How to Calculate the Perfect Facebook Ad Budget

How To Calculate The Perfect Facebook Ad Budget

When it comes to promoting your business, one of the best methods is paid advertising. Facebook has transformed how companies, both big and small, can reach new customers. So, you need to spend money on Facebook ads to help grow your audience. 

The key question, however, is how much should you be spending? Let’s take a closer look at how to develop the perfect ad budget that converts new leads without draining your bank account. 

How Much You Should Be Spending on Facebook Ads?

In the old days, spending money on advertising was a gamble. The best option you had was to find a medium that allowed you to spread your message to as broad an audience as possible and hope that enough people were inspired to visit your business. Fortunately, you can be a lot more strategic with your marketing budget, meaning that you don’t have to waste money on ads that may or may not work. 

On average, businesses will spend between five and 12 percent of their operating budgets on marketing and advertising. If you’re spending more than that, you need to make sure that you have a substantial ROI. Otherwise, you’re putting too much money in without a guarantee of making more on the back end. 

That said, there are some instances where a higher marketing budget can be justified. Here are some examples: 

  • Well-Established Businesses – If you’ve been around for a long time and have a steady stream of customers, you can probably have a lean marketing budget. Most of your advertising will revolve around specific events (i.e., sales) or product launches. 
  • Growing Businesses – Whether you’re expanding to new markets or just increasing your customer base, you need to be more aggressive with advertising. In this case, a 12-percent budget would work well so that you can build brand awareness. 
  • New Businesses – When you’re just starting, you don’t have a steady sales history, so it’s impossible to stick within the 5-12 percent range. New businesses will spend a lot more on advertising as they try to establish themselves and build an audience. In this case, your budget could easily be 25-30 percent, depending on your sales. 

How to Establish Your Budget

Having a total dollar amount is only the first step in creating an advertising budget. Also, keep in mind that the percentages we discussed above were for whole marketing efforts, not just Facebook. To ensure that you get the best ROI, you need to break your budget down into various categories, such as: 

Cost Per Lead 

A lead isn’t a customer yet, but they should be interested in what you have to offer. The trick is to find qualified leads, meaning those who are most likely to buy. This way, you can have a much better return on each lead. 

Cost Per Customer

Once a lead turns into a customer, you need to retroactively determine the price to get that person to buy. How many interactions did it take? How many labor hours? 

Cost Per Core Event

Some businesses need to nurture their leads before they’re ready to buy. Core events allow you to convert more leads into customers by providing extra information or an irresistible deal. You need to know how much each core event cost you so that you can determine whether it was worth

Conversion Rate

While this metric doesn’t have a cost attached to it, it helps you figure out your ROI. For example, let’s say that you spend $1 per lead and $10 per customer, with a five percent conversion rate. So, for every 100 leads ($100), five of them become customers, which costs an additional $50. So, if you spend $150 on those five customers, what are your total earnings? 

Budget Percentages

Another way to calculate your Facebook ad budget is to break it down by marketing type. On average, you should spend 20 percent on building an audience (brand awareness), 60 percent on specific deals and offers, and another 20 percent on retargeting. If you’re unfamiliar with retargeting, it’s the process of advertising to people who have already interacted with your brand, either through a site visit or abandoned shopping cart. 

How Ad Manager is Used

Once you have your budget, you need to actually use Facebook Ads Manager to deliver your message to your audience. We won’t dive too deep into this process (that’s another article), but here are some core points to remember: 

Planning

The best reason to use Facebook Ads is that you can target specific demographics based on age, location, and interests. The planning stage allows you to customize your audience for hyper-targeted advertising. 

Power Editor

Reaching users is just the first step. If you want to close more deals, you need captivating ads that convert leads to customers. The Power Editor provides plenty of tools to make that happen. 

Automated Rules

Once you get an ad campaign set up, you don’t want to have to micromanage it. Automated rules enable you to set functions so that your campaign can run on autopilot. Then, you can simply convert anyone who reaches out to your business. 

Reporting

Another significant benefit of Facebook Ads Manager is its reporting tool. Here is where you can see how well your ads are working or if you need to adjust. 

Do You Need Help with Your Facebook Ad Campaign?

Knowing how to set a Facebook ad budget and implementing it are two different things. If you need assistance in building a better Facebook marketing strategy, BizIQ is here to help. We can help you make a budget with a high ROI, and we’ll even take care of the detail work for you. Contact us today to get started!

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