Let’s talk numbers. When it comes to deciding how much of your advertising budget should go to Facebook ads, we refuse to give you general advice.
We don’t want to tell you that 5% of your budget needs to be allocated to Zuckerberg’s pocket.
What you give Zuck depends on what you can afford and what your business goals are. That’s where the numbers will come in.
We’re going to take you through marketing formulas that will tell you personally how much money you should spend on Facebook ads. These are the same formulas you can use when your Facebook advertising budget is $100 per week to when you grow to spend $10,000+ per week (don’t you dare let imposter syndrome tell you that you can’t!).
It’s all in the numbers, and we’re going to show you which numbers below.
Marketing Formulas to Figure Out Your Facebook Ad Budget
Your Facebook ad budget isn’t a number you pull out of the sky after a deep meditation session of Wim Hof breathwork. It’s a number that comes from turning the logical side of your brain on and working through the data.
We don’t want to go full math teacher on you here, but getting your calculator ready is a pretty good idea.
Here are the formulas you’ll use to figure out how much you can afford to spend on Facebook ads depending on how much your products cost. Once we’ve gone through these formulas, we’ll walk you through an example so you can see them in action.
The first formula will be your return on ad spend (ROAS). Your return on ad spend tells you how much you make per $1 spent on ads.
To figure out your Return on Ad Spend (ROAS):
Return on Ad Spend = Revenue / Spend
For example, if you spent $250 on ads and made $1,000 in revenue you’d have a $4 return on ad spend for every $1 you put into Facebook ads.
The second formula is your return on investment (ROI). Your ROI is how much you made after you take away all of the money invested in advertising. Unlike ROAS, it’s not telling you how much you make per dollar spent on Facebook. It’s telling you how much you’re making after you take away all the costs of advertising.
To figure out your Return on Investment (ROI):
ROI = [(Revenue – Advertising Costs) / Advertising Costs] x 100
For example, let’s say you spent $500 on Facebook ads and made $3,000. But, you had to hire a paid ads expert who charged you $1,000 and had you purchase a $50 SaaS tool for analytics. Your ROI would be ($3,000 – $1,550) divided by $1,550. To turn that into a percentage you multiply by 100 and get a 93.55% ROI.
We’ll focus on these formulas for now to give you an idea of what you can afford to spend on your Facebook ads. But, once you start setting ads live you’ll also want to figure out your:
- Cost Per Lead (CPL)
- Cost Per Click (CPC)
- Customer Lifetime Value (CLV)
These formulas will give you information on specific ads to let you know how well each is performing in the grand scheme of your Facebook marketing strategy. Depending on how well each ad or ad set is doing, you can put more dollars behind them if they’re working well or turn them off if they’re too expensive.
How These Formulas Look in Real Life
Remember sitting in geometry class wondering when you were going to use these formulas in the real world? This isn’t going to be like geometry class.
We want to show you exactly what these formulas will look like when you implement them to figure out what your Facebook ad budget is.
Time to open the calculator app.
What we’re looking for is how much your spend and advertising costs will be to meet your ROAS and ROI goals. Those goals are totally dependent on:
- How much profit your business is bringing in
- How much you’re selling your product for
- How much your product costs to make or maintain
For example, if you’re a brand new startup with a small marketing budget, you need your ROAS and ROI to be pretty high. You need that profit to help your business find momentum. But, if you’re an established business, you can handle a lower ROAS and ROI in return for more leads that *could* turn into customers in the future.
Let’s say you sell a $100 online course and you want it to bring in at least $10,000/month from Facebook to make it worth your time. The average ROAS on Facebook varies. Just to estimate how much money you can put into the platform, let’s say it’s 6-10x. Your goal is to catch the higher end and get a 10x ROAS.
To figure out how much you can spend on ads, you’ll use the ROAS formula but look for the “Spend” variable:
Return on Ad Spend = Revenue / Spend
Your formula will look like this:
10 = $10,000 / Spend
And we’ll do the math to find that you need to spend $1,000 to make $10,000 from Facebook ads.
How does that work for your business?
You’re going to do the same thing with your ROI. Take a look at the numbers to figure out how much of an ROI you need back from your ad spend. You can do the math to find your maximum advertising costs to succeed on the platform.
Check out these Facebook ad benchmarks to get an idea for your ROI depending on your industry.
Don’t Give All Your Money To Facebook
Facebook ads are part of your marketing strategy. They’re not the whole thing. Just like any new part of your strategy, you want to test it before you go all in.
That’s where ROAS and ROI come in. With these formulas, you can figure out what you need from Facebook to make it a worthy investment. Then, you can test it out with a smaller budget while you figure out what ad copy and offers work best while building out your audience.
Since Facebook ads have a learning phase for every new ad account, Facebook suggests only using 20% of what you plan to spend on Facebook ads during this phase. If you figure out from your ROAS and ROI that you can test out spending $1,000 per week on Facebook ads, you’ll only allocate $200 during Facebook’s test phase.
Your goal during this learning phase is to get 50 optimization events in 7 days. Once you’ve achieved that, you’ll move out of the learning phase and can allocate the full 100% you set aside for Facebook ads.
And, of course, you’ll continue to implement your marketing budget toward your content marketing, social media, search, and email strategies.
Marketing is all about what’s working best for your business based on which online and offline platforms your customer avatar is on.
→ Test your budget per each marketing channel.
→ Test your budget for each ad.
→ Test your budget for each offer.
And keep testing.
The post How Much of Your Advertising Budget Should Go to Facebook Ads? appeared first on DigitalMarketer.