10 Jun How much should you spend on Facebook Ads
When you first think about venturing into Facebook Advertising, the first question on your mind is ‘How much do I need to spend?’.
And regardless of your budget, business size or industry we all want to know if its going to be worthwhile investing in Facebook Ads.
For years I’ve pondered this question and tested different answers to see what best answered this elusive question. But until recently, I discovered that I was thinking about it all wrong.
While there are some benchmarks for some industries and I’ve worked with enough people to know the tipping point of how much to spend to get results, the fact remains that everyone wants a response that is applicable to their particular business. And rightly so, if you’re going to take the leap in to Facebook Ads you need to do it properly but be educated on how much it is going to cost you.
To help best answer this question I like to think backwards from the end result and come up with a more accurate answer.
This requires you to know your numbers (like you would expect us to) and doing this exercise is actually a great way to set some realistic goals.
While the figures can be approximate, its good to know what you need to adjust to hit your goals and to save money on Facebook Ads.
These are the 4 figures we need and we discuss how to find each of them:
- How much do you want to make from Facebook Ads?
- How much is your product?
- What is your average conversion rate?
- How much are you willing to spend to have the opportunity to convert someone?
1.How much do you want to make from Facebook Ads?
Overall, how much (in a dollar amount) are you looking to make from Facebook Ads after 1 year. So, what is the total amount you want to have sold as a result from your Facebook Ads. This is before any profit margins. Keep in mind that this is what you want to make JUST from your Facebook Ads, not your overall sales made from direct purchases or other mediums.
If you have existing data on your sales results you can help determine this number more specifically. If you have ecommerce conversions tracked in Google Analytics, you can track them from
Acquisition > All Traffic > Source/Medium > Filter results by searching for ‘Facebook’
2. How much is your product?
If you have more than one or have multiple products as part of an online store, you can take the average product price or more accurately the average order value (AOV).
Sometimes, your product price can vary greatly and is dynamic – particularly in service based businesses. The best option here is to try find the happy medium of an approximate price per client and to work out how many clients are ideal for you each month to hit your sales goals.
For recurring products such as memberships don’t forget to work out how much that client is worth to you each year if they were to remain a client (of course they are) as that’s the true measure of the results from Facebook Ads since you don’t have to convert them each month.
3. What is your average conversion rate?
This number can vary greatly and will play one of the biggest roles in determining how much you need to spend on Facebook Advertising.
It will also depend at what stage of the sales funnel that person is as to how likely they are to convert.
For instance, if they have seen a number of your ads, content, have signed up to your email list and are now requesting a time to discuss further – chances are they’re more likely to convert than someone than has come across your business for the first time.
Your business model and product price will also play a role in your overall conversion rates.
If you currently have an ecommerce presence, you can find your conversion rate in Google Analytics by going to Conversions > ECommerce > Overview and viewing the average conversion percentage.
If you don’t know your existing conversion rate or have a new business, then below are some guides for different industries that will help BUT please take these as guides only and be mindful that data can change dramatically and quickly:
4. How much are you willing to spend to have the opportunity to convert someone?
After all is said and done, you need to work out how much of your margin you’re willing to forego to have the opportunity to convert someone.
The larger the price of the product, the more you will need to pay to have that opportunity (because it’s a bigger decision to buy).
The cost per click (CPC) is again, something that can vary across industry.
To come up with the final number, I use the formula above.
For instance, if I had a retail product priced at approximately $80 and for the year I wanted to make $50,000. Using the recommendations based in the Facebook Advertising Benchmarks, I would calculate the formula as follows:
- Total I want to make = $50,000
- $50,000 divided by average product price of $80 = 625 Sales Required
- 625 Sales multiplied by an average conversion rate of 3.26% = 20,375 people needed to reach via Facebook Ads.
- 20,375 people multiplied by Average Cost Per Click of $0.70 = $14,262.50 Spend Required on Facebook Ads Annually
Now you have a formula to better estimate how much you need to spend on your Facebook Advertising, it’s time to put the formula to the test. Leave any questions in the comments if you need help calculating the formula.