Nowadays, social media has become a significant and inescapable part of our lives. As far as businesses are concerned, social media marketing is undoubtedly an effective tool. But it can either be a game-changer or it can mess up your online reputation. Not everyone has the skill, time or expertise to manage social media posts and ensure that it conforms to brand policy and vision.

In any case no matter what happens when you are testing your campaigns, whether you find a winner or it fails, you need to remember that any time you are paying for advertising, you are always getting something in return.  

That is where we come in. Socinova's social media management services take care of all your social media advertising requirements. Our team of highly skilled professionals not only manages your ads but also creates high-quality content including videos, graphics, curated links, and such.

With an enviable 1300 plus clients worldwide and over six years of experience, we offer you not just branded graphics but also content aimed to be relevant and unique to your brand.

Get in touch with us and watch your enterprise scale new heights!